There are three things that Amazon ‘gurus’ don’t mention about selling on Amazon. Do you know what they are? Read on to find out…
We all know that Amazon gurus love to talk about spending money on fancy cars.
But what about the dark sides to the business that they don’t talk about?
In this article, we are going to explain three things that gurus tend to avoid or gloss over that can get you into trouble if you aren’t aware of them.
If you learn about these pitfalls in advance, then you can prepare for them now, so you don’t fall for them in the future.
#1: Income Screenshots are REVENUE, NOT Profit
When you see an income screenshot posted by someone, remember that this is the total amount in SALES that they have made.
This is not the profit that they have earned.
If someone posts that they have made $10,000 in sales last month, this does not take into account the expenses paid to make those sales (like purchasing inventory, the costs of shipping, Amazon FBA fees or costs spent on marketing).
Usually, if someone is making consistent, monthly sales in their Amazon FBA business, then this is a good indicator that they are making a profit.
Some months you will make more, other months less. But in the industry, the yardstick that most people aim for is to make a 30% profit margin on Amazon FBA private label items.
However, while most people do usually profit from their sales, there is one big exception to this: and that is the first month in business.
When you launch a product on Amazon, essentially you are a newcomer in your market. Customers do not know what your product is. So your first job is to put your product in front of their eyes.
The most effective way to do this is by ranking high in Amazon’s search results. Usually, you’ll find products that rank high in the search results on the first page.
These sellers make the majority of sales. And this is where you want your product to be too. So in order to achieve a high ranking as a new seller, you need to focus on increasing your sales velocity.
How do you do this? The best method is to run a launch campaign. Within this campaign, you can use specific marketing techniques designed to generate quick and easy sales.
There are several marketing strategies sellers use to increase their sales velocity. Here are just a few:
- Sending out discount coupons using services like ZonJump
- Investing money into Amazon PPC (Pay-Per-Click) ads
While these strategies work great in rewarding you sales, the downside is that they eat into your profits.
You see, that 30% profit margin we talked about above is based off customers finding your item ‘organically’ using the search engine.
By organically, we mean typing in a keyword into Amazon’s search bar, then finding your product listing in the search results.
That 30% profit does not include customers that purchased your product through a discount coupon or a sponsored ad.
What this means then is that, when you first launch a new Amazon on Amazon, you’re likely only to break even, or even lose a bit of money.
But this okay. In fact, it’s well worth it. Why? Because Amazon favours products that make a lot of sales.
When a product is making a huge volume of sales, this indicates to Amazon that customers are benefitting from your product. As a result, Amazon will rank you higher in the search results, and with time you’ll be making sales organically without any marketing. Here is when you start to make passive, on-going sales into the future.
Keep in mind that revenue only shows how many sales a product has made. What matters more is your profits, as that is the money you keep after deducting your expenses.
#2: To Make a Lot of Money, You Need A Lot of Money
Unlike dropshipping where you can get started for $500, with Amazon FBA private labelling you’re going to need a lot of money.
As Sarah explains in the video, to launch a product that makes $10,000/month in sales, you will need at least $9,000 just for the inventory alone. And that doesn’t include the costs of marketing, tools etc.
The good thing is that you don’t need $9,000 to launch a product on Amazon. You can start with a smaller budget like $3,000 or less. But the less money you have in start-up costs, the more realistic you need to about the types of products you choose to sell.
Look to sell a product that is on average doing a low monthly sales volume. A good number to look for is around 100 units a month.
One advantage to selling products with a lower sales volume is that they usually have less competition. Most Amazon FBA private labellers look for products have a monthly sales volume of 300+ units a month, so are less likely to source low volume products.
Another advantage is that you will also have less expenses, so won’t need to blow all of your money on marketing costs.
Nevertheless, if you want to make a lot of money on Amazon, then you need to be prepared to invest a lot of your money in the short-term.
To learn more about launching your product on Amazon, we highly recommend that you watch the video below.
#3: It’s Very Easy to Go Into Debt When Running an Amazon FBA Business
This is one of the biggest pitfalls that even the top Amazon FBA sellers make.
And the crazy thing is that, if they had just slowed down and focused on managing their money better, they could easily have avoided this.
When you are running an Amazon FBA business, it is very easy to go into a lot of debt. Why? Well, it’s because your expenses are very high. It’s very expensive to purchase inventory. Most of the money that flows into the business is going to go towards paying for expenses. This means that you need to be careful that you manage that cash in it.
A common trap that Amazon private labellers fall for, especially high-level Amazon businesses, is that they try and expand too quickly. They realize that if they spend money purchasing MORE items and MORE inventory, that they can sell it and make MORE money. And so they use all of the cash they have, and max out their debt, in an attempt to purchase as many items as possible.
And this is all well and good… until they get an unexpected bill, like a tax bill. Normally they could pay it, but because they’ve tied up all of their cash and debt in inventory, they don’t have any money left to pay the bill.
And even though they will have the money to pay for it tomorrow, it doesn’t matter, because it needs to be paid for TODAY. But this can be easily avoided if you manage your cash flow correctly.
The Bottom Line
Knowing the ins and outs of selling on Amazon can be less costly and stressful for you in the long-term.
While it is a highly profitable business model to start, it’s important to keep in mind that it is a real business. And should be treated as so.
A successful Amazon business could pay for your dream lifestyle. But understand that it is not as smooth-sailing as those gurus seem to portray in their Facebook ads.
Whether you sell on Amazon, or you are thinking of starting an Amazon business, then be sure to keep a note of the three things outlined in this article.