“YOU DON’T MAKE YOUR MONEY WHEN YOU SELL YOUR PRODUCT, YOU MAKE IT WHEN YOU BUY YOUR PRODUCT.”
TOMMY THE JEWELER
In the previous chapter, I showed you how finding a flawed product is sometimes the surest way to land a great one. I walked you through the 5 Essential Steps for Finding a Winning Product and, applying these steps, we identified a relatively unknown brand with loads of selling potential. Let’s recap this critical exploratory process, then move on to something really fun: making the product better and making it yours.
The best way to compete effectively on the Amazon.com platform is to create a great product because a not-so-great product will fail; guaranteed. Two decades of selling thousands of products on Amazon helped me refine my strategy for finding winning products. This reliable, repeatable process is how I protected my Top Seller status for so long. In Chapter 3 I talked about why you must start with a product that moves you. Unless you feel passionate about your own product, you can’t expect anyone else to be inspired to make the purchase. To satisfy Step 1, we agreed, for the sake of example, that water bottles were something to get excited about because of their constant presence in our daily lives. We entered “Water Bottle” into the Amazon Search Box.
Essential Step 2 says there’s got to be a market for our product. In the previous chapter, I shared the example of my folding-leg game table fiasco. Being excited about a new product is important, but without a market for the concept, I had a container full of losers (and losses). In the example of the water bottle, we looked beyond raw enthusiasm, relying instead on data to show us whether the market was hot. After running a search on the words “water bottle,” we looked past the sponsored products to the organic best sellers. The Contigo Autoseal bottle rose to the top of our search, complete with the Amazon Choice badge. Our Contigo pick ranked high in more than one category, which signaled we were on the right trail.
In Step 3 we put our hypothesis to the test, with the help of a webbased research tool that calculates monthly sales quantities for competing products on an Amazon Search Results page. We then viewed the Product Detail Page (PDP) to learn more and discovered Contigo was ranked high in two categories, Water Bottles and Thermoses, which led us to the Amazon Best Sellers Page, where the product was still ranked high (#8) at the time of my original search. This is a hot product!
Step 4 is my favorite part of the research phase. It’s where we take the data we’ve collected to show us the winners; then we sort it for the losers. Great selling products with bad reviews offer the greatest opportunity to get ahead on Amazon. When we selected the Top 100 for bad reviews, we wound up with a small group, from which I picked the one that appealed to me most: The Nafeeko Collapsible Water Bottle.
Over the several pages, we’re going to take a closer look at what’s wrong with the Nafeeko bottle and how to fix it, source it, and get ready to land it, which will carry us to Step 5: Make it better; make it yours.
Let’s talk for a minute about bad reviews. I run into Sellers on a weekly basis who get really fired up about bad product reviews, now called ratings, they receive for their product. I get it. They’ve invested real money and countless hours bringing the product into the world only to have someone they have never met criticize their baby. It stings. However, if you only take one thing away from this book, know this: product ratings are gold. Remember our collapsible water bottle opportunity? The bad reviews from that good-selling product are going to help us develop the next great collapsible water bottle. Furthermore, when you finally land that awesome thing and start selling it, you’ll use customer feedback to improve your product further. It’s how you discover what you missed in the development and production process from people with a vested interest in your product. Set your ego aside and take in that free gold from your customers. Use it to improve your product every time you reorder, until it’s perfect. I feel like listening is a lost art. If you can simply listen, you can increase your sales on Amazon and build a one-of-a-kind, untouchable brand.
Before I show you how to make your hidden gem cooler using feedback from the bad reviews, let’s first be sure we can get it sourced and made for a price that will support the necessary upgrades. I’ll start by sharing a story about a friend of mine who once gave me advice I’ll never forget. I think I’d been in business for two years when I first met Tommy the Jeweler. Tommy married my Aunt Liz and one evening, while having a Kosher meal in Encino, California, we got into a conversation about business. Tommy had 50 years of experience in the diamond business, and he was asking me lots of questions about this “internet business” my brothers and I had started. I could tell by the quality of his questions that Tommy understood business on a very deep level. He listened intently, then paused before offering this: ”You don’t make your money when you sell your product, you make it when you buy your product.” He then sat back, with a satisfied grin, and he watched me process what he’d just said. I puzzled over it, then countered with my own remark: “I make my money when I sell my product and my customer’s credit card gets processed.” Tommy punched back. “How much did it cost you?” He asked. “Was there money left after the sale to pay your bills?” Ah, finally. The light bulb turned on. I got it. What Tommy was really saying was that buying a product at the right price was the most important part, especially if you know what people are willing to pay. If I sold my product for $2, for example, because that is what people were willing to pay for similar items, but it cost me $2 to buy it; then I didn’t make any money. But if I bought it at the right price, say $0.50, and sold it for $2, then I made money. You don’t make your money when you sell your product, you make it when you buy your product. Not only did I finally get it; I never forgot it.
Before we get back to the Nafeeko bottle, let’s zero in on the numbers. The minimum cost numbers I’m about to share with you don’t necessarily apply across all categories. Some categories are more profitable than others; some have higher return rates. As we factor these variables into our overall assessment, please keep in mind that I’m using rough estimates for where you want to be. Here’s an example of how my profitability looked in 2014 before sponsored ads became necessary:
| Retail Price | 100% |
| Cost of Goods Sold (COGS) | -50% |
| Seller Fee | -15% |
| Shipping | -15% |
| Gross Profit | 20% |
*I like to work with cost percentages because they are scalable.
Boy, those were the days! Before the necessity to advertise on Amazon became a thing, you could easily land a product for 50% of the retail price and still make a healthy profit. Not anymore. Now, paying for traffic is a must and the price of poker, as my dad used to say, just went up. Here’s what your margin looks like today, with some exceptions, if you pay 50% of your retail price for your goods:
| Retail Price | 100% |
| Cost of Goods Sold (COGS) | -50% |
| Seller Fee | -15% |
| Shipping | -15% |
| Marketing/Advertising | -15%* |
| Gross Profit | 5% |
*Increasing quarterly
In just a few short years, due to the need to pay for traffic to your listings, margins have taken a 15 point nosedive. I’ve gone on record in the press about my dislike of Amazon Ads because I feel strongly that products should rank based on their merits. I am also a realist, and I have trained my team (and disciplined myself) to be really good at managing these ads. We manage ads first for search and sales rank and, after optimizing campaigns for a period of time, we then manage the ads for profitability. We’ll dive into ads more deeply in Chapter 9.
In today’s world, if you can get a product landed for 30% of the retail price, you’ll be safer and much happier. That’s not always possible on the first few orders, but once your product is improved, ranked, and starts earning good reviews, you’ll begin selling a lot more volume. More volume means lower prices from your supplier or factory, too. Plus, once your product rises in the rankings, you’ll also gain pricing power. That’s right! Once your listings get ranked, you can begin to raise prices and your quantity sold will not decrease. I’ve done this with hundreds of products and it works every time.
Let’s return to our water bottle example and apply what we’ve just learned about testing for profitability. At the time I pulled the information for this example, The Nefeeko Collapsible Water Bottle was selling for $15.95. If we want to compete with this particular product, then we want to set a landed cost target of 30-40% of retail, or $4.80. The Nomader Collapsible Water Bottle sells for even more at $24.95, so the landed cost target is around $7.50. Can we get these products made for these targeted amounts? Let’s find out.
While this book isn’t about product sourcing or how to manage your supply chain, I’ve learned a few things over the years that I think will help point you in the right direction, especially if you’ve never sourced a product before. Already sourcing? Perhaps the following steps can save you some heartache. I’ll confess, most of these lessons came the hard way, and I share them willingly so you may avoid some of the same mistakes I’ve made.
The Product Specification Sheet (PSS) is the best way to communicate with the factory about what you want to get made. Your first PSS won’t be perfect because you’re still learning about your product. That said, the product materials and specifications of competing products can teach you a lot about your own. Brands with their own websites often add a ton of product details about their products. As you learn more about what materials work best, your PSS will gradually become more complete.
I’ve included an example of a very simple PSS that I’ve used for hundreds of successful products. You can download my spreadsheet for free at Avenue7Media.com, listed on the Resources page at the back of this book. I always find that fiddling around with the real thing makes the process a lot more tangible.
Whether domestic or international, you want to be sure the factory you choose is willing and able to make the product you want, unique to your specifications. Paying a little more, for example, may save you a lot of headaches. Most importantly, you want a factory that is willing and capable of making your product unique to you, incorporating the changes and enhancements you’ve identified with help from customer feedback and reviews. Remember, the Amazon advantage comes when Third-Party Sellers improve upon the original product design.
Before you reach out to a factory with a request for pricing, here are a few things to keep in mind: First, avoid Alibaba like the plague. There are a million YouTube videos that will tell you something different. Don’t fall for it. I have never sourced a product on Alibaba and I never will because they don’t offer the opportunity to develop a relationship with the manufacturer. Most of the time you’ll wind up with a sales rep (or three), which means your cost is going to be much higher than if you work directly with a factory. Additionally, you won’t have a direct connection to a factory engineer, which means the unique changes you want to make—the “fixes” that will turn your ugly duckling into a swan—won’t be communicated effectively, if at all. The key to your success at this critical juncture is to find a factory (or factories) who’ll work with you as a partner. Following are some tips for navigating these important relationships, whether domestic or overseas.
Once the PSS worksheet is drafted, we’re going to begin our factory outreach with a Request for Pricing (RFP), for which a sample is also available on my website. When my brothers and I were first getting started, we focused primarily on American factories. They are generally less expensive to visit; plus, there are still great factories in the good ‘ole U.S. of A. In fact, there are a lot of them. An excellent, free resource for finding factories in the United States is Thomasnet.com, a leading product sourcing and supplier discovery platform. There you can search for the product category you want, and you can find any number of domestic factories. You’ve got to be careful, however, because some of those are importers. Another obvious advantage of sourcing locally is the lack of language barriers. All parties generally speak English and you can therefore better articulate your vision for the product. An American factory will likely also have a better understanding of the domestic market.
When I was searching for factories overseas, I used software that aggregates U.S. Customs export and import data from countries exporting into the United States. Software like Panjiva, Import Genius, and Datamyne can be expensive, but they’re well worth the cost. And they’re easy to use. After subscribing, simply search for your product, let’s say “water bottles,” and you’ll get a list of dozens of factories in many countries that are already making them. You’ll also get email information, contact information, and reviews on their service and quality. Ideally, you want an overseas factory that makes your product (or similar products) and is exporting to the United States. If they are already exporting products here, then they’re used to getting feedback from their U.S. customers about the demands of U.S. end-users.
Here are some other things to consider: Does the factory have a good English speaker on staff? Do they respond promptly to phone or email communications? Can they fix the problems you’ve identified in the existing product, the one that is similar to yours and is currently on the market? You want a factory that is already familiar with the challenges of making U.S. customers happy. This connection, even if the factory address is half a world away, cuts through a ton of the madness and chaos associated with getting your product sourced. Use one of the export software services I shared with you above; then spark up a relationship with the factory that feels best. While there are potentially more obstacles in sourcing products overseas, it is always a far better option than using Alibaba.
Now it is time to figure out whether your snappy new product can make you money. You’ve submitted your Product Specification Sheet (PSS) with Request for Pricing (RFP) information to several factories. Once you hear back about pricing, you’ll have an idea of the market cost for getting your product made, as well as information about minimum order quantities and how long it will take to get it made. With this information we can finally run the numbers.
Add the newly landed cost figures into your PSS, along with your retail price and the Amazon fees, and let’s see what happens. Can you net 5%-15% on your first order? If so, you have yourself a winner. It’s also important to estimate costs for returns and shipping damage. You won’t know for sure until you build up some selling history, but I would recommend factoring in 2% to 5% of sales, depending on your product category. If your category is Apparel or Shoes, your margins will be higher (so will your return rates), so factor in a higher percentage. You may be able to recoup some of those additional costs by reselling your returns as new or, on the gray market, as gently used.
After everything has been factored in and you’ve still got a profit—even a single or a low double-digit percentage of profit—then I would recommend you move ahead with your product. Remember, as you sell more volume, your cost of goods will go down. More importantly, as your product climbs in the ranks or even becomes a bestseller with great reviews, you’ll be able to raise your retail price and grow your profit further. Factories love volume, and they will reward you with quantity price breaks upon reorder. Amazon loves sales, and they will reward you with better digital real estate and higher visibility, which drive even more sales. We call this phenomenon the Flywheel effect.
Once you’ve run the numbers and determined that your product can be profitable (and you’ve got a factory lined up to build your mousetrap), it’s time to apply some creative moxie. This next section is the most subjective part of the product development phase (and the most creative). It’s the part where you transform the boring, run-of-the-mill product into the product they can’t live without.
Now, straight up, I’m not an industrial designer or a product engineer. I’m not even an artist or a graphic designer. But I do know something about pop culture and where to look for what’s trending and cool. When I start designing a new product, I create a Google Folder. I call it my Inspiration Folder, and I stuff it full of popular images from movies and musical artists. I visit popular websites and grab screenshots of things that are trending. Classic designs work well too. For example, Table Tennis was a big category for my Harvil brand, but the designs had become stale. At the time, we were creating some really high-end table tennis tables, but I felt that the tables at the lower price points were really boring. For the redesign, I kept what I call the “bones” of the table the same, focusing instead on new painting schemes that would help differentiate our product from the others on the market. Blue was the most popular color for ping pong tables at the time, so I started a folder with cool-looking blue things. What got me really excited was this 1967 Ford Mustang—white with blue racing stripes. I don’t care who you are or where you come from, you have to admit this beauty is cool, right?
Whether you agree with me or not, you might rightly be wondering what the car has to do with table tennis? Fair question. Because I’m not a great artist myself, I let the real designers meld these concepts together. Hiring a graphic designer, unless you’ve got the chops, will help you with these design challenges. I shared this image with mine, and I asked for three different color schemes that would reflect the sharpness of the Mustang photograph. This was my favorite version, which later got enhanced even further with a dual stripe down the middle (not shown here).
While the table obviously lacks the smooth contours of the ‘67 GT500, our table popped to the top of the Amazon Search Results Page, and our sales doubled in 60 days. In this second example, the bland purple and white table below was a best-selling competitor on Amazon. My brothers and I thought the design was tired, so I began dropping images of cool snowboard and surfboard designs into a new inspiration folder. What really caught my attention was a cool pair of board shorts I found at the mall, a complex that has since been bulldozed thanks to Amazon competition.
The shorts were orange with cool shades of blue, and I loved how the design intertwined the two colors. I snapped a picture with my phone and asked my designer to make an air hockey table based on the board shorts’ design. Here is how it turned out.
At the time, this design was by far the cleanest and brightest on Amazon, and it quickly became the #1 seller that holiday season. Without these images, you may not even believe that I used a classic car and a pair of board shorts to create distinctive designs and convert them into top-selling products on Amazon. Steve Jobs was paraphrasing Pablo Picasso when he said that good artists borrow, but great artists steal. He was right (again)! Even without artistic training, you can capture what you think is cool and hire a graphic designer to use your inspiration to create your cool product. It’s a process that has worked for me for years, and I hope you can use it to put your own style out there.
A quick note about packaging. If you design the coolest, best product in the world and put it into a shoddy box, you’ll wind up with bad reviews. The shipment process is brutal, often starting with bumpy transport to a ship that carries your box, along with millions of others, across an ocean. This treatment is followed by three or four more UPS or FedEx excursions on the way to your customer’s home. If your product arrives damaged, it simply doesn’t matter how cool it was before it got there. Don’t shortchange your packaging. I can tell you from experience that nothing is more frustrating than getting a string of bad reviews that tank your sales and sales rank because you didn’t bother to pay the extra 75 cents for sturdier packaging materials.
How can you be sure? One of my favorite things to do when I visit a factory is to take one of my completed products, packaged and ready to go, and I hoist it over my head. You know what happens next! It’s an inexpensive way to get my point across to the factories that damage is not an option. The surprised expressions from the factory staff is particularly entertaining as I slam my products onto the ground repeatedly.
Now it’s time to place an order. Your costs may be a little bit higher than the first price quote you received because you’ve made sure your item is designed to look cool and the packaging has been fortified to prevent damage. You’re still profitable, so it’s time to place your first order. Here are a few things to consider once you place the order:
Whether you end up sourcing your product in the United States or from another country, you must inspect samples of the product before it leaves the factory. If you think that a U.S. factory will ship flawless product without your careful inspection, you are wrong. If you think that a Chinese factory has your back, you’re wrong again. Remember this phrase: They will Respect what you Inspect. Again, this isn’t a book on sourcing, but if you wait until your product lands with issues (like my folding leg tables that didn’t fold flat), then you are in for a world of hurt. Catch these problems before they leave the factory floor and before the factory receives their final payment.
Once you sign off, use an inspection company to make sure your product is produced correctly. There are several good inspection companies that can inspect your goods no matter where your factory is located: QIMA, formerly AsiaInspection.com, is one of my favorites and they have quality control inspectors all over the world, including the United States. QIMA and other inspection companies have great online portals where you can create a quality control (QC) checklist for your first order. Your first checklist won’t be perfect, but that’s okay. Over time, your customers will teach you what to look for. From my experience, there are common checklist items to watch out for: Are there damages, dents, or scratches? Is the product dirty? Is the packaging what you asked for? Also, ask them to check for some of the same issues your competitors had. Looking back at our Nafeeko example, does it hold water? Does it stand up? I’ve included a sample check list on my website, for which more information is available on the Resources page, as well as contact information for some of the companies I’ve referenced in this chapter.
A sample size of 2% to 3% for inspection prior to shipment should produce a comprehensive report of the product defects for your order. Addressing these issues up front is a lifesaver (and money-saver). The factory will respect what you inspect. If you find defects in this sample size, don’t approve the order for shipment. Wait until the issues are fixed and let the factory know they will be paying for the re-inspection because the defective version of your product wasn’t what was agreed upon. I still do this, even with factories I trust. It keeps them honest, and it builds a relationship that will pay off for you and the factory as you grow your business over time. They may push back, but at the end of the day, they’re invested in your success too. Once you start logging good reviews with a product that stands out from the pack, you’ll be reordering more product from the factory. I always work this fact into my early conversations with any factory with whom I’m doing business. We should both be looking for the win-win opportunity.
Congratulations! Your goods have passed first inspection, and they’re on the cargo ship, heading to the warehouse. Now is a good time to start working on your product listing so you’ll be ready for your first shipment. In the next chapter, we’ll dive into the details of listing procedures, but first let’s get your product safely into the stock room.
I’ve talked a lot about the benefits of setting yourself apart from Amazon and your competition. Selling on Amazon, not to Amazon, for example, and building your brand off Amazon as well as on to protect your messaging and stay in control. Fulfillment by Amazon (FBA) is the big exception. This is where utilizing Amazon’s services is a really good idea because the benefits of FBA far outweigh your costs, in my opinion.
The Prime Badge. Need I go further? FBA is akin to the Good Housekeeping seal of approval because when you sign up for FBA, your product earns the hallowed Prime Badge. There are more than 150 million Prime subscribers who search exclusively for products with the Prime Badge. Having one tagged to your listing can give you as much as a 30% boost in sales.
Amazon is your warehouse. For most new Sellers, the costs associated with renting product storage space and managing outbound shipping, picking, and packing costs are prohibitive because they undercut whatever profit you’d built into your model. With FBA, Amazon takes care of all of that, and they disclose their fee after you set up your Amazon Seller Account and enter your product information, including the shipping, weight, dimensions, and packaging. Amazon will give you an estimate of what it’s going to cost for FBA to basically be your warehouse.
Reliable deliveries. Amazon is the number one online retailer in America largely because of FBA. Smart Amazon executives, long before Amazon launched FBA in 2006, noticed that Amazon Sellers had very fast growth trajectories early on, but then their sales ultimately plateaued by year three or four. One of the reasons growth slowed was because fulfillment became complicated and expensive after the Seller reached a certain number of orders per day. Add to that the inherent complication of seasonal spikes, especially in November and December. By taking the burden of fulfillment off the backs of Sellers, sales stopped leveling off and continued their upward trajectory. Shoppers simply didn’t realize they “needed” Free, 2-Day (now 1-Day!) deliveries. Now they can’t live without it, and I would argue that 3P Sellers can’t live without the Prime Badge that comes with having their products in Amazon FBA.
Lower cost. Amazon will bill you for storage on a monthly basis, in addition to the FBA fees for picking, packing, and shipping each order which get billed with each order. In my experience, when shipping from my own warehouse, the outbound shipping costs alone, excluding the pick and pack fees, were the same price as the all-inclusive FBA shipping fees with Amazon. If you think your inventory will sit in Amazon’s fulfillment centers longer than six months, it’s best to find a contract warehouse for long-term storage because Amazon’s long term storage fees can be painful. I recommend sending just 45-60 days of inventory into FBA warehouses at a time. You’ll avoid extra fees and it’ll give you control of your supply chain.
We covered a lot of territory in this chapter and we haven’t even set up our Amazon selling account yet. Until the fundamentals, covered in the first four chapters of the The Amazon Jungle Seller’s Survival Guide, are executed, a selling account won’t help you. However, now that your product is heading for the warehouse, it’s time to get ready to sell. In Chapter 5, I’ll show you how to set up your Amazon Seller Account and get Amazon Brand Registered (a key step!). We’ll also talk about creating a knock-out listing, with pictures and videos to demonstrate why your product outshines the competition.