Finding Another Way

An Amazon FBA Journey, There and Back Again

This is the Fourth part of my series chronicling my journey/learning experience with Amazon FBA in search of a side hustle. Actually, I’m really hoping to just make it big, get rich, and never work a 9-5 again...

So let's begin at the normal place you begin.... Where you left off last time obviously. Take a look at part three HERE

Step 3 we discussed was next, let’s take a look at the steps again...

1. Find a product on Amazon that fits the ‘right’ criteria.
2. Locate a supplier who can provide this product.
3. ** Buy stock of the product and get it to Amazon. **
4. Create a listing on Amazon for your product.
5. Do some marketing.
6. Profit....???

So step three, buy stock of the product. We took care of looking at samples and found them to be of the right quality.

Now it was time to discuss with the supplier our needs for the first order and how much that was going to cost us. After some discussion, we decided on selling a set of 2 cups with the cork bonus. This means we would require 300 pieces of the cup and 150 corks. The supplier came back with the expected costs of these items (as we aren’t buying an overly large quantity, the price is higher) $2.15 for the cups and $0.75 for the corks.

Here is the tricky part. You’d think it would be simple enough, add those costs up, add in the Amazon fees, and add in the shipping to get the products to Amazon...subtract that from our sales price....profit. Right?...Well, sadly, that’s wrong. The bigger picture needs to be considered when ordering inventory and determining sales price. Here is an example of a thrown together (and far from perfect) cash flow analysis.

It looks pretty complicated, and it wasn’t easy to get it working to be honest...but it’s pretty simple. We’re able to add in the cost of each piece of the puzzle.

On the left side are some totals such as the “cost of product to make per unit” which adds up the per ‘unit’ cost from the right (which is based on adding up two cups, corks, stickers, shipping per unit, etc), then there are Amazon fee estimates and our sales price. The key thing I wanted to bring up at this point though, is the lead time (‘days to receive order’). This is very important because it changes everything.

If we are selling 5 units a day, on average...and we have 150 inventory, it means we will sell out in 31 days (not counting day 1). We don't want to run out of stock though, this is where our success almost becomes our enemy. We have to re-order ~22 days (very conservative) PRIOR to going out of stock so that our inventory will be full again just as we are running out. What this means is, we will have to go even further in the red before we’ve even started to make money.

The cash flow above shows ‘cash after order’, ‘cash on hand for order’, and ‘cash after sellout’. More simply it means....cash in the bank after we make the next order, cash we have available for that order if we take into account current sales revenue and the original order cost...and then cash after sellout refers to how much we’d make if we just ....stopped. No more orders. The thing you’ll notice is that things don't become fully self-sustaining AND profitable until order #4. Does that mean you have to front the cost of 4 orders right off the bat? No, cash will be coming in and out along the way, but it's clear that you do not make a profit until later.

So that’s when things look demoralizing. There’s still hope though, now it’s time to negotiate and reduce costs. In our case, Amazon requires all products to be labeled with the appropriate ASIN/SKU barcode, as well as warnings of plastic or small parts. This meant we needed to purchase and apply stickers to each package. The silicone supplier was ready to do all of this for us, at the charge of $200 for printing the stickers, and another $25 for applying them. $25 was fine with me, but $200? I knew I could find a sticker manufacturer nearby who could give me a better price. I used the same techniques I discussed in the earlier parts of this series, found a supplier, negotiated the price (only $110), and ended up buying a roll of 2000 stickers to be shipped for free (same city area in China) to my silicone supplier, where they would charge a one-time fee of $25 to apply the stickers. Score! So instead of paying $200 for 150 stickers, I found 2000 for $110.

The next hurdle was shipping. The supplier was, once again, happy to handle everything for ~$400. This seemed a tad steep. Through some searching again, I ran into companies in China that handle logistics. Their sole business model is to receive goods into their warehouses, perform any additional services you require (inspection, repackaging, etc.) and then send it to your final destination. In the end, I was able to get express shipping (air freight) to Amazon’s warehouse for about ~$5.5/kg. After final production and boxing, this came out to around $250 or so. Saved another 150 bucks.

During these conversations with the supplier, you typically will find out they are much more willing to reduce the cost on future orders, as well as larger orders, in some cases even removing shipping cost entirely. This supplier has stated that they would reduce costs per cup potentially below $2 and ship directly for free. We will have to investigate that at a later date, however, that will make our cash flow look significantly better for the future of this product.

After resolving all these issues, the only thing left to do was send the money, and get production started. Minor things like coordinating the shipments between sticker supplier, silicone supplier, and logistics company required emails and such along the way, but wasn’t too bad. Now we wait...

So let’s sum up what we’ve done.

Step 3, Buy stock.

• We worked with the supplier to get the best price for the amount we were willing to buy at this stage
• Figured out how to get stickers made and applied to meet the requirements for Amazon’s warehouse
• Found better options for stickers and shipping for our product
• Put everything on order

I hope you enjoyed my rambling. Feel free to leave praise or criticism. Also, please leave questions, if i can answer them, I will.