#46 Will Tjerlund on Suppliers & Amazon Future Part 2 of 2
Episode #46 Will Tjernlund Interview Part 2 of 2
Many people worry about getting ripped off by a Chinese supplier but it doesn’t make business sense – there is a lot more money to be made selling repeat orders!
What are your main tips for beginners on finding suppliers?
You can find them on Alibaba or via a China Sourcing Agent.
On Alibaba, just make sure they’re a gold supplier and so forth.
If you need peace of mind, Asia Inspection will do a factory inspection for $100.
Have them send pictures of the packaging and product while they are being produced.
Any main dos and don’ts for working with suppliers?
Choose a product that is as simple as possible – that way, it’s hard to mess up making it! A hunk of rubber, wood, plastic. So: very few moving parts, no electronics, hard to break, etc.
Keep it simple! That’s how Will is able to travel the world with a laptop! Don’t follow weird passions like Robotic toys! Many people overcomplicate Amazon. Don’t try to make it as hard as possible; make it as easy as possible!
How do we make it as simple as possible?
Think of everything that can go wrong. If you can’t think of anything, that’s a good product choice!
Will likes to sell (mostly) to Needs not Wants, e.g., Polka Dot underwear vs. a bolt.
It’s not just about price. If you sell a 10 inch bolt for $8 instead of $12, most people will buy it because all bolts look the same. They’re not saying “Some day I’m going to buy this 10 inch bolt”!
Also if you need to liquidate such a product, there’s a clear market for it, to reduce your risk.
How can you build profit into that for yourself?
Email the supplier and ask how much would it be for 1000 units of this product?
If they say, $1 a unit landed cost, do some quick math[s]: If selling for $8, paying $3.60 or $4.50 in fees, so still making $3 each. So for every one dollar invested, he’s getting $3 back.
Do you have a minimum or max selling price?
No it’s more like a timespan to profit ratio. Also it’s about time you’re spending for what return. If you’re spending all day on something with a 15% return, that’s not as good as something with a 33% return where you simply reorder every 3 months.
So it comes back to cashflow?
If I gave you £10 million now, could you make $2 m back in a year? Yes! If I gave you $500K, could you? No. [But if you returned 20% every 2 months on it, you’d end up with $1.492 million – Michael]
So it’s all about getting cash back as fast as possible.
Compounding interest is the 8th wonder of the world, so you need to take advantage of it!
How do you deal with increasing competition in Amazon Private Label?
As competition grows in a niche, Will sends his products directly to Amazon, and Amazon gets nearly 100% of the Buy Box. The margins are lower but Will gets the sale nearly all the time.
Vendor Express (where you can apply) and Vendor Central (invitation only) are the places that Amazon will do that.
If you have some kind of sales history, Just go to Vendor Express, tell Amazon “I want to sell these items directly to you”, you offer a price, they tell you if they accept that or not-they often will. If they accept, they will start placing Purchase Orders and you sell directly to them.
You’ll have to keep some inventory to hand, [and you’ll have to accept getting paid 59 days in arrears!-Michael]. But if it’s a Private Label product, Amazon will outrank all others for the product for that keyword.
Is that open to everyone?
Vendor Express is – just google it and sign up!
Is that what you do when PL is not viable for profit any more?
It’s not normally a price war – it’s usually if someone else optimises their listing etc. (Private Label sellers) and does giveaways. Will has too many SKU’s to watch any individual listing.
How do you manage 2000 listings?
It’s manageable because Will has only about 20 suppliers. He uses software like Stitch Labs and Restock pro, which will alert him when (according to his presets like lead time) a product line needs restocking. When he has built up a big enough order of products from one supplier, he’ll go to the supplier. Will has good knowledge in his mind of which suppliers have short or long lead times
Are you literally keeping it all in your head Like a chess game?
Often it’s triggered by writing a cheque. Or you can just go down a checklist by supplier. It doesn’t take long.
If you’re ordering 100 SKUs from one supplier, you can just order say 50 units of each and still fill a container. So Will gets economies of scale but doesn’t risk much in any individual SKU. Also you’re turning that cash around quickly. “Cashflow is everything”.
Where do you see the relationship between Amazon and Private Label sellers going over the next year or two?
Competition is growing but a lot of the time the competition are doing the same dumb things! So over the next 2 years, there will still be profit to be made.
Within 5-10 years, for anything that is a semi-commodity, China is just going to sell directly to Amazon. Amazon is opening training centres in China. So you’ll need to stay in low-competition niches and fly below the radar.
What sort of commodity products would that be?
Everything in the top 100 BSR that is not a real US brand name. Shopping on needs will be taken over by Amazon: eg silicon spatula – if Amazon can source it and sell it profitably for $2.99 and PL sellers have to sell at $9.99 to break even, Amazon will win the sale every time and therefore build massive numbers of listings. Amazon Basics is only going to get bigger and bigger.
How do you see yourself dealing with this increasing competition?
Will partly depends on the US brands to keep growing their businesses with their own marketing, product research and sourcing.
If you have 4 SKUs total and one gets de-ranked because a bunch of Chinese sellers come in, you’ve lost 25% of revenue. Will has his risk much more diversified. Also he can see trends coming from a long way off via his many SKUs. He will be able to pivot at this point if needed.
Will follows the investment principles: Diversify and get cashflow.
How can people who are starting out take advantage of this?
It’s not one size fits all! That’s why so many courses out there don’t make sense.
–If you have $500 [£342] to invest, flip stuff from AliExpress, drop ship or get a second job and save more cash. Will suggests find a successful Amazon seller and work for them for $15 an hour and learn how it works.
–$5000 [£3422] to invest is on the border. Will says it’s hard to order just $2500 of stuff from China (you’ll need to keep $2500 in cash). Maybe you can find a small retailer or do some Retail Arbitrage or find a wholesaler who will allow you to drop ship their larger products – eg, a fireplace manufacturer (big, bulky stuff). It’s not quite enough to start a business!
If you can go to AliExpress, lead times are so much quicker [than on Alibaba] -you can have a product in your hands within 10 days. If you find something profitable on Alibaba, see if you can air freight it and still make a profit.
If you can invest say $3000 [£2,053] to make $700 back after a month or so, that is a very good start [23%return-Michael].
As you order more, the profit margins will only get bigger over time. The rich get richer on Amazon. The more you sell, the better you rank; the more you sell, the more you can buy, so the price you buy at gets lower and your profit margin gets bigger. As you grow, it gets easier.
–$10,000 [£6843] to invest is enough to order from China [by sea]- a $5000 order will get you somewhere – you could Private Label or find a Mom and Pop shop that does say $10m a year in revenue or less (spend half of inventory and keep the cash back).
–if you have $50K [£3,4216] to invest, you can just call up wholesalers off the bat and say you have £10K to invest.
Once you get bigger and bigger, it becomes ever more important to save money. For example, if Will can increase profit by 1% by saving money, when turning over $10m a year, that’s $100,000 extra profit.
At a 20% margin, that would be extra sales of $500K a year to make that profit number up. So it’s a lot easier to make more profit by saving money than extra sales.
Try to just sell as much as possible as the beginning, but at some point you will need to lower your costs.
How can people find out more about you, Will?
What is your parting advice for someone wanting to get started?
Don’t go after your passion, go where the cash is. Don’t be afraid of making a mistake, more times than not you can liquidate and get your money back. Keep moving forward!
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