Looking at my accounting financials over the years, I realized something.
To be “successful” on Amazon, there are 2 ways to do it.
- Operate at a small scale
- Scale quickly and break through the break-even point
In between 1 or 2 is death valley.
The why & how – My Amazon story so far
Let me explain.
I quit my 6 figure, very easy going job in 2014 with my wife’s blessing. At that time we had grown the Amazon business to $8k a month. Not bad considering we didn’t know a thing, and there wasn’t as much information available back then.
Things were good because our overhead was low and we packed and fulfilled our products in a tiny office.
Oh the days when our office rent was $600/mo with no employees or operations to worry about.
We took out profits anytime we wanted and could keep it going as a lifestyle business to suit our needs. We regularly took trips every two or three months without having to worry about anything.
Fast forward a couple of years and we are doing mid to high 6 figures at this point.
Operating expenses have ballooned, we are moving from one office to another as we try to grow without increasing expenses too quickly.
Our office lease goes from $600/mo to $800/mo to $3000/mo. We keep moving and needing extra storage units as volume increases.
Soon we’ll be moving into our newest 6,000 sq/ft space paying close to $9,000/mo when it’s all said and done. It’s scary considering that Amazon continues to make up the majority of our revenue.
Cash flow gets drained much quicker. The freedom of taking out profits is gone. Going on a trip means extending a business trip most of the time.
Growth on Amazon hurts if you don’t have your pricing nailed and fully factor in every little operating expense.
It’s why we price our products based on operating margins and not gross margins.
Originally, we had a lot of profit left over going with just 30-35% gross margins.
But as total expenses grew from 10% of revenue to 15% to now 25%, a product with a gross margin of 30% loses money.
Before when we were small, it was
Now that’s we’ve become bigger, scale is what helps us. 1% here and there sounds like nothing, but when you are talking about 6 and 7 figures, it adds up.
It’s either stay small or go big.
There is no in-between if you want to be a successful Amazon seller
Mostly all the “courses” tell you that it’s easy to make money on Amazon.
What they don’t tell you, in order to sell you their course, are the details and ins and outs required to be profitable.
If you are already doing 7 figures, have your processes down and have brought your operating expenses down to at least 20% of sales, you are in the elite group of sellers.
If you are small and profitable with very little expenses, you too are doing great.
For those in-between, you’ll know when you have to decide which way you want to go. Your financials will tell you when it’s time.
Stay small and enjoy the stress-free lifestyle.
Or go big and take on the many challenges that will come your way, with the potential reward that follows.
But rarely will you have both in this biz.