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!!