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As you may know, I recently published a blog post sharing my recent success on Amazon.
Today, Perrin and I sit down and have a more in-depth discussion on the subject. The overall content is very similar to my last blog post where I share the fact that my new Amazon FBA business just clocked in at $40,639 in sales.
However, with the podcast we are able to cover quite a bit more ground as we discuss the different nuances of what has gone well and what we can do to grow this business.
Specifically in the podcast today we cover:
- The revenue and profits of my FBA business
- Profit margins for each product
- Growth potential (increase sales of existing products, sell new products)
- My expectations for a big holiday season
- New products in the works
- Inventory management and problems keeping stock
- Lessons learned
- Amazon keywords
- Our website related to our Amazon products
- Plans going forward
Overall, I hope you'll have a chance to listen to the podcast!
As always, feel free to continue the discussion below in the comments.
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39 Comments
Conversation
Hey Spencer,
I ‘ve got one question left from the previous FBA podcast:
is the 46% margin of product1 before or after Sales Tax?
After Sales Tax:
20$ (Amazon price)
– 1,5$ (7.5% Sales Tax)
– 4$ (manufacturer product price)
– 2$ (shipping to Amazon)
– 3$ (15% Amazon fee)
– 2,6$ (FBA fee)
________
6,9$ Profit => 34,5%
Before Sales Tax:
20$ (Amazon price)
– 4$ (manufacturer product price)
– 2$ (shipping to Amazon)
– 3$ (15% Amazon fee)
– 2,6$ (FBA fee)
________
8,4$ Profit => 42’5%
Is this the math you’re using to calculate margins?
Thanks!
Customers pay the sales tax, so your margin will be exactly the same whether or not you are charging sales tax. So, in your example the sales price is $20…but if you charge sales tax, the customer pays $21.50. You as the business owner then pay $1.50 to the state. So, the margin is exactly the same.
Listed prices on Amazon always have sales tax included, for this reason you have to subtract it to calculate the real margins (because is money for the state not for the seller as you said).
In my examples the sales tax is included in both cases. In the first case we have subtracted 1,5$ (7,5% sales tax) and we have a 34,5% margin (this is the REAL margin).In the second case we don’t subtract sales tax, for this reason we have an higher 42,5$ margin (NOT real margin).
The question is, in the margin percentages you’re sharing do you subtract sales tax?
Thanks!
Listed prices on Amazon do not always have sales tax included. For items not sold by Amazon (in the case, items sold by a private label brand) will not charge sales tax unless the seller adjusts the settings in their account to charge sales tax for specific states.
Dani:
We may just not be communicating properly. The margins I’m talking about are after sales tax. What I was getting at with my previous comment is that I think your calculation for sales tax is incorrect.
For example, look at this screenshot: http://screencast.com/t/ggc1LilWB . The list price on Amazon is $86.96. However, the customer also pays sales tax of $7.48 (and a $1 regulatory fee), so the customer pays a total of $95.44.
So, in your examples, you forgot to add the sales tax to the total revenue. Here’s what it would look like:
After Sales Tax:
20$ (Amazon price)
+1.5$ (7.5% Sales Tax charged to customer)
=$21.5 total revenue to seller
– 1.5$ (7.5% Sales Tax paid to state by seller)
– 4$ (manufacturer product price)
– 2$ (shipping to Amazon)
– 3$ (15% Amazon fee)
– 2.6$ (FBA fee)
________
8.4$ Profit => 42.5%
Make sense?
Absolutelly, amazing margins… Thanks!
Hi Spencer and Perrin,
Congratulations on the FBA business and thanks so much for sharing your results. My business has gone through eight very busy Christmas seasons on Amazon as a seller (and vendor last year). We have data that shows how our business spikes during that time. It’s been very consistent and helps us predict our year over year increases and plan for the increased inventory and staffing needs during that time. I’d be happy to send that over to you as a thank you for sharing your business insights if you’re interested.
Kind regards,
Heather
I would LOVE to see any data that you are willing to share. Thanks! Feel free to use my contact form to get in touch.
Just sent you a message through your contact form. Glad we can connect and I hope it can be useful.
Hey Spencer,
In the podcast you mention that you tried pure private labelling with a product that has like 20 competitors selling the exact same product. You say its still profitable,…. i’m wondering, did you have to beat them review wise to make it profitable or are you selling even though you might have less reviews/rating? Because of different keywords your targeting perhaps…?
I have less reviews and ratings than most of the listings. I’m still not one of the top sellers; I’m just middle of the pack. But I’ve done well enough with keywords, and some reviews to get me ahead of the weaker listings.
Hey Spencer,
Do you have any plans to launch a new product and to reveal it to your readers? A complete step by step guide on rank it, keywords you picked, etc?
Spencer, I have a problem. Your podcasts have become an addiction! 😉
I want you to know I really enjoy listening to and taking notes to your podcasts, they are a wealth of information and will save any listener so much time in the future.
Congratulations on doing your first marathon! I have ran a few half marathons, full marathons and am now getting into Ultra Marathons! I just finished my 3rd 50k just a couple of weekends ago. If you’ve been training the way you say you have then you should have no problem. My advice? Don’t worry about your overall time, just go out and enjoy it with the goal of finishing. After you do a few more (and I’m guessing you will – because running, like your podcast, is an addiction) you can worry about coming in first place. 😉
Thanks Shannon…glad you enjoy the podcast! I hope to keep feeding your addiction 🙂
I probably didn’t explain well on the podcast, but I’ve actually run 5 total marathons now. The one from last weekend was just my first one in 2 years. I don’t think I’ll ever start ultras…my older brother has done a few 100 milers, but I don’t think it’s for me!
For the record, I got a 3:31:56 (a PR, just barely, for me). I mention it on the podcast that comes out next week…but now you know!
Hey Spencer & Perrin –
Thanks for continually talking about this. Much like 2 years ago when you kicked me into gear for starting a niche site, you’ve done it again and I’ve picked a product to start selling on amazon. I have a question about how you get your changes to the product to the supplier.
For instance, lets say that I want to produce a backpack, but with a sturdier zipper and better padding on the straps. How would you communicate this to your manufacturer? I’ve already got a product (and future products) selected and a manufacturer selected, but I’m trying to figure out how to communicate my needs to the manufacturer. Did you send drawings? I’ve heard of people doing video as well. I feel like text COULD work, but would require a few more iterations that would eat up time (and $$)
Hey Jeff…glad it’s kicking you into gear! I hope it jump starts a successful business for you.
It depends on how drastic the changes are. Text will work in many cases. Jake (my employee over Long Tail Pro) actually went through something similar with a product he is launching. He asked for changes, and then the manufacturer would send pictures of what they tried to do and see if it matched what he was looking for. In more complex cases, I imagine you would need to send a picture or drawing.
With unique stuff, there very well could be iterations and few samples send from China before you get what you want.
Hi Spencer, great information! My only concern with FBA is storage of stock……once you get inventory, you can send it directly to the Amazon warehouse and they do the labelling? I really don’t want a garage full of items that I have to label up and then send to the warehouse myself!
I’ve never touched any inventory. I send it to Amazon, and they can do all the labeling. (Or you can have it all labeled before it reaches amazon by your manufaturer or other service). There is no need to have inventory in your garage.
I know you can’t talk about your specific product or niche. But you mentioned how you made a product that is differentiated in a special way, which is why it sells. Would be great if you could give some examples of other products that are modified and differentiate themselves like this. I understand the concept but would be interested to hear you guys look at some specific examples and why they work.
Agreed. I know it’s hard Spencer but if you mind to give some real life example 🙂
We’ve touched on this a bit in previous podcasts, and here is a post that discusses it and gives a few examples: https://www.nichepursuits.com/be-the-one-in-your-niche-unique-strategies-for-a-successful-online-business/ , oh and found a podcast episode we did: https://www.nichepursuits.com/podcast-59-how-to-be-the-one-with-several-real-life-business-examples/
I live in China and many people in China run Amazon FBA Businesses. And Chinese products are much cheaper. Therefore, for someone who want to start an Amazon FBA Business, searching products from China is a good idea.
Hello,
Do you need any special structure (company ?) in US to be able to sell there ?
Any insurance needed to be safe while selling product ?
Thanks
No, you can sell as an individual and insurance is required. So, neither are required, but it might be worth researching to see what’s the ideal solution for you.
Do you mind going through the process of how you got reviews for your products in a detailed fashion from top to bottom? I feel we could learn a lot from that
Went to AMZtracker, watched video on there of how to produce claim codes, posted claim codes in the review section. That’s it.
I have a quick question and I apologize if this was covered in the podcast and I missed it. Are your additional products that your now selling related to the original product. Does your amazon store have a theme?
Thanks
Yes
Hi Spencer, great update. I have been trying to try something new from my typical niche sites and moved into the FBA space. Everything is very clear only one thing has me a bit nervous and that’s choosing the logistics company. Do you have any tips on how to choose a good logistics company, and about how much does hiring one eat into your profits. I know there are alot of benefits to shipping to a warehouse then to amazon rather then straight to amazon.
Thanks in advance!
Andrew, there are lots of logistics companies. Try searching around on google or look for recommendations in fba forums, etc. How much it costs depends on the size, amount, and more of your product. In my case, I have a roughly $50 product…about $2.50 to $3.00 of that goes to logistics/shipping.
Love following this story! Since a lot of the work is actually sourcing the product, do you have any thoughts on expanding beyond Amazon to move inventory, such as eBay or your own website? Seems like a logical next step since the marginal additional effort is small but reaching a wider audience could be big.
Yes. We actually started a couple of months ago building out our own website. It’s already gaining traffic and getting natural traffic; we’ll soon flip the switch to actually sell the product directly there (in addition to amazon).
Sell Amazon products is a good strategy. You want to create new projects for this purpose.
Hi Spencer. Great podcasts, really inspiring. I´m waiting for your next update in your amazon fba business! About choosing the product: Although it’s impossible to know if a product is going to sell before hand, it’s important to do the research to know if it’s already selling. Are you looking for a product with a lot of top 2000 sellers (in the general category ranking) or just a few is fine?
In the same vein, to have a winner that sells 5 units a day, your product needs to be in the top 1000-2000, or a product ranked 10.000 in the general category also sells a few units a day? I know it depends on the general category where you are selling, but I would really appreciate a general estimation. Thanks a lot!
I’m not sure I fully understand your questions. I look for products that sell well, but have lower reviews or competitors.
Hi Spencer,
Quick question: how are you handling Sales tax? Are you paying only in Your home state or are you paying in all States where amazon has warehouses? (You might be familiar with the nexus concept regarding Sales tax, hence my question)
Just homestate for now, but likely will start paying in all warehouse states at beginning of year (just to be safe).
Your an inspiration, I listen to your podcasts in my temporary cubicle hell everyday lol. What service would you recommend to create promotional giveaways for Amazon FBA?
I use http://nichepursuits.com/amztracker (aff link)