My FBA Project: Part 3 – Time to Sell!

MichaelEducation, How to, Making Money, Misc, Side Hustles29 Comments

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FBA Project

*This is Part 3  of My FBA Project – Part 1 and Part 2 are found here respectively.

Selling Products on Amazon

FBA Project - Part 3

As of this past week, Jeff Bezos just became the richest man alive as his net worth hit $90B!  It was short-lived, however, and Bill Gates has re-surpassed him once again.  Surely this will become a tacit battle between the two.  Ironically, neither of them probably care about this title, but it makes for good headline news.

I really have to admire the genius of Amazon and their FBA program.  There’s enough in it for some to create a win-win and this post will share my latest in my own FBA quest.

In Amazon’s Warehouse – Now What?

So as I mentioned in my prior FBA post, my product made it safely and intact to Amazon.

They have a great inbound process which allowed me to get email notifications as soon as it arrived and when it was ready to sell.

Pricing

I had roughly 75 units to sell at a retail price of $25.

The interesting thing though is many more competitors had entered the market from the point I first started pursuing this product.

This could prove to be a problem because prices were being pushed down to as low as $17 per unit!

Doh.  This certainly would not help my cause to generate a profit.

I knew I had to be competitive, so I launched with an enticing sale of just $18 per unit… I was LIVE!

Next, I sat back and waited for ALL the orders to roll in…

<<Crickets>>

No orders, and in fact, I wasn’t even showing up in the top 10 search result pages.  So how could anyone find me?

Amazon PPC

Okay, so I wasn’t that naive to think $$ would fall into my lap.  But, a little part of me hoped I’d just get a couple orders out of the blue!  No such luck. 🙂

The way Amazon FBA works is a bit of a catch-22.  You need to have sales and reviews in order to generate sales, which pushes up your products relevancy, and eventually BSR (best seller ranking).

So, the place to begin is Amazon PPC.

Amazon Pay-Per-Click (PPC) is similar to Google Adwords.  You can essentially advertise against certain keywords and have your product featured.

This is fantastic for new sellers like me because I can get on top of the search results.

PPC Strategy

There is an overall strategy to purchasing PPC ads.  You don’t want to just throw money at it without thinking first because anything you spend without results is lost money.

My approach based off of some best practices I’d read about began with a Broad Search Campaign.

This meant that I would be competing for many different keywords around anything related to my product.

You may be wondering why you’d do that as your money will be spent much quicker and the answer to that is to identify keywords that are actually relevant to an actual sale of your product.

As a random example, let’s say my product was a picture frame.  If I advertised in a broad match campaign, my ads would pop up under many different searches that people are making.

Maybe they are searching for:

  • picture frame – $4.55
  • frame – $3.87
  • clear frame – $2.42
  • 8×10 frame – $2.15
  • photo frame – $3.88
  • picture holder – $2.88
  • Etc. – $??

Each of these keywords has a different cost associated with them which means if someone clicks on your ad, you’ll have to pay the associated amount.

Over a little time, and you should start to see a pattern of which keywords are clicked and also which ones are clicked and actually lead to a sale (these are your most valuable keywords).

My Pattern Emerged

I ran my broad search and was able to narrow it down to several keywords.

I also set a daily budget of $25 per day.  This meant I would only ever spend $25 per day to ensure I didn’t have unexpected overage.

At first, things were super slow.  But, finally, by the 4th day, I got my first sale.  Woo hoo!!

I ran a quick report to see which keyword lead to the sale and locked it into my notes.

The following week was pretty slow, but sales began to trickle in.  The only problem was that I was also spending close to my daily limit and the sales I was getting was barely covering that cost.

I did stay the course, however, and I was able to determine a few more specific keywords that were relevant and seemingly correlated to my sales.

Once I had 8 specific keywords, I disabled the BROAD match campaign and created an EXACT MATCH campaign.  Again I set the $25 daily limit and sat back to watch.

Paying Attention to Profits (or Lack Thereof)

With my EXACT MATCH campaign running, I was able to see a better ROI on my advertising.  Sales were still slow and my $25 daily limit was rarely hit, but when it was hit, there was a decent chance of making a sale.

Amazon actually helps you to track this metric – ACoS.

ACoS stands for Average Cost of Sale

The formula is simple:

ACoS = ad spend / sales

This helps to determine profitability with relation to your advertisements.

What’s a good ACoS?  This site has some additional detail to explain.

Since I already knew my COGS (cost of goods sold) and I was beginning to see my ACoS, I could FINALLY get a picture of profitability.

My initial COGS for the 75 units were $1000 including shipping to the states.  My targeted profitability was based on $25/unit, but that got lessened quickly to about $19/unit.

So, with no other costs factored in, my initial units had a potential to yield $25 x $19 = $1425.  This is a $425 margin, or 42.5% margin.

This seemed decent when I started this project, but I quickly realized there were many other costs I didn’t anticipate.

$200 – UPC codes

$200 – Initial PPC

$??? – Amazon FBA fees

$??? – Etc.

So, I quickly realized that I was losing money with this FBA experiment.

Calling it Quits…

Since sales were super slow, I didn’t have any reviews, and there was more competition than ever, I thought this project was doomed.

I even considered liquidating my remaining 60 units for pennies on the dollar.  But, something interesting happened while I was gone on my summer vacation (starting mid-June).

I started to see more sales!  Lo and behold I received two 5-star ratings for my product and my customers seem to like that added assurance it’s a quality product.

Instead of a random sale once per week, I started to see sales once every couple of days.  Last week I’ve been averaging 2 per day which is a relatively big uptick in sales.

What’s also interesting is that my ACoS metric started to drop (that’s what you want).  It went from basically paying 2 times the cost of the unit to have someone buy one, to 35%, then to 25%, and it’s still dropping.

What I hadn’t anticipated is that people and companies were purchasing some of my units in multiples.  This is super helpful because the margins are much greater when there is no additional advertising cost.

What Should I Do?

So, I find myself in a strange dilemma.

I’m nearly all sold out of my initial 75 units and was almost certain that I was going to kill off my product.

But because I’m starting to gain momentum, and my BSR (best seller rank) is rising, I’m thinking I may be able to actually make this profitable.

I even raised the price from $19 to $22 a week ago and sales continue to come through.

One other positive is that I haven’t had any returns yet.  I’m sure it’s only a matter of time, but a good sign as a proof of concept.

Hmmm…

Readers, what would you do if you were in my position?  Would you try to drive a profit by investing in another 200 units?  Or, call it quits, and focus elsewhere?

*Sorry, guess you’re going to have to wait for my product reveal for a little bit more!

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Michael

Hi, I have been blessed to take an early retirement in my mid-30's so I can focus on becoming a better father, blogger, and investor.

My goal is to help you find your personal path to financial freedom, and to enjoy the entire journey.

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29 Comments on “My FBA Project: Part 3 – Time to Sell!”

  1. Keep it going for another month or so because I want to see the results of your experiement! 🙂

    If that’s not a good enough reason… then maybe think about it in terms of the time/effort and also if you would regret not having done it in 10 years. Selling nearly 75 products is pretty good. I can only imagine that it will take off from here given your recent success.

  2. Oh maaaaan! Yup, reviews are actually really powerful on Amazon. I sell eBooks on their platform and reviews are king when it comes to attracting new customers. Great job! I would say to invest in the units and see what happens. You’re seeing a steady uptick in business, so why not give it a try?

  3. I’m with Erik…with the momentum going, you gotta see how it goes. Of course, it’s not my money at stake so there’s that =) Reviews definitely make a difference. Thanks for the in-depth explanation about this experiment. It is definitely a lot more involved than I thought it would be.

  4. Michael – thanks for sharing. I know someone else who is trying to do FBA right now as well. However, he was looking to turn it into full-time income. He has decided to pull back because the numbers were not working for him, at least at the scale he wanted. It sounds like you do not have enough information yet, so I would say keep it going for at least another batch of inventory.

    1. Thanks, Jeff. I think you’re right. I need more data to make a better assessment. The good news is that I’ve already done all the heavy lifting and getting more data should be much easier now.

  5. This is exciting! Keep at it Michael, it looks like you’re just starting to see some fruits! I know a lot of my customers sell through Amazon, and they have extremely profitable businesses. One of them does 8 figures on Amazon selling radio controls, telephone entry systems, and other access-related products. And he does a ton of drop-shipping too, from my warehouse and direct from my manufacturers, which are seriously easy sales. I also have a few others who do just this, just not at the same level (between 6 and 7 figures though for each of them).

    1. Thanks, Tim. It’s always encouraging to hear stories from people that are making a killing with Amazon… 6-7 figures are nothing to scoff at either! 😉

  6. I’ve been waiting to see an update on these series for awhile… thanks Michael!

    I’ve got a couple of thoughts on why you might continue:
    1. It really depends upon the size of your market. I don’t know what the product is, but if 75 units saturates your market, then don’t continue. (aka do your market research)

    2. You might want to continue *just for the shear education of it*. You seem like you’re learning lots! That education is valuable, and you also have some significant crossover to your blog!

    Thanks for writing this post!

    1. I like the education reason, Mr. Tako! I could keep pushing this for awhile and gain a ton of wisdom for a fraction of the price of a traditional business education. 🙂

  7. Congratulations on getting the sales! Seems a shame to throw in the towel after doing all the research and getting everything lined up. Like with any business it’s something that will snowball as you get more reviews and experience with selling. I’d say to keep with it, I’d like to see your sales grow anyway 🙂

  8. I agree with Mr. Tako. This is a great learning experience (for you and us) at a reasonable $ cost. Of course that doesn’t take into account the impact on your personal time and thoughts/distractions. Maybe we can all pitch in to buy you additional inventory at a cost back to us to keep this going for our learning as well. Of course I’m kidding as I want this great content to continue at no cost to me 😉

  9. Yay to a happy ending! I was REALLY looking forward to an update on your FBA project. I’m glad it’s working out well so far! I know it might have been exhausting and frustrating for you to go through such a rough start, but deep down I just want to scream: “Please keep going!!!!!”

  10. That’s great that you received some positive news. I guess that’s why there was that whole scandal about people paying for reviews – it works!

    If you don’t stick with it, all that learning is for nothing. But on the other hand, it really isn’t worth your time unless you think it could be really big one day. Do you want to double down or cut your loses?

  11. I’m interested to see how this goes for you! I just recently started with Amazon FBA, but I am doing Retail arbitrage to get my feet wet, and will hopefully move into doing something similar to what you are doing with a unique product. I just sent in my first shipment of products to Amazon and they are semi-live (being transferred to other warehouses), so we’ll see how it goes! Good luck and I hope you sales take off!

    1. Cool, good luck, Chad! I’m interested to hear how your retail arbitrage works out. It’s a great stepping stone to get your feet wet with Amazon selling.

  12. I’d say give it one more try (at least). Once you succeed at the next level, then you can convert that knowledge into an ebook or a course and drive more traffic + sales! 🙂

  13. Curious what your thoughts are on the sales tax piece? I am doing retail arbitrage with amazon FBA and now realizing the sales tax implications of having nexus in multiple states due to amazon spreading my product out throughout their warehouses. I just signed up for taxjar but realizing it can wind up being a lot of work.

    1. Good question, Chaf. I need to look into that further. Thanks for the reminder. I do remember sales tax can be quite cumbersome back when my IT company sold tech equipment.

  14. I have been selling FBA for about a year now, having some success but it’s a very up and down game. You will learn something new about this business everyday. 4th Qtr is really big on Amazon. Is your item consider a gift? If it’s you are going to sell like crazy for Christmas. Good luck!

  15. Great Tips! Such a great information.

    I agree with you that “They have a great inbound process which allowed me to get email notifications as soon as it arrived and when it was ready to sell.” I have always been facing problems with Saving and Making Money in Amazon and was trying to hire someone to help me.

    I will tweet your post. Thanks a lot for sharing.

    Stefan

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