Last time, I shared why buying courses to make quick money on Amazon is a baaaaad idea.
Over the next couple of weeks, I’ll dive deeper into our thinking and overall business goal. Maybe you can take something away from our framework.
First, what I can’t stress enough is that we are just one business and this is our strategy of navigating through the business world. We go through business pains on a daily basis and I’m sure you’re in a similar situation.
Are 8 figure sellers always right?
I’ve come across 8 figure Amazon sellers, who run a completely different business model to us, they tell me I’m doing it all wrong.
Sure. I’m wrong on many things. My wife likes to remind me when I get out of place ?.. (and I still don’t listen)
But just because somebody does big revenue, are they right?
They aren’t right – but they aren’t wrong either.
Existing Amazon FBA business models
Off the top of my head, the various types of business models I come across on Amazon are:
- the FBA supermarket store model (Target store strategy) – example
- the FBA specialty store model (Best Buy, Willams Sonoma, strategy) – example
- the FBA branded label store model (Uniqlo, GAP, Anker strategy) – example
- the Alibaba product store model (slap a different name on the same Alibaba products strategy) – example
Each model can be broken down further. e.g. the supermarket model could be selling all items related to health supplements, an FBA braded store could focus on just swimwear or bbq related products.
This is important because most often, Amazon sellers are grouped into either:
- ODM (a.k.a private label)
- OEM (unique products you design and manufacture)
- Online arbitrage
- Retail arbitrage
This is why there’s a lot of bad advice out there. Because depending on the strategy, a lot of things change and the way you source, operate and make money changes.
Our business focuses on OEM. This is where we create our own mechanical designs, artwork and everything related to the product. Our manufacturer then makes it according to our specifications.
In this way, our products are unique, patented and random factories in China do not have access to our assets.
An 8 figure that sources products by wholesaling has a different perspective and strategy of operating their FBA business. And because they don’t have any experience or scale with ODM or OEM, their advice isn’t always applicable to how we operate.
In order to get good and sound advice, make sure the person you speak with, understands and has experience with your FBA model.
Why knowing and defining your strategy is important
Apple is one of the biggest company in the world. Exxon Mobil is also one of the biggest energy companies in the world.
But it would be foolish for Exxon to tell Apple how to run their operations based on their experience in drilling and refining oil.
The advice and strategies don’t match.
The same applies with Amazon sellers. Depending on your business model, the strategies and mindsets are starkly different.
It’s all about focus.
Etailz is one of the biggest sellers on Amazon, and they crush it while making 1-2 cents on every sale. They make it up with volume and win the buy box with their internal software, systems and processes. They are willing to anything and everything.
Think of them as the “Walmart” of Amazon. Etailz knows who they are and what they are trying to achieve.
However, this isn’t a model that I or many others enjoy.
- to sell a lot of a single product
- with large margins
- with high conversion rates
- less sku’s to deal with
- and we can get better prices with more volume
We want to create branded products that meet, or get close to our internal 40/20 rule. Aiming for 40% gross margins with 20% operating margins.
If you don’t know how to calculate your margins, check out our break-even calculator spreadsheet which can also help you figure out how much to sell a product for.
We also stick with a family of products and create product lines around each other. It makes it easier to sell both products if they are relevant to each other.
This way, it helps when we attend trade shows and events to have a family of products we can showcase, rather than displaying 50 random products.
Zigging When Others are Zagging
In hindsight, our saving grace over the years is knowing who we are, and being disciplined (to some extent) with what we invest in.
I also like to hear what the consensus advice is floating around. Purely for the reason of trying to take advantage of the opposite angle that isn’t getting attention.
If gurus say that you should find and sell products over $20, then I’ll test things under $20 while aiming to meet our 40/20 requirement.
If the consensus is to do light products, I’ll look into whether a big or heavy item can be profitable.
The one thing you and I have in common is that we want to turn a profit. It’s just how we do it that differs.
I’ll leave you with a short story of a seller that I met online and why focus and defining your strategy is important.
Let’s just call him Matt.
Matt was doing $3M on Amazon and very profitable using the Alibaba private label strategy. His business is now breaking even – no profit.
“we were doing great but not so much anymore because everyone’s doing what we were doing now. From 3+ mil sales down to breaking even now… Too much competition forcing me to look at other places but haven’t come up with any new products worth while. Maybe I’m thinking I go to Canton fair. I have no other ideas left at this point.”
He’s done it before, so he has the experience to do it again.
But it goes to show how competitive Amazon has become and how sellers can be pushed out in the blink of an eye if you don’t have long term strategies in place.
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