RMRB 17: Selling Many SKUs Through Amazon

Jake Davis

November 2, 2018

 

This Amazon FBA business was created in September 2014 in the home & garden niche. The business features 28 product SKUs for accessories for products found at both commercial and residential properties. The business is registered with Amazon’s Brand Registry program and has a product design patent and trademark. Jake spoke with the owner, Derek about his experience with the business and what opportunities for growth he sees for the business. 

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Jake:                      What if you could cut through the noise in the online business world and learn from someone who has built a real business. We verified the numbers and combed through the P&L. This is not only a real business but a real asset that people want to buy. We’re going to pull the curtain back and give you the insights this entrepreneur has discovered that you can use to level up your knowledge, whether you’re looking to buy a business or looking for inspiration to take your current business to the next level.

                                Hey listeners, welcome back to real money real business podcast. Today we’re going to be talking about an Amazon FBA business that is making over $10,000 every single month. And something that’s really cool is that the owner of this business has a trademark on the brand and is part of Amazon Brand Registry program, I got the opportunity to speak with the owner about the business and go over some of the decisions he’s made and how the business came to be and where he sees it going in the future. Derek. Thank you for taking the time with me today. How are you doing?

Derek:                   Doing well, Jake. Thanks so much.

Jake:                      Yeah, it’s my pleasure to have you on here. I’m really eager to talk with you about how you built up this FBA store and made it a nearly $300,000 business. But before we get to the questions that I have for you, I want to go ahead and run through a little quick summary of the business. Again, the business was built in September of 2014, has a monthly revenue of $41,035, expenses of $30,539 to make for a net profit of $10,496 which is generated on a 12 month average. Included in the sale of this business are the Amazon Seller Central account with 28 product SKUs, SLPs, customer service response templates, eBay and Walmart accounts, two Facebook accounts, primary domain and outside content and files, Shopify account, design patent, and brand trademark. Please note the inventory is not normally included in the list price. Further details can be provided to active depositors.

                                Derek, can you tell us a little bit about your background in building and running online businesses?

Derek:                   Yeah, absolutely. By trade, I am a software engineer. I went to school for computer science, so right around 2014 when I was graduating school, it was kind of around that time where Amazon FBA was starting to become hot. And I had done quite a bit of eBay in the past but you know, retail arbitrage, those kind of things. But I was ready to sort of take it to the next level. Went through your sort of typical product scouting, testing a bunch of different products and found that private labeling was the way to go because it was a repeatable process, a way to keep getting additional inventory, et cetera. And so that’s how we landed on our product selection of the business here. We started with just a single product, and now as you mentioned, we’ve expanded it out to the 28 different SKUs.

Jake:                      And when you were looking at starting this business, why did you decide to set up an Amazon FBA storefront rather than setting up your own storefront on your own website using the Shopify platform, for example?

Derek:                   Yeah, absolutely. I think the biggest driver there was just the built-in marketing capabilities that Amazon had. Having all those ready buyers on the platform, what their credit card’s already associated with their account, and then the ease of using the pay per click offering from Amazon. Definitely found that to be very effective as far as cost per sale and when it comes to profit and the bottom line.

Jake:                      Then how did you settle upon these products in the home and garden niche?

Derek:                   Yeah, absolutely. As we went, in going through our product research phase, I was really looking for something that had enough demand, that would warrant a significant amount of sales, but wasn’t something you could necessarily just run out to Walmart and Target and find every day. So after quite a vast array of research, we settled on these particular products that we sell today.

Jake:                      You know, it’s ironic that you say that because you do sell products on Walmart, correct?

Derek:                   We do, yes. We have brought the product to Walmart, which is, yeah, it’s sort of funny now.

Jake:                      You didn’t want to have a product that was already sold at Walmart, so you brought it to Walmart. I like the way you think, Derek. When you look back over the last year, something you notice is that, like I said before, you’re making about $15,000 every single month in profit on that 12 month average, looking back over the last year. And if you look at, say last July, July 2017, you made $24,000 in profit, and then in January you broke even. I guess my question here then is about the seasonality of this business. Is it just catered to the products that you’re selling?

Derek:                   Yeah, definitely. The products do have some seasonality to them. Being an outdoor sort of garden niche product, it definitely has the high season during the summer months. It’s a product that folks typically would use in an outdoor kind of a setting. So those summer months are definitely the most popular, especially in some of those more northern states where it stays chilly most of the year, like New York for example. Whereas in Florida, Texas, California, we see a bit more in terms of the year round sales.

Jake:                      And is that something that has happened every year? So you expect this summer, going into July now, or I guess actually August 1st, so July just ended, was July of 2018 just as up as July of 2017 was?

Derek:                   Yes, exactly. So same sort of spike in sales that we’ve seen the prior summers, we did experience this past summer in 2018 as well.

Jake:                      Talking about purely maintaining the business as is, what do you have to do as the owner to keep it at this current level?

Derek:                   Yeah, absolutely. I spend maybe five to 10 hours during the weekends maintaining the business at this point. And really the majority of the work is kind of split into two buckets, more or less. One is managing the pay per click advertising within Amazon, and then the second bucket being managing the inventory. When inventory gets low at Amazon, just reordering with the supplier and ensuring it gets to Amazon.

Jake:                      And that’s all that you have to do. So quantify that with say a weekly number for hours it takes on your end.

Derek:                   Yeah, I’d Ballpark it at five to 10 hours. Really just depends on what’s going on. If there’s an active inventory order with the supplier, it may be more in that five to 10 range, but if there’s no active inventory and transport, it might be between the zero and five range. I found it pretty manageable to, Saturday, Sunday mornings, be able to keep it rolling.

Jake:                      Where does the majority of the traffic for the business come from? Is it just from the Amazon pay per click?

Derek:                   Yeah, the vast majority comes from both Amazon pay per click and organic Amazon search results from the rankings that we’ve established on there. The pay per click, we do like to keep on and pretty aggressively bid for those clicks just for any additional sale that we can take at a profit, of course we’ll go ahead and pursue that.

Jake:                      With the social media pages that are set up, correct me if I’m wrong, you have two Facebook accounts, and those are the only platforms you’re on, correct?

Derek:                   Yes, exactly.

Jake:                      With that said, what’s been your success with the social media, with the Facebook pages? How does that perform relative to just the traffic you get from Amazon?

Derek:                   Yeah, absolutely. The two Facebook pages, one which is brand specific, and then the second one, which is more kind of just niche specific, we haven’t really leveraged them as far as developing additional sales. The original objective was to kind of build up that audience first and then eventually, one day, leverage it for sales and marketing. But at this point, we haven’t really gotten to that second stage of leveraging these established audiences for sales and marketing.

Jake:                      Do you feel like that’s a big opportunity, if someone comes in, purchases this business, and they have that background in social media marketing and Facebook marketing, to really utilize that traffic channel?

Derek:                   Yeah, absolutely. That’s definitely myself. One of my gaps, as far as eCommerce selling goes, is that I don’t have the background or specialty in social media, so it’s definitely one of those levers that a future owner, if they have those skills, that they could leverage to further expand the business.

Jake:                      With the Shopify storefront set up on your own website, how does that perform for the business? I know, again, you said the majority of the traffic and revenue for the business is Amazon, but do you get any sales on that website?

Derek:                   Yeah, we do get sales here and there on the Shopify site, and that’s purely from organic search results on Google. Folks just searching our brand name or the product coming to our site and ordering. We haven’t really done much if any effort in marketing the Shopify site so it’s a very small percentage of our total sales that come through Shopify. But we do get an order on there every now and then.

Jake:                      Talk about the performance of the other two channels you have, Walmart and eBay.

Derek:                   Sure. Yeah, absolutely. The business was actually originally started on eBay, so that was kind of our test platform way back 2014. Once we saw the success on eBay, we expanded into Amazon FBA. The eBay account did reach the power seller level, but we don’t really actively pursue marketing on eBay. And then when it comes to Walmart, since Walmart doesn’t have their own fulfillment centers the way that Amazon does with FBA, I’m operating it as a home business out of my home. I don’t have a fulfillment center warehouse either, so what we did on Walmart is we did a test order of our most popular SKUs, and we completely sold out of all of those SKUs. It was maybe 30 items in total.

                                We sold through the 30 items, which sort of validated the Walmart platform. The next step, though, would be to really systemize this and get a third party fulfillment center set up and start scaling from there. That’s kind of, that my challenge, I just don’t have the time right now to establish that third party fulfillment center and get it connected to Walmart and really give the channel the time it needs.

Jake:                      Is that also the reason why you’re not utilizing the Shopify and eBay platforms completely as well? Just due to the fulfillment of the orders?

Derek:                   Yeah. There are ways, and actually what we did in the past was fulfilled eBay orders with our Amazon inventory through Amazon’s warehouses. It’s really just, I think to fully utilize those channels, it’s going to bump that weekly amount of hours up a bit. And really the five to 10 hours is what I’ve had to allocate to the business now, so it’s been more of a maintenance mode as opposed to aggressively pursuing these non-Amazon channels.

Jake:                      But you could also hire a staff, outsource this work, too.

Derek:                   Yeah, most definitely. It could be outsourced to someone who is familiarized with these different platforms and marketing on them and such.

Jake:                      Hey listeners, do you want to find a business that is just right for you, head on over to Empire Flippers and have a look at our marketplace where you can see you real businesses making real money, just like the one we’re looking at today. In fact, don’t miss out. Head over now. Share your email address, and we’ll send you hot, fresh new listings of successful businesses every week to your inbox. Now back to the interview.

                                When you look to the future, let’s say you didn’t sell the business. Let’s say you kept it, and you wanted to grow it yourself, right? So what are the ways that you would focus on growth? Where are the big opportunities that you see?

Derek:                   Absolutely. I think the first two and foremost would be Walmart and global Amazon expansion. I think Walmart, getting that relationship with a third party fulfillment center and getting some inventory there, doing some basic marketing to get the search rankings on walmart.com up. I think that would be kind of the first step. And then the second step is I would look into expanding in the European Amazon marketplaces. We’ve gotten a lot of emails from Amazon offering to help with that. Again, it would take some additional time so we’d be looking at over 10 hours a week at that point, but I think that would be the next lever I pulled for additional revenues

Jake:                      And then, obviously, the opportunities that we spoke on, including the marketing, getting the social media channels up to par, and you could even implement some email marketing, stuff like that.

Derek:                   Yes, definitely. That would be a very close third because as I mentioned, it’s pretty much all focused on Amazon paid advertising at this point. Not really any email or social marketing up to this point.

Jake:                      Do you feel like there are any significant risks associated with this business that you would want a potential buyer to be aware of?

Derek:                   Yeah, I mean I think the only thing, or rather the primary thing, to be aware of is it is Amazon, which is an open platform. That could be anyone who comes on there. I think it’s just the biggest potential risk would be for any sort of copycats or folks trying to report listings for any kind of troll reason that’s not an actual legitimate reason for reporting it. So just monitoring the listings closely and then, if there are those sort of copycat people hijacking the listing, just keeping a control on that.

Jake:                      And then, also, every business that’s built on the Amazon platform has a little bit of risk outside of your control of just being in Amazon’s control completely. They could change some kind of thing, but that’s something that’s there with every Amazon business.

Derek:                   Yeah, absolutely.

Jake:                      With all of these opportunities that we have laid out, why have you decided to sell the business?

Derek:                   Yeah, it’s a great question. Recently, I’ve taken off of my full time career in the software industry. That’s really my longterm play is within software. eCommerce was kind of a fun project on the side, and it sort of evolved into this bigger scale business here as what started as just a side project. So that’s really the primary reason is I want to hamper down on my full time career. And then, also, got married with my wife in the past year here, too. Of course, that takes a little bit of time away from the off hours. So really just looking to focus on family and my full time career in the software industry moving forward.

Jake:                      Well, congrats on the wedding. I am getting married myself in a few months, I think six now, so congrats to you.

Derek:                   Congrats to you too.

Jake:                      Well thank you. If you could go back though, not talking about your full time job, not talking about anything else and just looking solely at this business. If you could go back, Derek, to September of 2014 when you were just starting out with the Amazon FBA business here and tell yourself something, what would be the big piece of advice that you wish you had known when you were starting out?

Derek:                   Yeah, sure. I’d probably tell myself put all focus in Amazon FBA now. Because I think at the time back then, I was still sort of splitting my focus between eBay, Shopify, Amazon, spent a lot of time building out a separate site. At the time I would have definitely, really drilled down, put all focus in FBA back then.

Jake:                      Would you get to a noncompete?

Derek:                   Yes, definitely.

Jake:                      And how much support are you willing to offer a new owner during the transition period?

Derek:                   Yeah, definitely flexible on that front. Want to ensure the new owner is successful with the business so as support is needed, I can provide it, whether that means a call, email, messaging, et cetera.

Jake:                      Are you open to discussing something like an earn-out?

Derek:                   Yeah, most definitely.

Jake:                      Awesome. Derek, thank you so much for taking the time. I do have another question for you, but before we get to that, I want to go ahead and run through that quick summary of the business again.

                                The business was built in September of 2014, has a monthly revenue of $41,035, expenses of $30,539, to make for a net profit of $10,496, which is generated on a 12 month average. Included in the sale of this business are the Amazon Seller Central account with 28 product SKUs, SLPs, customer service response templates, eBay and Walmart accounts, two Facebook accounts, primary domain, site content and files, Shopify account, design patent, and brand trademark. Please note that inventory is not normally included in the list price. Further details can be provided to active depositors.

                                Derek, if you had to place yourself in the shoes of a buyer looking at this business, why do you feel like it is a business worth buying?

Derek:                   Yeah, definitely. I think, as we mentioned, the potential moving forward, I think that there is a lot of opportunity with it. Expanding on those already prebuilt channels like Walmart and Amazon global. I think looking at the business from an outside lens, I would say that would be really appealing to me as a potential buyer going for the business. And then also, for anyone who does have experience or desire to get into physical retail, this would certainly be a great candidate. Too, if someone were to raise additional capital to pursue the physical retail store route, the opportunity is there as well. I think it’s really an interesting product niche that, obviously it has the volume of sales, but it’s not so oversaturated like some of the other product niches you see out there nowadays.

Jake:                      Derek, thank you so much for taking the time today. I really appreciate it.

Derek:                   Yeah, thanks so much, Jake. This has been a blast.

Jake:                      You’ve just learned how this business works, and I want to give you the opportunity to learn more about what you can do to buy real online businesses just like this one. If you want to find out more about businesses making real money, head over to empireflippers.com and sign up for our mailing list. There is an entire world of people quietly investing their money into online businesses and seeing great returns. Now, we want to help you do the same thing.


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