RMRB 37: Selling on Amazon in the US and UK

Jake:
Hey, listeners, welcome back to the Real Money Real Business Podcast. This week I’m speaking with Jay about his Amazon FBA business that was created in January 2016. The business is selling in both Amazon U.S. and UK and is making over $18,000 every single month in net profit.

Jake:
Jay, thank you for coming on here today. How are you doing?

Jay:
I’m doing good, Jake, thank you for asking. How are you?

Jake:
I’m doing very well myself, thank you. And thank you for taking the time to meet with me today. Excited to discuss this business with you but before we dive into the questions that I have I want to go ahead and run through a little quick summary of the business.

Jake:
Again, it was built in January 2016. Has a monthly revenue of $49,733.00. Expenses of $30,915 to make for a net profit of $18,818 which is generated on a 12-month average. Included in the sale of this business are 10 SKUs, site content and files, Facebook and Instagram profiles. Please note the inventory is not normally included in the list price. Further details can be provided to active depositors.

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

Jay:
My entire background I started about 10 years ago when I did … I started out with SEO and affiliate marketing. Did pretty well with it but I got kind of bored with that model and it was kind of frustrating dealing with all the little changes and what not. I wanted to branch into Amazon and so I did that about two years ago, a little over two years. I just like the business model a lot better especially the FBA model because it’s very hands off and I find that the Amazon algorithm itself is so much easier to rank than Google is. It’s more intuitive. It makes sense. Just as a whole there’s so much more potential with Amazon than the affiliate and SEO side. I’ve been much happier doing this. As far as this, did you want me to get into this business now or were you just more concerned about my …

Jake:
No, that makes sense and you’ve answered another question that I had which is why this over something other than Amazon. But, I guess that kind of leads us to today then. You started this business because you wanted to do Amazon. Why have you decided to sell it then?

Jay:
Just probably the same reason that you get from a lot of people. It’s one of those things where we want to take the money from the sale and reinvest it into either another Amazon business or another thing, I want to get into real estate investing too. So, I think that with some of the money from the sale I definitely plan on buying some property and flipping that or renting it out or whatever. That’s something I’ve wanted to do for a while and I think this would be a great opportunity for me to do that.

Jake:
Yeah, that totally makes sense. Real estate is always one of those reasons you hear people saying, “Yeah, that makes sense.” So, looking at this particular business then, you’ve only been doing it now for two years. Or, no, no 2016, man it’s 2019. Time flies. You’ve been doing this for three years-

Jay:
Sorry, I don’t mean to cut you off, it was like the very end of 2016 that we bought this. It’s been about two years and two or three months or so for this particular one.

Jake:
So, to clarify then, you purchased this business. You didn’t start it?

Jay:
Correct. Yeah, we … sorry, I thought you knew that part. Yeah, we actually bought this business from Empire Flippers, from you guys, in I want to say it was November of 2016 and the seller that we bought it from had already been running it for a little over a year so that’s why the business itself has like three years of history or probably a little over three years at this point. Because when we bought it it was already established.

Jake:
When you say established, how successful was the business when you purchased it at the end of 2016 and how much have you grown it since?

Jay:
Well, it was … we’ve grown it by over 10X I could tell you that much, so, you can just run the numbers. I think when I bought it was making around 4K in profit. I’d have to look back at the P&L I don’t have it in front of me right now. But, yeah, so since that time it’s obviously grown by a lot. You can tell by the valuation.

Jake:
And now you’re here today and the business is doing very well. Looking back at December in particular, you had a very strong end of the year with $34,000 in net profit at the end of last year. What has been the biggest reason that this business has been successful?

Jay:
Well, I think the biggest thing is that … there’s two main products that are for sale in the business and there’s different variations there was like colors sizes and what not. But, when I bought it the main product that was selling were the … am I allowed to say the product on here?

Jake:
No, let’s not mention the specific product.

Jay:
Okay. So, let’s just say when I bought it it was Product A making most of the revenue and Product B was something that the seller had like source and had a couple of them. He had like 300 in stock or whatever but he wasn’t really doing much with Product B and my partner and I realized that Product B actually had a lot more potential and once we got that ranked and it took a little while doing PPC [inaudible 00:05:05] and all this stuff. But, once we got it ranked Product B is actually what really took off and is driving 90% of the revenue now.

Jay:
So, switching from focusing on Product A to Product B was a big part of it and then there was also just things like the seller only had for the second product he only had one color variation available so we came out with more colors. We added an XL size to it which has added a lot of revenue, just that size alone, the extra colors and without taking away from sales of the original color. It was like a lot of people … I think we were losing money because there was only one color available, but once we added all the other ones and gave people more options, we were able to capture more buyers.

Jay:
So, there was that and the combination of just that and then getting it ranked too. When I bought it it was … the second product wasn’t ranking at all. There was no PPC. Nothing was being done for it. Getting to the top I think we’re now within the top five for the biggest keyword in the market. That’s definitely has a huge impact.

Jake:
When you look back at the last year another thing you noticed was that June 2018 wasn’t as good as December. So, what happened then to cause the dip?

Jay:
We just ran out of stock. It’s happened a few times since we started running the business. Just a simple matter of not being able to meet the demand. Sales will spike in certain times and we just didn’t have the inventory available so it ran out which I guess is a good problem to have but it sucks at the same time because we did lose money by not having it in stock. But, that’s all it was.

Jake:
You also sell on your own branded Shopify site, correct?

Jay:
We have one set up. There have only been a handful of sales from it. I’d have to check the exact number but I think it’s like under five. It’s a new thing that we started trying, but it hasn’t really done too much yet. And then because we’re selling the business we kind of backed off on putting too much in Shopify site like dumping a bunch of money into it. But, it’s everything is set up for the buyer if they want to pursue that.

Jake:
What do you currently do to drive sales or eyes to your Amazon listings. You mentioned you use PPC some?

Jay:
Yeah, we’ve kind of experimented with it off and on since we’ve ran … or, since we’ve started growing the business. There were sometimes where it was profitable and sometimes where it’s not. I want to say right now ads are completely turned off. Kind of been one of those things where actually organically it is what makes it most money. So, yeah, like I said before, we’re ranked for some of the biggest keywords in the market. We’re actually the biggest keyword we’re ranked like top five. Sometimes it fluctuates like top 10 but it’s always on the first page for that keyword and then some of the bigger secondary ones.

Jay:
So, honestly it’s mostly organic where the sales come from. PPC is kind of hit or miss. Right now, like I said, I believe it’s completely turned off and sales haven’t dropped at all.

Jake:
You sell in the U.S. and the UK correct?

Jay:
Mostly U.S. We experimented in the UK with Product A, the original one. It was making a little bit of money, I want to say like one or 2K a month was the highest that it would make. But, it was … Like right now we kind of just stopped focusing on the UK because the U.S. takes enough of our time and effort and honestly that’s where the majority of the sales come from.

Jay:
But [inaudible 00:08:09] being said, with the second product, the one that is more successful of the two, we never try that one in the UK at all. I think that given how the first product performed out there even though that was only like a couple of thousand a month, I think the second product could do even better if the buyer were to focus on the UK and actually put a legitimate effort into it.

Jay:
Like I said, with us it was kind of like a lackluster effort. We threw it on the UK, didn’t do a whole lot of promotion for it and just kind of let it run its course. Again, this is with the first product but we didn’t do anything with the second. But, I do think that’s a good opportunity for expansion.

Jake:
What does it take from you, the owner, to maintain the business as it is? How much time does it take on a weekly basis?

Jay:
For this business itself only maybe a couple hours. At this point it kind of does run on its own because of the fact that it’s ranked very well organically so it’s really just a matter of keep eye on the stock, making sure it doesn’t run out like what happened to us a couple of times now because that does cost. As you can see it went with 18 to 20K a month in profit. Every day being out of stock costs a lot of money.

Jay:
So, just being very vigilant about your numbers, making sure that you have enough time to get it manufactured and shipped in. Ideally you would ship by boat because it’s a lot cheaper that way. Yeah, I mean really just monitoring your stock numbers, keeping an eye on the rank if it starts slipping for any reason you might have to run PPC for a couple of days or drop the price or something like that.

Jay:
But, yeah, at this point it is just more a matter of watching everything and making sure it’s running smoothly but there’s not a whole lot of legitimate work that goes into it right now.

Jake:
You also have social media accounts including Facebook and Instagram, correct?

Jay:
Yeah, that’s correct. That’s another thing. We have followers on them and what not but it hasn’t been a huge focal point so there’s definitely a lot of room to improve over there. But the ground work is laid, the accounts are set up. We do have people following us. It’s just I haven’t done a whole lot of advertising over there.

Jake:
You’ve mentioned that you have a partner helping you run this business. Is it just you and your partner or do you have any other employees helping you?

Jay:
No, it’s just he and I. We outsource work, for example, photography work if we need it done we have a girl that does it for us. With the Shopify we had somebody built it for us. Everything is pretty much outsourced but on a freelance basis. They’re not employees of the company.

Jake:
Do you know if those freelancers, the connections could be made with the new owner? Would they be willing to continue working with the business?

Jay:
Oh, yeah for sure.

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 real businesses making real money just like the one we’re looking at today. In fact, don’t miss out. Head over now. Show your email address and we’ll send you hot, fresh, new listings of successful businesses every week to your inbox.

Jake:
Now, back to the interview.

Jake:
What do you feel are some of the major opportunities for growth for this business? We’ve already touched on a couple of them, but are there any others you would focus on if you were to keep it?

Jay:
Yeah, there’s definitely a few things that I know would work out. I’d say the two easiest ones would be one, expanding to the UK and the other marketplaces. Another one that I didn’t mention is I know Australia FBA just recently came online. So, that’s something that the new owner would definitely want to explore because obviously it’s a massive continent and probably a lot of sales they can make over there. And with it being so new, I think it would be easy to get ranked over there because you’re not competing against people who have been established for years now.

Jay:
And that’s something that we definitely plan on doing with our other products that we run on Amazon and is looking at Australia. But, so, yeah, that, UK, Italy, Germany. All those would be good. But, then the other way would be to just simply add more colors because, again, when we added new colors we noticed an immediate increase in sales. Right now we have, I want to say seven colors available. There’s a couple more that we had ideas for and we could definitely share those with the buyer and then with our bigger size.

Jay:
So, most of the sales come from the standard size, but like I said before, we added the XL and that alone added like one, two, sometimes $300 a day in pure profit just from adding that size. But, that was only in our original black color so I think that if you were to come out with that XL size with all of the other colors that we have available for the standard size, that would be another way to grow it.

Jay:
Yeah, like I said, those would be the two [inaudible 00:12:20] then the others would be put more effort into the social media site whether it’s ads or if you have expertise with that. The Shopify, maybe get it ranked maybe do some sort of outreach with bloggers that feature the product on their site. That I can’t speak how successful it would be, but the first two options I recommended I know for a fact would definitely add a good amount of revenue.

Jake:
And on the flip side of the opportunities, do you feel like there are any potential risks associated with this business that a new owner should be aware of?

Jay:
Well, there’s risk with any business but I don’t think there’s nothing that stands out, no. It’s been very solid and successful for us. The ranking, like once we got it ranked for those big keywords we’ve never really slipped from the top spots because of the fact that our sales volume stays pretty high. And that’s how … like if anyone’s not familiar, the way the Amazon algorithm works is they rank you based on your sales volume.

Jay:
So, hypothetically, if you sell the most out of anybody in your category for that keyword you’ll be placed at the top. So, because of the fact that our product is one of the most successful on the front page for those keywords, there’s really no reason why it would lose that spot. So, yeah, I don’t really see any major risks at all. I can’t think of anything off the top of my head.

Jake:
Would you commit to a non-compete?

Jay:
Yeah.

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

Jay:
Really as much as I need. We’ll definitely do everything needed to help them get comfortable with growing the business and then from there on they can have access to my Skype, my partner’s Skype, our email, whatever they want so if they ever have questions even if it’s a year from now and they have a question about something they can hit us up. I’m very flexible on that.

Jake:
Are you open to negotiating on something like an earn out?

Jay:
Yeah, I am open to it. I would want … it would have to be a decent amount up front and then I don’t want a crazy long earn out so not like two years or anything like that. I’d say the longest I’d go would be a year at most but six months would probably be a more ideal scenario just because, like I said, I’m trying to use this money to reinvest in other businesses and property and stuff. Yeah, I would rather just get a good chunk of it upfront and then have it paid off as soon as possible.

Jake:
Awesome, Jay, thank you very much for taking the time with me today. Before I let you go, my final question. If you were looking at this business from the perspective of a potential buyer, why do you feel like it would be an asset worth buying?

Jay:
Well, I think that a couple of things that I mentioned is that there’s still a lot of room for growth. Even though we’ve grown it by so much since buying it, like I said, over 10X it’s been grown by. But, there are just little changes that could be made like adding new colors and expanding to other marketplaces. There’s a lot of things that we haven’t done yet that could easily grow that revenue by even more.

Jay:
If you look at just the way it’s grown since we started running it, it only went up. So, it is a very profitable business. There’s a lot of future potential on it as well. Obviously, I’m biased, it’s mine, but I don’t really see anything that jumps out as making it a turnoff for me if I were looking at it because I do buy businesses too. I can look at it with that type of mind. If I were buying this what would I look at and I’m selling it what am I looking at?

Jay:
Yeah, I just see a lot of opportunities for growth here that I haven’t seen with some other ones, so, yeah.

Jake:
Jay, thank you very much, again, for taking the time with me today. I really appreciate it.

Jay:
Yeah, thank you for having me.