Let’s plan for the real price of entry to start this venture and not fail…..stop trying to get a Lambo in 6 months. Instead grab a pen and notepad. This post is for newbies and experienced folks…..but especially for the folks newer to the cold reality of working for yourself.
In any business – online, offline, retail, info product, whatever…. You only need 3 things to make a business work and without all 3, you WILL fail. You need to have a plan for all 3 in place BEFORE YOU SPEND A DIME!
1) Content – do you have something that people are actually going to want? Think your Amazon or Ecom product and the story around the brand you are trying to build. As you expand, it is content based around your biz that you can send out to keep people engaged with your brand.
2) Distribution – do you have a viable and planned path toward getting as many QUALIFIED eyes, as cheaply as possible on your product. These things are Amazon organic and PPC sales, FB Ads, Instagram influencers, your website links, bloggers, press releases and various methods of SEO magic.
3) Financing – how are you going to pay to market and get enough eyes on your product so that you can still turn a profit?
You need to plan advertising as part of your budget when starting any venture. It’s the one thing I see that most folks don’t mention or think about. We all see countless posts and YouTube videos about product research and margins, or what tricks you can do to find profitable products on Jungle Scout. Hell, there are a ton of gurus out there that have “courses” on making it rich on Amazon and all it really is comprised of is how to set Jungle Scout filters and find the magic $30k a month product and some basic info beyond that.
What most fail to mention, and that nobody tells you about going into business for yourself, is that marketing is going to be your biggest expense. Flat out, you need to plan a realistic budget for marketing into your profitability calculations when doing Product Research. It will help to determine that golden question – how much $ do you need to start Amazon or is this product even worth it?
I personally like to see at LEAST 35% minimum before PPC for my margins when doing product research – which is a good mindset because advertising expenses will quickly eat you alive and discourage you if you aren’t ready for it.
*You also need to realize that your adspend to profit ratio is going to be MUCH higher initially and while it is going to come down as you rank better and get reviews, you need to plan to be able to absorb this for a few months while getting your listing off the ground.
You need to spend money long term and consistently to keep the sales moving – it is more than just organic sales on page 1 post launch.
Planning your Amazon FBA venture
EXAMPLE SCENARIO: Let’s say I’m looking at a product:
Cost – $4 per unit
Shipping – $2 per unit
Amazon FBA fees – $6 per unit
Sale price of similar and competing items in my niche – $18 (absolute minimum for this case)
Margin before ppc – 30%
Units to move – 1000 units
The Number 1 question is how much money do I need to start amazon? Well, that depends on your goals and how aggressive you are. If you look at the above scenario and use the cost of product and shipping – most are looking at that and thinking $6,000 (1000 units x $4 to make the products + $2 to ship to amazon)……well friends, you forgot the marketing money it takes to move the product and also having a pool of cash to reorder BEFORE you run out of stock. You aren’t Nike shoes – nobody knows or cares who you are….(YET!) We haven’t even talked about the extra money necessary for product launch- – that’s another post entirely.
Your product is the content, Amazon is your distribution channel, do you have the financing to make it go? 1, 2, 3??
Let’s say in the above scenario it costs you $2 per unit to sell. At an $18 price point with only $6 per unit of profitability (30%), once you factor in marketing, you realize that you need to spend another $2000 AFTER you have bought and shipped your products to make the capital back plus some profit. PLAN FOR IT AHEAD OF TIME if you really want to make sales.
Meaning your REAL net profit may only be 22%. You are gonna spend $8000 up front to make $4000 in profit by the time it’s all done. Amazon will be paying you a total of $12,000 back but you’ll need to reorder and ship more product and reset your advertising budget for the next round.
That $4k you would keep as profit – it may take you 2 to 3 orders to get there and begin to use that to launch your 2nd product and get it moving successfully…….
Meaning by the time it is all done you may have 2 products that are doing well and that you may have reordered 3 to 4 times each and be 8 months in BEFORE you can take a few hundred out for yourself to pay for a few things in your personal life.
I’ve been in business for myself long enough to have been caught with my pants down once or twice……If I were looking at the above scenario and wanted to be prepared and come out swinging at launch, I would have the $6,000 for the product, plus another $2,500 for advertising, AND a $2000 reserve in case I need to have a few hundred units ship over while I wait the 2- 3 weeks it takes amazon to pay me. This reserve also accounts for selling units at a reduced profit so that you can launch and get sales velocity and rank faster. (Launch strategy will be a separate post)
That’s $10,500 out of that gate! I bet you didn’t see that coming when looking at your $4 product on Alibaba.
Again, Your product is what people want – tell them why in your listing (content)….SELL THE PROBLEM YOU ARE FIXING.
The platform is Amazon (distribution – with 300 million visitors a month and more than half of all US households having a prime membership), and FB ads (1.19 billion users to advertise to). That’s all nice but you NEED to plan for financing your marketing to make the whole thing work.
That my friends are the 3 things you need for business…..now go kill it!
I look forward to hearing your thoughts in the comments.