More stuff for you today and an update to our April numbers.
The numbers and information I share is selective and for educational purpose as there are people I know personally who reads this. Trade, company secrets and sensitive information need to be private of course.
The purpose of starting this monthly review is to organize my thoughts on the Amazon FBA side of things and reflect on the past month.
Maybe monthly will be too often. Who knows?
We’ll see how these posts evolve based on how you find it and what information is helpful or not.
The pro version is also manual at this time. Once we are able to pull PPC data, this will be automated.
The PRO version is available from your account, and comes with in-depth KPI’s like I noted above. Here’s a screenshot of what you’ll see.
Your KPI’s will be different, but breaking down the data like this for us helps our team see what we are doing good and what we need to improve.
Free FBA Spreadsheet resource page in the works
I’ve received a number of requests and seen a lot of people posting for help related to getting a handle of their Amazon numbers.
To help with this, we are in the process of putting together a free resource page where you can download free versions of the spreadsheets we’ve created for Amazon FBA sellers.
If there is a particular spreadsheet you would like us to create and post for free, leave a comment below.
Trying to grow online sales
Finally got around to finishing this website and one of our ecommerce sites. All for the purpose of getting into paid marketing outside of Amazon.
I’m not including our direct or wholesale sales in this number. Amazon still makes up the majority percentage.
Our goal is to try and ween as many sales off Amazon and directly onto our own site. Our products and presence has grown where we can do 4 figures through our site with no marketing. All repeat purchases or people who found us through trade shows.
Now onto the FBA numbers.
April FBA Monthly Revenue
Coming from an investment background, one of the things I won’t do is breaking things down in too much detail.
No tables of income vs expense.
If you have been selling for a while, you know that all the fees, services and expenses that go back to Amazon eats up about 50% of revenue.
Pick and pack fees
All the charges that Amazon takes from your account related to customer service
For April, we ended with gross margins of 46%. It sounds impressive, but it doesn’t mean much because the quarterly and annual numbers are more important.
The problem with providing month over month analysis and change is that I may end up focusing too much on trying to make the numbers look good.
That’s why most public companies succumb to please wall street analysts as they try to get their stock higher, rather than make decisions that hurt in the short run, but add value to the long term health of the business.
Why were margins so high?
I wish our margins were always like this.
Typically, we range between 36-40%. So last month was an anomaly because of reduction in PPC spend, and reducing costs in fatty areas.
Fluctuations naturally occur depending on the month and the season.
On the flip side, March is an example where we reinvested large sums of money after China came back from their holidays.
Whereas for April, it was the start of our slow season. We cut back on expenses and optimize areas of the business that haven’t received the attention it needed.
Most likely for the next 3 months, our spend will go through the roof as we move to a large location. Lease will be around 40% as we need to reinvest in a bigger space and grow into it.
New office means more furniture, shelving, equipment, and more expenses.
Not something I like, but need to bite the bullet as I don’t want to go through the ordeal of trying to find new space when we are at 150% capacity. Not a good feeling.
What about profit?
Another thing with providing too much detail is that there are always people who whine about “profit”.
They most likely are talking about Free Cash Flow. Money you can take out of the business that is not required to run the business.
I’ve analyzed hundreds of public companies and valued them, and what most Amazon FBA entrepreneurs don’t understand is that businesses operate at different stages of the life cycle.
The problem with prioritizing profit as #1 is completely wrong because it is dependent on the stage you are operating at.
If you have been in business for 20+ years, have everything established and happy with 12% top line growth, then profit and FCF is a high priority.
If you’re still young and trying to grow at 50-200% YoY, forget about profit. Focus on growth, gaining market share and increasing the value of your equity value.
Once you hit the tipping point of large numbers, wind down the growth and rake in the profits.
For us, we are currently aiming for $3M in revenue this year, however, we could easily dial it back to $2M like what we did last year. If we did, I could reduce staff hours, cut back re-investments, new product developments, trade show costs, travel and other expenses to fatten margin by 5-10%.
Just a long winded way of saying we are barely breaking even from a financials point of view, but our investments will pay off in several years.
So far on this blog, I’ve pulled back the curtain of our very first product and how it flopped before it began.
I ended up throwing more money down the toilet and it was a good thing that I had a day job, as well as another side business, that was funding all of this.
If it wasn’t for those two income streams, I wouldn’t be writing this today.
I don’t know about you, but the stat where they say that most businesses fail within the first 3 years is true for us.
Those few years were rough.
But we plowed ahead to product #2.
Are you ready?
Not bad for a logo from 2012.
As you can tell by the name, it’s a “spray” product.
The backstory is that my wife hates germs. Doesn’t like touching door handles or surfaces outside because who knows what’s been going on.
While browsing online, we learn about this new sprayer product that is 100% natural and green.
But it’s not just a regular spray, it’s a green tech product.
Check out my flyer.
The quick science behind the product is that you simply mix tap water and a tiny amount of salt with citric acid into the spray bottle and then power it up for 5 minutes.
There’s some plasma emission and the base starts to electrolyze the mixture and separates the chlorine from the salt to create a solution that is 80-200x stronger than off the shelf chlorine, without the harshness.
What this means is that it can literally sanitize anything. Toilets, floors, cutting boards etc. You can touch it with bare skin and it won’t burn. Safe to use around children and pets without worries.
This was the chosen one
This was a product that we felt had a lot of potential
It was revolutionary
It had science behind it
It was FDA approved
It had clinical lab test results showing it worked
It solved a need in every household
So what went wrong?
It will be easier to explain via our instructional image.
These are the instructions that were to be included.
Over the years, we’ve learned that a product should always solve at least one of 3 universal needs.
Will it save me time?
Will it save me money? (or will it make me money?)
Will it make it convenient? (or will it make me comfortable?)
In OneSpray’s case, although it would solve problem #2, the cost savings didn’t outweigh the increase of time required and the inconvenience.
After a long meeting with a mentor, we came to see that the product was cool, but it would collect dust once somebody purchased it.
The product had the right idea, but in 2012, the demographic of hardcore green and natural consumers barely existed.
The market wasn’t ready for it.
Oh, and try convincing consumers to spend $80 when they can grab a bottle of cleaner for $2-5, which ends up being quicker and easier to use anyways.
Knowing when to fold
The saving grace with this product is that we folded our cards before we got too deep into it.
All we did was pay for a sample, make a logo, take photos, make a product brochure and ask people what they thought of the idea.
We asked around to check the demand and feasability
We didn’t care about being first to market
I’m glad the feedback wasn’t positive.
Around one year later, other companies started to private label the product and even exhibited at shows.
See the screenshot below from youtube. Yup that’s OneSpray.
Did a quick search and the product no longer exists.
The company from the video above is gone, as well as the parent company.
Interestingly enough, our old domain of onespray.com is now owned by another brand called “OneSpray” with a very similar concept. 😁
4 more lessons learned
1. We were too early
Sounds silly, but the market wasn’t ready for green tech at that time. There was also little interest back then compared to now, where the market has exploded with options and products.
Just recently, we exhibited at the Natural Expo show in Baltimore and the place was rocking and packed with natural and organic food, products, and this and that. If we were to try again, it would be much easier with a receptive audience. People nowadays are also making their home more smarter, so there is more potential now than before.
I don’t like being the market leader. Don’t have deep enough pockets for that.
2. Pain points were triggered, not solved
The inconvenience of having to create a mixture, wait 5 minutes for the conversion to finish was too much of a hassle.
It was like picking at a scab instead of relieving it.
Never relent in the pursuit of incorporating a real fix to one of the universal pain points in your product.
Find a way for your product to:
make it convenient
3. Re-educating the consumer is useless
Trying to change habits of consumers is impossible unless you have millions in marketing budget. People are set in their ways and they do not trust new small companies.
Another failing point with the product was that the mixture is so clean that it had no smell. It worked too well for its own benefit.
Consumers are so used to smelling chemicals and fake fragrances from cleaners that something doesn’t “look” or “feel” clean unless there’s a strong smell or visual component like foam or bubbles.
Being so clean and scentless was its downfall.
If the majority of consumers don’t get it in 3 seconds, it’s an uphill battle for the product.
4. Cost was too high compared to competition
Although there wasn’t a direct competitor, no consumer is willing to spend $80 for an electronic spray when you can buy a $3 spray that will last several months.
It would take years to make the machine worth it.
Would I buy it today? No.
So why would anyone else buy it?
Some products have a limit to the price. We were trying to sell an $80 all-purpose cleaner. However, beauty care products easily sell in the hundreds despite the same cost to manufacture.
With mostly only Amazon success stories on the internet, here’s a look at our failure. We can’t be the only ones to have run into trouble while trying to grow this business.
What I didn’t share about the SBA loan story was the product itself. But before I get into the product, take a look at my business plan projections I submitted to the bank.
I figured, we could start making money immediately and be profitable. We didn’t even know about Amazon at this time. These wild projections were based on selling to wholesale accounts and getting into retail stores in our very first year.
Expected highlights include:
sales of $200k in the first year
no loss whatsoever because I knew it was going to the next big thing
$500k in sales by year 3
Introducing the next gen cutting board
But not just any cutting board, we were going to be first ones to introduce a silicone cutting board.
We were certain it was going to be category killer.
It clearly solved a problem over traditional cutting boards.
“Antibacterial” concept. Roll up and sanitize in the microwave.
Heat resistant up to 485F. Can use as a baking tray or trivet.
Color coded to prevent cross contamination.
Won’t dull your knives.
Looking back, these photos were pretty good!
Because it was like this behind the scenes.
Getting the packaging designed
With the images on hand, we found a local design agency to do the packaging for us.
I personally find it to be atrocious.
They basically put the photos I provided them, along with a stock photo into a random grid position and charged us $2,000.
Looks like it was done in MS Word.
But being our first product, I was determined to push ahead.
Experiencing Chinese quality control
We ordered 50 samples in order to go to the next round of development – quality and NSF testing.
The first batch of samples came and they were 100% defective.
A cutting board is supposed to be flat and smooth, but our samples had tiny dimples all over it like some sort of skin disease. There was no way we could accept this.
With no experience, we didn’t know how to vet suppliers and we didn’t even know about Alibaba back then. We were just doing things on the fly without any proper process.
I announced a sudden 1 week break off work and flew out to Shenzhen to meet with the supplier. Looking back, I should have known.
The factory was a small dingy place. The walls and ceiling were bare concrete, place was covered in dust.
Today, I know that these are the factories that need to be avoided at all cost as there is no QC.
After a couple of months going back and forth, we get our final samples and it is still not perfect.
Those darn dimples.
At this point I’m just fed up and gave it the OK. I just want to launch the product and become a millionaire. You know that feeling, right?
Time to send for testing and certification
We send a bunch of cutting boards to NSF for testing and certification to claim our cutting boards are the best in the world.
A week later, we get a call that the cutting board failed its very first test. In fact, all 100% of the cutting boards failed.
A simple hardness test to see if the cutting board can withstand standard knife pressure.
Our cutting board failed looking like this.
Throw another $1,000 onto the burning pile of money.
Stupid mistake after stupid mistake
For over 1 year, we didn’t even think about the most basic of basic requirements. We were so in love with the new idea that we completely ignored the basic reason a cutting board exists.
To support a knife.
Everything else is secondary.
This was in 2012 by the way.
7 years later, silicone cutting boards are being sold on Amazon, but the funny thing is that most have been wiped out.
They aren’t selling well because of the exact issue we ran into.
Here’s a photo somebody posted as a review. Looks familiar.
6 hard lessons learned
1) We made another bad mistake with a design agency.
There are many talented designers on upwork who can do superb work at affordable prices.
2) Getting the product tested saved us.
Although I felt that spending money on NSF testing was a waste, my wife was right. She pushed for it and the results confirmed the project had to be killed. It saved us money as we did not have to order thousands of units that no one would buy.
If your product requires testing and certification to remain compliant, do it.
Making sure you have accurate and up to date FDA certifications, exemptions etc is critical.
3) Create a product backwards.
See if there’s demand.
See if the numbers make sense to make and then sell.
Make a cheap MVP (Minimal Viable Product).
Get lots of honest feedback.
Negotiate small minimums to start.
See if it sells with marketing, good images, PPC.
Only then make a big order.
4) Every mistake in business costs money.
At school or in a job, mistakes will cost a grade or a slap on the wrist at worse. In business, it’s all money. And it costs more money to fix the problem. We blew $70k on mistakes.
5) Business projections are useless.
You don’t know what you don’t know.
Business projections are pie in the sky numbers. Nobody knows until you actually get started.
Surround yourself with people that have gone through similar situations. Or at least business minded people who won’t discourage you.
6) Being first to market can be risky.
Creating a unique product comes with a lot of risks as the product has not been proven.
If done right, you become associated with the new category.
But there are always competitors and deeper pockets, waiting for you to make all the mistakes before they dive in and dominate.
This was our very first product. This was our very first failure.
The good thing is that we didn’t give up and let this dictate our future. We took the lessons from it and applied it to the next product.
We aren’t perfect and we still make mistakes, but that comes with the territory of trying to build a long term business.
I’ll continue to share more failures, successes as well as details on how we run certain aspects of our business like managing inventory, sharing confidential data with employees and trying to grow outside of Amazon.
With the new addition of Gorilla Agency and the new functions ChargeTotal, ChargeType, FeeTotal and FeeType, new templates are available.
Log in to your account at app.gorillaroi.com to copy them over to your account to start.
It doesn’t end there.
For PRO Spreadsheet buyers, we are adding business and operational documents that should get you excited. We’ve uploaded a bilingual NNN agreement as well as another document we get all of our suppliers to sign.
It has saved our necks on many occasion.
If you try to create your own NNN agreement and then get it reviewed and translated by a Chinese lawyer, it will be north of $1,000. But we are throwing in this document as part of the PRO package to sweeten the deal.
file design and utility patents in the US and China
create culture related items that China won’t catch onto quickly
leverage established brands
You’d think we would learn our lessons after receiving a bad shipment with 100% defective units.
We made the same mistake 2 more times for a total of 30,000 defective units.
Many suppliers are great to deal with. The quality and standards have improved greatly over the years, but you still come across enough bad apples to stay cautious
I’ll take you in more detail through each of the steps outlined above.
One of the areas we neglected was getting legal documents signed.
“Guangxi” (building relationships and goodwill) was how we did it with our initial suppliers. No official documents, no details of what each party would be responsible if something were to happen.
Came back to bite us as the first supplier blamed us for all the defective units.
We were at fault for sure…. for trusting their word.
Get a Chinese English NNN signed
As we manufacture unique products with our designs and mechanisms, we now implement a legal process where we get manufacturers to sign a Chinese and English NNN (Non-Disclosure, Non-Compete, Non-Circumvent) before we disclose anything.
Getting a high ranking person to sign the document or get the company seal on it. Not the sales rep’s signature who holds no responsibility. Getting the owner to sign is the best think you can do to protect your business and ideas.
What we’ve found is that the good and honest manufacturers keep it simple and will comply. It’s nothing new or wrong for them. They also see that:
you are serious
they go through the document, ask questions and want to negotiate on clauses
they sign and return the doc with minimal fuss
The bad ones are easy to identify.
The bad manufacturers:
make a big deal out of it and say all the buzzwords like we’ll never do this and that
they take a long time to sign or make it look like they forgot about it
if it is signed, an entry level sales rep is the signer which is useless
Get a Chinese English manufacturing agreement signed
If we find a good manufacturer and the project continues to move along smoothly and we get to the point of wanting to manufacture with the supplier, we then send over a manufacturing agreement which details all the different clauses and specifics you’d want to discuss before you start anything.
We use a 9-page document in simple language, stating the terms and conditions in Chinese and English.
Getting a lawyer to draft up agreements is great, but getting the Chinese supplier to go through each draft revision, give feedback, negotiate terms, or even get back to you in a timely manner is going to be a nightmare.
Try to push them with western style contract negotiation and you’ve lost a potential manufacturer. It’s important to remember that manufacturers don’t have law departments like in the US.
This is why having a very simple and easy to understand document that everyone agrees on is critical to having a successful relationship.
With China, the manufacturing relationship is expected to be a lot like a marriage, where if troubles come up, it is expected that you’d work through it together.
Compare that to the western culture where if you receive a shipment of defective items, you sue, or get money back somehow and then the business relationship is called off.
If you are a lawyer reading this, keep in mind that I am speaking from a practical viewpoint of being in the trenches. 9 out of 10 people who run an Amazon FBA business do not generate $100M in revenue where a contract scrutinizing every word is vital.
For the majority of people, using common sense, putting guardrails in place and doing business is what is needed.
Spending more upfront to create entry barriers
One common theme of copycats is speed over quality and investment. They will try to make a cheaper, crappier version as quick as possible with short-term profit as a goal.
Our first hit product that was copied from head to toe came out in 2 months after we launched.
The copied version was thin and flimsy, used cheap materials, but sold at 30% of our price. Despite what consumers say about wanting “quality” or “made in USA”, the wallet does the talking and people wanted cheap first and foremost.
We now invest a little more upfront to make it harder to copy.
For example, if we were making pots, we’d spend a little extra to create a unique handle or lid that would require a new mold. We’ll make this feature pop in our sales pages so that buyers can see how it is different and unique.
We never sell OEM or straight private label.
Aiming for ODM products works for us because we follow the first step of finding a trustworthy supplier and getting documents signed to protect our product.
This way, if a copycat were to buy our product and ship it to China to copy, they will have to invest in a new mold themselves.
With our first product that got copied, we found that the manufacturer did not maintain the mold in their facility. It was held at a 3rd party mold company and our mold was being shopped around to other manufacturers for other copycats to use.
Over-engineer the product
Until the early ’90s, German cars would last forever.
They over-engineered their engines and cars so that it was built to last – like a tank. Nowadays, everything has been peeled back in order to save cost and that’s why many German luxury brands have bad reliability.
We purposely try to over-engineer where it makes sense to focus on quality, durability and to make customers super proud and pleased with their purchase.
We have not heard a single customer complain our products lasted too long.
The downside is that our customers won’t buy from us that often. But this has helped us to get plenty of word of mouth referral business.
Because we also try to apply special manufacturing techniques and materials, it makes it cost prohibitive for cheap copycats to steal our show. They would have to first find our manufacturer, come up with a variant of our design and then order enough volume for their cost to come down to where we are.
Cheap versions of anything will always surface. We just don’t want cheap and fake versions being listed on our listings.
So far, this strategy has also helped us as we are able to thrive in a competitive category as the Chinese just cannot copy it.
Find backup manufacturers
We’ve experienced China’s “quality fade” on so many occasions.
This is where the quality will gradually degrade over time. Manufacturers are all head over heels with new business, but they will start to find new ways to shave cost in order to increase their margin while you believe it is the same product.
If you sold a bag of 1,000 gummy bears, the manufacturer may slowly reduce the quantity from 1,000 to 998 to 990 until a buyer counts it and leaves a scathing 1 star review.
This happened to us again just a few months ago.
Luckily, we went directly to the factory to inspect and monitor as it was a brand new product series.
We caught them red-handed and we got the factory to redo it 3 times. They throw their hands up in the air and say how unfair we are or how strict we have become.
Bad manufacturers don’t understand that it is always cheaper to make it properly the first time. Instead they cut corners, then claim your quality standards are too high and will raise prices on your.
I show them the original approved samples but they still make excuses.
Luckily, we had sourced a backup factory from a trade show we visited in Chicago.
Side note: the good and legit manufacturers also attend US trade shows. Easiest way to find good suppliers.
With this leverage, we informed our current factory they have 1 final chance. Screw it up any further and they lose every current and future business.
They got the message, but in our next order, they screwed it up again and so we are switching everything over to the new manufacturer.
Keep this rule in mind.
Don’t believe what manufacturers say and only believe half of what you see.
Design and utility patents
Most of our products now has a design or utility patent. You’d be surprised at what you can patent.
My initial mistake was thinking that patents were expensive, took forever and had to be totally unique and never done before.
My patent guy was quick to point out that every invention is an improvement of something else. Rarely do you see something that’s never been done before.
Some claims will be rejected if it’s not a clear improvement over an existing solution. But isn’t difficult to come up with a unique design or mechanical aspect to patent.
To date, we have 6 patents issued that cover a wide range of our products.
At first, I thought design patents were weak and a waste of money. But if I can protect a product from being copied for $500, my question will always be “where do I sign?”.
Although design patents can easily be maneuvered around, it can help to delay copycats or used to scare them off. Amazon doesn’t care about protecting your products, so it helps to ward off potential copycats.
It also makes business life much easier.
I don’t have to constantly look over my shoulder and see who is copying our stuff. I can focus on coming up with new products, developing, testing and improving our processes. Not getting stuck in the weeds of having to send messages back and forth with seller support.
Using a patent lawyer will set you back at a minimum of $1,000. But filing a patent does not have to break your budget.
see many people try to save a few cents by using Google Patents. If you know exactly what do and how wide you need to search, go for it. But I advise against it, even for seasoned sellers.
The reason is that patents are not “binary”. What I mean is, a patent won’t be issued just because your exact design doesn’t exist.
If there are different inventions along similar concepts or ideas, classified under different terms and names, your patent will not be issued.
This is the hard part that most folks miss out.
Let’s say I’ve designed a yoga mat. I obviously can’t patent a yoga mat. But what if I created a built-in strap and bag into the yoga mat.
The built-in strap part likely won’t be patentable because the patent officer could believe it’s a natural extension of the yoga mat. So that one has a high chance of getting denied.
But what about a built-in bag? Not a separate yoga bag, but one that is directly attached to it.
There’s a good chance this is possible, but to make sure, I’d have to dig deep into the patent office to make sure there is nothing like that.
This is where you’d have to search and go through the patents of things like a foldable poncho, foldable tote bag, foldable jacket etc and make a case that there is no such thing as a built-in foldable bag in the yoga category.
And so far, we have a 100% success rate.
If you can afford a lawyer, that’s great, but if you can’t, for a few hundred dollars, you can find a patent agent with extensive experience to do all the legwork for you from detailed searches to recommendations, to submissions and follow-ups.
Using a patent agent should be a flat fee of around $150-$250 for detailed searches and $300-$550 for patent submissions depending on the complexity.
Recently we also started filing patents in China. The process is just as simple. There are plenty of patent agents in China who will guide you through the entire process, from choosing a Chinese name for yourself and your company, what documents to provide, what to sign and so on.
Or you can contact us and we’ll get your patents filed and submitted on your behalf hassle and worry free.
Because China is a first to file system, the quicker you can submit a patent, the better.
Why do you need a patent in China?
No one will be able to make and sell your products in China. There is the issue of having to go after infringers, but placing protection around your ideas in China comes out on top if you ask me.
If you end up ordering 10,000 units and spend $1,000 on patents, it’s an extra $0.10 per unit for the initial order. But it’s also an asset and will pay for itself 10x.
For that extra $0.10, we get:
peace of mind (not 100%, but still..)
scare away competition
can put “patent pending” or “patented” on our listing and product
A small upfront investment can yield huge ROI in intangibles for long-term business.
Create culture related items
I’ll explain this with a story.
It was the middle of summer and we made a trip to China for an inspection. It’s hot and humid where our supplier is. We are working out of this empty, dusty warehouse and ask for some cold water.
The person comes back with a kettle.
A kettle of hot water.
It’s 90-100 degrees F (32-37 Celsius) with humidity at 95%. I’m literally a walking fountain because I’m dripping in sweat.
But the Chinese believe that drinking cold water is unhealthy. It creates an imbalance between your body temperature and outside temperature.
Now if I were to sell ice cold water bottles in China, I’ll go bankrupt. It’s not a cultural fit.
In order to stay ahead of China, creating items that Chinese people don’t understand gives you a head start on the competition.
Oh sure, they will create imitations, but if they don’t understand what they are making and why, quality will be poor and reviews will be bad.
Poo-Pourri is an example. It’s a toilet spray to deodorize and hide your poo smell.
I have yet to see a single Chinese seller make their own version.
the Chinese are very weak with formulation
they won’t have proper SDS documents that meet US OSHA requirements
they don’t understand why Americans would want such a thing
If you can find or create products that are outside of China culturally, you have a great chance of succeeding without getting sabotaged or flooded with copies and fakes.
Leverage established brands
Probably one of the easiest ways to beat the competition is an old strategy, but still a very good one.
The truth is unless you are spending millions on advertising or getting millions of visits to your site a month, you don’t have a brand.
However, if you can get a reseller or wholesale account with a real brand and manufacturer and create bundles, it gives your product instant cred.
Think about it.
If you are able to package your product with a well-known product, the consumer will associate your product with the big brand.
My wife just purchased a couple of fitness trackers. But let’s say she sells bands for fitness trackers.
And after networking at trade shows, she manages to become a reseller of Fitbit.
But instead of just selling a single Fitbit, she offers 2 or 3 wristbands the consumer can choose to customize.
The Fitbit example isn’t a great one, but you get the point. It doesn’t have to be a huge name. Just a well known one from within your industry.
Our #1 best seller is actually directly based on this tactic.
Because the name is already recognizable, our ACoS for this product is our lowest. So we get volume and spend less because the marketing has already been done for us.
The great thing?
China can’t get these branded products because they are overseas
Newbie sellers focus on what their scouting software tells them to do
So there you have it. There’s nothing groundbreaking here.
Just a lot of hard work but it gets easier and quicker as you do more.
Imagine every product you source turns into a winner becomes the best seller in the category.
Unfortunately, that’s not how it works.
We’ve gone through countless painful steps in our FBA journey.
Our painful product experience
Here’s a short list of credentials attached to our business.
I’ve ordered 10,000 units which were all 100% defective, which we fixed by hand at home, garage and anywhere we could.
I reordered and another 10,000 defects came.
After 2 months of selling, people were selling an exact copy of our product.
I found people posing as buyers in order to find our supplier.
I was in a battle with China sellers and I ran away with my tail between my legs.
Our mold was shopped around from factory to factory.
Our supplier refused to send the mold we owned, to our new supplier.
The worst thing?
Everything noted above was for a single product.
What happens if you don’t document everything
With little to no standard operating procedures (SOP), we made the same mistake multiple times because we didn’t want to put in the little effort to document and make checklists.
Such a simple task ended up costing us over $20k of product and labor, not to mention overhead and other soft costs associated with this fiasco.
When first shipment of defects came in, that was our fault for not sending an inspection company to verify the QC.
So for the second order, we figured out a way to eliminate a lot of the manual process that was causing the issue.
It wasn’t made to spec again and so we ended up with another 10,000 units of defects.
Because I didn’t understand the Chinese culture of doing business, I applied western thinking to the business relationship.
“I’m sure it won’t happen again.”
“I’ve explained our standards to them and they said they understood.”
Those two thoughts have cost us tens of thousands of dollars.
It’s why we now meticulously enforce suppliers to sign Chinese and English NNN agreements and a detailed manufacturing agreement covering our expectations and how issues will be handled.
With all these mistakes and heartbreak under our belt, here’s a framework of how we protect our business and products from China suppliers and sellers.
I call it a framework and not a checklist because it has to be adapted for each situation and business.
Understand China’s strength and weakness
Our core goal is to create products that China sellers will have a hard time copying. They can copy the idea, but not directly rip off our products.
We also want to sell timeless products. Not fad items like shoes with wheels, or fidget spinners and other short term thinking products.
To do this, we try to broadly understand the areas where we have and don’t have an advantage over China.
Where China has an advantage
First, China has strong advantages in:
manufacturing and infrastructure
ignoring rules and regulations
Speed – you can find or produce a product super fast. The China network of suppliers and sub-factories makes it possible to create a new product in 30-60 days.
Copying – send them a sample and they can copy it.
Shipping – very fast and cheap when originating from China to all around the world.
Manufacturing and infrastructure – tons of expertise in all forms of manufacturing. Each region specializes in a certain product/industry.
Raw materials – can find any form of raw material. Makes everything efficient and cost effective when everything can be done in-house in China.
Ignoring rules and regulations – as an exporter they can get away with a lot when doing business internationally. The Lumber Liquidators flooring scandal is an example where the factory was making flooring with extremely high levels of formaldehyde – cancer causing chemicals.
But this isn’t everything because China also has plenty of weaknesses which you can use to your advantage.
China has weaknesses in:
low quality (a.k.a if it works, it’s good enough) being the default cultural standard
quick cash mentality
bad at formulations and liquid products
low food quality
being across the ocean
“Made in China” reputation
ignoring rules and regulations
This does not apply to every company, but something to keep in mind. You never know.
Low quality – suppliers will and do cut corners and degrade quality without you noticing in order to shave off cost. This way, they expand their own margins and you don’t know until it’s too late. Rightfully called “quality fade“.
Quick cash – focus is on getting money now, instead of a long term relationship where everyone wins.
Formulations, liquid, food products – there is no way I’ll knowingly buy made in China food, supplements or liquid products. Same with beauty, pet food or other liquid products requiring formulation and quality control. I’ve never heard a woman say they want the latest made in China lipstick.
Being across the ocean – If a product is complex and expensive, it can be cheaper to manufacture in the US. Make the mold in China and have it shipped to your country. Then you get the Made in USA or Germany label with lower costs, lower transport fees, taxes etc.
Made in China – Despite some of the best and expensive products being made in China (iPhone and many electronics, furniture), their reputation won’t go away anytime soon.
Ignoring rules and regulations: Many baby products require documentation and certifications in order to sell in the US. Other health related products governed by the FDA all require certification and documentation. Many factories will claim they are compliant, but their certification expired 5 years ago, or it’s for a different product line.
What we do to protect our business from China and copycats
With all the hair pulling losses we’ve experienced, our framework for new products and business is to:
I’m afraid to look at my calendar because 2019 is packed. My wife and I definitely feel overwhelmed already from all the upcoming schedules and events.
But I do look forward to seeing how everything pans out when I review 2019 a few years later.
Trade shows? Eww…
First, when it comes to trade shows, people tend to think:
trade shows are useless
they are behind trends
waste of time and money
I attend shows for 3 main reasons which I’ll go into deeper detail.
#1 To sell our product
When we get to sell it physically, we find out which products work, what people respond to, and getting rid of excess or dead inventory.
I’ve mentioned this before but I don’t rely on scouting software for new product ideas. With so many armchair Amazon sellers, finding product ideas outside of the usual research software has been an advantage that continues to work for us.
Most business owners at the show all go through the same thing. It’s a great way to pick up knowledge bombs from others and share feedback and marketing ideas.
Helping a new entrepreneur is also rewarding.
1. Selling our product
A lot of good things come from selling at shows.
It’s an opportunity to:
get in front of a real audience
identify who your true target audience is
gather live feedback from buyers
craft your pitch
test what works and what doesn’t
You can do all this from the comfort of your office or home, but there’s a lot of value in doing it in person.
It’s also faster and cheaper.
You could spend weeks, and hundreds of dollars doing online surveys, using custom software, sending out emails, split testing pages and headlines, and paying for ads to drive leads before you have a big enough sample size to lock down a solid result or conclusion.
But trade shows provide the opportunity to do all of the above in one setting. And within a day, you usually get the answer.
I’m not referring to big trade shows like the annual Chicago homeware show.
A couple of years back, we did a local Christmas event. Our friend was begging us to sell our stuff at her event. It was only $30 to get a table. The show/bazaar was held at her school on a Saturday from 10am-3pm.
At this little event, we figured we would work on our pitch and see what works. Didn’t expect any sales at all. Just doing it to help a friend.
But we sold over $600 in that lazy afternoon.
But the point is once I got my pitch going and was able to convert browsers into buyers, I applied the catch phrases and keywords that triggered a reaction – into my Amazon listings.
These are keywords that do not show up on google search volume, Amazon search or any SEO software.
After we updated our listing with these phrases, it started to have a big effect. We uncovered the exact pain point keyword by listening in person to what the customer was looking for and asking questions about.
Real time feedback.
Trade shows are also good places to get rid of excess or dead inventory AND do some local marketing and get the product in front of people.
With our dud products, we offer it as a freebie to incentive people to buy. We were going to throw it out anyways. Might as well use it as a promotion to increase conversion.
With each sale, we also mention our website and where they can find us. An effort to drive people to our site for future repeat purchases. Last year we started to see good results and diversifying away from Amazon is always a good idea.
2. Scouting for products
At our worst show ever, we sold $12 all day.
2 people working
$12 total sales
Not going to lie, it was draining and demoralizing, but we found our best selling product.
Here’s how it happened.
The guy next to our booth was crushing it.
He easily made $15-20k during this show. But thanks to him, and our non-existent sales, I got to watch his pitch, his presentation, his craft and pick his brain.
The way he presents his products, the problem he makes you visualize, the dream he lays out and the solution to the problem.
We now try to create out listings, website, videos and marketing material in this way.
Don’t sell the steak. Sell the sizzle.
His presentation was so good that my wife fell for it and couldn’t contain her excitement at spending $2k to buy his stuff.
As he is packing up the goods for us, he throws in a small sample of a product to keep his products in top condition.
Again, that show was our worst ever.
But that little free sample – it worked so good when we tried it that we were literally blown away. Forget the expensive $2,000 item. We were ecstatic about that cheap little freebie.
We had to find a way to sell it.
After digging around and making numerous calls, we found the manufacturer was able to open a wholesale account.
To this day, it is still our #1 seller and getting stronger year over year, turning over thousands every month with little competition.
During the show, it was draining and annoying not getting any sales. But in hindsight, it was our biggest success ever.
This is an example of scouting luck, but hey, luck comes to those who try.
Our other products were also found in person. If we see a booth that is getting huge amounts of traffic, we analyze what the product is and why. If the product is good and fits within our scope, we improve on it and make our custom version.
Seeing as how all the low-class Amazon sellers are short-term motivated and copycats, they lag the market significantly.
While these sellers may get to market quickly with the exact same product, it’s not worth playing the same game.
There are so many shows and fairs throughout the year. Check out your local calendars to see what’s around your area, or if you have the time and budget, make an international trip. International scouting has been one of our biggest winners throughout the years.
Trade shows are some of the best ways to network with like-minded people.
We all go through, or have been through similar experiences and people are more open to answering questions when you talk to them in person.
If you’ve ever been to a networking event, it’s miserable. People aren’t there to network. They are there to sell.
With shows however, people are there with the same objective and are open to sharing ideas, their stories about business and life.
We found one of our best distributors from a show. He noticed that we were coming year after year, yet didn’t see us outside of our main city. He wanted to take on the product for his portfolio.
Most people at the shows also don’t know how to sell on Amazon or how to do it properly. So if you are a consultant or agency, it’s easy to pick up new business.
Many different ways to approach it. It’s the mentality that counts.
If you believe trade shows are for suckers or it’s old school and there’s nothing to gain from it, that’s the result you’ll get.
Downside to trade shows?
The biggest downside is:
Shows are not easy if you exhibit.
I have so much respect for people who do it all year around.
But each time we’ve put in the effort, it has paid off.
You can start easily and just visit shows and fairs around you that are easy to get to. If you are a new seller, it’s a good way to be different and build up experience without a big investment.
Trade shows don’t suck.
Visit one, or sell at a local one yourself and it will make you are a better seller on Amazon.
Allow me back up to a pivotal point in our business when we knew nothing, that could have ended our business from the start.
In the beginning
We were so green and wet behind the ears that we made mistake after mistake.
In fact, I’d say we (as in my wife and I) made more mistakes than most people as we didn’t have any friends or connections with people who ran a business.
No one to ask for advice while we were starting up.
My family were puzzled, and questioned why I would leave a well paying 6 figure job at Samsung Electronics.
We had to learn everything through our failures and it hurt.
It still hurts with every new fail we encounter. There never seems to be a shortage of them.
Let’s go back to 2012.
As the title suggests, we were approved for an SBA (Small Business Administration) loan. Considering that banks were still tight on giving credit in 2012, it was a big feat for us to close on the SBA loan.
It literally took us 8 months to get the loan, but we got it.
One of the requirements was to submit a business plan. We made a killer deck, with wild cash flow projections that put us into positive territory after the first year. HAHA.
This was before we even knew about selling on Amazon.
It’ll be funny to upload the business plan for you to see. I now realize how useless business plans are for new businesses…
I see the same type of mistakes from people pitching on Shark Tank and other investment shows where they claim to have the best idea, and believe it will be profitable right away.
Just like me.
But with all those hopes and dreams filled in our pockets, we finally finished the SBA loan and got the money.
$70k fresh in the bank.
The dumb, horrible, inexcusable $70,000 mistake no business should make
With a big balance of $70k now in the bank, we had so much opportunity.
We did what any newbie entrepreneur would do. We stopped being resourceful.
When we were financing everything out of pocket and didn’t have much cash to work with, we kept an eagle’s eye on all expenses.
With this newfound wad of cash, common sense left the house.
We figured we needed to take our product packaging to the next level and fast before anyone found out.
After some searching, we found a superb design firm from San Francisco and hired them to design our
trade show materials like banners, brochures and other useless stuff like a presentation folder
The problem with marketing agencies is that there is a lot of “fluff work” to make the high cost worth it.
They performed the usual “market research” which takes at least a couple of weeks. Something we had already done by buying competitor products and comparing them.
Mood boards came next.
Then a lot of calls, proposals, and lots more back and forth over the next 3 months.
When it was all finished, we blew our entire $70k SBA loan on the design and marketing.
How dumb were we?
We did not set a budget
We didn’t know what we needed
We didn’t have a plan to sell the product
We were infatuated with the idea of having eye catching packaging.
Sales cures all… if you sell
Now that we had packaging deemed worthy and looking like it belonged on every retail shelf, we hit our first trade show.
Things started off “meh”.
We landed a few tiny accounts but still super excited to see it live on the shelf.
Fast forwarding a little, we visit the store, talk to the manager and buyer and get bad news.
The product wasn’t selling.
What a punch to the gut.
We realized we didn’t put any thought into how consumers think and chooses to buy a product. We approved this beautiful package design that wasn’t communicating any of the benefits to the buyer.
It only caused more confusion.
Back to basics and fundamentals
With all the cash gone, we couldn’t afford the fixes or redesigns the design agency would charge. Their hourly rate was $250-$300.
So I did what should have been done in the first place.
I went to the local supermarket and studied and analyzed the common themes of successful products.
And one by one, I started to make changes myself to the packaging. Having experience with photoshop helped.
The original designers certainly wouldn’t have approved my design changes. It messed up the aesthetics, the text alignment wasn’t perfect, I added images taken with my phone, the images didn’t flow 100% – but the conversions rocketed up.
Other improvements made to the product
Renamed the product to what it was.
If we were selling a yoga mat, we first called it some stupid name like “plush mat” thinking we were being different and creative. It was just stupidity. Should have just called it “yoga mat” from the beginning.
Added simpler descriptions.
We also had different versions of the product, and people would constantly ask us about the differences. Using the yoga mat example, we added terms like “hard”, “medium”, “soft”. Or small, medium, large to the packaging.
Added in use photos.
I took some random in-use shots with a cheap camera and my phone, created a collage using free online photo software and embedded it into the front of our packaging. People can never have enough in-use photos.
This version is the same design we still use today -7 years later.
What I learned wasting $70,000
I’m being unfair by saying it was a screw up as the logo and design really is beautiful and it has created a wonderful brand and foundation over the years.
However, if I had another $70,000 loan, everything would be done differently.
The big takeaways:
Having no money forces you to be creative and go into fight or flight mode.
A sudden big balance causes “lotto syndrome” of spending on unnecessary things.
We no longer use agencies.
This a global economy and our main designer is in Eastern Europe. Her rate is $30-$50/hr and delivers mind blowing quality and speed. In a recent trade show, passersby would stop to just comment on how on-point and attractive the packaging was. Ever since, we have had great success finding designers ourselves from dribbble.com and upwork.com
Research your customers, not the product.
Had we bothered to put in the effort to do our own customer research and gathered feedback much earlier (or even during the design phase), we would have been in a much better position and with more money in the bank.
Sales is sexier than design.
The product could look the prettiest, but if it’s vague, doesn’t have a clear cut message and fails to convert, it’s dead to me. I’d rather have a website or product like craigslist.org that looks 20 years old but converts like crazy, than a flashy website that doesn’t convert. Same thing applies to product packaging.
Hindsight is 20/20 and it’s funny to look back on it. I’m shaking my head and laughing as I write this.
I’ll continue sharing more failures, successes, and lessons learned as I take you through our journey of getting to $5M in revenue and beyond.
Give me a sec to tell you a short story of how I got to Seattle.
I was born in Korea, but grew up in Australia. Finished my schooling and in my first job, the company was trying to break into the US market. They had an office in Redmond, WA (Microsoft territory) and asked if I wanted to move. This was in 2005.
Seeing as how I was recently out of school, no commitments, no money, I eagerly accepted.
Packed up and left my life in Australia in 5 days.
Interestingly enough, I’ve outlasted the original company I worked for. The boss closed up shop, but I’ve been here ever since.
But when I arrived in the US, it was supposed to be a joke, but there was a reality to it and I’ve always remembered it.
I was told that when you migrate to another country, it’s very important who picks you up at the airport.
Your path will follow whoever picks you up.
Most immigrant Koreans run a small Teriyaki restaurant or laundromat. The new person is introduced to the world of Teriyaki and laundries and before you know it, you are neck deep in the same thing.
Same with Amazon.
Depending on who you learn from, you’ll get some great advice, but also bad ones.
And if you don’t challenge or question advice, you may end up doing the same thing.
So which is it?
Niche or mass market?
We started off with a niche product because that’s where I am most comfortable. I was into long tail keywords, smaller markets and dominating it.
But now I hate it.
Cheaper to launch and learn
Can’t grow. Limited ceiling.
A few extra sellers make it crowded
On the other hand, we stumbled on mass market products by unexpectedly. I had designed and created what I thought was going to be a nice niche product, but sales took off. In the first week, we were selling 100 units a day.
What we stumbled upon was to go after mass market products with niche features.
Don’t make the same old boring mass market products. Innovate a little and think about how it can be improved.
All products are simply improvements. They are rarely category creators, and so you are simply taking market share away from another seller.
A zero sum game.
Now, I shun niche products like bbq silicone gloves, garlic press, phone holders.