Invested $50k and 3.5 Months Later the Business is Worth $300k (400+% ROI)?
I started writing this post before I had finished the data analysis…the ROI is a little shocking! I want to make sure up front I say these numbers are still a little “fresh” and it would be stupid of me to consider these last two months as the basis moving forward.
Since my decision (when the wife was away and I had had a couple beer) to launch my can’t fail FBA business on a Friday night mid September I have been moving quickly (especially in the first two months).
This post is an update on my business and I share exactly how many of the assumptions I made have held up.
Apologies to those non data geeks as I share a LOT of data below!
In this post I am going to share…
- My Basic FBA Business Strategy (summary)
- Recent Success
- Increased Price!
- Keyword Ranking
- Recent Failures (plenty!)
- Lowered Price
- PPC (Amazon and Re-Targeting)
- Pushing the business forward
- Promo code (lost $1.5k)
- Sales and Traffic Numbers
- Net Profit & How are my assumptions holding
- Path Forward – Revised FBA Goals
Sell 50 units per day by the end of the year (Completed)
- Grow Business to $15k/month average for 6 months and sell for 30x
- Launch 2 new brands on the back of affiliate sites
My Amazon FBA Strategy – Refresher
Amazon FBA businesses are extremely “hot” I first heard of it via much of the launch promotions around the $4k(or something like it) training program being promoted. I vowed I would not venture into the space until I found a unique angle AND there would be no way I was going to spend that kind of money on information!
My strategy is to use an existing Amazon affiliate site that has demonstrated it is capable of driving sales to a private label product and use the sales volume my affiliate site drives to launch and sustain my Private Label Amazon FBA brand.
Basic 3 Step Process:
- Build/Buy Amazon Affiliate Site Selling a Product that could be sourced as a Private Label product. Building/buying an affiliate site for a vacuum cleaner would not work. EmpireFlippers.com are a great source for buying sites.
- Review the sales data the site is driving and identify a product that could be private labelled.
- Do everything recommended by Scott at TheAmazingSeller.com
Increased Price & Didn’t Slow Sales
Inventory control for a new product during the holiday season can be a challenge. One variation of my product was selling much better than expected and as a result was going to run out of stock before my next shipment arrived. In order to try and slow sales on that variation and drive sales to my other variations (direct subsitiutes) I increased the price. The price increase which resulted in doubling my profit on that product did not slow sales! Increased net income by over $1k in only 2weeks!
Using AMZTracker.com and all of its tools I have been knocking on page one in Amazon for some very competitive keywords (165,000 unique searches in Google per month).
Although my product is a pure Private Label play with no unique differentiators other than the labelling from many others the reviews I am receiving are better than my competitors. This is a very promising trend that I am looking forward to continuing and will really help with one of my main goals listed below.
Recent Failures (plenty!)
Although I am comfortable with numbers I have not used the volume of data with Amazon to my advantage to find optimal prices. I have only done 1 deliberate pricing test lowering the price to see if it would drive up sales and it made no impact. For whatever reason I was a dumb a** and didn’t test the opposite until low inventory forced me too much later. In the words of an Econ prof the demand is very price in-elastic which surprised me because there are near perfect substitutes with competitors.
PPC Failure (Amazon & Re-Targeting)
I have been unable to find a PPC formula which is profitable to run. I have not even been close to breaking even! One of the big advantages (I thought) of having 2 niche sites would be the re-targetting visitors with ads on Facebook and around the web to drive sales back to my Amazon product. This strategy has so far been a complete failure. I will try and find a different 2 part approach getting people onto an email list and then promoting to them. This email list I hope will also have value which will play into one of my main goals listed below.
Pushing the business forward
I haven’t gotten into the numbers yet but things have been going well. For whatever reason I have taken my foot off the gas, if I were to credit the success to one thing it would be very fast decisive action in the first two months… why have I slowed in the last month? Part of it is uncertainty on what I should be doing next and not wanting to risk messing up a successful business. It is much easier to take risky/fast steps when the downside is nothing because a business doesn’t exist yet. I need to get over that and keep the foot on the gas with this business.
Promo Code Not Restricted & Lost $1.5k
Yah this one is STUPID – I had a promotion code which I didn’t limit in number and as a result in the span of only a couple hours I lost $3,000 worth of product but was able to cancel ½ the sales before they shipped. Lucky for me my wife is doing a great job monitoring the account otherwise we could have lost all our inventory and not been able to benefit from the Black Friday and Cyber Monday push. Being lazy and stupid when I was creating a coupon code for one customer are the root causes of this failure!
Like I said many many failures!
Sales & Traffic Numbers
For November and December here were the numbers…
Sales (spike at the end of Nov is my promo code mistake)
Traffic (spike at the end of Nov is my promo code mistake)
Month over Month Growth
Review of Original Assumptions & Current Value of Business
In this section I will compare how my current FBA business is doing vs the assumptions I made for it when I started and publicly shared here.
What this is saying is that essentially mid-September I invested $50k to build an Amazon FBA business and now 3.5 months later I have built a business worth $300k.
I am the first to admit that there are some problems with this analysis namely that I am valuing an ecommerce business immediately after the holiday push! In addition to earn these multiples I will need to have more than a couple months of income history!
Even with $50k in revenue all income remains tied up in inventory.
Other Key Takeaways:
Now that enough data is in I can draw a few conclusions.
- 22% of all sales my affiliate site drives will be of my product. I was hoping this would be higher but it has been very consistent and I don’t see it changing substantially.
- Amazon organic sales are rapidly increasing to a higher level than originally predicted. This is a very promising trend with still plenty of room to go as I am sitting at ~2,500 seller rank in clothing with plenty of competitors sitting higher!
Public Goals for the Business
- Short Term– Sell 50 units/day on Amazon at an average $10 profit by the end of the year (ACHIEVED!!)
- Longer Term– Build this brand into a $50k/month net profit business and sell for a 30x multiple within 24 months of starting = $1,500,000 – This has now been changed to push towards a faster sale of a $15k/month net profit FBA business in 2016 for $400k!
The plan moving forward is to…
- Build my current brand (add products, increase affiliate site traffic, figure out PPC, improve listings).
- Set myself up to launch 2 new brands in 2016 by improving existing, successful affiliate sites and getting samples.
These heavy data driven posts are fun for me to write and I hope you enjoy.
If you are considering if this is a model you would like to follow here is a very crude 7 point checklist/process I am still working through in my head…
Metrics/Rough Strategy for Replicating This Model:
This checklist is a work in progress but here is what replicating this model should consider…
- $25k+ to invest minimum ($50k or more is ideal)
- Buy affiliate site that as closely as possible targets a specific product. (TOUGHEST STEP)
- Invest no more than 50% of capital into the affiliate site and keep 50% for inventory & other expenses
- Test the Amazon affiliate sites ability to sell a competing private label product by directing people to it for a week
- Source Amazon FBA product should be…
- Able to be shipped quickly (keep total capital required down and increase ROCE)
- Material costs under $20
- Profit margin $10 or 30% minimum
- None gated category (ideally)
- No health/liability hazard
- Complete initial promotion for reviews
- Setup super-URL for main keywords and drive affiliate links with Super-URLs from affiliate site(s)
I am definitely NO EXPERT and just taking a crap-ton of action on this so if the steps above have a glaring mistake or you have an improvement to add please do comment!!
Congrats on your awesome results Jon! My authority site is starting to bring in some consistent sales too so getting into FBA would be a good idea.
Awesome Tung, hopefully some of my numbers will be good benchmarks and once you are promoting your products it would be interesting to compare your numbers with mine. Good luck in 2016… really liked your post today!
Thank Jon, I learned a lot of knowledge from your website.
Hi this is a great amazing article. i started an FBA business to but its moving slow. my question is according to your strategy. you buying affiliate site first right?
how/where do you look to buy these sites?
Hi Avi, the way I found my affiliate site was built it as part of my portfolio. However, for my second affiliate site I purchased it after I had decided to go into this niche and the way I found it was reaching out to every Amazon Affiliate Site in the space. The side benefit of this is that I generated a relationship with a few other affiliate site owners and for a small fee ($50) has them place links on their site to my product as the #1 recommendation plus would give them an extra $1 for every product they sold. So if you have an FBA product I would get a VA to make a list of every Amazon Affiliate Site they can find promoting related products and then devise a strategy to reach out to them to either purchase their site or work out a deal to promote their product.
Nice work, that is awesome! Look forward to seeing how your sales are after the holidays.
Thanks, yah I am very interested to see what the post December/Early January rush looks like. End of Jan will certainly be interesting.
wow – impressive results! But are you at all worried about Amazon freezing your sellers account? I’ve read several of stories of people where competitors (or so the sellers think) tell Amazon they’re selling counterfeit items and so Amazon freezes the account and holds all the funds. And I’ve seen some people mention getting their account frozen when Amazon all of a sudden decides that they have misleading product info.
Hi Shawna… I wasn’t worries until I read you comment (kidding).
But what we are selling is not counterfeit and the description is definitely not misleading… so no I don’t think we should have any issues. I believe we are a productive member of the FBA program and our seller reviews, refund rate and other metrics indicate that so it shouldn’t be an issue…but good to think about it and be sure we are not at risk.
Jon that’s awesome what you’ve achieved in such a short amount of time! I’ve been following your blog nearly from the start and your productivity has always amazed me, something I need to drastically improve this year.
Is there a reason you can identify that your product is getting better reviews than your competitors even though they’re pretty comparable products?
Hi Krista, thanks for following for so long! Good luck with improving your productivity…the #1 thing I have found is that every day we say no to the voice that says sit on the couch and yes to the one that says just sit down and start working it gets easier the next day.
Regarding your question…the reason my product is getting better reviews I believe is 1 it is high quality and priced as such. I somewhat lucked out here as I didn’t get a ton of samples but the quality for my product is better than almost all competitors. The next reason is that I have a lot of review club reviews that push the # of stars up which I think people generally want to agree with and give 5* to a product already rated as 5*. Finally, for customer support the strategy is not to mess around and just get them the right product and for free as quickly as possible. Basically as soon as there is an issue they get a coupon code for a free one to order ASAP so they don’t even need to send it back… this is definitely not the most efficient but so far it has resulted in fantastic feedback for both the product and us as sellers. We only have very few opportunities as a % of total purchases to interact and in the end all they want is a good product as cheaply as possible so we give it to them.
Very inspiring post for me specially as I just started with this Amazon FBA model.
Can you please let me know how do you do following step?
“Setup super-URL for main keywords and drive affiliate links with Super-URLs from affiliate site(s)”
Can it be done through AMZtracker tool?
Also, is it fine according to Amazon T&C to use your own affiliate link while sending traffic?
Thanks again for sharing such good information.
Hi Chirag. Yes that can all be setup using the AMZTracker Tool.
Regarding the affiliate links I don’t want to give advice on that… however I can say that I have looked into it and decided I was within their terms of service (my opinion).
Nice work, that is awesome!
For FBA products are you still using affiliate links or direct links?
If yes are FBA account and affiliate account should be different, am I right?
Still using affiliate links and same account… I haven’t been able to find anything saying I am breaking any rules and most information I read doesn’t say it isn’t allowed (plus it just makes sense it should be allowed) (but this is only my opinion and I haven’t heard for sure).
Great post. I’ve been following this along.
I’m based in South Africa, could you outline 5 steps I can take to get started. e.g. 1) Sign up here, and here and here. 2) Find product, and place test order and take delivery of a sample. 3) How do to send product direct to customers without having to hold stock here.
How do I skip the taking product and shipping it directly to customers? I’m a little stuck here and would like a little more advice.
Many Thanks! Wishing you a great new year!
Hi Alex, I am definitely no expert and many people have created that intro post with a lot more expertise than I would be able to. I suggest having a look at theamazingseller.com who has some great resources for getting started.
Thanks. I’ll definitely check that out.
Great Job again Jon! Love reading your successes and your failures so we can learn. I have been itching to get started with this type of venture however I don’t think I have enough startup capital not a great product.
Is there a good avenue whereby people are looking for partners to invest in starting up selling on the FBA program? I can bring skills to the table and funds that would be helpful in growing a business if the partners were there.