Are Amazon automation services a scam?
Amazon automation… The term picking up steam as it’s promoted more by Amazon and marketing gurus nowadays.
As someone who started selling on Amazon in 2013, I’ll share my real thoughts on the new trend of “Amazon automation” and hope it helps with your decision.
Disclosure: I do not know every detail of what the automation programs offer. My thoughts and recommendations are based on all publicly provided information (Youtube videos, blogs and respective websites).
What you’ll learn today:
- The truth about Amazon automation
- The players involved in the market
- Pitfalls and wins of Amazon automation
- Who it’s for and not for
- What’s in it both parties
- Risks involved
- Is it worth it?
- Why should you listen to me?
- Amazon automation… the new trend?
- Is this really automation?
- Full-service, not automation
- Is Amazon automation a scam?
- Quick thoughts on Kevin David and his program
- Quick thoughts on Just one dime “Done for you”
- Know the basics of selling on Amazon
- Good fit profiles for a full-service Amazon agency
- Bad fit profiles
- So what’s the catch?
- Kevin David’s Done for you fees
- Just one dime done for you fees
- The REAL numbers and calculations
- Error #1 – False gross profits
- Error #2 – Unrealistic and wrong assumptions
- Error #3 – Cash flow analysis not included
- Error #4 – Taxes are not included
- Error #5 – You are not an investor
- The cost structure
- Alternative to Amazon Automation agencies
- Pros of done for you agencies
- Cons of done for you agencies
- Questions you should ask
- What is Gorilla ROI?
Why should you listen to me?
I’m just another internet stranger. The difference is that I don’t sell a course, and have no interest in selling courses. I share my business journey and recently reached $5M in sales. I can smell Amazon BS a mile away.
If you go through my monthly income reports, you’ll understand how it’s different from everyone else out there. No one gives you detailed business knowledge, information, real struggles, as well as wins that I openly share.
Because most Youtubers or Amazon gurus make money from youtube or courses or something other than Amazon.
I run Gorilla ROI, but it’s a tool created to run my Amazon operations first and foremost. It’s also a tool focused on sophisticated sellers, not newbie or gullible people. Our focus is on improving and automating operations.
Not to mention my list of credentials.
- I threw money down the toilet by overpaying agencies
- We sell lower-priced products that every guru says to stay away from
- I’ve had one of our best selling products ripped off by Chinese suppliers
- I personally visit and audit all my Chinese factories
- I import from Asia, Europe and also manufacture in USA
- We recently hit our $5M revenue goal
Amazon automation… the new trend?
When I first heard about it, I thought it was referring to Amazon sellers coming up with ways to automate aspects of their Amazon business.
Like how burger shops are using robots to flip burgers and automate that part. Essentially creating processes and systems to do things like:
- automating data downloads
- automating review requests
- automating inventory tracking
- automating sending POs to suppliers
Because that’s what automation is. Use non-human processes to perform the work.
But the term has been redefined to mean something else now.
If you read this article promoting Kevin David’s automation service and this one from Just one dime, it’s clear that what the gurus are now touting as Amazon Automation is really a full-service Amazon agency that starts and runs Amazon businesses for people by charging an upfront cost and then charging a recurring profit-sharing structure.
The real beauty is their marketing. Great marketers.
- Show people how they were able to generate $100k to $500k revenue on Amazon
- Create an Agency company
- Get clients by advertising it as an “investment” (because people get excited about “investment opportunities” much more than “services”)
- Lock you in for life to their services
- Build their own cash flow by taking a slice of profits
- No brainer for the agency because they are paid no matter what. If it works, the client also can do well, but takes time to recoup the money and break even.
Is this really automation?
Let’s say you want to get into the real estate business.
Every waking minute, you hear about how you must get into real estate before it’s too late.
- You are busy with your current job
- You don’t know or have time to learn everything about real estate.
There’s so much to learn about real estate.
- Type of real estate
- and so on
But you really, really, really want to be in real estate.
You find a friend who runs a construction company and knows the ins and outs of everything in real estate.
His proposal is that he will do everything for you to construct a building that will generate cash flow.
- find the location
- determine the best type of property to build
- handle all the construction
- decide all the design elements
- choose the materials to use
- handle permits and zoning and other compliance
- and so on
Once the property is built, he will become the management company and take a 15% cut from gross profit.
Your role is to:
- fund all the upfront building costs and service fees to pay for the time, consulting and building
- give input on smaller details
This example is exactly what the automation services is.
Is this automation?
Full-service, not automation
The proper word for this business model is a full-service agency. Even calling it autopilot is better than automation.
“Amazon automation” has now been converted into a marketing term that means full-service agency. That’s my only gripe about how it’s being marketed.
My drawing of how it works.
I call it autopilot because there are a lot of moving parts that involve people and will always require people to run it. But if everything is set up well, the product is a winner, and PPC is doing its thing to bring in sales, it is easy to put the business on autopilot.
Is Amazon automation a scam?
Based on what I’ve explained up to this point, is “Amazon automation” a scam?
No, it’s not.
But there is no automation. It’s just a full-service agency.
Check out my real-world calculations below where I show you the different scenarios of what it really costs.
Quick thoughts on Kevin David and his program
Nothing against Kevin David. He is a savvy marketer. One of the best I’ve seen with a huge following. His advertising and demographic targeting are superb. His ad spend must be huge, but if he can get a sale for 33cents on the dollar (3.33x return), of course, he will pour fuel on the fire to scale it.
That’s his business model – marketing.
I’ve watched his webinars and sales pitches to sell his course and the longer you watch it, the more you want to get it. There’s nothing wrong with that. If you are a good salesman – good.
A few years back, a big Amazon course company got hammered by the FTC and settled for $102M for making false and illegal claims of being able to generate $5k-$10k within 30 days.
100% against the law to make such claims, but that’s what people wanted to hear and they took the bait.
And that’s probably why many FBA course sellers are now pivoting to an agency model of creating Amazon businesses for you.
If you watch his sales videos, there are still outlandish (and bordering illegal) claims being made about how you can profit some crazy amount in the first few months.
But it works because there are just as many people looking for easy money. Shame on the buyers for not bothering to sit down, think about it and ask some basic questions.
If you really, really want to find a full-service Amazon agency, I can introduce you to honest and ethical ones that are run by very smart and sharp people.
Quick thoughts on Just one dime “Done for you”
The only problem I have with “Done for you” Just One Dime service is how they position it as an investment – when it is not. That’s their hook line and sinker in attracting people.
Rather than calling you a client, you are “their investor”.
They’ve used marketing tactics 101 to turn it into something that you, the client, must “qualify” for. Scarcity tactic to drive people into a frenzy.
At least they don’t make false claims like making X amount in X days. They give broad ranges that are harder to crack down on and insinuate it. Do this in a regulated financial sector and you will be fined heavily or end up in jail.
Imagine a fund manager going around saying that if you invest your money with him, you’ll be generating 20-30% returns in a matter of months.
It’s just wild to see an Amazon agency talk like this.
You would love to get 10k-100K monthly return on your investment in months instead of waiting for years.
You want to diversify your investments on an opportunity that can bring you 20% to 30% annual returns.
– Just one dime
Since when did Amazon Agencies position and promote their services as investments?
Know the basics of selling on Amazon
As a seller, here’s a basic list of what is involved with selling on Amazon.
Check and double-check the full-service programs offer all of this at a minimum.
- Product research
- Contacting and negotiating with suppliers from Alibaba
- Ordering and logistics to Amazon
- Amazon Seller Central set up
- Creating listings
- Copywriting and SEO
- Photos and images
- PPC set up and management
- Amazon customer service
- Inventory management
- Ongoing management
Yes, this is a LOT of work.
If you have zero business experience, you WILL be overwhelmed.
If you no time, you’ll NEVER commit to creating a business.
If you have tried selling on Amazon yourself and you failed, you know how HARD it is. It’s not like you flip a switch and go from $0 to $50k profit in one month. Don’t believe anyone that says so.
But is a full service worth paying initially $60K to 80K for?
It depends entirely on who you are and what you want to achieve.
Good fit profiles for a full-service Amazon agency
There is definitely a group of people who will benefit from this type of full-service agency. Here are the 4 main types that will benefit from a full service Amazon automation agency.
- Busy people who want to build another income stream with little effort
You work a 9-5 job and enjoy it. But interested in extra income streams. You have family and can’t dedicate 4-5 hours to learn everything. Having someone else do all the work makes sense.
2. Scared people who aren’t able to take action
You’ve been talking about wanting to sell on Amazon for years. You’ve already spent thousands on courses, but you are still in the same spot as 2 years ago. Having someone with experience handle it for you is your cup of tea.
3. People looking for a “passive” role in running a business
You enjoy your lifestyle and while you may not be working a 9-5 job, you also don’t want to start working 80 hours a week. You prefer everything to be passive. Log in to your account, check your balance and break out a smile.
4. People who have tried to sell on Amazon, with limited success
You are currently selling or have sold previously with limited success. Competitors ate your lunch. You are want to try again, but scared of failure.
Bad fit profiles
1. Strong DIY or proactive people
It’s all about letting someone else control and do it. Don’t get in their way. You’ll likely become frustrated.
2. Don’t have $100k ready to go
If you do everything yourself, you can get it all done with $10k-20k. If you use a full-service agency, you will need at least $100k to bankroll it and keep things going.
So what’s the catch?
There’s only 1 catch.
To lock you in as a customer for as long as possible – hopefully for life.
That’s the goal of any agency. To keep a client for as long as possible.
You see, the more passive you are, the longer you will pay an agency to do the work for you. Regardless of how easy the work becomes, as the business matures. Think they will teach you how to run your FBA store?
Why would they give up a sweet % of the gross profit for doing minimal work?
The longer you stay, the more they will make with minimal effort. This chart will reoccur for each new product you launch.
But on the flip side, you are paying for someone else’s experience and wealth of knowledge. That’s not cheap, and it shouldn’t be. But should it be 15% of gross profit? Ouch.
To become good at selling on Amazon, you need at least 2-3 years to figure things out. To become a master, expect to spend at least 5-10 years. I’ve been selling since 2012 and I know nearly everything, but I still keep learning things.
If someone asked me to work for them for $100/hr, I’d reject it because I know my value is 10x that amount.
That’s what you are paying for, but at the same time, you’ll never learn it for yourself and that is who these Amazon guru agencies are targeting.
Kevin David’s Done for you fees
The fee for the Amazon FBA Automation Emerald is $30k. The fee for the Amazon FBA Semi-Automation Gold is $10k and the fee for the Amazon FBA Done With You Silver is $5k.
There is also an additional option for Emerald members to have us continue to run their business for them once their Emerald launch service comes to an end. This is called “Emerald Elite Membership”. The fee for the Emerald Elite Membership is 10% of Net Revenue from the sales generated by the Store for the preceding month, or $500 per month whichever is larger. “Net Revenue” means (i) all revenue less (ii) inventory cost, returns, prep costs, shipping fees, and sales tax. – source
- Inventory costs not included
- Creative design costs not included
- No maintenance cost
- 10% of gross profit
Just one dime done for you fees
- 10-15% of gross profit
- $30k service fee cost
- $10k fee for the first product
- Creative design costs not included
- Inventory cost not included
- Maintenance costs not included (I thought this was included as part of the service. Guess not.)
Using our sliding scale, if the product is less than 30% margin, then our 15% revenue cut drops to 10%. If the product is less than 20% margin, we only get 5% revenue. If the product is less than 10% margin we get nothing on the sale.
No matter how you cut it, the investor always makes as much as or more than Just One Dime on the sale.
The REAL numbers and calculations
I’ll use Just one dime’s projected numbers to share my thoughts and where there’s some clever sleight of hand to misdirect you into thinking it’s easier than it really is.
Error #1 – False gross profits
From the start to month 6 when the store started selling, the assumption is an immediate 52% gross profit.
Don’t believe it, as the spreadsheet above is a best case scenario. Even in one of the videos, he explicitly says that one of his newly launched stores currently having sold $400k YTD (not per month) is running at 22% gross profit margins.
Since the screenshot is showing a YTD sales number, not a monthly number, it is very likely that this store has been losing money or breaking even for at least 6 months.
In any case, expect your new store to stay below 50% for at least 6 months. This changes the numbers drastically and throws out the $10k – 50K return out the window.
Error #2 – Unrealistic and wrong assumptions
Manufacturing and shipping of 15% sounds about right, BUT what about the inventory that is not sold and therefore still sitting on the balance sheet under assets? Who funds this inventory? Total inventory cost is never 15% all up.
If the landed cost is 15% of sales, then expect to have another 15-20% of sales sitting in Amazon’s warehouse.
Amazon refund of only 0.2%?? Even the best products get a refund rate of at least 0.5% to 1%. Other private label products will see refunds of at least 1-3% on the low end. Many products have refund rates above 5%.
Instead of a $3888 refund fee, it should be $58,320. What a difference of $55k…
This doesn’t apply to just the refund rate calculations. PPC is clearly understated too.
Even if expensive products have lower PPC costs, assuming a 5% PPC ACoS is ridiculously low.
If you aren’t selling national huge brands that don’t need much marketing, your PPC cost is going to be at least 10% for expensive private label products.
Coming from a spreadsheet and numbers nerd like me, the way they’ve created their calculator is basic. Too simple considering their expertise. Looks like it was made by someone who hasn’t run an Amazon store before.
In any case, I based my adjustments off their top line figures. See the spreadsheet below or use this link.
I also included a basic calculation if you were to do it yourself and the amount you’d save.
Error #3 – Cash flow analysis not included
If it’s an investment, Just One Dime should also provide a cash flow analysis. Seth said many times in his video to run the numbers.
So here I am.
Rookies don’t think about the cost of reinvesting. The faster a product sells, the more money you need to fund it.
If you purchased 1000 yoyo’s and they are flying off the shelf, you need to double or triple your inventory. The initial inventory of $24k is not going to cut it. You need the money to order 24×3 = $72K.
The faster the snowball, the more cash you need. This is what they don’t tell you. It’s how so many “successful” business go bankrupt because they don’t have the money to feed the monster.
Here’s a look at two scenarios using their assumptions.
One is for a selling price of $100 and the other is priced at $130.
- Year-end sales of $2M
- 500 sales in the first month of launch
- 45% month over month growth
- 30% deposit to order goods
- factor in lead times
- you giveaway 30 units per month (trust me, it will be MUCH higher)
This is more of a real-life scenario than what was provided by JOD or anyone else. I haven’t included the 10% or 15% profit taking into this. So it’s even more optimistic.
Here’s how the cash flow works out.
Notice the red numbers. That’s the amount of cash you need in the first 12 months to keep things going.
Your bankroll needs to be:
- + one time costs
- + profit taking fee
- + other service charges
- +$60k-$70k to keep it moving at the rate they are promoting
- = over $100K bankroll to fund and keep a $2M store running
Sure you can let everything go out of stock and keep sending in small quantities of inventory at a time for only what you can afford.
But that only eats more into your margins, increases ad spend, giveaways and more.
That 75% ROI they were promoting? No way.
You certainly build equity, but you won’t be taking cash out of the business like JOD will be.
Error #4 – Taxes are not included
Taxes are real. You end up paying the taxes.
In the spreadsheet, it’s completely left out and makes everything look rosier than it is.
Amazon pays out the money every 2 weeks which you will pay taxes on.
Error #5 – You are not an investor
An investor is someone who pays to take ownership of someone else’s business or join a partnership.
Paying someone 100% for their services, all the upfront costs, all the inventory cost, all the fees and taxes that come with it is not an investment.
Sure, you are “investing” in your future, but so is taking a college course.
What you are doing is starting a business and hiring out 100% of your business to a 3rd party.
Let’s call it what it is.
The cost structure
Upfront, there is a lot of work to do. There is no denying it. But you pay for that service 100%. Once the business is up and running, the work required drastically reduces to the point where you only need to put in 1 hour a day max if you have one product only.
But you continue to pay 10-15% recurring gross profit for this.
That’s the only catch. There is nothing illegal, it’s not a scam.
If you looked at the spreadsheet and my DIY adjusted scenario, you are paying an agency $200k to do the work for you in the first year only.
The higher the sales, the more you’ll give out.
Are you ok with this?
The difference between a 100% hands off approach and a slightly more hands on approach is $200k.
Think what you can do with $200k.
Major companies fight and negotiate over 1c because they understand how big of an impact it has.
If the store grows bigger, then you are now giving up $400k in the next year.
Now you can see what the catch is.
It’s a no brainer for the agency as it’s autopilot money once it is set up and you can’t get out of it.
Alternative to Amazon Automation agencies
Here are some alternative ways to create your own store where you can pocket a big chunk for yourself.
- Learn yourself – very hard and time-consuming. Not impossible, but doable.
- Act like a general contractor where you assign the work to different people or agencies.
- Hire an expert who can do everything for a $100k salary – It’s the exact same thing but you have to manage the person and be more involved.
- Hire an expert for a fixed upfront cost ($10K) to get everything running only. Then hire a junior person to maintain it for a $50k salary.
- Invest in someone starting to run a store for a percentage of equity of profit sharing.
- Partner up with someone who wants to start and fund the business.
Pros of done for you agencies
- hands off
- peace of mind
- comfortable method
- potential to make money with little effort
Cons of done for you agencies
- you put everything into the hands of someone else
- you won’t know how to operate or solve problems
- you are locked in for good
- continue paying 10-15% for minimal work later on
- conflict of interests between different clients
Questions you should ask
- Can you provide financial statements (P&L, cash flow statement, balance sheet statement) or 3 stores you are currently running? Redact any sensitive information.
- Are there any buyout conditions in case I want to stop the profit sharing?
- How long will the profit-sharing go on until?
- Why is there are maintenance cost on top of the profit share?
- Can you share a breakdown of the transactions and fees from a live store because it’s understated in the assumptions?
- Who will have access to my seller central account?
- What’s the growth plan?
- What if I want to expand to other channels?
- How do I pay for inventory?
- What happens if the amount required to purchase inventory far exceeds the profit?
- Is there a hand-off training session so that I can start operating the store?
- Whose GS1 barcodes are being used?
Lastly, ask yourself if it’s worth just making your life easier by hiring service providers. For example, hiring a virtual ecommerce bookkeeping service company would help you save time on bookkeeping each month so you can grow your business and this would be hands-off.
- No, it’s not a scam because they are a full-service agency
- No, it’s not an investment because you are paying a company to start a business for you
- Great for very passive people who have no time, desire to learn or have failed at Amazon
- Bad for passionate and proactive people
- You’ll be stuck giving away a percentage of profit even as the work becomes less and less
- The simulated numbers are overly optimistic and does not include any cash flow analysis
- For a $2M store, you’ll need a bankroll of $100k to sustain it the first year
- Analyze different options
What is Gorilla ROI?
Gorilla ROI automatically pulls Amazon data into Google sheets for you to make sense of the data without the inconvenience of manually downloading, sorting and updating spreadsheets.
Learn how you can centralize your data and use it to increase your ROI.