If you’ve been reading some of my prior posts, you’ll know that I’ve referenced FBA a few times. In fact, some of you have requested to know more. So, here it is…
First, let me back up a bit and explain my side hustle philosophy.
My Side Hustles
As an early retiree, my primary focus during the day is to be present with my kids and manage their needs. When my wife comes home it’s her & family time. And once everyone is fast asleep, it’s my time (midnight to 4am)! 🙂
During “my time”, I like to concentrate on a few different “mini-projects” or “side-hustles”. These little startups are passion projects of mine that I enjoy doing and are also potential sources of revenue in the foreseeable future. This includes my blog (www.financiallyalert.com), my food blog (www.sandiegofood.net), my coaching services, my investment projects (realtyshares, lending club, etc.), traditional real estate investing, and my FBA project which I’ll discuss here today.
Let me first start out by suggesting you don’t take on 5 projects at once unless you have a method to your madness. You see, currently, I’m exploring my options and observing which project is a viable longer term play. A good analogy is that I’m throwing out a bunch of seeds into the field and seeing what takes root.
Once my kids go to school full-time (2.5 more years), I’ll have a lot more free time on my hands. I want to be well positioned to really drive one of these projects full steam ahead and I will need to leave the rest behind.
FBA – What is it?
Okay, so if you haven’t guessed by now, FBA is an acronym. It stands for – Fulfilment By Amazon.
This is a specialized program that allows 3rd party sellers to sell their products straight from Amazon’s warehouses and use their staff to “fulfill” their products.
This program can be a great win-win for the seller and Amazon because we’re able to leverage each other’s efforts and make money on either side of the equation. Well, that’s the goal at least!
Anyhow, I’ll share my process the past few months and share with you where I’m at currently and where I plan to go with it.
Since this topic can be super detailed, I’ll just be sharing highlights to give you an overview. I’ll link up to other sites that have a wealth of information should you want to know more specifics.
Why I Even Started This FBA Project
So, let’s take a look at how my FBA project even came to fruition.
One of my prior mastermind groups was with personal finance blogger, Adam Chudy. Adam has also been doing FBA for a couple of years and would share his progress with his FBA project. I won’t disclose his specifics since it’s not my place to do so, but he’s done very well for himself and he inspired me to launch an investigation into a product of my own this past Summer of 2016.
Finding a Product to Sell
Choosing a product to sell with FBA is arguably the most important step to creating a profitable side business.
There are a few different ways to find a product, but when selecting one, you’ll want to look for some very specific criteria. Here are the primary attributes I was looking for.
- Sellable retail price in the range of $20 to $40 – I wanted to target a product that could provide a decent profit per unit sold. This can happen faster if the product is more expensive. However, the capital requirements are also larger.
- Small, lightweight, and NOT fragile – They say “size” doesn’t matter. With FBA it definitely does! The larger or heavier an item is, the more the shipping costs will be to customers. This eats into profits. Similarly, something products that are too long will require special packaging at an additional cost. Finally, fragile items are no good since they could break in transit and you’ll likely be the one taking the loss.
- High demand – So, you definitely want a product that is going to sell well. But what does that mean? By analyzing the BSR (best seller rank) it will give you a clue as to the type of demand. Typically you’ll want a product that has a BSR of at least 5000 in its main category. I’ll discuss this further below in more detail.
- Not Overly Competitive – You’ll want to find a product with low competition. This can be a bit harder nowadays, but it’s still possible if you find a niche product that you’re able to modify a bit (improve it). For example, you probably don’t want to compete against major brands, but third-party brands are okay. Also, you’ll have to see how many reviews your top competitors have. If they have too many (eg. thousands), it’s going to take you a very long time to catch up.
- Brandable & Customizable – The product should also be brandable, meaning it’s not patented or trademarked. Let’s say you were going to sell a plastic cup. You could add a logo, and sell that as a line within your own third-party brand. You might also “improve” it by making it with extra thick plastic. The point is you want to be able to differentiate yourself.
If you’re familiar with Google’s search engine, you already know that keywords rule the search algorithm. Well, Amazon has its own search platform to parse their millions of products. If you’re going to sell a product via FBA, you’d better know your keywords before you even begin!
There are many different ways to go about selecting a product and knowing its primary keywords. Some people used to do this entirely “by hand” typing into Amazon’s search bar and collecting results. But, I decided to skip a step and use some software called Jungle Scout.
Jungle Scout allowed me to collect a lot of data quickly and see which types of products were in “high” demand, but with “low” competition.
My Product Selection
Let’s first take a look at how I used the web app to select my criteria…
Once I collected the data, I exported it to an Excel spreadsheet.
Sorry for the small print (you can click the picture to enlarge), but I wanted you to see the different categories I was looking at in order to select a product.
Next, I sorted through the different categories and eliminated certain ones based on outliers like product type, or a patented product, etc.
As you can see above, this is only a fraction of the data I collected with viable products. So, a lot of the time taken to select a product comes from parsing through these different options and comparing them.
Once you find a product of interest, you’ll want to confirm the “demand”. The easiest way to do this for me was to use their Chrome Extension. This allows you to see the estimated sales of a particular product and also the competitors data as well.
So in this random cup analysis, you can see that the Jungle Scout Extension will display the average sales, sales rank, price, # of reviews, etc.
This saves an incredible amount of time, rather than trying to find this information manually and trying to compile it on your own.
It also means you can research more products faster and have a better chance to honing in on a profitable one.
My Product Selection
So, this entire process took about a couple of months of doing research on and off from June 2016 to about August 2016.
I was able to narrow it down to a few products which seemed to fit the criteria (some, but not all) and I decided there was one that was better than the rest.
Unfortunately, I can’t tell you what that is exactly… at least not yet. 😉 It’s not that I don’t trust you, my readers, but the competition is so tight with some of these products that my competitors could figure out my margins, underbid me, etc. Also, there are some people who would rather just piggyback off of someone else’s research. So, sorry and hopefully you understand.
For now, let’s call my product the 6-Pack. The reason being is that my product is best sold as a bundle of 6 or more. Sold in a 6-pack, I was able to see my competitors selling this at $25 to $30. At the time, they were also selling about $10,000 of product per month which I deemed a decent demand.
Initial Cost Analysis
The nice thing with the Jungle Scout Extension is that it can show you your competitors estimated FBA fee. This is the cost you need to pay to Amazon for:
- storing your products at your warehouse
- shipping it to the customer
- taking care of customer service
In my case, the FBA fee is about $8.50. So, assuming I can sell these at $28.50, my initial margins are going to be $20.00 before any production costs, shipping, or marketing fees.
$20 per unit seemed doable to me, so I set out to find some Chinese suppliers that handled my type of product.
Finding a Chinese Supplier
If you knew what my product was, you’d realize it was a no-brainer to start my search in China.
Fortunately, with sites like Alibaba, you can find a factory or supplier of products in China for virtually anything! So, searching for my product wasn’t an issue at all. In fact, it was a little more challenging because there were so many to choose from.
The language barrier was also a bit of a challenge because their English is not always the best.
Nevertheless, I contacted several to get competitive bids and quickly realized I needed to get to super specific!
*Stay tuned for Part 2 next week, where I’ll dive more into the supplier process and the hiccups I encountered along the way
Readers, are you familiar with FBA? Have you even tried it yourself? What other types of side hustles do you have?