First will clarify these are just my opinions based upon what has worked for me not the end all be all. This is also what I find to work well for me at the stage in my business which is very different than say someone trying to get moving with a few hundred bucks.
Now that I have gone over what will not work let’s look at what has proven to work for me and many others multiple times and what you can really expect a product sold Private Label on Amazon to do if marketed well.
I am going to go over each of these elements one at a time.
Product Research: There are a million ways to skin a cat and you may or may not have found your favorite way to skin this one. But if your product research is good your onto something and can get ahead of the market. If it is bad your already behind and your going to have a harder time.
Personally I hate fad type products as I spent decades chasing the fad electronics product with my store GadgetDealz. Every 3-6 months all the manufacturers would be launching some new version of the same old thing. Any inventory you had of the old thing now was worthless and you needed to dump it and buy all new things to sell.
Same still applies, you can even look at seasonal items the same way. But understanding this you can use it to your advantage. Most of the majors launch new products at a specific time each year. Knowing when helps you plan your product purchases and when to dump excess inventory. Or say when to get into the new phone covers for say an Apple phone.
Also the major consumer shows like CES help drive demand and show you what is available, hype what is coming, and get buyers to make purchases. Knowing what is coming down the pipe is like having a crystal ball on making money in these cases.
Today I am a little older, like to fly and spend time with family, camping, playing video games with my kids. So I do not want to chase the fads as much and am more likely to stay in the safe consumer goods market. That is a whole different animal. People buy a whole lot of toilet paper every year. It is a monster market and the smallest piece of that pie is huge.
The TP market in the US for 2015 can be found here http://www.statista.com/statistics/188710/top-toilet-tissue-brands-in-the-united-states/. The top private brand is expected to do 1.16 billion dollars in a single year…for TP. Heck the unknown brands combined are 1.6 billion dollars. Time for a math break. .001% of the also ran TP businesses is a 1,600,000.00 a year business. So if you get 1/100th of a percent of the market your worth 1.6 million dollars….now do the market research on the latest Amazon fad product, like say silicone baking gloves, and you may find the whole market is worth 1.6 million.
Why do I bring this up 1/100th of a percent of something huge is big, 100 percent of nothing is still nothing. Think about it!
Manufacturer Research: I was taught you always get 3 quotes when getting a service or good from someone. Do not just rush into the first deal you see. The value is that first you took some time to think about what you were doing. You got multiple vendors to compete, and you got to see what the market was really like before you spent your money.
I still do the same today with manufacturers. I find more than one in the segment I am in. Example silicone baking gloves. I find multiple manufacturers who specialize in silicone products, ask pertinent questions like, packaging, employee turn, lead time, shrink, shipping, warranty, etc…get them all to send me samples and quotes for orders based upon my market research.
Then I see how fast they respond, how competitive the quote, and how good the sample is.
From this information I can feel safe that I have found the manufacturing partner I want to work with. Why go through this trouble? Well if you do get a product that does well you may find yourself in a position of not being able to get goods fast enough to fill orders.
Launch Strategies: If you do not have a clear plan on how your going to bring your product to market and how you going to TAKE market share then your probably doomed to extinction before you began. Launching a product is an art form, it has a lot of moving parts and requires a specific plan of action at specific times to be successful. Are you going to pre sell? Are you going to advertise? How are people going to find you? How are you going to tell them your out there? What is your USP and how are people going to know what that is? History is full of great inventions that failed. Nicoli Tesla is a perfect example of a man with a superior product that failed against a better marketed product, and you will find the heaping piles of dead game changing ideas that failed because the public never knew they were there. A old saying I was taught 30 years ago is “He who climbs the tree and hollers is the one who gets the dollars.” Today you need to SCREAM from TV or online media and you have to PAY for it. Guerrilla marketing does still exist and I know people with huge businesses selling direct, in kiosks, or door to door, and it is a great first step but to blow up a brand you need to HOLLER to the world HEY LOOK AT ME I AM OUT HERE AND YOU WANT ME!!! How do we do that? Video is the key!
Here are some examples:
TV Commercials (as seen on TV style)
You Tube Video (Get a you tube star to promote you and BOOM)
Paid traffic (big add spends)
Google Ad Words (still works)
Other selling channels (Amazon, Ebay, Jet, ???)
Marketing Budgets: I have had issues with the terms marketing and sales for a while. They are different but related. Marketing is about brand building and is super expensive. If you build a brand (kleenex, coke, go daddy) then you in the culture and become massive. To do that costs massive money and dedicated teams. Vonage did that recently when they spend 658 million dollars of investors money to be the Kleenex of VoIP. At the same time they underhandedly destroyed the VoIP market and all investments in that space. For most of us we are not ready to go down this road and today that type of marketing with huge signs, branding buildings with company names is so old fashioned and wasteful we will not need to discuss it further.
Setting up a budget for this seems hard when you look at the fact your new business is probably not making any money right now. I remember being asked to determine my first budget in this space when I was CTO and founder of a tech company. I was like ” I am a techie, a CTO, how do I accomplish this?”
Today with the internet in full swing that game has changed again and it is not as expensive as one would think all you need is DATA.
Data from split testing and conversion analytics is your best friend. Done right you create a virtual ATM machine that for every dollar you put into marketing you get multiple dollars back.
a high level overview goes like this
As you can see you send paid traffic down a conversion funnel, you analyze data across all the different points in your funnel and tweak each areas copy, colors, pictures etc….until it is converting at a profit. Then you send even more traffic down the funnel to create the ATM machine. But you never stop tweaking, analyzing and improving as you A/B or split test each segment always looking to move the conversion numbers up.
Science, mathematical algorithms, and great copy are the new keys to success as a marketer and today there are classes and certifications on these areas. It is the brave new world and it is the direction we are moving. The presidential campaigns use this data to make sure candidates are hitting the key points the potential voters are interested in to insure they get your vote….a great book on the subject of data mining and marketing and how it is being used to persuade you to do what someone else wants is “Trust me, I’m Lying, by Ryan holiday. You can use the same techniques to sell large volumes of products via the internet.
This is one topic I see bite more people on the but and slow their growth than any other. How to order enough products to create demand, then continue to order to fill demand and fuel growth.
This is why I do not like the small ball methods I discussed in the earlier post on this subject. So with market research you should have a very good idea of what the expected number of advertising dollars(Free give away products, reduced price products, etc) you need to spend to create the kind of demand you need to TAKE market share.
Example silicone gloves again: top seller selling 900 units per month, has 400 reviews….I need to promo 35 units a day for the first 3 days 45 units a day for the next 3 days 55 units a day for the next 3 days and 65 units a day for the last 3 days of a 12 day campaign on Amazon. Total give away’s. 105 + 135 + 165 + 195 = 600 units given away.
So you would need to give away 600 units just to start grabbing some market share and moving your BSR UP. But there is more to do right?
I need to send out as many emails as I can to those people requesting feedback and reviews as reviews are social proof and social proof allows customers to feel better about their purchase as most people do not like to be the first to buy anything. Weird but if someone else buys too they feel better about risking their money as well. The more that buy the more that follow the sheep…yeah I said it and one day you will say the same thing.
So 600 units to get moving and maybe another 600 units in 2-3 weeks to prop it up right. so within the first 30 days your giving away 1200 units and then your selling as well so you may want additional units on hand to cover your sales until you can get another order in. So lets say first order is 2000 units.
Then you have to be prepared for the next order once this one lands I place my next order. Why?
Because I do not use Air Freight as that is a cash burn and anyone who really knows business knows that starting up you cannot throw cash out the door as it is the most precious commodity you have to start. So I would rather put the money into the numbers of product I need to actually launch my products and TAKE market share then paying for door to door services. Example 5.6CFM air freighted to my warehouse by a customer this week was over 4535.52 plus duty warehouse and other fees. To ship ocean 1200.00 bucks and could have spent the other 3300.00 on more product, more marketing, etc. Air is like surgery, it should be a last resort not first choice.
So once my first shipment lands at the port I place my next order with the manufacturer…..and so on and so on every month. I also watch my sales volume, monitor growth, and increase or decrease order accordingly.
I know some of you are saying why am I risking ordering 2 orders if I do not know a product is going to do well. The answer is I do know because I have done my research, there is an established market, people already buy what I am selling, I do not need to educate the consumer, just TAKE market share. It is that simple. I know I have a good manufacturer, I know I have a good product, and I know how to TAKE market share online on Amazon, but also on other sales channels. If you know how to get it then you do not need to stress you just need to LAUNCH products.
So I discussed managing orders and in order to do that you need to be able to manage your inventory. If you do not know your sales velocity, if you do not know your average growth and cannot see trends in your sales you will end up with too little or too much inventory. That take cash out of your pocket and as explained earlier that is the single most important resource you have to grow. If you run out of money you DIE plane and simple. You cannot fuel growth, you cannot fund new products, you just plan die.
So in the early days we used spread sheets and the inventory information from the sales channels. It worked then and still works today. Amazon is actually pretty good about forecasting (tell you your number of days worth of inventory based upon sales velocity) but eventually you will want to invest some money into a good inventory management solution, but not day 1 you do not have enough SKUS to warrant the investment and as we are about to discuss AGAIN Cash is King.
Cash Flow Management:
If you have a really successful product the worst thing you can do is starve the sales velocity because you cannot afford to grow it. And it is very easy to grow out of your money. Amazon and Ebay limit the amount of sales you can do early on as they see how you can deal with stocking inventory, and they even offer you short term loans to grow your business and then watch to see what you do with the money. Do your sales grow, inventory grow, etc. they watch everything including the words types in emails.
So here is an example why this is important.
current sales 10 a day or 300 a month, cash flow is 6k a month,
cost of good sold is $3600.00
Your profit after product costs is 40% or $2400.00.
Your Air freight Shipping and Duty is $1800.00
Total profit before taxes etc. is $600.00
middle of next month sales spike to 15 units a day or 400 a month.
cost of goods sold is now $5200.00
but you only have $4200.00 based upon your return of the original COGS and profit.
You cannot afford to buy the amount of goods you needed to fund the growth.
Now take the shipping and go ocean and reduce costs to $600.00.
Your profits and cash on hand is $5400.00 you can actually fuel the growth and fund some advertising as well.
You either will do this with profits from sales or loans, but and there are times and places for loans, but if the base of your house is not in order and your actually losing money, not making it then loans will not get repaid and your business will be headed down the slow death spiral of underfunded and lack of profits.
So wasting cash on superlative services, items, or things like Air freight over something more efficient like ocean and doing some tasks by hand until you cannot afford to any more can mean the difference between growing to 1MM a month or staying at 10k a month.
It is also the difference between continuing to grow and flourish or slowly die as any company not growing is in fact dying and some companies that look like they are growing are actually dying they just do not know it, because bottom line, revenue numbers do not mean anything over profits, and margin over purchase price is not the same as margins after EBIDA.