Guillaume: Hello everyone, Guillaume Le Tual here, host of the E-commerce Wizards Podcast, where I feature leaders in business and e-commerce. Today’s guest is Neil Twa, CEO of Voltage Digital Marketing. Today we’ll be talking about, what the hell to sell? This is a frequent question. This episode is mostly for three types of persons or personas here, either for a startup company or individual, or an established merchant who’s not yet selling on Amazon and wants to start selling on Amazon. If you started, you don’t have much sales going up, you don’t have a lift yet, we could do that for you as well. Or lastly, an established merchant wants to start a new brand and new collection, expand your business with new offerings, the typical entrepreneurial fibre, you want to expand more and start new ideas and new brands. This is really what we’ll be talking about today.
Before we get started, our sponsorship message, this episode is brought to you by Mage Montreal. If a business wants a powerful e-commerce online store, or to increase their sales or to move piled up dormant inventory to free up cash reserves or to automate business processes to gain efficiency and reduce human processing errors, our company Mage Montreal can do that. We’ve been helping e-commerce stores for over a decade. Here’s the catch. We’re specialized and only work on the Adobe Magento e-commerce platform. We do everything Magento related, design development, maintenance, training, if you know anyone, we’ve got their back. Email our team, [email protected] or go to MageMontreal. All right Neil, thanks for being here today.
Neil: Thanks, I appreciate you having me on.
Guillaume: All right. I was even personally considering at one point, should I start my own store or something like that? And it is a very valid question, what the hell to sell? So yeah, I’ll let you get started.
Neil: Where does that come from? It is one of the number one questions we’ve gotten the last eight years of doing e-commerce in the public light. It’s one of the things that I got asked a long time ago in a private coaching session from a guy. We went through the coaching and explained some things and talked about what he was going to do, etc. And I remember him getting a little bit more and more frustrated, because he was wanting me to just give him the answers, and a real coach and mentor is somebody who doesn’t give you the answers. Leading a horse to water and getting them to drink is two separate things. I remember giving him some ideas and concepts and he just blurts out on the call. He’s like, but what the blank do I sell? And I always thought that was a classic line and it’s kind of stuck because it is really the number one question almost everybody has when it comes to building an online ecommerce store.
As you and I were discussing in the green room here before we got started, it was, just show me your product and show me what you’re doing. Really people want to take those ideas and kind of glean them for themselves. What we want to do is obviously teach people how to go fish for themselves. We want to lead you to the water, but we want you to actually go drink it and get in there and bathe in it if you need to and ensure you understand why it is you’re looking for certain kinds of products or certain indicators in the data that says hey, this is the product I should go after, here’s the brand I should really take a look at and to know with confidence that you understand not what to think but how to think about finding products.
So when we get down to the answer, I always like to tell a little story with people to kind of get them in the right mindset of how to do this. And it is a little bit of a mindset. You may not recognize this and you may do this in your house, you may have a significant other that does this, you may be the person who does this yourself. If you’re on Amazon and you’re buying or usually the majority of you are women, 27 plus. We jokingly call it ‘subscribing stint’ in our house based on the number of packages that show up with my five women that live in my house. I’ve got four daughters, and we have a lot of stuff that shows up in our house every week. But as you think about it, you go about your life, you see things, you do things, you buy things, you interact with stuff you purchase, you may interact with other people’s things that have been purchased. But have you ever really stopped to think that any one of those items you’ve touched throughout the day is something that you could actually sell and make money with? And some of you have understood that concept, some of you have never really thought about that.
What I like to do is walk people through a little bit of a scenario, because you go about your day and your job, you’re driving in your car going about your decision-making processes, you might be considering a new phone, a new computer that you need or want or even a new car or a house that you’ve been deciding how you might want to purchase that or you might be actively looking at it. And one of these things might be a car. All right, we call it ‘the white car syndrome’ and it goes a little like this; you’re driving, you’re going about, thinking about the car you want to buy and maybe you grab your wife or husband or significant other and you head down to the car dealer to get this car. You’ve decided you want a white car, it’s the best car ever and you’re so excited to get it and you’ve got it all picked out in the trim level and you’re just going down in there to look for the right car, even pre-approved it for the financing, let’s say and you’re like I can get this deal done. No problem.
So you go down there and you get to see it down there at the lot, you see it, you roll up to it, you’re like, this is the white car, this is the one I wanted. It’s got all the bells and features and whistles. So what happens is, you do the deal, you get in that car, you’re so excited. And as you’re driving out of the car lot, what do you see on your way out of the car lot? All of a sudden, you look around and like, wait a minute, there’s two or three of these cars sitting in the lot. How come I didn’t notice that when I was driving in? And then the next 20 minutes on the way home, there’s another one, where did we get that? Honey there’s another car over there. Wait, hey, there’s one more over here too, I didn’t see that one before.
All of a sudden, your shift, your mindset, your frame of focus, has gone from a subconscious awareness to a conscious awareness of the things that are around you. Because you now have created a memory, you have imprinted on it and now you recognize it. And you start seeing those white cars everywhere. All of a sudden, they start appearing to you. It happens and you don’t recognize it and sometimes maybe you do, and maybe you’ve had another experiment, or experience in which this occurred for you. The trick is to get you to learn to understand how to move that subconscious into a conscious momentum.
One of the ways we do that is called our urban mining hack. And it is literally taking the environment that is around you, your urban environment where you live. I happen to live rural, so it’s not quite the same for me, because I don’t travel every day to work or do things. I would look at the cows and the stuff in our homestead and say, well, I probably wouldn’t sell that. But you might be living in more of an urban environment and this makes more sense. You’re going to activities, you’re going to ballerina class, you’re going out to sporting events, you’re taking your kids to football, your daughter to volleyball, whatever. And what you’re not recognizing at this moment is so much of the stuff they’re using, so much of the gear they have, so much of the entertainment, from the chairs, to the clothes, to the tables, to the canteen drinks, to the shirts they’re wearing are all things that you could sell. And once you start to recognize that and you see that, suddenly that opportunity will start to appear in your urban environment everywhere. And your goal is really to sit down and start writing those things down, now that you’re paying attention to it.
Like you go down to the soccer meet, and you see the shoes, and you see the gear and the shirts, you may have bought some of it, you may be looking at other people’s you see the little igloo container they roll up with the little handles on it that’s got the little cooling feature that’s solar powered, you’re like oh my gosh, I didn’t even know that existed. I’ve got to get one of those because it’s 90 degrees, and we’re out here sweating in the sun, and my drinks aren’t cold. So then you suddenly realize, well, where did you get that? And the guy’s like, I got it on Amazon. Oh, cool, let me check it out. And what you don’t realize is that literally, there are so many things sitting right in front of you that you could sell that you just don’t pay attention to. And so this hack will teach you how to go about creating lists of those products and identifying them, because that’s the first step in answering that question. What the blank do I sell? Now, of course, there are different steps behind it, because technically, you can sell any one of those things.
The question next is should I sell that? And then it gets a little bit more deeper into the conversation. The concept here is very simple. Part of that urban mining hack could be to look at what you are already purchasing yourself, going into your amazon shopping list, which I’m sure most of you have. If not, log into your wife’s or significant other who does the purchasing in your house, who might meet that 27 female demographic. Look at the last 90 days of purchases. What you’re going to understand about Amazon is that about 70% to 75% of all the sellers on Amazon are third party sellers like us, they’re small mom and pop shops, there’s about two and a half 2.7 million of them who are selling those products. If you find 100 products that you’ve purchased in the last 90 days, roughly 70 to 80 of those are going to come from third party sellers. People just like you who are selling them and making a living. Once you understand that concept, you suddenly realize the opportunity sitting in front of you. There’s no reason why you can’t be another person selling one of those products on Amazon, just like the other two and a half 2.7 million people.
Then you start to identify that list. And we get into things that we call our moral list, which is products that have more adaptability, they’ve more profit, there’s potentially more demand for them, there’s more trending signals around those products. Then you start to kind of eliminate those products that aren’t really trending, they may not have a lot of profit in them for you or your business. And you start to get that big list of products, and you should be able to create about 500 of those in 21 days. If you literally just sit down and go through the exercise, you can identify at least 500 products. Every one of our clients do this in the first 21 days, they come up with a list, we call it, the most list. From there, we’re going to continue to answer that question, what do I sell?
As we get down through that, the next step, of course, again, is that by those numbers, how do I actually identify what kind of product I should be selling? At this point you can probably tell it’s not emotionally driven yet. Because at this point, we’re just looking at the numbers. We’re just looking at the data, we’re looking at our environment. We haven’t got any emotional things tied into this just yet. And that’s one of the things a lot of people try to do. To answer that question, just think emotionally about the product or what do I want to sell or what do I feel good about or even what I’m passionate about? And the real answer is, I’m passionate about anything anybody else is. I will sell fuzzy bunny slippers to grandma. I don’t care, if it’s profitable and grandma loves fuzzy bunny slippers and I got the best pair of fuzzy bunny slippers in the world and she wants mine. I’ll sell 100 of those a week to her, 100 a day. Because I want to make her happy. I want to understand who she is and why she’s buying those and why she liked the pink ones versus the yellow ones.
Guillaume: The passion as a store owner, a business owner still has its place. But I guess that’s a bigger debate.
Neil: My passion and your passion as the business owner should be one thing and one thing very succinctly it is the profit that business makes. That profit as a business owner is all that really matters. At the end of the day, the saying goes, revenue is vanity, profit is sanity, and cash flow is king. Okay, so at this point, I’m not wrapped up in it passionately yet. When people typically get wrapped up in it passionately is when they make their first sale. So they get involved in the idea and they see the whole thing working. But soon as that one sale takes off, everything changes. I’ve seen it time and time and time again. People trust the process and they get through the process and they go down and they find these products and they get their fuzzy bunny slippers or whatever. But as soon as that one sale in that first sale occurs, the whole thing is validated.
Guillaume: You get that dopamine rush from her from that sale.
Neil: Yeah, at that point passion kicks in.
Guillaume: Yeah. But that is a passionfor the process of business and commerce in general. But if you do happen to have a personal passion about something, whatever it is the cameras, clothing, hunting gears, whatever it is, if you do have a personal passion about something, I do believe you should go in that field because working with the merchandise day in and day out will be more pleasant and more fulfilling. But it’s not alwaysa good choice.
Neil: It just depends. At the end of the day, based on this marketplace versus other marketplaces that might require brand influencers and emotional influence. The beauty of the Amazon Marketplace is the passion around it has to do with the individual product and the consumer. As the business-oriented seller, we simply want to get our product in front of those consumers whose opportunity and pricing meet within 30 seconds or less. They’ve done their diligence, they’re emotionally wrapped up in it, they just want that product, and you want to be the one who gives it to them. At that level can you develop a brand that you become passionate about based on things that you’re interested in? Absolutely. I think we’re saying the same thing so as not to confuse anybody.
At the end what we need to identify first is, as we determine that it’s profitable, and we understand who we’re going to serve because we’re not just flipping products for profit at the end of the day, that’s a self-serving driven business and it will crash eventually if we just put your own self driven interest and self-serving interest. If you’re looking to take on a servant leadership component of the business and drive that passion and brand through to the customers who are passionate about solving the problems or solutions or what they want their product to do if they want to run faster, jump higher or lose weight or gain weight or look beautiful or whatever it is that they’re wanting to do. That’s that thing we need to be passionate to serve and that’s where we go deeper into that side of the house.
Initially, you can take those concepts but here’s the thing about the Amazon Marketplace, it is driven by the consumer. We can be smart enough to read the information that Amazon gives us and tells us where to go but we’re simply not smart enough to tell the market what it wants. And there’s where some people make mistakes. It’s a balance between the two. It’s a balance between something you’re interested in and a balance between is it profitable and can I make a business out of it? If you don’t take either of those things one of them will fail you in the end. So as we’re choosing them we’re going to be very succinct about how we choose them and whether or not they can become profitable to the business.
Guillaume: Is there any specific niche that you would tend to recommend to avoid or unless perhaps you’re a larger established business but the capital is the problem?
Neil: Yeah, a very smart question. At the end of the day, we will avoid things like electronics. It sounds really sexy and everybody wants the latest technology and gear. We all do, we got our cell phones and we’re pushing buttons and we’re on technology calls and such. We all have our specific affinity between which brand we like Android or if we want an iPhone or if we want something else. At the end of the day if you don’t have a war chest to go to battle on electronics on Amazon have at least a minimum of $100,000, you shouldn’t step into it.
And then you need to understand that electronics have a timeframe. Most of them have thinner profit margins. You deal with manufacturing defects and customer issues and complaints and returns on a much higher level of complexity and cost to the business that can be avoided by going to other potential places in the market.
Guillaume: I fully agree on electronics. I have a bit of personal experience on that a lot.
Neil: Oh yeah.
Guillaume: It’s true. The product is almost like a proxy at the grocery. It doesn’t stay good that long.
Neil: It doesn’t stay good that long.
Guillaume: And the price goes down all the time.
Neil: And then you end up at the review price level in a race to the bottom, which is difficult. The only way to overcome that is to create new iterations or constant innovations of your product against your competitors. And that can also be challenging for people. So we want most people to kind of avoid that. Now, the caveat to that, of course, would be if you’re an established seller, doing electronics, maybe you haven’t taken advantage of the Amazon channel yet, but you have a brand, a business and you have an active customer base, and you are not on Amazon or not exploiting that channel, we call it found money. Because you’re going to be losing money on Amazon right now, whether you recognize it or not. We have sellers that do over a million dollars a month in spend in external marketing channels. And with their help identifying the data, we recognize that about 15 to 18% of their paid traffic on the major world, if you will, the native ads, the Facebook, the Google influence, etc. is ending up on Amazon and buying somebody else’s product. So simply by getting their product ranked correctly and visible in Amazon’s marketplace. They’re basically finding the money that was lost from their paid marketing and advertising campaigns that was going over to Amazon. They were basically paying for people to go buy someone else’s product. And that’s pretty expensive when those numbers add up.
You and I joked about this earlier, once upon a time, you weren’t a legitimate business, if you didn’t have at least a brochure or a website that showed you’re a real business with an address and a phone number. You weren’t legit. Well, if you’re on e-commerce in 2021, and it’s getting very close to this point, where if you don’t have an Amazon storefront to match with your off-site, Amazon storefront, you may not be considered a legitimate business. Someone clicking through Facebook or ads or whatever, they’re going to jump over and validate you either in Google or YouTube and see if you’re a legitimate company. Are you really selling out there to places they trust? So something to consider, and it’s something that our clients who have migrated from external marketing websites etc, have opened up Amazon presences and basically found they could open those channels very quickly, very profitably, from all those existing assets they had over here that we just redeployed into Amazon, and helped them find money that they were losing literally from their brand integrity. So that’s very interesting. Now it’s getting going, it’s a different ball of wax, of course.
Guillaume: Okay. Are there any other niches like that? You said electronics, a few other ones that you have in mind?
Neil: Yeah. Once upon a time, once upon a blue Wayback Machinery, we played in the supplement space. This was seven years ago, like when we first got started, not a place I recommend you start, definitely not a place that you would want to go create a new brand. It’s hyper saturated. You’ve got Amazon’s internal systems, and groups watching you closely for correct compliance measures. And then above that, you’ve got the US base FTC, and the FDA in some ways, looking over your claims and your business and your components and your manufacturing level. And you’ve got to have game certification, and you’ve got to have secondary certifications, proving the quality of the ingredients. It becomes a very complicated and a very expensive startup. It can be very difficult to maintain having all those oversights. Anything on the skin, and anything in the mouth is a consumable, we very much recommend people to stay away from that. Because of all those complex locations, governments and regulatory entities that want to ride over the top of your business. And you can avoid all that complexity.
Guillaume: You’re talking specifically here to create your own brand andyour own product line. So you’re you’re you’re talking about positioning yourself as a brand owner, you’re creating a new brand. If somebody was to be really just a retailer, and you’re not creating your own brand but typically creating your own brand and owning the brand is what will give you the highest return once you have a successful model going on. But if you’re a retailer selling other people’s brand, then all those problems kind of don’t apply because you will have the manufacturer’s label and certification and all that and you could sell skin products or whatever, but your margins will be thinner because you are not getting that produced yourself with your own label and logo and you’re purely reselling.
Neil: That is correct. You can reverse backwards to the manufacturer and do deals with them like we’ve done in the past where you can borrow their certifications for your business and their claims and registrations and certifications to use in your business. If you are private labeling your products and creating special formulas for your products within their manufacturing facilities. There are ways to kind of mitigate some of that but the other cons sort of still stay there. Of course there’s pros. You can create great brands and I’m not saying that those who are selling those offline shouldn’t necessarily take them on Amazon if you already have an established supplements skincare brandline of that kind. Amazon is a great place to play with that if you have existing assets you can bring to bear from a dead stop startup. We don’t recommend people getting that.
Guillaume: Iagree because the manufacturers will want a minimum order, a minimum of capital commitment there to want to play with you.
Neil: That is correct.
Guillaume: And I also remember I was very interested in photography personally, and I used to know all the Canon lenses and whatnot. I was checking Nikon as well. I contacted them a long time ago, many years ago and Canon was like the minimum order was 100k. And that was many years ago, it probably went up a lot by now. But that’s just another thing. Otherwise you’d have to do business between a supplier and a distributor, and then your margin gets even thinner, and it’s not interesting. And anyway, this stuff is also sold in a Big-box store, so it’s not a very good product to sell.
Neil: Yeah. And what we want people to realize is there’s a lot more simplicity in getting this model to be successful, while not creating all that complexity in your business right out of the gate. And that can stop a lot of people from even getting their products in the market. I know you did touch on one thing to just kind of spin this over a little bit from what you said a minute ago, in terms of private label versus just taking someone else’s products. You can, wholesale retail arbitrage products, you can do you know the online arbitrage or retail arbitrage of products, where someone else has already taken the risks, got the products, etc. You can take them and list them on Amazon, for example. We don’t play in that space. Just be very clear. We are all private label brand building in what we do. Now, caveat and full transparency, we took a foray down that path. And when I say foray, I mean we built a whole organization around. We had 12 employees, we had 20,000 square feet of warehouse space and we were moving about 12 trucks a week of wholesale FBA pallets. We took that foray as a way to consider diversification of our revenue streams, because we had our brands building and all this stuff going on over here. And we thought, let’s see how hard it would be to ramp this up. And it actually wasn’t very hard for us to ramp it up.
So for those of you who might be doing some of that on a small scale, here’s what happens when you get into the 20,000 square foot space and employees’ cost. Profits dropped significantly and suddenly you find yourself with a job, when that really wasn’t the goal of the whole thing. And now working 80 hours a week we realized, well this was dumb, why did we do that? So after a year and a half, we ramped all that operations down and released, everybody got rid of the warehouse and stopped doing that. It wasn’t profitable enough. The triple net was about 7%. The EBITDA, the profits in the business, where we were running 20 plus percent on the private label side with virtual assistants, no employees and no warehouse.
Guillaume: That warehouse is just to clarify you were doing arbitrage or plastic retail or
Neil: Yeah. It is what we were doing. So we were taking in pallets of branded products, making sure that they were in new condition, removing anything that wasn’t and then sending it into Amazon FBA for the products and we list them again.
Guillaume: Okay, so but you were not repackaging them or anything like that. You just received a container from China from somebody else who has branded it. You ordered wholesale, and then you were just like reshipping it, you were like a middle step with your warehouse there and you just reforwarded it to Amazon FBA, Fulfilled By Amazon or to Amazon’s warehouse, and then they ship it. So you weren’t expecting quality, basically.
Neil: Yeah. We were making sure the products were like new and that we could get the maximum amount of retail pricing for them in order to achieve a certain profit margin. The Amazon buy box, if anybody’s familiar with this, you would know it as the little ‘add to cart’ and ‘buy now’ button when you’re clicking on your mobile phone or your desktop. That rotates through the sellers and you might not notice this, but there are sellers that can get on a listing and you could have 10, 20, even 30 sellers on a listing who are all rotating through and they all have so many units of inventory. Some might have one, some might have 20. Someone is the original originator of that brand and of that listing, and they’ve allowed other people to come on and sell those products. We were basically getting products that were branded with listings that were already created and we were jumping on those listings, with the goal of winning the Buy Box at the highest profit margin possible. And we were doing very well at it frankly, about as good as you could expect for the amount of time, energy and inventory that we were running through it.
The cons just became too much trying to find too many of the high profit products turning over a ton of inventory. And of course, we had employee costs and warehouse costs and a lot of infrastructure costs. We had to look at secondary channels to remove the product that we didn’t sell and how to get rid of it and some of it was being wholesaled on eBay. Some of it we were repackaging back up and selling to people who wanted to use stuff, buy the pallets so they could go put it on eBay. We had created a secondary ecosystem to manage the off gassing of all of this stuff that was coming back from the trucks and it just created a nightmare. It created a ton of work and it wasn’t worth it. It really wasn’t worth it in the end. Because in our businesses now, obviously everything is warehouse by Amazon and that which is not sets in a third party location, a three PL, at which point we just call down the product to be send in to Amazon on demand as needed.
We don’t have any warehouses where we are, we’re free to go where we want, it’s all private label branded and our profit margins are considerably larger and we can move much larger volumes of inventory. Of course, when we have those great manufacturing relationships in place, we can get good terms, we can order a $350,000 container and not pay for it for 90 days, but the product can literally show up and be sold before we make the first payment. But there’s a whole different structure of business model with the private label side that creates, as far as we’re concerned, a scalable, more profitable business model than the other method.
Guillaume: That’s pretty awesome even though we have not yet fully touched on the topic, what the hell to sell? Let’s still dive in, in detail here because that’s a very important technical detail that can change your whole profitability here. So you’re saying that you get your product from the manufacturer with your own brand and logo that you created, and you get it shipped directly to Amazon with no in between step of quality control, let’s say in an additional step of quality control that you guys would do at your own warehouse, so it’s directly shipped to Amazon saving a step like that. But of course, you have to be 100% confident in the quality that comes out of the factory in their quality control process.
Neil: That is absolutely correct. One of the ways we overcome that is by using our own sourcing agents, we have three primary sourcing agents that we do based on locations and manufacturers they have relationships with that we can trust. We’ve used them in our business, we’ve vetted them for a lot of money and so we give those access to our clients as we kind of incubate them by handing them these relationships where they can go to trusted manufacturers who are already delivering products and have good processes and not be worried about sending money to them. Because we’ve already taken that risk. So we bring our clients to that table and they have that opportunity to move quickly with trusted relationships that they don’t have to go try and vet and do a ‘Hail Mary’ pass on a $10,000 PEO to a manufacturer they’re not 100% sure just yet is trustworthy.
Since we’ve taken that risk, we give our clients that opportunity to go through that and they are able to create great manufactured products. The sourcing agents are on site so they’re able to do quality control, they’re able to stop the product before it ships to ensure that the quantities are correct, the products correct, the packaging is correct, and they validate it before it leaves the shore. Then we can send stuff if necessary into a three PL and they’ll do another quality check on the products and they’ll ensure the amounts are correct and then they can ship those into Amazon on demand.
Part of why we do that now with the three PL, is that Amazon’s inventory restrictions have changed recently due to their hyper growth situations. You might have read about this online a little bit or heard some of the scuttlebutt, but they have reduced their inventory levels at their warehouses while trying to hire more people and get more warehouses online to just basically deal with the amount of growth they’ve changed. They did more in the fourth quarter last year than they did like three years ago. So the 20-24th quarter was a huge 60% growth. So they’re having some hyper growth situations and to reduce inventory in those who are obviously understanding how the business model works and have to risk things in place to deal with those from a management perspective. We help our clients obviously overcome that by getting the three PL relationships in place so they can become sellers who keep their product online and don’t stock out.
Guillaume: And just for our audience, anybody who doesn’t know what three PL is, can you please?
Neil: Third Party Logistics, three PL it’s a another warehouse company whose specific processes are to help sellers on e-com, Amazon, Shopify or other locations, take product in quality control the product, pick and pack the product or ship quantities over to other locations. So they can be used for Shopify or commerce stores to just pick and pack and dropship, promote products that you own. Or again, they can take pallets of product and ship it into other warehouses for you. Bundle is another opportunity for three PLs. We bundle products. We take in from two or three manufacturers a bundled product that’s unique to our brand and the three PL will put that bundled product together as a single product and then ship it into the Amazon and where it can be fulfilled, which is one way to learn, ‘what the blank to sell?’
Guillaume: Yeah, so the three PL is your fulfillment staff instead of having like employees or in your case, it’s just like a warehouse storage there until you sort of ship that additional stuff to Amazon because then Amazon has restrictions as well perhaps on how much they can put there. And how fast they want your stuff to sell, your inventory to turn around before they start charging more per square foot because your stuff is not selling.
Neil: That’s right. So back to that product, you eventually determine I want to sell this widget, it has got the profit margins, it has got opportunity. I understand my market research now and I’ve discovered this product and I want to take it to market. That initial process, we kind of blew past just a second ago and to step back into it for a second. You would need that product identified, you would want what’s called a minimum order quantity that could be five units, 10 units, as you mentioned. It may be 1000 units based on the requirement of the manufacturer, based on the tooling they have available or the tooling they might have to do to produce this product or manufacturing locations for that product can determine its speed to market or how it will be created or how many you can actually get.
Now, what’s important for people to understand is, once I identify this product, I know with 80% confidence that it’s going to sell and it’s going to sell well, that it’s going to sell profitably. Then I have an estimated amount of sales that I should receive from this product. So here’s the basis, it’s an 80/20 rule, I don’t know 20% of that data yet, I don’t have a 20% understanding of exactly how it’s going to do in the market yet. If anybody tells you they got 100% guarantee on a product, they’re lying to you. That’s just the truth. Why? Because Amazon does not give us all of the data. It gives us the rest of the data when we start selling that product. So when you get that initial product in the market and you start selling its initial minimum order quantity, we’re looking forward to achieve certain marks and metrics in the data to validate the 80% of the work we did before we even launched it. If those checks and balances come back as all positive or greenlit, then you’re looking at a product opportunity where you know, it’s going to meet the sales, expectations and profit within a 90 day window. And if all of those things are good, you have a product where you can be confident ordering 1000s of units.
Guillaume: Okay, so let’s dive into that a bit. Because it’s interesting. So we did talk a little bit about the mindset of opening our minds about everything around. It could be pretty much a product that you sell, just start seeing it, just start writing those ideas down, even though they’re not final ideas. I can tell you for sure that I wish I had written some of those. I remember a past experience where I was frustrated of not finding some products on Amazon, but now I cannot remember what I was searching for. So there’s still holes here and there in the Amazon market space that are not 100% filled yet.
Neil: There are still holes.
Guillaume: So there are some of those to find. So we’ll probably still need to talk a bit more about that process of how to get there.
Neil: Yeah. Break it down a little bit more?
Guillaume: Yeah, we have a little bit of a similar view, but not 100% you’re more classic, business driven. I believe a lot in the passion, the mission, the vision, and if you can get that I think you will create a greater company in general but it’s not always possible. If it happens that your passion is, like I was saying, photography and you know that the minimum order to get in that business is too high, then you’ll have to settle for something else as the product that you start selling on Amazon just to get in the game, and maybe one day to diversify or create a second brand in that higher market that is your passion.
Neil: Well, it’s a balance, I think is what we’re talking about. Because I’m passionate about music. And I actually went to college on a full ride music scholarship. I played classical and jazz. I was all staying in Oregon when I went to high school and I got a very good scholarship and went to play jazz and classical music in college, very passionate. But about my third year I realized that my passion was going to end up making me live in a van down by the river. Because it wasn’t going to pay for my life.
Guillaume: Maybe you can sell musical instruments now.
Neil: Well, never say never, right? I won’t tell you all of that but there is the opportunity to create passion and hybrid. Now, was I passionate about music? Absolutely. But could I be passionate or moderately passionate about products I know someone else is very passionate about while making profit, paying for my family and having a house instead of a van? Yeah, so you have to balance in moderation. You can’t be solely focused on just, it’s only numerical and blah, blah blah. Because then you’re going to become self-serving. You’re not actually going to think about who’s wanting these and why I should be selling them to them and being passionate. You should be able to identify, here’s one of those criteria we were just going back against. This product I’ve identified from my big list, and I realized that it can be profitable. It costs or goes for 35% or less for my landed cost and it has at least 30-50 to $300 in retail value in it.
When I started to identify that then I unlocked other components of this product that says, it has data validation behind it. Now can I validate the customer who wants this and why they would want it? And can I even put a name on this person? Can I name them Uncle Bob? Do I have an Uncle Bob who is passionate about Neil photography, who buys all the latest gear and talks about it and goes out on these trips and excursions and does all this stuff? Can I name him? Can I talk about him? Can I say is this the guy that would buy this? Could I even take him a concept and say would you buy this? And have him tell me, yeah, that’s fantastic! I’d love it.
Guillaume: Yeah. A marketing persona, who you’re selling because you understand and run your idea by that avatar marketing persona.
Neil: I know that sort of passion and get them to identify with that and even talk about them.
Guillaume: And you mentioned 35% so you want the cost of the goods to be roughly a third of the final sales price
Neil: Roughly correct, 35%.
Guillaume: Now, how does that vary depending on the type of product or the cost of the product, like if you’re selling inexpensive stuff, like a dollar store kind of thing? You probably want to have crazy margins and as you move up in product, like 1000s of dollars, you probably have smaller margins, do you have ideas on that?
Neil: That is actually one product margin that you want to maintain. So you actually look at that in terms of your profit margin, the numbers that balance it out. It’s just one metric of the cost of goods of that product. It’s not what we call the landed cost. The landed cost, but also have shipping fulfillment, packing potential, three PL costs and things associated with it. And that number should be 35% or less of the product. The basically landed cost being to the point where that product is in Amazon and ready to be bought by a person, it’s ready to be purchased, ready to be sold.
Guillaume: So you’re saying your landed cost is 35%, or your cost of goods?
Neil: Well, cost of goods as a whole.
Guillaume: As a whole of the landed cost. So it’s not just the product.
Neil: That’s just theindividual product itself.
Guillaume: I have my own mug here, so including the shipping to Amazon, all my fees, and all that stuff, if I’m sending 10 bucks, it’ll cost me $3.50 max?
Neil: It is more important to look at that than the retail part. Because if that metric holds for a product 50 to $300 in range, the profit margin will simply just change based on the sourcing and aspect of that product’s ability to sell one unit in the marketplace. So you’ll look at those other goods and that is a metric you hold because you also are going to stack on marketing costs, you’re going to put Amazon’s fees on top of that, logistics fees, and freight fees and other things. We literally have a 47 columns spreadsheet, where we take the data mining component of our SixLeaf Phoenix tool, and we compile all that data in there. And each of those components 35% here, 15% there, etc, are all pre-built into that.
And there are three important columns. For your mug, let’s say it is the profit percentage ROI, and gross profit of that product or net profit, excuse me of that product, those three columns have to go green. If they go green, that’s a product I could actually sell profitably in the marketplace. Now I need to validate my competition to my pricing to ensure that I will be competitive, that I’m not going to be undervaluing or lowering my price or profit margin, and more importantly, that I know I can compete head to head with those folks, by my marketing activities within Amazon and still make a profit for myself at the end of the day.
Our minimum profit margin is $12. So for any product we sell, it may not make sense to sell you a mug but I might make sense to sell a mug with a T-shirt and something else so that my profit margin to me after all costs are loaded up on a single unit of this product gives me $12 in profit. That’s really more important than any of this. Why? Because I am now going to beat 80% of the sellers on Amazon. I’m going to steal their buyers, I’m going to steal their traffic ethically, and I’m going to go buy up all their customers and they aren’t going to be able to come at me. Let me give you an example, you and I are each selling a mug. My mug has $12 in profit, yours has six. You go out to market with yours. I will spend $10 buying the customer that would have bought your mug and instead they’re going to buy my mug. You can’t catch me. And I can go in and swallow up all your customers and take them away from you. And in three and six months, you’re looking at your product going, why did I marry this product? It’s not making me any money, I can’t launch a new one, I don’t have the capital to do it. I’m going to lower my price, I’m going to try to do rebates and other things that you don’t need to do, you’re going to play that game that so many people think is negative about Amazon. It’s not the game I’m playing. The game I’m playing is increased profit margins, growing organically, buying up the customer segment base and raising my prices in the months to come where I can become someone who is basically charging 10 to $20 more for a product where other people are charging 10 to 20 less, and I’m still taking up all the sales.
Now I actually have a model of a business that can grow, scale profitably and most importantly is worth something. In the end, it’s worth something to sell that business later on profitably, which is a huge component of what we talk about in our business. The launching, operating and acquiring and selling of these businesses.
Guillaume: Only makes sense for $12 per sale at least and even though it’s not you doing the full thing or your company anymore, so why bother for less than 12 bucks, ideally per order? And that’s assuming that most clients will buy just one product from you as they browse Amazon. They might buy more than one.
Neil: They might buy more than one.
Guillaume: But if they were on your own ecommerce store that you own, then you may have a higher average cart order and they might buy additional products from you but on Amazon it is likely they’ll buy just one they might buy multiple but that depends on if you do have a lot of products across that sell well together.
Neil: That’s almost accurate. I’m going to correct you on that, not to be in your face.
Guillaume: Go for it.
Neil: We actually contract back with our campaigns and our product purchases to the second and third level. So we know that people will buy from our brand the first product, we also know they can buy a second one and a third one profitably. See, the beauty of Amazon’s system, unlike others, like Facebook, or Google ads or native traffic is that we can buy a customer on Amazon and get a one PPC of that unit sold. Like I mentioned a minute ago, I might spend $10 of my $12 in profit to acquire them. So I’m making a $2 profit. But what I’m doing is borrowing brand affinity and I’m also able to track that customer for the next purchase. And what we find is, if you do it correctly with brand driven mechanisms inside of Amazon, in a sprint driven strategy, they can buy another one of my products at 100% profit. And we seem to buy a third one, which he would talk about as an upsell or a cross sell initiative within a standard e-com funnel or sell outside [Inaudible-00:40:49]on Amazon.
Guillaume: You’re talking about customer lifetime value, and that you have the tools to do this.
Neil: Absolutely man. So when I’m buying up all those customers on the front end, and I’m taking all of my competition, which at the end of Amazon’s true competition model, people need to understand there’s only three to five competitors you’re ultimately going to compete with, or the product that you’re selling in your market. And then we can identify who they are, we can watch them, track them, know their profit margins and know how much of the market share we’re taking away from them, and then raise our prices to ensure that we’re on the top of them. We become the big fish in that little pond. And you might be thinking that’s restricted. Well, we’ve created eight figure businesses off of this. So it’s not really restrictive. It’s a mindset thing.
Guillaume: Amazon is so big, you had the first IPO business. Meaning they have reached over $100 million a year to do an IPO, initial public offering to go and get paid in the stock market, and they’re just an Amazon company. So Amazon is so huge right now. It’s unbelievable!
Neil: Yeah, if I buy that one customer from you I now have them in my control. They now see my brand, and my video ads, and my sponsor brand products and other things they’re looking for. Emails will come from Amazon as beta right now, or you can do beta email broadcasts to your customers. There’s now product video targeting, to specific videos that can be placed on your competitors’ listing that shows your product comparing theirs. And there’s some really cool brand driven things that you can only do when you are registered and trademarked on Amazon.
Guillaume: That’s a different strategy that now we’re talking about because you’re talking to lifetime value. And I do believe greatly in this, and this is how you actually probably win regardless if it’s your own ecommerce store or Amazon, or you could acquire a new customer at cost or with two bucks profit or whatever. And then you make money on a second order, third order and so on is organic. This is like a classic way to scale and dominate a market. But in your example, you were saying you’re now making $2 on that first purchase. So we’re not 12 anymore now, it’s a good strategy.
Neil: No,but I’m [Inaudible-00:42:46] for a certain yellow curve. There’s caveats to this without giving away the whole firm. There’s only a time frame in which I have to do that and in which my organic ranking as I was saying a minute ago, we’ll be achieving results of rank ability for my target keywords. Now this is again, the beauty of not doing I say Google, YouTube, Facebook type of thing, is that buying those customers on Amazon has an inverse relationship to my organic results. My organic listings that come up under my keywords will rank higher as I buy more customers with my PPC, giving me organic traffic and sales at 100% profit from the purchases as they’re being raised up.
Guillaume: Which is unique if you don’t have that on Google. You can spend a million bucks a month on Google ads, and your actual ranking will not go up.
Neil: You can on Amazon, which is an absolute beauty. And here’s the thing: you can get that top listing on Amazon for your target keyword will actually appear for the same target keyword on Google ranked at the very top for that keyword because Amazon has 100% domain authority. So when we rank target keywords with PPC and get their organic rankings into place on Amazon, be very clear about what I’m saying here. I will get a first page ranking for that keyword on Google.
Guillaume: Yeah. Because you’re leveraging on Amazon’s authority there.
Neil: I am leveraging Amazon’s domain authority there.
Guillaume: So it’s fun.
Neil: We go straight over to YouTube.
Guillaume: On Amazon, you can snowball then because it’s almost like a pay to win kind of scenario that you just pay ads on Amazon. And then you’re going to get more sales, the more ads you pay, you’ll also get the most free traffic you can get.
Neil: You got it. And then I’ll get on top of that keyword on Google and get that traffic because it’s domain authority, and they see Amazon and they come back to Amazon and buy my product. So as you see that can create a snowball that turns into an avalanche very quickly. And you know, if you want to deploy advertising, and you’re good at adWords, and you can do videos, take that same target keyword that’s now ranking on Amazon and Google and go put it into YouTube and run your traffic and video on Amazon backwards across YouTube because they all share the same algorithmic response to each other. And when you do that, you’re going to trifecta win and you hardly have to do any marketing whatsoever.
You could just put up videos for the target keyword on YouTube and watch what happens. You don’t even have to pay for that traffic. So that’s where the beauty goes, pay it once, watch it come down to win three levels. So then we get our customers and while I’m watching my bell curve come up, I’m looking at my second and third products going in the market. Those customers are watching my brand, they’re liking my brand, we have great products, because we’re not paying and creating crappy stuff. It’ll be very clear, we don’t always just race to China to get our products, there are so many other great places you can get great products made, you don’t just have to race to China like everyone thinks you do. You can go to India and other locations where there are great products and opportunities to be built with quality products, because you obviously want to win your customer with good products. We’re not talking about just cheap Chinese crap, like so many people talk about. We’re talking about creating good products for our customers who want them and want to tell others about them, because we’re also making them pay more for our products. So there’s a level of expectation that comes with that.
Guillaume: Do you have other countries that you’ve seen good success working with, other than China or India?
Neil: China, India, Vietnam, Bangladesh, just to name a few have a lot of great supply chains for manufacturers. You can even find stuff in Mexico, and Canada, if you’re looking for certain products, very few in the United States. I’m very unfortunate to say that, I wish there were a lot more. It isn’t difficult to find them. They are here and there are certain niches you can get into, a product can be manufactured and profitable in the United States. But unfortunately, those are few and far between than going offshore to find those products.
Guillaume: That makes sense. And since we’re mixing things up, like we just said a moment ago, that strategy, you want $12 a unit but then if you go with the lifetime value, it’s okay to reduce to almost acquire at cost. So the same thing. Previously, you were saying that you wanted your landing costs to be a total of 35%. That included everything, including your fees, your freight and all that. But then in the following statement, you say, well, that 35% seems to be adding Amazon fees and so on. So can we clarify that 35%.
Neil: That 35% was landing cost and logistics, you still have Amazon’s fees, which, where we play, our average is 15%, they can be higher, but they average around 15%. For the niches that we play in.
Guillaume: So now you add 50 because you have 35 plus 50.
Neil: 15% on that. We typically try to see at around 45 to 47% is what you’re fully cost loaded. You may have up to 15% for marketing, but as we just mentioned, for the PPC side, there’s an inverse relationship to that. And to be very clear, that is a bell curve, if I’m going to run up to $12 in profits at $2 in net profit to acquire, when my organic rankings kick in that’s what’s called average cost of sale, ACOS, is going to go down. It may seem very bad at first when it’s 200% up here. But it’s going to drop to 50% and 30%. It’s going to come down because the inverse organic relationship is lowering those costs of ads. So as long as I’m willing to do this, I will see that come down and profitability will go back up closer to the $10 margin, as you see that raise up on that initial product. And now we have the by-product of additional second, third, fourth, fifth products going into our brand, seeing people come back and buy them at 100% profit and of course organic sales at profit. That creates a whole huge opportunity. But in the numbers to be very clear about what you said 35% here 15% to Amazon up to 15% for your marketing. That’s why you want to play in product ranges of retail costs that are not sub $20. And there’s a lot of people that are being taught to go into that and when they get to the bottom line and they’re making 50 cents to $1 in profit per unit they wonder why they can’t grow and they wonder why they can’t do their marketing and they scream my ACOS is too much Amazon takes too much of my money, this platform sucks. And you know what? When you play in that pond, it does. But that’s not Amazon’s fault at the end of the day.
Guillaume: The metrics are just bound to not be cool. So unless you sell bundles like I’m thinking like wedding favors, something like that might cost $2 or $5 each but if you’re selling bundles of 100 of those then it’s an interesting order. It’s a 200 or a $500 order.
Neil: Yeah well I know we’re getting to the end of our time here. Did you set for me and I don’t want to keep rambling into areas we covered a lot of topics.
Guillaume: Right, actually we went into more advanced stuff about like percentage, but are very important to selecting your products. What you were saying, 35% of your landing fee plus your 15% Amazon fees and make 50% there, so you have half of your costs on this and another 15% for marketing which I understood you also include your pay per click ad, your PPC ads in that 15%. Then while that gives you a 65% total, then you have 35% that is to cover a mix of your profits and other operational costs because you will want to have employees, the VA, virtual assistants, to help you run that business. So ideally, you document all that business, you have center operating procedures and it’s all run by virtual assistants.
Neil: And all of that fully loaded, you can still receive a 20% total net, EBITDA on your business, it can be very profitable.
Guillaume: So you’re looking at 20% before or after income tax?
Neil: 20% is triple net, that’s EBITDA. That’s after its earnings before income taxes and depreciation. And that’s a very healthy profit margin for e-com companies.
Guillaume: Yeah, 20%. That’s great. So any other tips around like that positioning that is really key that you mentioned, you’ll be positioning yourself 15, 20 bucks higher, and try to dominate to be the big fish in that small pond.
Neil: Yep. Here’s that pro tip for you. Don’t look at the department or category level, you need to look down into what we call the node level, because everyone’s trying to play at that department or category level of bestsellers, or even Amazon choice badges. We really don’t care about those. When you get to that level and it sounds more like an accolade of achievements, what you’ve actually just achieved is a product that’s selling 1000s of units a month, while you may only be making $1 per unit on it. So, it sounds really great, but it’s just accolades that don’t actually benefit the business at the end of the day. What you want to do is become the big fish in the little pond, where you can dominate all those folks. You may sell 500 to 1000 units a month of just that one skew, but you can stay there for years. You can become the dominant force daily, weekly, and monthly making sales on that product and just own that market and stay there with great profit margins. It’s just one product.
A five by five game plan, wants everyone to get to a five skew minimum brand within Amazon. Why? Because in our eight years of doing this, Amazon is rewarding brands that have more products in their brand registration. They’re giving you more access to data, they’re rewarding us better with product launches. It’s making it easier to launch products, as you go down the line to 5, 10, 20, 100 skews later for ourselves and our clients. You unlock a whole different ecosystem of traffic and ranking and visibility of your brand in the marketplace. That creates a very long term sustainable business that is worth a lot for people who really want to build it and sell it or just toss off the cash flow for years to come. But you can create stable long term value in your brand by doing that. It’s not a fly by night deal and don’t go for the accolades, go for the business integrity, go for the profits.
Guillaume: And for that node, is there any kind of way to search for it on Amazon? Or because you’re set to not go by category here?
Neil: Well, let’s just say as an example, there should be outdoor gear. It would be a department, and a category for outdoor gear could be bikes, and a node level in the bikes would be, I’m selling the bike seat. That makes sense?
Guillaume: Yep. Like sub category and you want to…
Neil: I’m not selling all the other stuff but I may be selling a gear or accessory on the bike that would be more at the node level.
Guillaume: Okay, excellent. So now that clarifies a node level. So, best products, node level would be like $20, enough of the sales price per unit with a $12 enough per sale that you have. You’re looking for a landed cost of 35%, that when you are sending that product to Amazon, or across Amazon’s 15% of costs. And then you also have 15% for advertising and marketing. And you have a 65% cost this way, and a 35% to cover your fees and your profits. If you can have passion about the thing that’s awesome. It’s what’s the best, if not well, maybe for the second one, but we’ve got to start somewhere
Neil: For that product.
Guillaume: Yeah, exactly.
Neil: If all those numbers flew over your head because you did a very great job of summarizing that, you can go to SixLeaf and check out the Phoenix chrome tool because we put those metrics in that criteria for our business into that software. And it’s pre-configured for you to go look at those products and see those green lights or yellow lights or red lights show up. I would encourage you to check it out because it very quickly can help you identify greenlight products that meet that criteria.
Guillaume: So how do we spell that? Can you say it again?
Neil: SixLeaf, S I X L E A F dot com, SixLeaf.com and the tool is called the Phoenix Chrome extension.
Guillaume: In your Chrome extension, alright. And if anybody wants to find you, where can they find you?
Neil: Well, you can google my name, it’s not very long. If you put Neil Twa in Google you can find me at my Facebook and stuff. If you want to check on our business, you can go to VoltageDM.com, that’s where you can see what we’re doing. You can check out a case study video, try and find more about where we’re doing with businesses and builders and how we’re launching, operating and acquiring these companies.
Guillaume: All right, well, thank you for being here today, Neil.
Neil: Thanks for your time, sir. I appreciate it.