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