"Build" Guide - how to Build your Private Label Business
Want to start selling on Amazon? Where to start?
The standard answer for a few years has been – by plunging straight into private label.
As that’s how I started myself – and eventually succeeded, until recently I taught that myself.
I’m no longer convinced
But after 18 months of mentoring people trying to start selling on amazon, and a year of masterminds mostly focussed on those, I’ve seen the struggles up close. I’ve seen inside too many businesses and too many minds. It’s a hard way to start.
All business has challenges starting. That’s a given. You need a tough mindset. I just happen to think that in late 2017, the old model just isn’t cutting for those who are trying to start selling on Amazon now.
Are you still focussed on Private Label?
Yes I am. I believe private label on Amazon is still a big opportunity. I have many friends making loads more money than me to back that up. It’s not theory.
So I believe that Private label – and even better, developing unique products -works on Amazon.
However, when it comes to how to start selling on Amazon, that’s a different kettle of fish.
I think the irony is that by prematurely plunging into private label, many sellers actually miss out on properly executed private label. How can that be true?
It’s simple really. They blow their budget on the first budget. They bust their confidence in the business model, and indeed in themselves. And then they quit too early – and miss out on $10s or even hundreds of thousands of dollars of revenue per month
I’m not talking about what the overall goal is – rather, it’s about how we GET there!
Also I’m increasingly happy with whatever WORKS rather than being puritanical about business models.
As I’ve talked over the past two years to many Amazon experts, it’s clear from the sharper people (especially the master himself, Will Tjernlund ) that there are several models that can work. And you don’t have to start with private label.
Focus is good and learning a particular set of skills- but so is PROGRESSION:
from simple to advanced; from low-risk to higher risk; from quick wins to projects that take months to come to fruition.
There is a natural progression in terms of risk in the various business models available to ecommerce sellers in general, and ways to start selling on Amazon in particular.
It’s like my old job of piano teaching.
Sure, I can teach little Johnny to seem like an accomplished pianist by teaching him or her three specific pieces and about 10 scales. You get a certificate, you look good, the parents are happy.
Trouble is, he doesn’t know his way round a piano, he can’t read the music, he can’t play by ear, he doesn’t understand what he’s playing or why…in short, he’s not becoming any kind of real musician. Or any kind of real pianist.
He’s aping the real thing. But he’s basically little more than a trained monkey.
Put him in any situation that demands real understanding of music, or real control of a piano, and he is finished.
My experience with Amazon sellers who try to learn how to start selling on Amazon with Private label is remarkably similar.
Indeed, it mirrors my own journey as an Amazon seller myself. And it also mirrors my journey as a piano student/musician to a frighteningly similar degree too.
That’s not surprising. There are a lot of vested interests in trying to “pre-package” business building skills and mindset. Same as there were in pretending you can become a pianist, with 20 minutes’ practice a day and three pieces at a time, with some bullshit “grades” scale.
(By the way, I have 7 years’ higher education in classical music, I’m engaged to a pianist – so this is not the ranting of an amateur. On the contrary. It’s the ranting of an ex-professional).
Both things, I’m afraid, while much better than doing nothing in terms of progressing, are basically based on a totally false premise. The false premise being that you can learn the piano by aping much better pianists’ external results – or by aping the actions of advanced Amazon sellers.
Instead, what I’ve seen overwhelmingly is that all of us entrepreneurs need to develop the right mindset and skills. And those come from experience.
The truth is that there is no substitute for learning overall business strategies and tactics. Nor is a substitute for learning by experience.
You need to learn to understand what you see in the data; to READ the data. You need to learn the landscape of a marketplace. Everyone has to learn how the mechanics of production, freight and amazon work. You need to get familiar with Amazon’s internal processes.
All this takes time and practice. It doesn’t need however to be a painful, high-risk, uncertain gain experience, like that of the big private label approach.
Practice makes you better. Planning for months, selling nothing, then sending half your life savings across the world suddenly…well, that is NOT such a great way to practise becoming a better online seller. Nor to start selling on Amazon specifically.
Am I saying private label is dead then? Is it true that nobody should start a private label business on Amazon? Is private label only for the rich or the super-experienced online maverick?
No, no and no.
That is NOT what I’m saying. I want to be super clear. I think the opportunities to make a ton of cash and have the satisfaction of becoming a real entrepreneur (and mastering a tricky but addictive craft) are very real with private label. And even better with original tweaks to a product.
But both models take serious investment of money, time and energy into each product line.
That is fine, even very important at the right point in your development as an Amazon seller, or as an entrepreneur.
But you don’t have to START learning to mountain climb by training in a gym for 3 months, studying maps and theory incredibly hard, then attempting the Himalayas as your first set of mountains.
Sure it’s been done – I read about exactly that in the news a while ago.
There’s a clue here. It’s news – because it’s the exception to the rule!
You don’t have to START selling on Amazon by scaling a private label mountain either.
Again, yes there are exceptions. Again, we read about them and the buzz goes around. Because it is NEWS. Because -I’m sad to say, after trying this way for so long with newcomers – it’s unusual to succeed that way.
So is this a reason to be depressed and quit?
Maybe – if you are the sort of person who quits easily. In which case, please don’t attempt to become an entrepreneur.
Most people shouldn’t scale the Himalayas and most people probably shouldn’t be entrepreneurs either. And that is absolutely fine.
Most people don’t have the mindset, stamina or sheer hunger of an entrepreneur, and there is nothing wrong with that. I’m not a rugby player – despite being forced to play it (very badly) at school. Yes, I admire good players – but I don’t feel a failure because it doesn’t suit me (my sports teachers at school had a go of course…)
Most people who are a right for a profession build skill, fitness and experience one hill, one mountain at a time. If they get on well, they move to the next natural level.
Business is no different – and Amazon is no different to business. Just because Amazon has built the world’s most amazing traffic and conversion machine shouldn’t blind us to the fact that normal business rules still apply.
The economics and business principles are the usual:
Supply and demand. Risk-reward ratios. Opportunity cost.
The mindset and skills needed are the usual ones too:
The skills of assessing the supply and demand balance in a market; assessing risk vs reward; weighing up opportunity cost (if you go for one opportunity, you tie up the money and time that could go into another);
The mindset of a blend of vision and opportunism; pragmatism with some theory and imagination; discipline with flair and improvisation……and so on…
I personally think anyone wants to have a serious crack at building a business and becoming an entrepreneur has never had such opportunity at their feet. And if you want to go for it, I think you should go for it.
There is no reason for anyone to exclude themselves from becoming an entrepreneur.
But wait – isn’t that against everything I’ve been saying in this post?
I want you to have the maximum chance of success, not to exclude you from the club.
What I am saying is that starting an Amazon business with private label does not maximise your chances of succeeding.
Instead, what you should do is read my next post and consider a much lower-risk way to learn your craft as an Amazon seller!
(Now there’s a cliff-hanger…!)
Thanks for reading.
(By the way – well done for reading to the end. Now there’s a hint that you have some stamina. You’ve passed the first test, oh Jedi. If you’re British, Click here – I think you may have what it takes to join the real business builders.)
(Sorry, I couldn’t resist putting a little teaser at the end too! I’ve got to have fun too, you know…)
Antoni Watts got into the Amazon business after running his own sourcing company in China. Today he’s going to teach us about how to import Chinese products.Read More
There are many things that you have to take into consideration. You have to think of your lead time and everything that goes into it. Also consider receiving time at Amazon. It might take awhile for them to check it in. When planning a strategy for your FBA inventory, you should plan for the worst case scenario. There could be issues with it getting backed up at port or issues with your supplier.
A great thing about using software for forecasting, is that they can keep track of that, whether it’s Jeremy’s Forecastly or another piece of software. It tracks inbound inventory, current inventory, what you have in manufacturing, and true sales velocity.
You also need to consider spikes in sales. You may have consistent sales every day, but a couple times a month your sales spike. This is why you need to build in a safety stock. That gives you a cushion so that if you get a surge in sales, you have enough stock to cover it until your next shipment gets there.
Forecastly has many business that use its service. The software can then use this anonymous data to make predictions about Amazon as a whole. It takes ASIN level data over the past 30, 60, and 90 days to makes prediction about future sales numbers.
Their main focus is demand forecasting. It considers your recent sales including stock out periods. If you were out of stock, it can determine what you would have sold had the product been available. It also tracks the variability of demand which is something you can’t do in a spreadsheet.
The main thing you have to be conscious of when managing your FBA inventory is, what do you need to replenish, when do you need to replenish it, and how many units do you need to replenish. Forecastly tracks all that while monitoring your inventory and will recommend your orders.
Many sellers want to use a 60 day trend to determine their sales velocity which is a bad idea. If you selling in an upward trend, meaning your sales are growing, then your sales were much lower 60 days ago. This will make your average too low. Forecastly uses a 30 day trend to get the most up to date projections.
We, here at Amazing FBA, love a rule of thumb. Unfortunately, when it comes to FBA inventory, many sellers follow a rule of thumb that won’t help them, and could hurt them. It’s the idea that you need to have X amount of days worth of inventory. Whenever they place their order, they bring it back to this magic number.
For example, if you wanted to maintain 90 days of inventory and you order monthly with a 30 lead time. When it’s time to make an order, you have 60 days of inventory. Based on this, you would order 30 days of inventory.
You don’t need that much inventory. You wouldn’t need to order for another month because you have a 30 day lead time and you’re tying up cash in stock you don’t need. The rationale behind this method is security. The attempt to avoid stock outs by keeping a large amount of stock on hand.
Amazon will continue growing their own private label brands. So Amazon is now your competitor. International markets are growing. The European markets are booming. If you’re having success in the US, you’ll want to take those products to the UK and the rest of Europe. That isn’t as easy as it sounds. You have to come up with a separate replenishment strategy as well as deal with the tax regulations. There is an opportunity, though. Especially in Germany where 40% of the sellers are non-German, and very few are American. That means they are willing to buy from foreigners, but not many Americans are there yet.
As Amazon grows, the more warehouse space they will need. They are investing in new space, but they don’t want to overdo it. You will likely see seller-fulfilled-prime see some growth as a solution to this problem though will come with its own issues.
The inbound process is likely to change. It used to be that you would just slap on a UPS label. Then you had to also do the Amazon label. Now you have to do box contents. It’s going to get more and more complicated as Amazon continues handling more inventory.
If you want to receive a free tool for launching new products, head on over to Forecastly.
This is one of the biggest issues with Amazon inventory management. It’s something everyone deals with. Sometimes a product doesn’t as well as you expected. Once again, there is no crystal ball solution.
It might seem obvious, but one thing you can do is to look at it from a marketing perspective. Take a look at what you can do to improve the conversion rate. Can you improve your images or other aspects of your listing? Pay-per-click ads. It’s an investment. It will take time to perfect it. Is there anything else you can do as a last ditch effort to recoup your investment in the stock?
If you have already considered the marketing aspect, you could try a completely different route. You can wholesale it or sell it on a different channel. You’d be surprised how many people will buy lots of inventory on eBay other sites that will help you with that. There are sites that help you with bulk sales. You can work with a service that does flash sales, like touchofmodern.com. They will flash sales household products that are high-quality. If you want to leave it on Amazon, you could lower your price. Even if you take a loss on the sales, at least you’re putting money back into your pocket.
Proper Amazon inventory management is very difficult. You have to think long and hard and it really comes down to a plan. In the case of excess inventory, many sellers just go on a whim. One seller is dealing with excess inventory because they bought 3000 units of a product they’ve never sold before. Their main reason was that they got a good cost on them at 300 units.
The cost isn’t as important on that first order. You’re really trying to prove the product is viable. Then on your second order, you can get the cost right once you know the product will sell. It might be difficult for a first-time seller since your money is tied up but you’re not making much profit. However, you are lowering the risk if the product doesn’t take off.
One tactic that you might consider is ordering small amounts of several different products knowing you are likely to run out. Then you can see which one takes off. This isn’t a great strategy. If you find a good product that takes off, you will jump in the sales rank. Now you have a high ranking product with no inventory. Let’s say it sells out in a week but you have a 45 day lead time. Now you’re going to be out of stock for 45 days unless you can negotiate with your supplier and spend more money to have it expedited.
One issue you might run into is a minimum order quantity (MOQ), where suppliers will require a large order otherwise they won’t accept it. You can try to negotiate with them saying that you will be ordering from them for awhile, but it’s company policy that the initial is smaller.