October 29, 2015
Welcome to our business model showdown!
The Amazon FBA program has been the business model darling of 2015. Between the courses sold, the affiliate programs launched, and the hype on the forums – does the FBA model really deliver? How does it stack up compared to more traditional Amazon affiliate sites?
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Part 1: The Case For Amazon FBA
Part 2: The Case For Amazon Affiliate Sites
Part 3: The Hybrid Model
“In the branded Amazon FBA model, you can have exclusivity on products and brands.” – Joe – Tweet This!
“With Amazon, you get easy access to payment methods from all their customers.” – Justin – Tweet This!
Are you sold on the FBA model? Affiliate model? Tried both and have some thoughts on the subject? Let us know in the comments!
Justin: Welcome to the Empire Podcast episode 147. We’re gonna do something a little bit different today. We’re gonna do a business model showdown. We’re looking at Amazon affiliate sites versus Amazon FBA sites. There’s a ton of hype in the Amazon FBA space and we’re gonna cut through that, we’re gonna get right to the details and talk about whether Amazon FBA really is the love child that everyone says it is. You can find the show notes and all we discuss on this episode on Empireflippers.com/Amazonbiz.
Let’s do this.
Speaker 2: Sick of listening to entrepreneurial advice from guys with day jobs? Want to hear about the real successes and failures that come with building an online empire? You are not alone. From San Diego to Tokyo, New York to Bangkok, join thousands of entrepreneurs and investors who are prioritizing wealth and personal freedom over the oppression of an office cubicle. Check out the Empire Podcast.
And now your host Justin and Joe.
Justin: Alright, so let me rely the story out for this Amazon FBA buzz. Joe and I were at a conference last weekend this a few hundred other entrepreneurs and we talked to a few dozen of them who are really fired up about getting an Amazon FBA business model started. Either they were already working on it, they were looking to get started with it. The problem is that a lot of people are heading down that path and a lot of people are talking about it. It doesn’t make it an exciting business model. All we heard were the good things, what are the bad things with Amazon FBA? Where’s the balance there?
Joe: There’s definitely got to be some bad in there. With any drop ship or e-commerce site, there are definitely some gotcha’s and I think that Amazon helped you overcome some of those things, but there’s definitely some things that you should be aware of.
Justin: Let’s just lay it out, buddy. Joe is not a huge FBA fan and I think the reason you’re not a fan is because of the hype. Everyone’s talking about, “Ooh, Amazon FBA, I just threw my product up and sold fifty thousand dollars yesterday.” And it just sounds too unbelievable to you, right?
Joe: I definitely think that’s part of it, I think the other thing is what we were talking about with the accountant on the phone yesterday, which is, it can be a very low margin business and that can lead you to be into some cash shovels.
Justin: To break it down, it is a real business model, so we know people doing anything from four to five figures in sales a month, which is really early and you don’t make a ton of money out of that to looking at seven to even eight figures in sales for the year. Then you’re starting to get to the level when you can actually pull out some profit, even with the low margins. This is a real business model, but we’re gonna compare it to Amazon affiliate sites and look at the benefits and downsides of both.
Joe: Definitely, it’s something we can do pro and con and talk about extensively. It absolutely is a real business with customers, employees, your own brand possibly, it does have it’s fusses.
Justin: You have another thing on the other side, you have the Amazon affiliate sites. They’re a much simpler model, I think, than FBA, but do they still work in 2015? There was some changes where Amazon affiliate sites used to be all the rage back in the day, but they’ve fallen out of favor. They’ve fallen out of favor with people building sites, they’ve fallen out of favor a bit with google, maybe with Amazon and we’re gonna talk about that as well.
A business showdown, but before we do that, what’s the featured listing of the week? What’cha got?
Joe: Featured listing of the week is number 40322, we’re talking about a very large site here, we have it listed for just under three hundred seventy-five thousand dollars. It’s an AdSense site that has some affiliate income as well, but it’s basically a google news site and it has a general content on many different subjects. Everything from health, food, technology, travel, finance, you name it it gets it up there. The cool thing is is it does rely on some paid traffic and media buys to deliver some of that traffic so it gets it’s traffic in an interesting way and is something that you could use to diversify from a purely organic play.
Justin: One thing that’s interesting about this is the average monthly revenue is thirty-two thousand dollars, but there’s about twenty thousand dollars a month in media buys so that’s where it gets most of it’s traffic, it’s a little over two years old and it’s seen incredible month over month growth, so if you’re looking for something that continues to grow I think this is definitely a site for you. It’s priced a bit high at three hundred seventy-five thousand, it’s larger than some of our other sites. What I really like about this site is the paid traffic play. So in a portfolio where you’re mostly organic or you’re an Amazon affiliate, or you’re a service based business I think this would really help to diversify you’re portfolio.
Joe: We do have a seller interview up there, so if you’re interested in the details check out the listing page, the seller goes through a lot of these details in the interview.
Justin: We’ve actually looked at this for the investor program, the problem is at three hundred seventy-five thousand out of an eight hundred thousand dollar portfolio, it’s just a little too big for diversification. In a two million dollar portfolio I think this would be a steal, really interesting business.
Joe: Very interesting business, and like you said, the growth has been pretty phenomenal especially if you look at the last six to eight months.
Justin: Alright, buddy, let’s dig into the heart of this week’s episode.
Speaker 2: Now for the heart of this week’s episode.
Justin: In part one we’re gonna make the case for Amazon FBA. Before we go any further we should probably explain what Amazon FBA means.
Joe: Fulfillment by Amazon.
Justin: Here’s the deal, Amazon’s selling a ton of different products and they have, let’s say, the same product at a bunch of different price points. You can join the Amazon FBA program, you can send your goods, the same exact goods that other people are selling to Amazon, have them warehouse that for you and then pick the price that you want to sell at and you will get listed in the Amazon FBA and you can sell right along with a bunch of other vendors. There may be two people selling their product, there may be fifty people selling their product, but you can join that way. That’s one part of the model.
Joe: Amazon will handle all of the purchasing for you, handle all the shipping for you, of course they’ll take a little bit of a cut from every item that you sell and then they’ll send you a check sixty days afterwards.
Justin: It’s kinda like drop shipping, but through Amazon and they handle all of your customer service and all of that. The other model is you get a branded model, you’re selling under your brand, under your name, it’s not the same thing that everyone else is selling and you’re competing against other products that have similar brand names or different brand names and if your brand sticks out, if it’s the brand that people prefer you can get a ton of business and you don’t have the copycats or the cutting you down on price. Sure it can be Justin’s ski boots versus Joe’s ski boots, but if Justin’s ski boots have a better brand and have brand equity and loyalty, people might buy my boots over yours.
Joe: And there are pluses and minuses to both systems, but in the branded model you own all the inventory and only your page is the only one authorized to sell on that page.
Justin: We’re gonna do a little bit of back and fourth, we’ll mention which one we’re talking about as we go through. First off, we’re gonna look at some of the advantages to the Amazon FBA program and the first pro I’d say is that there are a ton of recent up to date tutorials out there for anyone looking to get started with Amazon FBA. That’s not the case for affiliate sites, there’s information out there from two years ago, five years ago, and you don’t know if you’re getting recent information. The good thing about FBA is it’s relatively new, you could buy a training course or program or teaching course that’s two months old, three months old, so it’s really up to date info.
Joe: It’s the Teespring of 2015.
Justin: For anyone who doesn’t get that reference. Teespring was really really hot in 2014, a bunch of people were doing Facebook ads and selling t-shirts via Teespring making three, four, five, even six figures a month doing t-spring and it wasn’t much of a business model, but it was definitely a cash flow. Joe is saying Amazon FBA is the darling of 2015.
Joe: Because of that that means that there’s a lot of information out there to teach you to how to do it, how to set it up, how to buy inventory, how to source the product from trying to how to pick the right product.
Justin: Another advantage I’d say, for Amazon FBA is Amazon has a huge baked in audience of buyers and the bit of it there is they’re already searching for these products, these people know, like, and trust Amazon. They buy from Amazon all the time and Amazon has easy access to payment methods from all these customers. The one click shopping, the add-on’s, you get the benefit and advantage of the Amazon platform and the trust that people have built up with Amazon. If you’re an e-commerce vendor, you’re just hoping people feel comfortable enough to give you a credit card, your site has to look good enough for them to feel comfortable and do business with you and you don’t have that problem with Amazon.
Joe: Whenever you build on somebody else’s platform you have to be a little bit worried, but at least you’re building on the best of the best here. Amazon has done all the testing, they know the conversions, you know that they’re gonna suggest other products on the same page, those could be also your products. Their whole platform is very well tested and you know it works.
Justin: Another advantage, I’d say for Amazon FBA is that branded products can lead to exclusivity. If you build a brand and brand loyalty on the Amazon platform, sure there may be lots of other ski boots but people dig the Justin ski boots. People want to do business or want to buy the Justin ski boots and they trust the brand and from that brand you can expand into other related products and people would be interested in your particular brand.
Joe: If you have a very unique product that you have registered with Amazon, it’s something that they can defend for you and not sell and you can be the only one to sell that. That’s definitely a powerful thing.
Justin: For anyone that like physical products, they like the e-commerce game. Amazon FBA is kind of like e-commerce without all the hassle. You don’t have to deal with returns, you don’t have to deal with the customer service. Yes, there are return issues and you’re gonna pay for that and that comes into the margin problems, but you don’t have to deal with it directly, Amazon handles all that for you. For someone who is like, “I’d love physical products, I don’t want to get into digital stuff.” I think Amazon FBA is a good way to get started with that. You’re not warehousing stuff, you’re not shipping out of your garage, you got Amazon to handle all that for you.
Joe: You don’t even have to have a shopping cart ’cause Amazon’s doing everything there. You don’t even need to have a platform like Shopify, Big Commerce, you don’t need to figure anything out like that. The technology end is extremely simple.
Justin: Another advantage, especially for guys like me is there’s not a whole lot of technical requirements. You don’t have to be a WordPress master, you don’t have to be a developer, you don’t have to be a designer. It’s really getting on the phone, it’s figuring out the right kind of products, you dig take some good photos, but it’s not the same thing as trying to build this E-commerce store and trying to ad this app and that app. You don’t have to deal with any of that, there’s a lot less technical requirements, even than an affiliate site I’d say.
Joe: I would agree, even something that you were hosting yourself, like I was saying before. So that it’s on Shopify or Big Commerce where you might want to do something, customize something, that would be difficult. With Amazon, it is what it is, you can’t change it. There’s a nicety to that and that’s that there’s no technical requirement requirements on your behalf.
Justin: Have we sufficiently juiced the FBA, I wonder if our listeners right now are going, “Damn, I wanna do me some FBA, that sounds pretty good, where do I sign up for this, let’s do some FBA.”
Joe: Amazon.com, that’s where you sign up.
Justin: Where’s our affiliate link for the Amazon FBA course? Do we have that affiliate link ready man? No, okay. No affiliate links today, but we’re gonna get into some of the downsides. These are the things that, in talking to dozens of FBA site owners, people looking to get started, even friends that we have there doing big business, these are the things that you might not hear about from the guys pitching the courses. The first downside I’d say to FBA is that there are huge cash flow and inventory issues. It’s very cash flow intensive, everyone we know that’s building a business in FBA is constantly dumping profit back into inventory. They’re dumping it, they’re looking for ways to borrow money, they’re maxing out credit cards, they are dumping money into inventory.
Joe: Just to get set up, the initial inventory you’re gonna have to buy in order to have a reasonable item in FBA and have enough inventory that you can make some money, that’s gonna take some capital investment. There’s no way around that.
Justin: A problem if you’re growing like crazy and having to put some cash into the business, it’s not so bad, it doesn’t seem like a horrible problem for me. You’re trying to grow, you’re spending money on growth, what’s wrong with that.
Joe: What’s wrong with that is that at the end of the day, at the end of the year, if something goes wrong or if your product becomes less popular and no one buys it, you could be stuck with a lot of inventory that you can’t offload. You could be stuck being in the red quite severely.
Justin: It’s like you’re constantly doubling down doubling down doubling down inventory, not the same analogy, but you went on black and then you put all the money on black again, you win on black, you put all the money on black again. Some point you gotta cash out, I think that’s the risk or the fear with Amazon FBAs, if you keep putting your money in inventory at what point do you get paid?
Second con or negative here, I’d say there’s lots and lots of new competition. You can thank all the Amazon FBA course guys, The Amazing Seller all those guys that are pitching the FBA stuff and selling courses for five hundred thousand, two thousand, five thousand dollars for their course and people are buying them like hotcakes. They’re introducing a ton of people to this space.
Joe: Especially in the very popular niches, I was just talking to a guy today who has already brought an Amazon FBA site, drop ship site that’s based on foosball and air hockey, I’ve heard that product set up so many times that it just makes me sick a little bit. These people are trying to get into these high margin, large items that they know work well and there’s so many people getting into it that I think it’s gonna just drive down prices in those areas.
Justin: If we’re five x’ing or ten x’ing the number of people doing Amazon FBA, even if the pie is growing, you’re gonna have to split that pie up more and more. If you need five time the slices you need, you gonna need a damn bigger pie to make that make sense.
Joe: I think that’s one of the big issues, the math behind you just doesn’t make sense if there’s that many people getting into it.
Justin: Our third point, and this is a big one, Amazon can crush you. What does that mean Joe? Amazon can crush you in every which way.
Joe: This is the thousand pound gorilla in the room, I really think so. I don’t know when they’re going to do it, but you have to figure one day Amazon may stop investing in growth and just say, “Well model trains seems like a very high margin business, we’re gonna get into it, we’re gonna buy enough inventory to buy everybody else out and beat them on price.” And they can afford to do that and they’ll just shove every FBA supplier out of the business.
Justin: That’s one way they can crush you, but they can crush you a ton of different ways. They could just shut your account down, they could say, “Oh, you had too many returns, to many problems, there’s an issue here, we’re gonna go ahead and shut you down.” When you’re basing your business model on Amazon, that’s risky. The FBA evangelists are gonna say, “Sure Justin, sure Joe, they may shut us down in ten years, but in the meantime I’m gonna build a massive empire via FBA.” Okay, maybe, but if you look at some of the changes that are happening, especially with the competition getting into the industry, you’re already slicing up the pie, it’s getting much more difficult when you keep dumping money into cash flow and you haven’t made a profit and now you have all this additional competition, there’s a question as to when you’re gonna be able to profit or pull cash out and hopefully that’s before Amazon crushes you.
I don’t know, man. This is getting a little worse man, we don’t sound like the Amazon FBA evangelists now.
Joe: It’s a big con for sure. It’s definitely something you could make money on, but you should know that it can turn around on a dime.
Justin: Would you say it’s a con? I thought you were saying it’s a con, like it’s a scam. Definitely not a scam, you mean a con as in a negative.
Joe: Yes, as in a pro versus con.
Justin: Okay, gotcha. Another issue is that some of the competitive industries here are extremely competitive. Tooth and nail, I will claw you competitive.
Joe: I heard a story, don’t know how true it is, of some guy that was testing through a product on FBA, he brought two thousand units of widget and then his competition came, brought out all two thousand units using different Amazon accounts, damage the products in a certain way and then returned the products for a full refund so they guy couldn’t restock the product and basically shoved him out of business.
Justin: We talked about this a little bit before the show. I know someone that had a similar issue happen where this person was in FBA, trying to get into the space which is highly lucrative. They had a very similar problem. They ordered the inventory and then all of a sudden they were just getting a ton of sales and then they got a ton of bad reviews which basically knocked them out. It hurt their account so badly that they weren’t able to compete with the big player and this person is really really sure that it was a competitor screwing them ’cause basically it’s the same product. In these really competitive spaces they are cutthroat. It can be really really rough.
Joe: I can see why you would do it and someone that’s sitting on a large some of cash says, “Any competitor, I’m just gonna crush them before they’re able to get any traction. I will stomp you like a bug.”
Justin: For sure. This last point, you mentioned it, I’mma throw it out there, but I’m not sure, I’mma say it with not much conviction. Is the liability issue.
Joe: I definitely think there has to be some liability, I’m not a lawyer and I’m not saying it should hold you back. If you’re selling some type of thing that you can ingest and that makes somebody sick, I’d imagine those people are gonna go after you in some sort of lawsuit.
Justin: Little kid licking the lead paint, gets cancer or whatever. You have that in any business, anywhere, doing any kind of physical product. There’s a liability doing e-commerce, doing commerce, there’s liability anywhere.
Joe: I agree, as an entrepreneur there’s a lot of liability. We’re inherently risky in what we do, I get that, but I’m just saying there’s a lot more liability in doing FBA than there is in Amazon affiliate. You have to agree there.
Justin: Maybe ten times more, but we’re talking about one tenth of a percentage versus one percent. It’s so slight, I put it on the list, but I’m not sure I’m with you on that one.
We’ve covered the pros and cons for Amazon FBA, we’ve talked about some of the benefits, some of the downsides, it’s an interesting business model. We know some people having success, we know some people that are not, we know some people looking to get into it. If you were wondering, there you go. Let’s talk about part two. Let’s make the case for Amazon affiliate sites. Anyone who’s unfamiliar with the Amazon affiliate niche, I’ll be brief ’cause most of you probably know. Basically you create a site, get it ranked in Google organic, the site is yours, you’re normally based on word press or whatever and you mention a bunch of products, you’re reviewing a bunch of products on the site and then you’re linking to Amazon. If anyone come to you organically through google search, clicks on the link to Amazon, ends up buying it, Amazon will give you a percentage of the sale. They’ll give you a percentage of the actual item that you were promoting, or any item that they purchase from Amazon within a certain timeframe.
Joe: The only think I’ll say is it doesn’t just have to be organic search, obviously it could be paid search, it could be that you have an email list and you’re promoting it that way. Whatever it might be. I have to say one, I will preface it that I’m a little more biased towards Amazon affiliate, I like it personally.
Justin: No Joe! No really? Yeah dude, of course you are. We’ll mention this too, we own some Amazon affiliate sites. We’ve worked on Amazon affiliate sites quite a bit and we actually haven’t owned or run an FBA business, but we’ve talk to quite a few people that have and we’re looking at buying and selling Amazon FBA sites in the near future.
One of the benefits of an Amazon affiliate site is there are no start up or inventory cost. I mean, effectively none, domain name, hosting account, you gotta have a computer at the library so you have something, but it’s really minimal.
Joe: You can get started with almost nothing. If you’re just getting into online businesses this is a great place to start because there’s a lot of moving part with FBA and somethings that you might miss easily and some things you might not understand about online business and this gets your feet wet pretty easily.
Justin: Compared to if I’m selling basketball hoops for pools, I gotta buy all those basketball hoops all over in parts, I gotta ship them to Amazon from China or whatever. It’s a little more expensive to get started with that.
Joe: Basketball hoops for pools, that sounds like a good niche.
Justin: I totally pulled that out of my butt, I don’t know where that came from.
Joe: I wanted somebody to create a drop ship site basketball hoops for pools.
Justin: Screw the drop ship man I’m doing Amazon FBA man, that’s the hot stuff right now.
The second benefit of affiliate sights, they’re not product dependent. If you have one in the pool niche for example, you’re stuck under one particular product. That product falls out of favor or there’s a problem with that particular product you’re not stuck there, you can pivot as long as it’s within the industry that the sight is around.
Joe: If you’re talking about pool filters for instance, you can talk a number of different type of pool filters from different brands, different models, different sizes, all kinds of things and then link to their product pages with Amazon affiliate. If you have an FBA account you probably only have one type of filter and one type of brand in your FBA account and you’re pretty much dependent on that.
Justin: Let’s talk about how that manifests itself a bit in an actual Amazon affiliate site. A lot of times you’ll have tables and it’ll show this ones an eight out of ten here it’s a six out of ten on reliability and nine out of ten on looks or whatever. So you can rate the different products. When you have an Amazon affiliate site you can rate them honestly. When you have an Amazon FBA business you’re just selling yours, it is what it is, right? I think that you can look at a wide range of brands and products with an affiliate site that can’t do with FBA.
Another benefit for affiliate sites is you get a piece of any and all additional purchases. If someone goes looking for a pool filter, they buy a pool filter on Amazon through your affiliate account and then decide to go buy a Rolex watch, you’re getting a piece of that money too. That’s pretty beneficial and this is close to amount, but sometimes fifty percent or more of the sales are not even of the product you’re mentioning on the affiliate site.
Joe: This is great in the high end product. For instance, rowing machines, people are very likely to buy other expensive sports equipment and as long as that’s in their shopping cart you get credit for that and that’s very nice to pick up. Whereas with Amazon FBA you can only sell the products that you have in your inventory.
Justin: You can add on products to your inventory or try to add additional products, but again you gotta pay for that inventory, you gotta get it out, you gotta hope that they’re gonna buy it from you and not from the other ones [inaudible 00:22:06]. One thing Amazon is great at is cross sells, up sells, that kind of thing they’re just amazing. As an affiliate site you get the benefit of them just crushing that piece of the business.
Joe: I can’t tell you how many times I’ve brought one thing, look down below and go, “Would you like this as well?” And I go, “Absolutely.” And I buy that.
Justin: Another thing with affiliate sites is that they’re really hands off, it’s not that there’s no work, there is work that needs to be done, but it’s not like work on a regular basis. I don’t have to go perform customer support, I don’t have to check in on a daily basis, I’ll just check inventory levels, literally you can go away for days or even weeks at a time. You wanna go hiking in Nepal for two weeks? You can do that and come back. It’s pretty likely your Amazon affiliate site’ll still be hanging in there.
Joe: Most of these sites all you have to do is add content, they’re not really gonna have to do much more interaction than that. Some of the larger sites maybe have some social media or something like that. Whereas an inventory site you really gotta monitor those levels, you have to be in constant communication with your supplier, make sure the supply chain is gonna be there, make sure you know that the demand is gonna be there when you’re ordering more inventory. It can be complex.
Justin: I’m gonna go back to the FBA stuff for a minute ’cause I think there’s something we didn’t bring up that I think is interesting. We talked about how cash flow or inventory intensive FBA businesses are and what we’re hearing a lot, especially from the newbies that are getting into this is that a lot of the time they don’t even have the products available. That just goes to show you that there are a ton of none business people in this space that can’t keep control of their inventory amounts and don’t have lead time for getting their products to Amazon and thei struggling, both on the cash to do it, but also the management skills.
My thought there is if so many people are doing it, especially people that don’t really understand that piece of the business and can’t keep their inventory in check. A ton of people are doing it, do you know what I mean? It’s like the whole, shoe shine guy giving you stock tips thing, that’s what it feels like to me.
Joe: It feels a bit like that for sure, if they’re so underrepresented, Amazon has such a big pull that they can just knock their inventory out so quickly, it’s almost too good to be true.
Justin: Now everyone listening is like, “Oh my god, I’m doing Amazon Affiliate sites, screw that FBA nonsense.” Let’s knock this down a bit, let’s talk about some of the negatives for affiliate sites. The first one we got is that this is a very non defensible business.
Joe: This is probably one of the big problems with Amazon affiliate is if somebody sees you having success there because the barrier of entry is so low and most likely your Amazon site is not some sort of huge authority in the niche especially if it’s very specialized, like a pool filter comparison site. That’s a pretty easy thing to compete with.
Justin: There are a ton of different levels of defensibility, the Amazon affiliates side is really earlier in it’s growth or whatever, you could get ten or a dozen copycats and they could just crush you in terms of ranking, steal all your ranking and steal all your business. You have drop shipping sites that are in similar positions, they have one or two suppliers and it’s relatively straight forward, it’s easy to get those suppliers, drop shipping sites can be knocked off. As businesses mature, a drop shipping site might have more suppliers, it becomes more difficult, you might have exclusivity with some of the suppliers, you may have better margins or locked in grandfather pricing which makes it harder for people to compete. You have may brand loyalty with your drop shipping site.
All these things start to come into play and the moat around the castle, your defensibility gets bigger and bigger. You have men on the walls with archers. I don’t know, I’m derking out now.
Joe: You really are.
Justin: The moat and he castle, man, I don’t know.
Joe: Too much Clash of Clans I think.
Justin: A little bit. You’ve got a bigger moat the further down you go with drop shipping sites. I’m not exactly sure that moat or that defensibility is there even with very large Amazon affiliate sites and that’s one of the problems.
Joe: I understand what you’re saying.
Justin: Let’s say a four hundred thousand dollar Amazon affiliate site, the sites crushing it, making fifteen thousand, twenty thousand dollars a month and profit, it’s not necessarily defensible, someone could knock it off.
Joe: Yeah, but if it’s a general site about sports fitness. It just talks about all types of sports fitness and it happens to be monetized with Amazon and it has a forum and all kinds of different things. That’s the kind of site that receives traffic from a lot of repeat people, it has great articles, maybe it has videos, people bring a lot of money into the content. That’s going to be very defensible just because it’s brand reputation is so entrenched. Most Amazon affiliate sites are not that way. Most of them are very specific, they’re about one particular product or niche of products and its something that’s pretty repeatable.
Justin: We talked to Pat Flynn a long time ago, maybe a couple years ago, about doing affiliate sites with that level of content, that level of detail where you’re doing high def video around the product. You’re touching it and playing with it, showing people what it actually looks like and feels and using it, that’s definitely more defensible.
One of the other downsides with affiliate sites is that they’re not amazing in google’s eyes. Over the last couple years there’s been a turn with Google where they’re not so hot on Amazon affiliate sites, especially the ones that don’t provide any value. They call them gateway sites. Basically yes it gets ranked in organic, yes people go to the site, but they don’t get anything special from the site itself. It’s just like, “Here’s the product, go to Amazon and buy it.” People click through and they go buy it.
Google does not like those sites. Yes they get ranked, but they also can smack them down when they don’t like it there. There’s been a turn against those and so you’re walking a fine line when you have an affiliate site. If you have that HD content and all this amazing photos and you’re doing these great videos and stuff, yes you’re obviously adding a ton of value. If you’re just slapping up the Amazon image and rewriting the description and expecting your Amazon affiliate site to crush it, I don’t know man, that’s definitely close to gateway territory.
Joe: Definitely if you’re over monetizing it, you have a whole bunch of ads over the fold, that sort of thing, absolutely, I think google is slapping those sites down.
Justin: Our third negative here for Amazon Affiliate sites, Amazon can crush you and this is a problem for FBA, this is a problem for Amazon Affiliate sites, you are at the mercy of Amazon. So if Amazon shuts down your account, one of the problems with Amazon affiliate sites is you’re sixty days out from being paid. You’ve heard of people had this problem with AdSense where they lose their account and they lost all the money in their account. It’s even worse with Amazon.
Joe: I definitely think this is an issue and if you don’t play by the rules and watch the terms of service closely, it can happen to you. We saw do this with link forwarding and link masking of their Amazon affiliate links. It’s just something that you’ll have to be aware of and make sure you’re not doing and listen to any messages in your Amazon account. Amazon can crush you in both FBA and affiliate. When you’re building on someone else’s platform that’s just the case.
Justin: There’s other ways you can get crushed. I was just reading a blog post from a guy who was around seven thousand dollars a month in profit from his Amazon affiliate site and Amazon changed the percentage on that particular line of products, so he went down to making three thousand dollars. He took over a fifty percent hit just because Amazon changed the percentages they were getting paid in that niche of that industry. Ouch man.
Joe: Ouch, big time.
Justin: Lots of different problems there. That’s affiliate sites in a nutshell, there’s definitely some upsides, some down sides too. Interested to hear how you think they stack up FBA versus Amazon affiliate model.
In part three I want to cover a really interesting scenario or business opportunity that we’ve come across. We didn’t come up with this actually, it was over from John Haver over authority website income. He wrote a blog post about it and we’re gonna link to it in the show notes so you can get a bit more about the model. He came up with a really interesting idea that he said he was gonna pursue. I’ve talked to dozens of people since then, I’ve kinda been saying I think this is kinda sexy, its actually interesting, I actually wanna do it with sites we have, but Joe won’t let me. We just broke our sites now, but I’d actually love to do this model.
Let me just lay it out for you and you can check more in the show notes. The first part is you either build or you buy Amazon affiliate sites. Let’s say that we have a site for sale at Empire Flippers or you find one on Flippa and it has an FBA friendly product. It could be those workout rubber bands that you stretch, it could be any number of things that are FBA friendly. Either you can set up your own brand or it’s the same product that a bunch of people are selling, the other FBA route and you buy a site that’s already basically an affiliate for those products.
After you buy this affiliate site, do you buy this affiliate site or do you create this affiliate site from scratch. We already talked about maybe forty to sixty percent, around half of affiliate sales are of that actual product. The one that you are recommending on the affiliate site. We know this, you either build or buy an Amazon affiliate site and you know that about half the sales are gonna come from that particular product you’re mentioning.
Here’s an example, I brought a three thousand dollar a month Amazon affiliate site and it’s currently at seven percent from the Amazon affiliate program and it’s selling on Amazon, about forty-two thousand dollars of Amazon products a month. I’ve done the math on that, you can just trust me. It’s a three thousand dollar a month Amazon affiliate site, they’re at seven percent and they’re doing about forty-two thousand dollars in sales a month. We can estimate that about twenty one thousand dollars in Amazon sales are the actual product sales on the Amazon affiliate site. If we assume a twenty percent margin on that FBA business, you’re looking at a four thousand dollar a month FBA business right out the gate.
I pay sixty to seventy thousand dollars buying an affiliate site, making three grand a month, set up the FBA business and nothing else changes and the numbers are right, I’m making seven thousand dollars a month on a website I purchased for sixty grand.
Joe: I love your numbers but there’s definitely a lot of assumptions in there.
Justin: We’re gonna get into those assumptions. I don’t know, man, it’s kinda awesome. You can really lower the multiple, you can get paid back on the site a lot faster, I think it’s interesting.
Let’s talk about the advantages. You can two times or more your earnings from affiliate sites, as I said, if you’re making three thousand a month in earnings you can now be making seven thousand dollars a month including the FBA business. It’s not magical, there’s no unicorns, it’s not snap your fingers and it’s done. You gotta order inventory, you gotta do all this stuff, but it’s there.
Joe: I definitely think it’s a great way to take an affiliate site to the next level. If you ranked number one and there’s really no other things that you can do for your site in terms of pushing the monetizing level anymore, maybe you’re at the max level in your Amazon account. You’re ranked number one for most of your money key words, you’ve tried changing the locations of the ads, maybe your CTR is very good, your buy rate is very good. Definitely think that this is the way to go if you want to make more money.
Justin: Here’s the other thing, if I’m looking to get into FBA business I’m now targeting proven FBA products, I know these selling and popular because I own a site and I see the sales, I get the report every month. I know people are buying these products I know they’re popular, all I have to do is add on that FBA business and I’ve got great market intelligence.
Joe: That sort of head start is a big thing.
Justin: It’s hot, right? I’m a fan of that, I think that’s interesting and here’s a big one as well. We talked about making four thousand dollars a month from your three thousand dollar affiliate site, this is not even counting FBA earnings that are gonna come from Amazon directly. I’m only talking about organic traffic that actually went through your site. These are organic earnings, organic people that came to your site, went to Amazon, brought the product and you’re now making that money via Amazon. You’re gonna make additional money from Amazon FBA just being there and from the Amazon traffic.
Joe: You’re gonna pick up some traction for Amazon as well. They’re gonna start suggesting your product, especially if you get some high ratings on other people’s product page when they check out different things. You’re gonna pick up some purchases that way so there’s gonna be some more sales.
Justin: Alright Joe, I know you’re skeptical, the whole Amazon FBA thing you’re skeptical, but also this model, let’s get into some of the negatives here man. I had to rack my brain ’cause I really like this model, but it’s not without risk it’s not without some problems or issues. The first one’s a big one, we talked about it in both that Amazon can crush you, well Amazon can double crush you on this one.
Joe: Can you imagine if your converting everything over, you’re stocking up your inventory in FBA and then all of a sudden Amazon decides that they don’t want to sell your product and now you have to undo everything and it can be a bit of a disaster in that sort of case. Every step away Amazon has on agree with what you’re doing.
Justin: There’s another problem too. I’m pretty sure that you’re gonna need a separate company for the affiliate site and a separate site for the FBA business. I talked to someone that’s actually doing this model right now and they set up that way, they actually log in from different IPs, they’re very very careful. Similar to having separate adsense accounts for different businesses, you don’t want them to be able to track that because-
Joe: I don’t understand why that would be. You should be able to promote your own product on Amazon through Google organic, why can’t you take your Amazon affiliate site and switch it over to a site that promotes merely one product in Amazon.
Justin: I would also think that if I wanted to go and buy ski boots, I should be able to go to my own affiliate site, click through the link and buy ski boots, what’s the problem with that? I’m buying from myself or things I actually promote, I’m eating my own dog food there. Why do they have a problem with that, but they do.
Joe: I understand what you’re saying, I’m not saying that you should get paid twice, the affiliate payout and your Amazon FBA.
Justin: I’m saying that you should get paid out twice.
Joe: No, I’m not saying that, you just a straight link now to the product page, no more Amazon affiliate tag and it goes directly to your page so people are gonna buy your product, why do you need to get paid again? Don’t be so greedy Justin.
Justin: Don’t be so greedy. You’re saying just have an organic site and don’t even bother with the affiliate earnings on it at all?
Joe: Yeah. When we were doing the math before we were talking about changing it over from an affiliate site that makes 3K a month to a straight FBA conversion of 4K a month.
Justin: And drop the affiliate earnings to three thousand, no, you’re in insane. Why would you do that?
Joe: You’re double dipping.
Justin: Yeah, so, who gives a shit, of course I’m double dipping.
Joe: Amazon gives a shit and they don’t want to give it to you.
Justin: Amazon doesn’t care if I have two separate entities, so I have one LLC over here, I have one LLC over there, done buddy. This is hot money I’m talking to, I thought I was talking to Joe “Hot Money” Magnotti over there, what’s going on with you? No double dipping, let’s make less money, what’re you talking about?
Joe: I’m just saying that you should focus on one thing or the other.
Justin: I’m focused on making money, man, I don’t know what you’re talking about. We agree that you’re definitely more dependent on Amazon. We also agree that there are definitely more moving pieces to this. The separate companies which we just talked about. We talked about a bigger, deeper, wider, funnel. All you are responsible for all the affiliate stuff and matching that up to the FBA business, you’re not outsourcing the product and shipping it to their warehouse. There’s a lot of moving pieces and multiple entities you’re now dealing with.
Joe: I just think that the conversion of sourcing the product and figuring things out and making sure you selected the right kind of affiliate site and building it. There’s so many steps in the process where you could fail possibly and maybe it not even be your fault, that’s a huge negative to this hybrid process.
Justin: There’s a big negative we’re gonna talk about right now. I think this is an interesting one too. Just because you have an affiliate site, making money, selling whatever products where on Amazon. It doesn’t necessarily mean that they’re gonna go to amazon and buy your FBA product. Let’s say for example, I’m comparing and contrasting three different products on my home page and those products get most of the traffic. I’m doing that and I remove one of those three and I add in my Amazon FBA product. It doesn’t mean they’re gonna buy my Amazon FBA product at the same rate. They may hate it compared to the others.
Joe: We talked about Amazon being very good at this, they can land on the Amazon product page of your product and there could be better suggestions for them down in the suggestion box below and they could absolutely change their mind and buy something else.
Justin: I’m gonna argue this though, with the market intelligence you get by looking at your Amazon affiliate site you’re gonna see which products are selling better. Of the ones you’re promoting, people go over there, which ones are they buying more of. Oh they’re buying the one with the thingamajig? Great, I’m gonna make sure the product I deliver has that thingamajig ’cause that seems to be popular.
Joe: I just hope you don’t make a mistake and order ten thousand units of the wrong thingamajig.
Justin: Joe kicking in there. Hot money’s trying to save me here right now. I hear what you’re saying, that would be a problem. There’s another concern too aside from that. What if they’re buying it, not because the product is necessarily better, but because that company has an amazing brand. It doesn’t matter what, I throw out Justin’s ski boots, no one gives a shit. They love Joe’s ski boots and I’m not changing their mind by putting it up on my product page.
Joe: That’s right, it has nothing to do with the color, the look, the feel, the nothing, it’s the marketing and the special thing behind it.
Justin: That’s our case for Amazon FBA, that’s our case for affiliate sites, and we talked a little bit about an interesting hybrid model, the pros and the cons. Tell us what you think, I’d love to hear what you think about this business model, please leave a comment, you can message us, shoot us an email Info@EmpireFlippers.com. I’d love to hear what you think about the affiliate sites, the FBA and the hybrid model.
Let’s do some news and updates.
Speaker 2: You’ve been listening to the Empire podcast. Now some news and updates.
Justin: First up, we just finished two conferences. The first one was the drop ship lifestyle conference in Krabi, which you didn’t attend, but I went there. It was really fun. A bunch of drop shippers, new guys mostly, some experienced guys helping out the newer guys and for a lot of them it was their first time in Thailand, it was their first time in travel. They’re all trying to build their drop ship empire, their drop ship stores, it was really exciting. I was a very tactical conference so they had a lot of things that were specifically for building out drop ship sites, a lot of detail to go through, a lot of advice and tips. There was an FBA guy there too, so I got a chance to talk to him and it was really interesting to see them all. I loved Anton and the drop ship lifestyle community, I think they’re doing really good stuff, so it was fun to go down there and support them and check out what they’re doing.
Joe: Sorry I missed it, maybe next year.
Justin: The next one is our buddies over at tropical NBA, they run a community called the dynamite circles so with the DCBKK conference they call it. That’s every year in October and Bangkok is great, two hundred and fifty entrepreneurs or so, our people and we got to hang out with them and talk shop, just a ton of fun. Basically a week long event, we got a ton of ideas, we hooked up with a few people, we were gonna be doing some-
(laughs) Joe raised his eyebrows, hooked up with some people, not that kind of hookup. We hooked up like we’re gonna do business with ’em.
Joe: We linked up.
Justin: We hooked up with a few people, we’re gonna be able to do business with them and that was really exciting, we found some people that we can be affiliates for, they’re gonna affiliate for us and then contractors that join up with us.
Joe: I love that conference every year. I hope they keep doing it and I’m sure they will but I always wish it to be exhilarating and give me a little extra push to do the things that I wanna do and accomplish the things that I wanna do in my entrepreneurial journey.
Justin: There’s one thing I hate about that conference. Every year they’re like, “Raise your prices.” And there’s someone up there saying, “Raise your prices, 5x your prices.” I get it there are some people that are way too cheap and I talked to some people about their pricing and products and I was like, “Egh, that’s really cheap, that’s crazy, you should raise your prices.” But the worst is there’s people that shouldn’t raise their prices or they come to us a week later and we’re like, “How much is it?” And they’re like, “Two thousand dollars.” Your website says a thousand dollars, what’re you talking about two thousand dollars? Your websites a thousand. “Oh, I raised my prices.” You can raise your prices, just don’t raise your prices for me, right now. I’m not your sucker.
Joe: There is one bad thing about raising your prices, it’s that people may not want to pay that amount and then no one might buy your product. Just keep that in mind.
Justin: Here’s another thing, for anyone that wants to raise their prices, don’t raise your prices on a recurring basis for current customers, you’re an asshole. Unless you’re completely losing your ass on that customer, don’t raise your prices for them, grandfather them in, raise your prices for new customers and your blended rate will go up. Eventually those old customers will probably leave anyway and you’ll have the newer, higher, margin price point. Just don’t do it to old customers, it’s a bad idea.
Second thing, we have our team down in Thailand, we do this every three to four months, we’re all location independent. We travel around and live in southeast Asia for the most part, but every three to four months we get together for about a month and we bring our team to one location so we can work and live really close to each other and get a done of work done. The twist this year is we brought some contractors down, we brought down our buddy John Meyers, we brought Alyssa, who helps with the content. We’re bringing down Karan and his wife, we’re gonna talk about doing some business with them.
We get all these smart people in a room, in one location, and there’s a lot of synergies. It’s a horrible word, there’s a lot of synergies going on. There’s a lot of interesting ideas and things that come about that, it’s great with just our team, but with these additional people I think it’s even better.
Joe: I think with the contractors was a great idea. I think we need to do more of this when we do our little meetups. I don’t think the contractors could come every time, but having them come for a spell and get things done, it’s just so advantageous.
Justin: There’s just a ton of value in having our team and these contractors here. I think we’ll do it again, it’s even better if we do it in a location that’s close to where these other contractors are, it’s like a nice place for them to go and hang out.
The third bit of news, we’re doing a little restructuring of our company and this is pretty overdue. We’ve had an s corp in California for the longest time and people have given us some shit about it, “You’re taxes and it’s not the best structure.” We put it off because really when you’re starting off or when you’re not making that much money it doesn’t really matter that much. We’re starting to get to the point where for liability reasons, but also for tax reasons it makes sense to restructure.
Joe: We haven’t gone through with the plan a hundred percent yet so we’re still going over the numbers, but I definitely think it’s something we need to do in 2016 and get everything right. It just goes to show you that, don’t focus on the paperwork, don’t focus on the bank accounts, don’t focus on that stuff. Just get business done and the rest becomes easy, then you can just pay people to handle it.
Justin: We have a couple of attorney’s, we have a tax guy, an accountant looking at it and helping us out with it. It’s a lot easier ’cause we can just pay them to present us options then we decide the one we go with. When we do pick an option, we roll it out, we’ll talk about that in [inaudible 00:44:55], we’ll probably do a podcast or a blog post about it so we can explain our reasoning and why it makes sense for us.
Let’s do some listener shout outs also known as the indulgent, ego boosting, social proof segment. First up we got a five star i-tunes review from Jay Carberry. “Really really great show, loving this podcast, episode topics are interesting, the content is incredibly helpful and the episode length is perfect. Keep up the great work Justin and Joe.” Appreciate it, man.
Joe: Yeah, finally getting some five star reviews again.
Justin: Five star reviews, we got another. He says, “Tactical and strategic experience for buyer and sellers, I’ve listened to all one hundred and forty-six podcasts episodes over the past three months ’cause I really wanted to know who these guys are since I’m a repeat buyer from the marketplace. Not only can you see you’re dealing with some standup guys, but transparency, lesson learning, and practical advice they share in each podcast episode helps me further refine my long term strategies for my personal acquisition and management of online property portfolios. Also they share their mistakes, which we all make and are afraid to admit and really hold back on self criticism, which is refreshing. If you are interested in virtual investments there’s no other source better than this one except maybe their new podcast Web Equity show. Keep it up guys.” Really appreciate that man, thank you so much.
Joe: Yes, wow, what a review.
Justin: Got another five star from Canada, says, “Epic podcast, this is from Dave over at BrokeBachelor.com, been listening to you guys for a few months now, I’m already running out of podcasts to listen to. I’m super excited to suss out the new podcast that Justin’s working on as someone who’s beginning their online journey, the advice and value you give is priceless. Your honest accounts of the trials and tribulations that a company living expat online business lifestyles were freshingly down to earth. I’m extremely grateful for the entertainment and insight you provide for your podcast. I’m excited to gain traction with web development myself and would definitely look to you guys to do business with in the future.” Thanks so much Davey, appreciate that buddy.
Joe: Love the domain name too, BrokeBachelor.com.
Justin: BrokeBachelor, hopeful it’ll turn into rich bachelor pretty soon. Change his domain name, change his whole brand. On Twitter we got Robert Hotman, he said, “Hi Justin, why’d you stop using discuss on your site? Thanks.” Our reason for stopping using discuss is pretty simple, it was really slow. So whenever we’d have new blog posts go up and I’d send an email out it would crash. It wouldn’t load, it was having all kinds of problems and people couldn’t leave comments at all. I actually like discuss, I thought the social aspects were better, I thought it looked pretty cool, but it just wasn’t working on our site and there was a problem when we migrated to discuss originally, I think that was a carry over problem, it sucked. We just had to switch away from it.
Joe: I definitely think it had some great advantages but the basic WordPress comment structure is much much faster and cleaner for the site.
Justin: Another tweet, MidwestMiniPC said, “I’m listening to the podcast in the beginning at 2x speed, should I listen to it all or start somewhere in the middle?” That’s a really good question, I think from the beginning you’re gonna get a lot of niche site stuff. If you’re into that in terms of niche site building, I think that’s helpful. I’d really say if you want to start listening to our podcast probably listening early two thousand, if you don’t like the recent stuff, the website brokering. Listen early 2014 and on.
Joe: Episode sixty and on would probably work, but I wonder what I sound like at two times speed.
Justin: You’ll have to go back and listen, but at two times, “Hi this is Joe Magnotti.”
Justin: That’s your voice, that’s what it would be. That’s it for episode 147 of the Empire podcast, thanks for sticking with us. We’ll be back next week with another show. You can find this show up to this episode and more at EmpireFlippers.com/Amazonbiz. Make sure to follow us on Twitter @EmpireFlippers, see you next week.
Joe: Bye bye everybody.
Speaker 2: Hope you enjoyed this episode of the Empire podcast with Justin and Joe. Hit up EmpireFlippers.com for more. That’s EmpireFlippers.com. Thanks for listening.