Seven years ago, Jon Elder decided to design and launch a product on Amazon.com. He turned it into a golf accessories brand, and grew it to more than $1 million in annual sales. Then he launched another brand, and then another, and then another, all trading almost entirely via Amazon. After 5 years he’d grown enough to sell the overall business for several million dollars.
Now he runs Black Label Advisor, a consultancy helping other businesses to create products, and grow results on Amazon. In this interview Dan Barker asks Jon about his methods, and Jon explains the exact processes he used to grow several million dollar brands.
Jon: I started out really in a non-Amazon industry. I went to university of Washington. I got into a very prestigious construction management program there. And I thought I was gonna do that the rest of my life.
When you get a degree like that, you’re working on top tier projects up to a billion dollars. So right out of school, I’m working on the San Diego airport in California. And then right after that, I’m working on a huge mega prison project in San Diego.
Dan: And so you went from that to selling on Amazon?
Jon: I was doing what I was trained to do, but at the same time, I’ve always had an entrepreneurial streak in me and I wanted to build something that was for myself or my family. Something I can manage on my own and possibly build it to a point where I could work on it full time. So I started researching in 2013, and by 2014 I launched my first product on Amazon.
Dan: When you say your first product, was this something you were buying and re-selling, or something you’d designed and created?
Jon: So when I say my first product, this is not wholesale or retail arbitrage (buying and reselling), this is a hundred percent private label.
I went into the golfing category. Because I had an interest in it, it was easier for me to begin there. When I talk to people now I’m always, you know, teaching them and helping them find new products to sell how to properly expand their, their, their product lines. And, you know, does a product fit the brand? Does it fit the mission? Does it fit your interest, your passion? And so I took that approach with my very first product and became a number one seller in my category within a couple of months.
Jon: And that product ended up growing into quite a few variations of that product. So variations are like things like color sizing or multi-packs. So for that, it was a color variation ended up selling seven different colors and expanding that brand into other product categories.
During this time I’m still working at my day job. It was a very intense, at the least a 50 hours a week type job. And so I’m doing that and building Amazon on the side – a lot of interaction with Chinese factories late in the evening. That was always a discussion with my wife: there’s going to be some sacrifice here cause I’m trying to build a multi-million dollar company and I’m trying to do this while working a high profile career.
Dan: And so you stuck with golf products, and built a business selling those entirely via Amazon?
Jon: I started expanding my brands ended up getting to office supplies, art products, leather goods for men. And then I got into other sporting goods and I just kept expanding where there was passion and then where I found opportunity in a niche. It was a combination of looking at naked reviews of existing products really looking through existing competitors through the lens of innovation and trying to decide if a category has opportunity to improve upon it.
Dan: When you say a category has an opportunity to ‘improve’ on it, what do you mean?
Jon: So for one example I started selling in the outdoor kids toy market and there was one specific product that did really, really well. I added a unique feature to it and ended up getting a design patent for it. So I was always looking at how can I provide new unique designs to the market. You know, how can I improve the product in a drastic way? These things could be high quality materials. This could be beautiful packaging.
Dan: That makes sense. I guess making some sort of change to the product, even if that is something small, that makes it far more likely someone browsing the category would buy yours over the others, and ideally that distinct change should be something you can protect? And outside of making the product distinct to others within the category, were there other things you focused on?
Jon: I was always thinking through the lens of branding and what that experience is going to be for the customer and also tying in amazing customer service. I actually modeled my customer service from day one after Amazon and Zappos. Every single customer was responded to in less than 24 hours. And even if there was a doubt that maybe that customer was not telling me the truth about a refund or an exchange, I still just said, you know what, I’m not going to ask you a lot of questions. I’m going to make your day and I’m going to send you a replacement. And so that’s how I ran my business. Those two things – customer service paired with innovation – ended up being very successful.
Dan: And you started just as a side project, and ended up selling basically an ecommerce business focused almost entirely on Amazon for a few million dollars, within five or six years, all self-funded?
Jon: I started out with a $5,000 and that grew into an eight figure business. And then I exited my business which was five brands in total in 2019 for mid seven figures. The fast paced ‘newness’ of the growth for my business was definitely contributed to fast paced launching of products.
And to do that there’s lending involved, there’s credit lines with banks. I utilized Amazon lending along the way. And so there was a lot there that that helps in terms of financing. So that’s, that’s kind of, kind of the basics of the story. And I went, full-time in 2016, middle of 2016, getting some office space hiring an employee in Dallas and expanding that way a little bit. But it’s very much the definition of a bootstrap business. There was no angel investing money. There was no venture capital. It was just using smart debt to grow my product lines and innovate along the way, and really focus on branding, focus on the mission statements of each brand and grow that way.
Dan:That makes sense. So you went from $5,000 with lending along the way. And the process was:
- Launch a product in a category under a specific brand.
- Expand that into variations of colours, sizes, multipacks.
- Ideally have some sort of unique features in terms of design, or quality, or packaging.
- Maintain customer service with a similar feel to Amazon’s.
- Use bank lending, and Amazon Lending to help scale
- Repeat across a selection of categories
And that’s what fuelled the growth. I guess that means at the start it was a little slower, and then speeded up as you found and repeated this process? Were there any big realization points where things changed?
Jon: If you look at my growth in terms of revenue, I was doing my first year, I did over a thousand percent growth because I’m going from $5,000 to doing over $150,000 in my first year, my second year, I went from 150,000 to over 1.5 million. And then I, I kept replicating that and experienced a hundred percent year over year growth from from that point on. Lending was important for that and just replicating the same process of basically looking at those niches and looking for ways to innovate got me to that type of growth really fast.
A lot of people ask me, like what was your secret? Well, one, there are no real big secrets. What I’ve said here is: what I; you know. I consult brands and new sellers all the time and I get that question a lot.
Like what, what was your secret? And the secret is high quality, premium product, high priced products don’t go for cheap products. So my average sell price was right around $50 which is not common for Amazon sellers. So I was selling quite a few hundred dollar items. And so that helped a lot along the way.
Dan: That’s interesting, as I think most people still seem to associate Amazon with cheaper products, even though the reality isn’t quite like that. And I guess by having a higher price, you’re able to spend a little more on packaging, quality, and other of these things you talk about as unique factors to keep enough margin to grow.
Jon: That’s correct. There’s a couple of things that go into that. One is amazing packaging, logo, your branding and image is really important on Amazon now. It didn’t really matter 10 years ago, but now it’s everything. So I had video production done, I had really high end photography done using models for lifestyle pictures.
That’s the type of level that you have to be at to demand higher pricing. And then, yeah, looking at things like what features are you adding, are you doing premium materials? How are you improving the product in a way that’s substantial?
And then also just unique designs. It’s pretty crazy because a lot of people are selling products that are just copying each other exactly other than changing the color. The key is to go into a category and offer something unique from anyone else. And, you know, it might be so unique that you can get a design patent. I got multiple design patents along the way, because I wanted to protect my creative unique designs.
Dan: I guess you’re not willing to say what the actual products are so that people can take a look at your examples, right?
Jon: I can tell you the categories, I, because of my signed contract with the buyer of my business, I can’t tell you the brand names and the actual products. I can be general with it though, sure.
Dan: So when you first decided to go for a design patent, was that because something had gone wrong or like there was like preemptive protecting yourself, or what was the reasoning the first time you decided to spend time and money on that?
Jon: That was preemptive protection. I was the number one seller in almost all my categories, and so I basically had a target on my back. When you have a target on your back, everyone and their friends are going to copy your designs, or they’re going to copy your packaging. So you need to have something that you can protect. The design patent protects you fairly well: if you truly have a unique design, they can’t directly copy you. And so that’s helpful because you can shut down other competitors in their listings immediately. That can be really painful for them, but copying someone a hundred percent is not right. And so I use the law to help me for that.
Dan: What was the process that you went through to do that and roughly how much would it cost for somebody to do something like that?
Jon: Design patents range from three grand to five grand. It takes over 12 months to get one. And it’s not as complicated as people think.
So of course there’s going to be some sketch work involved, but what you want to do is you want to work with a really strong lawyer who has all their own sketching and drawing team and staff. So you provide all your details and pictures. And then their department will actually produce a drawing with dimensions, and it has to be formatted specifically for the patent office in America. And they take that, approve it with you, and then you file it. They basically manage that whole process. And really, as long as your sketches are really strong their team can make it look even better. And you really have to, because you’re going from sketching to pretty much engineering drawings and you know, past that point, it’s just a matter of filing for it.
Dan: That makes sense. And then how frequently have you had to use those to protect yourself?
Jon: Not as frequently as you think, because a lot of it was preemptive protection. I know quite a few brands and other sellers who use them all the time. A potential threat will come in and they’ll have, you know, a thousand units that show up and they’re copying your listing. Exactly. all you have to do is contact the legal department at Amazon and submit that, say, Hey, I have a design patent and Amazon takes them out within 24 hours. It’s very, very powerful.
Dan: I guess that simplifies things quite a lot with Amazon handling.
Jon: Exactly. It’s extremely powerful and pretty inexpensive. Especially if you’re running like a $5 million business – three, five grand – that’s nothing in terms of protecting your unique idea it’s definitely worth it.
Dan: That makes really good sense. So you’ve spoken about your process for deciding on products, and expanding those, and protecting them. You’d also spoken a bit about talking to people in China and sourcing. How do you approach that?
Jon: There’s a couple of ways to approach it there. Alibaba was obviously the King of sourcing and still is.
You can look on Alibaba for factories that are producing in your product category already. You can find competitors pretty easily just by using keywords and going to, going to Alibaba and finding factories.
But the most effective method that I always used was RFQ (‘request for quotation’). Basically when you send an RFQ that goes out to every single factory overseas. This includes Vietnam, this includes India, China. And if that has a good match for your products, they’ll respond to you with their financial proposal. If you had asked any questions in your RFQ, they’ll respond to you in there.
It’s common to submit an RFQ, get like 20 or 30 factories, and then there is a process of weeding out factories that are low quality, weeding out companies that aren’t actually the physical factory. Really the goal is to go back and forth over email and to decide on this.
What I typically recommend for clients is to decide on three final factories that have answered every question that you have, and are flexible pricing for your MOQ (minimum order quantity).
And so you get to a sampling phase where you get a sample from each of those factories, and then you’ll want to do stress testing on those for a little bit. And then looking at your notes, decide on the final factory at that point.
Dan: That makes sense. Do you always tend to go through Alibaba, or do you use other competing methods to request quotations?
Jon: Yeah, I use Alibaba a hundred percent. Some people use sourcing agents. They can be beneficial too for being boots on the ground. Sometimes I would do that to just verify the factory that I found in Alibaba. Sourcing agents can also tell you the reputation of that factory. So they’re useful in different ways to verify things, but I would just go directly to Alibaba and start my connections that way.
Dan: You’d spoken about premium product & premium price, right? At what stage would you figure out “okay, this is roughly the price that I’m going to sell. And on the basis of that, this is how much I would need to buy this at” and all of that kind of stuff.
Jon: I always made it a goal of a target price of $40 or higher. And the reason why is because the margins is going to be bigger and you are going to have more room to play with over time.
As you know, it’s inevitable that you’re going to have a flood of new competitors because anytime you become like a top three seller in a category, it’s just, it’s going to show up in software programs like jungle scout and helium 10. And people are just going to come after you.
So that’s the reality sometimes: you need to have a strong net profit margin starting out and you know it. Let’s say you have 10 new competitors show up: You might have to lower your price a little bit to compete, to maintain sales. So starting out, I always recommend a bare minimum net profit of 25%.
What that is is your targeted sell price, minus your cost of goods from the factory, minus your shipping, minus your Amazon FBA fees (‘Fulfilment By Amazon’ is Amazon’s service allowing third party sellers to hold goods in their warehouses, which they ship directly) which include your storage fees. They’re going to include your referral fee, your pack and prep fees, and then throwing a modest budget for PPC. And that will calculate your net profit. Starting higher from the beginning – it’s just so critical. It’s so critical because a lot of the time people go in with a low price product with a small margin, let’s say it’s a $20 product. You’re only making a couple bucks profit on that, on that. Well, the reality is that this is for marketplace bulls, but in 2020, 75% of all new sellers on Amazon were Chinese. So now there is going to be a huge push and demand for lower pricing.
So by having a strong margin from the get-go, you’re going to protect yourself long-term from that issue. And then because you’re selling a premium product that also will protect you because the guys that race to the bottom in terms of pricing – those are not premium products.
A premium product is something that demands a higher price and maintains that higher price. That was the recipe for success for my business. And when I’m consulting brands, that’s what I’m always teaching. They’re always looking out for that because selling a cheap product, anybody can sell a cheap product, but not everyone’s going to go and innovate and produce really high-end materials type products. That’s where the bigger margins are made and that’s where the large businesses are on Amazon.
Dan: I suppose that fits a little bit with what you were talking about before, about being able to offer better customer service and stuff like that. If you had a very low price, you would not have enough margin built in to be able to give people free products, if they complain about them or anything like that.
Jon: Exactly. I think that one of the biggest mistakes I see out there and I see this from supposed gurus, but everyone is so obsessed with revenue that they’re, they’re totally missing. That revenue is not what matters, it’s your net profit. So, I mean, if you’re, if you’re doing a hundred thousand dollars a month in revenue, but your net profit is 2% or 5%, that’s abysmal. That is not a super successful business.
So it’s really important to do the math before you launch. It’s very easy, especially if you have a large catalog catalog of product lines to lose track of what you are actually making per day per sale in net profit. And that’s one of the cornerstones of selling on Amazon: knowing your net profit daily, having a really good understanding of your expenses and maintaining your inventory.
Dan: That sounds like it fits a little with what you were talking about before: Making sure you had all the factors right on one product, before moving onto the next, so that you knew all of the fundamentals of each product. In your business, how long that cycle? Ie, the time to make sure one product was ‘right’ and running smoothly before adding the next?
Jon: I would say 6 months, but first just a little background on that: I was self-taught on Amazon. Everything from my first shipment going to Amazon, no one trained me, you know, I didn’t go into a course and learn any of this. I just did it myself and read all the resource pages that Amazon has published publicly.
I went really slow in the beginning on purpose just because I’m risk adverse. Like that’s just in my nature. I wanted all the math to be rock solid out of the gate and I wanted a product to be successful. So yeah, it was six months of continuing to improve upon my golfing product before I launched another brand. And then after I launched my second brand, it was like a snowball effect. I just started to gain more confidence and I started to launch more and more products and really focus on branding. And I just kept, I kept repeating the same recipe over and over again, past that point.
Dan: So you would treat each new category you went into as something separate, where each would need its own separate brand? And then within those you’d have a series of variants, with different materials or different colors or whatever.
Jon: Yeah. So each listing typically had a variance. Some listings could be variance of color. Other listings it was a slight design change. Some would be like single pack or two pack or three pack, things like that. And those would be under each brand.
So in total I had five brands and under each brand I had multiple product listings that were generally similar in terms of category, so you’d take outdoor kids products, for example that could be an outdoor kids tent or outdoor climbing rocks. The category is specific, but the actual independent listings might not relate completely, but they relate to the brand ‘mission’.
So from outdoor products, everything was related to the mission of encouraging children to regain excitement for the great outdoors, just because we’re so tech heavy in our culture. Now there’s so many kids on iPads and video games that the mission of that brand was to produce products that were fun to play with outside. It interacted with the parents. And so it was very family centric and it was a variety of different products sold under that brand. But similar in terms of the category.
Dan: It’s interesting you talk about mission. I guess that’s incredibly common in larger companies, but less common among small Amazon sellers. And my guess it’s even less common for sellers to have a distinct ‘mission’ for each category they go into. That sounds like a nice repeatable process though: Choose a product category, choose a mission, build a brand around it. Did you have some sort of standard process for defining these missions for each?
Jon: Yeah. There is a process of trial and error pretty much. You know, a lot of time in front of a whiteboard thinking through the ‘why’ of why I launched the brand: what’s the purpose to the end user for my products and what do I want to achieve in their life?
What am I improving their life in some way? And so looking at new products, I always filtered through the brand mission statement. Each brand has its own mission statement, and if it didn’t fit that mission statement, I would not sell that product. That really helped me keep a cohesive brand for each of those. And that obviously is really attractive for buyers of these businesses. I mean you’re probably well aware of the multiple billions that are out there in private equity firms right now to acquire Amazon businesses. They’re all looking for this.
And so this is what I consult people on. A lot of people come to black label advisor and they’re wondering, you know:
“I’m already at this level of revenue. I want to do a hundred percent year over year growth or higher. And I want to position myself to exit to one of these acquisition, acquisition companies”.
And so I walk with them and help them get there. And one of the big things these companies are looking for is, you know, established branding do you have cohesive color themes throughout your media assets? Do your photos line up with your video production? You know, do you have products that fit in with each other because with an Amazon store page customers go to these pages and they don’t want to see a bunch of random products.
For example, if they go to a kids brand, they want to maybe buy a couple of those products because they’re interested in kids’ products. And so the brand really has to be focused on their mission and selling products that make sense to fit under the same brand.
Dan: You talked about your kids brand, and that the mission was something like “encouraging children to regain an excitement of the great outdoors”, because many are so detached from it due to tech. What would one of the other ones be?
Jon: The men’s accessories brand was along the lines of innovating men’s leather products and maximizing functionality at an affordable price. That was a high premium type products, with added functionality, but making sure pricing could stay almost middle of the road. The simple mission statement keeps you out of trouble because you don’t want to dilute your brand into a million different products. You really want your customers to have like one cohesive message.
Dan: I guess that’s the key for those: They’re about customer types. The kids product line was about parents who would like their kids to spend more time in the outdoors, rather than on computers. The men’s accessories product line was for people who don’t want ‘basics’, so want something a little bit extra without spending hundreds. And I suppose that’s what companies acquiring Amazon brands look for: “Are these brands where we can add other products, and reasonably assume customers are there ready to buy?”
Jon: Yeah. And that’s so important to think about if you have a long-term plan to exit someday that one that needs to be on some sort of vision board, whether that’s on a computer or on a whiteboard for me, it was on a whiteboard. And so I had a very specific exit number from day one of starting my Amazon business. And so every decision I made was focused on through the lens of a potential buyer. What, what are they gonna want to see? And so that’s how I made my decisions is what’s, what’s a future buyer going to see maximum value for an exit.
I want a super high multiple for my business. So to get there, I need to be thinking, what do they want to see with this business? And that’s a lot of what we discussed today already.
It comes down to branding and a nice even revenue spread across many different product lines. It really comes down to profit for these acquisition companies. But they also want to see a brand that has a following. They’re gonna want to see your social media. That’s something I focused on. I had Instagram and Facebook set up. I would drive a ton of traffic through social media, to my Shopify sites, and would be building an email list. And then at the same time, you’re focused on your marketing on Amazon and you’re doing them at the same time. But you’re also building that really loyal following outside of Amazon.
Dan: That’s interesting: So you were focused on separate ecommerce sites too using Shopify? How would that roughly split in terms of sales?
Jon: For my business, Shopify was 10% of my sales and Amazon was 90%. I would say most people are kind of like max out at 25% Shopify just because Amazon is growing at a ridiculous rate in terms of e-commerce dollars.
The problem with Shopify is you need to build trust. So you’re driving traffic from like a Facebook ad or a Facebook post, and they’re clicking on it. And then that’s taking them to your Shopify site, which is your, basically your direct to consumer website and your website. You need to convince them to purchase through your website. That’s a lot harder to do that on your own site than on Amazon, because Amazon inherently has trust from people. They buy everything, from toilet paper to their medications.
Jon: People buy makeup and they’re buying from Amazon all the time. So they don’t even question Amazon, but it’s a lot to convince a customer, you know? Yeah. Come through my ad on Facebook com come to my website and purchase.
And so that’s where branding is even more important because you need to have beautiful photography. You need to have an easy checkout experience and build that trust with that person. Because I think people now are comparing what is the site feel like versus Amazon? A lot of people now are bypassing your site and they’re just going on Amazon to see if your brand exists, and they just buy it on there because the return process is great.
Dan: If that’s the case, why did you feel that it was important to keep going with Shopify?
Jon: Shopify is about diversifying your revenue streams, and then also building your own independence, email lists, social profiles.
So Shopify, I own all my customer data, their full name, their address, their phone number, email address you know, their, all their contact info pretty much on Amazon. I get nothing.
On Amazon, they’re not technically your customer: it’s Amazon’s customer. So Amazon does not give you their address. They don’t give you their email address. You don’t get anything. So you’re a third party seller on Amazon, really kind of like behind the scenes.
With Shopify, I can have discussions with my customers, with my email list. I can send out special deals to my email list. I can get them to go review new product launches by giving them a discount code. You know, you can use Shopify for all sorts of different marketing purposes.
And all that’s important if you’re looking to sell your business at some stage.
The email list is extremely important for buyers that are looking to buy businesses on Amazon. One of the, one of the first questions is always: “how big is your email list?” – and sometimes they’ll even ask do you have a Shopify site set up? So it’s kind of like a bare minimum thing. Now, if you’re just selling an Amazon, your multiple is not going to be as good compared to having a large following of social media with Shopify, with Amazon.
Dan: I guess there’s also that little bit that you talked about, but the opposite way round: You’ll drive some traffic to your Shopify sites, but they will end up visiting Amazon, and purchasing from there, where if your Shopify site had not existed, they may never have considered the product at all.
Jon: Yeah. Some people will do that. And whether they buy from your Shopify site or from Amazon, the fulfillment system can be the same. The beauty of setting up Shopify is that you can still use your inventory on Amazon.
Basically what that means is Shopify is directly linked to your Amazon inventory, the consumer doesn’t see that, they see your beautiful website. They see your branding and your checkout. The only thing that marks it out as having come from your Amazon inventory is they get a box with an Amazon label on it. The vast majority of customers: My personal opinion is that they’re so blind to Amazon labels on the exterior of cardboard boxes that they just rip open that package. And they’re like, Oh yeah, this is, this is the product I bought from that other website.
Jon: And they don’t even think about the packaging that says Amazon on it. So it’s kind of a weird thing that is happening. Just people not really caring about the blue tape on the box, but it’s really efficient because you’re getting discounted fulfillment rates because of your volume across both Shopify and Amazon.
So it’s really cheap and really cost efficient to utilize Amazon warehousing for your Shopify site. There’s really no one that competes with how streamlined the process is between the two companies.
Dan: That makes sense. Is there ever a circumstance where you’d sell across Amazon and a third-party website, and you would not want to use Amazon fulfilment for both?
Jon: I had one client that really she had some negative feedback about the blue tape. And so she used her own independent third party logistics option to fulfill. That’s a really rare instance. Most people really don’t care like who who’s shipping the actual product, I’d say 99% of people don’t don’t really care.
In that instance it was an eco-friendly green product for kitchens, and the customers for that brand were kind of almost anti Amazon. But for the vast majority of brands, it’s a slam dunk to use Amazon and you’re never going to get a complaint. So it’s kind of brand specific.
Dan: This interview was really about Amazon, but we’ve strayed on to Shopify, so I should ask: Do your clients use any other channels outside those?
Jon: Yeah, so they use Walmart and eBay as well. Ebay is very random on how successful you’re going to be. Walmart is really a good place to sell if you have a cheaper product.
Walmart also, they do not do any kind of partnerships with Amazon at all. Walmart will actually ban you forever if they catch you fulfilling orders with Amazon warehouses. So with Walmart, you will have to get a third party to fulfill your orders totally separately from Amazon. For some people that works really well. But again, it’s kind of product dependent. But between those four, those are kind of the big ones: eBay, Walmart, Amazon, Shopify.
Dan: Ok – let’s shift away a little bit from the technology and speak about cost to launch. You had 5 brands, each with a small range of products. If you were going to launch another today along similar lines, what would be the minimum budget you think you could launch with?
Jon: That’s a really hard question to answer because every unit cost is going to be so different for products, but I say on average, you’re looking at, you want at least $5,000.
It’s always going to be better to go higher. You know, $5,000 could be really lean or it could be plenty. So, I mean, if you’re selling a really small product that costs $1.50 to source, that should be fine. But if you’re wanting to go into a category where the average sell price is $100, you’re going to need some more capital.
So $5k is the bare minimum. It’s kind of like the net profit 25% bare minimum. You obviously should, should shoot for higher, but you know, some people do start with $5,000. I have some clients that start with hundreds of thousands of dollars and then some start with $20,000.
But for a very small business owner you’re going to need to set aside a minimum of $5,000. That makes sense. And it covers your photography, PPC costs your trade filing for your trademark sourcing costs, shipping costs. So it’s all the kind of standard things that it’s going to cover. Those expenses add up quickly because photography alone is going to be like minimum 500 bucks per listing. So it’s just one of those things that you have to budget for.
Dan: That’s really interesting. So the photography minimum $500. Let’s say you take $5,000 or $10,000 or something, how roughly, would you break that down in terms of photography versus product fees, other costs, et cetera
Jon: Well, product fees, it’s, it’s your FBA fees that you’re paying Amazon is a percentage depending on your sell price and depending on your category. So Amazon has a referral fee, so referral fee averages, 15% of your sale price and then there to get the accurate FBA fee for your products that Amazon actually has a a tool called FBA fee calculator. See, they have to use that to calculate that, but those are really, those are fees that happen as the sales occur, really the $5,000. You know, that’s mainly for your inventory costs in your shipping costs. So for example, if you want to start out with a product that let’s say your store seat for $2 and you’re going to do a test order of 500 units. You’re already at a thousand dollars for inventory costs.
Jon: Shipping is a little unpredictable at the moment with Covid.
Photography we’ve said $500
The cheapest logo, that’s going to be $100-150
PPC – advertising on Amazon – when I first started I was doing $50 a day. That went up to $2500 a day, but when you’re starting $50 a day is fine.
Dan: And you mentioned design patents and other things before. Are those ‘must haves’ or are you saying someone just starting out doesn’t necessarily need to do that?
Jon: The design patent, you don’t need to do from day one, but of course some people do that from day one. Those are typically established brand sellers on Amazon, but you don’t have to do that from day one. What is important from day one is to file is your trademark. So your trademark is going to be roughly $1,500. That’s going to get you full control of your name, whatever your brand name is. So for example, if you don’t have your trademark, someone else could file it for your trademark and take you out on Amazon. It’s that simple?
So that is, that is a cost up front that a lot of people don’t factor into their budget. And that’s why for some people $5,000, what makes sense. And then for some people, you know, $15,000, $20,000 will make a lot more sense.
Dan: That’s very useful. So once you’re through all of that…. Things have arrived with Amazon. What do you do from a launch point of view?
First: From a launch point of view, it’s game on for getting reviews. It’s hard to get across how important that is.
When I’m working with clients, I’m always focused on making sure that they are maintaining their following terms of service. There is a lot of called black hat tactics out there really shady stuff that happens. Some people are paying for hundreds of reviews. And unfortunately, Amazon still to this day has not cracked down on this fully, so it’s tempting for some sellers to fall into doing that. But you can get suspended pretty quickly for doing things like that too. So my clients are typically doing the vine program, which gets you 30 reviews per sku. So if you have five variations, that’s five times 30.
Some people use rebate programs like rebate, key or rebate. That’s basically you’re giving a steep discount on your product. There’s no requirement for them to leave a review, but when people are using these programs they typically do leave a review.
Secondly: Really working hard on PPC to bump up your PPC budget and to get your listing in front of eyeballs.
Thirdly: Those two combined with some strong autoresponder emails are a really powerful tool to get people engaged, and then buying, and then to leave a review. And so it’s really a countdown, the moment your inventory checks into Amazon warehouses to get PPC turned on immediately and get those reviews in because the faster you can get to 25 reviews or so it’s just going to take off from there, assuming you have a really strong design and a really strong product.
Dan: So the formula is basically: Try to get to 25 reviews as fast as possible. Use PPC to push engagement, try to sell as much as possible, try to get the highest percentage of those reviewing, which in turn increases rankings and makes it more likely those who reach the product detail page will buy? With that in mind, does that mean you’d try to overspend at the start through ads to get sales numbers and reviews up?
Jon: Yeah. So whenever I’m talking with a client, the expectation is they are going to spend a lot of money and the numbers might not look very good in the beginning. So that’s a very common strategy to basically outbid everyone. There is some budget that’s allocated as burner budget. And so you’re going to be burning through some of your capital simply to get traffic up. So the key is to get your sales rank up and as that’s maintained Amazon’s just going to continue sending you traffic.
Amazon is a pay for play environment. And a lot of people don’t like to talk about this, but I talk about it because this is just the reality. Amazon is going to benefit you. The more money you spend on PPC, they’re going to benefit your listing. So Amazon’s algorithm, in my opinion, there is a definite link with how much you spend on PPC and how much organic search that you get and how much PPC search you get to your listing.
Let’s say a category has 20 sellers. They are going to reward you. If you’re a top five seller and also a top five spender and PPC, they’re going to reward you. That’s just how it works. And a lot of people don’t want to believe that. And they’re like, I’m not going to spend that much on PPC. The harsh reality is that you have to spend a lot of money on PPC to survive on Amazon. And that’s just part of the game. And that’s just part of your budgeting, it’s part of your expenses. It was by far my biggest expense.
It’s really a race to the top five slots on Amazon. And Amazon’s heading in a direction where they’re more ad heavy and so more and more of the top search results are not going to be actual search results. They’re going to be ads. And so you want to make sure you are there and that’s going to take some capital to retain those spots.
Dan: If I remember right, Amazon made around $7 billion in ad sales last quarter alone. That fits with what you’re saying.
Jon: Yep. It’s all the sellers across the world. Just shelling out big money. I mean, a lot of people will say like, Jon, are you kidding me? You were spending $2,500 a day. And I’m like: when you’re doing multiple millions, close to $10 million a year, that’s just part of reality to compete at that level to retain your top seller status.
Everyone is trying to outbid you. And so your job is to make sure you are bidding a really healthy amount and retaining those ad spots. It’s just part of the nature of Amazon. And a lot of people can’t stomach that, but as you scale, you can stomach it slowly. You don’t have to have like some crazy budget in the very beginning. So, let’s say you start on page three and all of a sudden, one month later you’re on page two. You get to a point where you’ll be comfortable increasing your ad budgets as needed. And then your keywords are also going to be more and more effective as time goes on. Just as Amazon learns your learns, your listing better, and you’re manipulating your PPC ads more effectively in terms of keywords.
Dan: That makes sense. And so mostly it’d be focused around presence of individual products in search. And not pushing the shops or themselves or anything like that. Just individual products, making sure they’re at the top of the listings.
Jon: That’s correct. Yeah. Yeah. These are… each ad is on a per listing basis. And it’s a listing with a little bit of text right below it. And you’re trying to get that searcher to click on your ad.
That is changing a bit. There is one ad slot that is really effective and Amazon allows you to put in your brand, your branded logo. And then you can showcase your top three selling products right there. That’s, that’s something that is new and different. And a lot of people utilize that as well. So Amazon is continuing to add more options for ads and it’s obviously benefiting them because people are spending money for all these ads. Lots.
Dan: And in terms of budgeting ads, how would you budget them? So you said you were spending 2,500 a day. How would you figure out: Oh, this is how much I should spend, and figure out when to cut back and when to push it, all that kind of stuff.
Jon: So your PPC budget just needs to fit into your net profit goals. So for all of my products, I was going 25% or higher for net profit and that’s including my PPC costs. So as long as you are maintaining your net profit goal, spend as much as you want, because the more you spend on PPC, the more sales volume you’re going to have. And as long as the math stays consistent, keep spending more on PPC as long as you can afford it. And the sales are coming in and it makes sense on paper, keep doing it and keep expanding and keep spending more because you’re just bringing more sales into your business.
Dan: Great. And once the product is sold, is there anything that you do from that point – like product packaging to get across your brand & increase likelihood of second purchase or anything?
Jon: Yes. Yeah. So there’s some really effective tips for people that, you know, everyone should be utilizing, but not a lot of people do. One is auto autoresponder emails. So you have two options on Amazon to request a review. You can use the “request a review button”, which is basically a canned email from Amazon to that customer. Very, very boring does not have a strong response in terms of review rates. The best approach to this is to set up autoresponder emails. Typically I recommend one at five days post delivery, and then another one at 10 days or 14 days. And the goal with that is I’m basically engaging the customer in a very personal way. I have customized headings for my email titles. I use a lot of humor and I encourage my clients, sees a lot of humor.
There’s a sea of emails out there and from a standpoint of marketing and interest, you want to engage them and you want your email to stand out from all of their other emails. And so to do that, you have to be a little creative and use a little humor, and you’re just checking in on them, letting them know about maybe a warranty that you have. You’re asking them if they have any issues with the product. Whenever you’re asking for a review, you’re always asking from the standpoint of “I would love for an unbiased review from you. We love customer feedback. We’re always improving their products. Even if you have some negative feedback, I would love to hear from you.”
Jon: So it’s all about making the customer’s day. And then also engaging them to the point of they’re like, you know what, I’m going to leave a review for this company. So that’s very effective and then inserts are also really effective with social media. So, you know, on the back of an insert you can ask for an unbiased review directly to your Amazon listing. You may not send people to your Shopify site but you are allowed per transit service to send people to your social media sites. So it’s interesting about that is that’s a really effective way to develop your tribe. So let’s say someone buys your product, on Amazon, they’ve never known your company before they opened up your package. You have beautiful packaging, and then there’s an insert right at the front. Okay. If they read that and they open that and scan the QR code and it takes them to Instagram, or it takes it into Facebook and they start interacting with your social media page they may or may not leave a real picture of the product being used and tag your company on social media.
Jon: That’s something that’s awesome to see with with with brands and you know, they can be targeted to via Facebook ads and Instagram ads to make a sale through your Shopify site down, down the road in the future. So it’s kind of a loophole if you use it in a smart way, but it’s definitely a loophole to get a customer off Amazon. But social media is the only exception, you know, you can’t bring them directly from that insert to your Shopify site and say, “Hey, give me all your information”. Amazon makes an exception for social media pages, which is very effective.
Dan: Thanks so much for all of this, Jon. One final question I should ask, as I guess people will be wondering this as they read the interview: what made you switch from a successful retail business selling directly via Amazon, through to selling that business and wanting to consult with others to help them achieve that?
Jon: Yeah, so exiting is something that I wanted to do from day one. I hit my number and wanted to exit so when I got my business evaluation I was shocked that I got there so fast. A mid seven figure exit in under five years. It was at that point where I was ready to exit, and then through the process of training the buyer of my business – they didn’t have a lot of Amazon experience – it was kind of an interesting journey to go with them. I was basically training as part of the exit of the business for up to 12 months. And so I just did a pivot to consulting because watching and helping other people be successful with their brands has been something that I’ve really enjoyed, and just utilizing experience in helping people from an honest, transparent view is also something that is sorely missing.
There’s just a lot of people out there who simply want to sign you up with these long-term contracts and they’re giving out poor advice. So with me at Black Label Advisor, I’m working with people One-On-One, getting advice from me, not some random employee. I only take on a certain number of clients and it’s very client focused. I basically help people be very successful on Amazon and I utilize all my experience to help them get there.
That can be anything from product rankings and PPC on Amazon, to logistics, to brand management, to photography. It usually strats with an audit of their business – from financials to listings to sourcing – and then using my experience to improve those and help them hit their goals, whether that’s growth, or an exit.
Thanks so much for Jon for sharing a considerable amount of information about launching, growing, and running profitable brands on Amazon. You can find more info at BlackLabelAdvisor.com or follow Jon on Twitter.