3 Things Amazon Gurus DON’T Tell You About Selling on Amazon FBA…

Hey, guys. In this video we’re going to talk about the
three things that Amazon gurus tend to gloss over when they’re talking about starting a
private label business. See, I think we all know what they love to
talk about. Yep. Because you know it’s a lot more fun talking
about buying Lamborghinis rather than talking about things like, “Hey guys, you remember
when I told you that I made over $10,000 when I launched my first product? Well, I just calculated my profit, and it
turns out that I actually lost several thousand dollars.” Or, “Hey, guys, I just been to the bank and
discovered that I have no money to pay my taxes.” But these things, they may sound scary, and
I’ll tell you this now. I might poke fun at people who flicks about
buying Lamborghinis, but the truth is, unless you are a trust fund baby, you do not get
these fancy, expensive cars unless you are willing to embrace challenges and find ways
to overcome them. In my opinion, if you are willing to do that,
then you more than deserve your Lamborghini, and actually, if you know about these potential
pitfalls in advance, then you can prepare for them now so that you don’t fall for them
in the future. So let’s do that. Let’s get this video started. One, those income screenshots, that is revenue,
not profit. Something that is very important to keep in
mind is that when someone shares an income screenshot of how much money that they’ve
made, that is the total amount of money that they have made in sales. So when someone posts a screenshot saying
that they made $10,000 on Amazon last month, that doesn’t take into account the expenses
they pay to make those sales, like the cost of purchasing inventory, the cost of shipping,
Amazon FBA fees, or marketing fees. Now, usually if someone is making a constant
monthly revenue from their FBA business, then that does mean that it is most likely profitable. Sometimes people make more, sometimes people
make less, but a good yardstick to aim for when creating an Amazon FBA product is to,
in the long term, to be making a 30% profit margin. Now this isn’t a strict rule. Some sellers prefer to sell items that have
smaller profit margins, but do large amounts of volume, and they make up for the smaller
profit margins by the sheer amount of items that they sell. So your sales do usually indicate profit,
but there is one big exception to this, and this is the very first month that you launch
a product. In fact, if you launch a product right, there
is a really good chance that you are going to lose money. Why? Well, it’s because of the money that you will
spend during the advertising and marketing phase of your launch. As I explained in my video How to Launch Your
First Amazon FBA Product, when you launch a product on Amazon, your goal is to try to
increase your sales velocity ASAP. So let’s say that you wanted to sell your
own insulated flask on Amazon, and you wanted to make free, organic sales from people that
found it using the Amazon search engine. Well, what you need to do is manipulate the
Amazon algorithm so that when someone searches for an insulated flask on Amazon using the
search bar, your listing is in the top of the search results. Now there are several different reasons why
the Amazon search algorithm has chosen these particular flasks to sit at the top of the
search results, but the number one factor is their sales velocity. In other words, Amazon favors items that are
selling more than others, and it makes sense that they would, because the more items Amazon
sells, the more money that they make, and so what smart sellers do, is they employ a
strategy that my friend Anthony over in Seller Tradecraft calls his “balls to the walls”
strategy. It’s when you go to Amazon and use a tool
like Jungle Scout to see roughly how many sales a month your top competitors are making. You then do everything in your power to either
match the sales that they are making, or even better, beat them for at least two weeks. If you do that, then what Amazon does is it
looks at your flask and it goes, “Oh hey. This flask is selling better than all of the
other ones on there. Let’s start promoting this one instead, because
it’s making us the most money.” So how can you get lots of sales over this
two week period? Well, there are several different strategies. You could offer discount coupons, you could
run paid ads, and you could massively discount your product to help encourage sales. But all of these strategies cost money. Lots and lots of money. That 30% profit margin comes from someone
purchasing your item after finding it using the search bar, not from someone finding it
from a paid advertisement. So the moral of the story here is that if
someone excitedly tells you that they made $10,000 in their first month launching their
product, keep in mind that there is a very high chance that they did not bank any of
that as profit. And when you launch a product, if you plan
to run a big marketing campaign to push your item to the top of the Amazon search results,
then make sure you have some money in reserve to pay for all of the costs involved. But it’s worth it. If you are willing to put in the upfront investment,
then you can set yourself up to be making free, passive, organic sales into the future. Two, to make a lot of money, you need a lot
of money. All right. So here is the cold, harsh truth. If you are looking to launch a product that
is going to make $10,000 in total sales each month, then you’re probably going to be looking
at needing at least $9,000 for start up costs. Yep. To see why, we just need to do the maths. Let’s say that we’re selling this $20 bento
lunch box here. We can work out roughly how much you would
need to launch this product. Checking with Jungle Scout as you can see,
it’s selling around 500 units each month for about $10,000 in revenue. So let’s go with a 30% profit margin for the
seller. Again, we don’t know the true profit margin. It could be more. It could be less. But let’s go with the average profit margin
of 30%. If we allow for that, then that means that
we are looking at about $7,000 a month in expenses, but importantly, not all those expenses
are upfront. You see, a significant chunk of your money
as a private label seller is going to go towards Amazon FBA fees, and this gets taken out of
the money that the customer pays you. Taking a look at this bento lunch box, we
can see that the Amazon FBA fees for this items are around $7 per unit, and doing the
maths, $7 times 500 units is $3,500. So if we take our $7,000 in expenses, and
minus from that our Amazon FBA fees of $3,500 a month, that means that we can assume that
the seller is paying roughly $3,500 for the shipping and the cost of the units, which
works out to be, roughly, around $7 a unit, and these costs are upfront, obviously. You need the start up money to purchase your
inventory, and then actually ship it into Amazon. But that’s not all. Because it takes time to manufacture inventory,
and to restock, you’re going to want to purchase at least two and a half months worth of inventory
in advance. This is especially important if you plan on
running a big launch with the goal of selling as many units as you can so that you can rise
to the top of the Amazon search results. So, $3,500 times two and a half months is
$8,750 in inventory and shipping costs alone. Plus, you are going to need to have extra
money for things like tools, package design, product samples, and product photography. So, all in all, to launch a product that will
get you a cool looking income screenshot of $10,000, you’re going to need over $9,000
in start up money to launch that product. Now for some of you, that may not be much
money. But for some of you, that may be a lot of
money that you don’t have. If that is you, here is my tip. You don’t need $9,000 to get started on Amazon. You can get started with much smaller amounts,
but you need to be realistic about the types of products that you pick. Don’t pick a product like the bento lunch
box that is selling 500 plus units a month. If you’ve got a start up budget of say $2,500,
then look for products that are selling roughly around a hundred units a month. And a big plus for choosing products like
this is that oftentimes they have less competition, because Amazon FBA sellers prefer to go after
items that have bigger monthly sales volume, so it’s going to be a lot easier to dominate
the Amazon search results. Three, it’s very easy to go into debt. And finally, this is one of the most common
traps that I see high level FBA sellers fall into. The crazy thing is that for many of them,
if they just slowed down and they managed their money better, they could’ve avoided
this. I have a friend. He has a very successful Amazon FBA business
doing over a hundred thousand dollars a month in sales, which means he’s making tens of
thousands of dollars every month in profit. Early last year, he dropped a bombshell on
me. He told me that he was thinking of cleaning
up shop, and then selling the business, and getting out of it. I was shocked and I said to him, “Wait, why
would you sell it?” That’s when he shared with me his cash flow
issues. I was like, “Oh. It’s happened to you.” See, here is what he had done. Christmas time was rolling around and he was
like, “Oh, sales are going to increase. I need to massively up my inventory.” But he also wanted to take advantage of this
time period to launch some more products, but his business didn’t have enough cash to
purchase both. So what did he do? He used up all of his business’s cash, and
he maxed out his debt to be able to purchase both. Now using debt to make money in business is
a perfectly fine thing to do, because of the fact that you make money from the money that
you borrow. So what’s the problem here? Well, that’s what he thought until his personal
bills started to come on in. He had car repayments, mortgage repayments,
text payments, student loan repayments. He had thousands of dollars in bills. But he had maxed out all of the money in his
business, and he’d maxed out all of his access to debt, and so even though he had a successful
business, he hadn’t managed his cash flow, and so he ended up getting into a really bad
spot because he had no money to pull from his business, and he had no access to debt
to pay for his bills. This is a cash flow problem, and it’s a very
common reason why profitable businesses fail, because even though they will get the money
to pay for the expenses tomorrow, they need to pay for them now. Tomorrow isn’t good enough. Now luckily this story has a happy ending. He didn’t sell the business. Instead what he did was he ended up getting
a book called Profit First, and used the advice in it to fix his cash flow woes. Now instead of spending all of the money and
debt that he has access to to massively grow and scale his business, every month he makes
sure to take out a salary for himself, and then he uses the money that’s left over to
grow and scale the business. Talking to this friend reminded me, actually,
of another friend that I’ve talked about on this channel before, and at the time, he was
a new private labeler. He had spent all of his money on inventory
and shipping, and he had not set aside the correct amount of money to pay for import
duties. So, when the bill arrived, he had no way to
pay for it, and he almost lost all of his inventory and the money that he had invested
in it. Now, luckily he was able to scramble for loans
from friends and family, but it was a really close call. So both of my friends, despite being in very
different places with their Amazon FBA businesses, learned the folly of over extending. So don’t make this mistake for yourself. Make sure that you have money set aside to
pay for unexpected bills. Thanks for watching. If you like this honest advice and would like
to learn even more about selling online, then be sure to subscribe to Wholesale Ted, and
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