#4 Supporting myself without a 9-5 (part 2): A private label Amazon product
October 5, 2016
Unlike graphic design which started out as a hobby, I got into the business of creating and selling a product on Amazon because I saw it as a good opportunity for additional income. I’m not sure exactly when it all started, but this video and this brand served as a strong influence early on. After nearly a month of watching webinars, listening to podcasts, and reading related articles and case studies, I decided to invest $147 into the Jungle Scout Chrome Extension to take my product research to the next level.
Note to reader: This article details out the full process it took for me to start selling a product on Amazon. If that's not something that sounds interesting, then it may be best to skip over this post.
Finding a product
With the chrome extension, I was able to see just about every piece of data that I could want about any product listed on Amazon. This included monthly sales, revenue, fees to Amazon, average price, a list of all the people selling a similar product, and more. I was looking for a product that could yield at least a 200% ROI, so I had to find something that followed a very specific criteria:
1. Well-branded reasonably-priced existing products should have at least 10 sales a day.
2. Item should fit in a shoebox.
3. Sourcing cost (including shipping) should be 1/3 or less of selling price.
4. Price should be between $15 and $40.
5. One brand should not be pulling all the sales.
6. There shouldn’t be more than 5 well-branded sellers.
After extensive searching, I had compiled a list of 8 qualifying products. The list included random items such as a full face snorkel mask, a stainless steel insulated beer cooler, a pressure point massager, and a set of silicon baking tools. The next step was to find a supplier for one of these products. I knew that it would be nearly impossible to find a cost-effective supplier in the U.S., so I created an account on Alibaba to start contacting factories overseas.
Finding a supplier
After a couple days of entering products into the Alibaba search box and browsing through the listings, I had enough data to choose a product that I wanted to private label - stainless steel beer coolers. I created a template expressing my interest to start a new product line with a list of questions and sent it to 6 or 7 potential suppliers. I made sure to only focus suppliers that offered competitive pricing, a low MOQ (minimum order quantity), an option for branding, and had been around for at least a couple years.
After a short email exchange with the representatives from companies that responded, I asked 3 of them to take our conversations to Skype. This allowed me to rapid fire questions to see if they would be a good supplier. I asked about ordering samples, custom designs, standard packaging, shipping costs, payments terms, and production lead times. Their answers helped me narrow the potential supplier count down to 2, but there was still some bargaining to do.
Both companies listed their MOQ as 1,000 units, but I only wanted to start with an order of 500. Their stock price per unit was also similar (around $4.50), but I was aiming for closer to $3.50 with a custom design. Like any great imposter, I reiterated the benefits of starting a lucrative partnership and promised a larger quantity order next time based on sales performance. After some more negotiating with each sales rep, it was agreed upon that there would be a MOQ of 500 units and price per unit costs would be $3.55 (Company A) and $3.65 (Company B). This pricing also included a custom box packaging design and branding on the cooler. I was finally ready to order samples, but first I needed to brand the product.
Designing a Brand
I spent 2 full evenings throwing together designs and constantly changing my mind before I was able to finalize the brand and box design. I created a proof-of-concept image (below) and sent the individual files to each representative. I put in orders for 2 samples from each supplier (total cost $260) and waited for the samples to arrive. The lead time for the samples to get to my mailbox was set at 15 days.
After 2 weeks of not hearing anything, Company A emailed me saying that material costs had gone up and they wouldn’t be able to make a profit with the arrangement we had. They wanted to bring the price up to $5.00/unit. I told the sales rep that raising the price was unacceptable, and if they couldn’t deliver, they could refund the money for the samples. They agreed to the refund.
At the same time, company B was having problems with the paint for the exterior of the beer cooler. It hadn’t been mixed properly, so there was some noticeable layering and the color was too dark. It was going to be another 2 weeks for them to order more paint, so they sent over some photos. The photos didn’t look too bad so I gave them the green light to ship the samples.
It took one more week to receive the samples. The box design looked good, but the beer cooler wasn’t that impressive. The logo didn’t seem quite right and the paint seemed to have more imperfections in person. I went to the fridge and grabbed 2 bottles of beer and 2 cans of coke to test the product’s insulating properties. I placed a beer bottle in one cooler, a coke can in the other, and twisted on the rubber lids to make the seal. It was a warm sunny day, so I placed the 4 beverages on a table outside and set a timer to go off at 1 hour, 2 hours, and 4 hours. At every interval, I measured the temperature of the beverages with a cooking thermometer and held them to feel how they compared to each other. The results of my little science experiment showed that the coolers helped keep the beverages stay considerably colder at the 1 hour mark. After 2 hours the effect was much less, and at 4 hours there was almost no effect at all. I had expected better results.
Once again I browsed through all the similar products on Amazon to see how they were performing. There was still plenty of product being sold, but to my surprise there were even more sellers of the product now. Could it be that these were people doing the exact same thing as me!? I wrestled a bit with the idea of committing to the large 500 unit order, but due to the new competition and the issues with the samples, I decided it wasn’t right for me. I emailed the supplier that we would not be moving forward with their product and thanked them for the samples.
The right product
During the weeks I was waiting for the cooler samples, I had started talking to a few international suppliers about a different product that I was interested in private labeling – Cooling towels.
I hadn’t heard of this type of towel, but they sold like crazy on Amazon and there weren’t many well-branded sellers. I purchased one for $7.99 and took it on a camping trip that I had planned for the coming weekend. It was a hot few days, but fortunately our campsite was next to a river. Every day I would dip the cooling towel in the river, wring it out, and wear it as a headband. The fabric would stay damp for hours and would help a lot with combatting the heat. I was surprised at the value I got from the economical last-minute purchase.
After the trip, I did a little more digging into price comparison between what people were selling the towels for on Amazon and unit pricing for mass manufacture overseas. The data I collected was staggering. The base price per unit ratio of Amazon price to Alibaba price was around 10:1!
Once again, I went through the process of negotiating with suppliers and ordering custom samples. The idea was to be the first value-pack seller of cooling towels on Amazon, so I had 3 factories send me a pack of their 6 most popular colors with a logo on each one. This time it only took 2 weeks to receive samples and each seemed to be the same quality.
After some deliberation, I selected the factory that had all the beaming qualities I was looking for: Great per-unit pricing, low MOQ, fast lead times, and a great sales rep who quickly responded to my questions and spoke English well.
I did a little more work with the logo design and placement, and added a small instruction card with details on the front and back. I decided that the value pack would contain 4 different color towels and sell for around $20. That would be 4 towels for the price of 2-3 individual ones at the current pricing on Amazon.
After agreeing on the final pricing and shipping method, I detailed everything into a contract and sent it to the sales rep. The order was for 750 units (3,000 towels). Once the contract was signed, I put down a 50% initial payment and production was ready to begin.
Listing the product on Amazon
In the contract, I placed a few checkpoints in production where the factory should send me photos for my approval. For example, I asked for photos of the first complete packaged set of 4 towels and the individual towels with a new logo I gave them. It wasn’t long before they sent over some nice high-res photos.
Naturally, I had to ask if they could take additional photos that I’d be able to use for my product listing. They agreed and sent over some great photos that I was able to use for the product launch. This also saved me the time and money it would have taken to take the photos myself or get them done professionally.
Fulfillment by Amazon (FBA)
One of the things that was so attractive about selling on Amazon was their FBA program. With FBA, sellers pay a fee to store their products in Amazon’s warehouses, and Amazon takes care of all the shipping, handling, and even the customer service. Sellers only have to make sure they are sending good product into Amazon and restock when inventory runs low.
The FBA fee is dependent on weight and product size and can be anywhere from 15-50% of the product price. It's the main reason why it’s important to find a product that can fit in a shoebox. The FBA fee should estimated early on and be one of the primary metrics used when initially choosing a product to sell. Even with the high fee, FBA is still the most economical and time-saving way to go for any small business or single person selling on Amazon. I believe that if you have a product with low ROI (under 150%) after calculating the FBA fee, then it’s probably not a product worth investing into.
Activating my product listing
I received fifteen 25-pound boxes at my doorstep 5 days before the last day at my 9-5 day job and concurrent flight to Europe. I opened each box to check if all the contents were there and opened a couple product packages for inspection. I counted exactly 750 units and the product details were spot on. I thanked the factory for doing a wonderful job, and contacted Amazon to have them come pick up the boxes. On the morning of my flight, my product listing went live on Amazon.
As I write this article, it’s only been 7 weeks since my product went live. Sales are infrequent, but I also wasn’t expecting to have high sales this early. I’m currently playing around with price and optimizing the product listing. I started a pay-per-click ad campaign a couple days ago, and I have plans to set up email marketing, Google AdWords, and A/B split testing. I’m optimistic that these things will greatly boost sales and get my product onto the front page of Amazon.
One of the things about this product is that it is somewhat seasonal, and would be most fruitful during summer months. Therefore, I knew the timing wasn’t good for launching this product, but due to the high ROI, it wasn’t enough of a drawback to prevent me from moving forward. Sometime in the early summer of next year, I’ll write up case study on the product’s performance, so keep an eye out.
It may sound like I went through a lot of steps to get my first private label product into Amazon, but it really wasn’t a lot of work for the potential value. Many sources can confirm that if you do the research, brand your product, find a good supplier, and sign up for Amazon’s FBA service, you can get to making a lot of money without even having to worry about fulfilling orders.
I looked at it as a medium-risk, high-reward system that I could put in place to make additional income every month. It was important to me to have something like this in place to compliment the graphic design work I was doing for clients. Since I was leaving my job, I needed a way to support myself while I venture into the world of coding and web development.