(Transcript continued from the Episode 155 show notes and audio podcast)

I was talking about this a little bit last week. I got an email from a listener, Cliff Chism. I really appreciate getting these emails. Cliff said he was glad that I was back on the air. Thank you very much for that, Cliff, that means a lot to me.

He said that his wife was interested in this FBA wholesale thing and that he was going to try to get her to listen to the podcast but no promises. Hopefully she’s listening to the podcast. Cliff’s wife, if you’re listening to the podcast, hello, this one is for you. Thanks for that note. We’re going to talk all about Amazon FBA Wholesale today.

There’s something you may or may not know about Amazon is that when you go to buy something or look something up. For example, right now I’m looking at the Zoom H4n Pro digital multitrack recorder on Amazon. This is a multitrack recorder that a lot of podcasters use to record podcasts. I looked it up and it’s $220.

On the right-hand side of the listing I see two buttons, because of the way I’m logged in. I see an Add to Cart button and I see Buy It Now with 1-click button. That’s the button that I always mash. I can always choose to pay more to get it faster than two days, but if I just hit the But It Now button I’ll get a $220 Zoom H4N digital multitrack recorder delivered straight to my door by Amazon.

If you look at the listing it says it’s in stock and it ‘ships from and sold by Amazon.’  That means that people at Amazon bought this product from a wholesaler or directly from the manufacturer and they’re currently storing it in their warehouse. It could also say, and it does also say if you scroll down a little bit, that there are other sellers on Amazon.

What does that mean? It says that there are 27 different options for buying this product. I don’t have to buy it from Amazon. If I click on that listing, I see that I can buy them used, but I can also buy them new from all kinds of different places. FP Logistics, PhotoSavings, Liquid Audio, Dodd Camera, DJ Band Supply, and AVL Gear are all also selling this device on Amazon. All of those people have this for sale on Amazon.

The question is when you buy it, who is going to ship it to you? The answer is whoever has the buy box. This thing over on the right-hand side of the screen where the Buy Now button is, we call that the buy box. I’ll tell you about how you get the buy box in a minute. Whoever has the buy box is who is going to get the order if you hit the Buy It Now button.

If you searched for the Zoom H4N, you hit the Buy It Now button, Amazon.com itself, the people at Amazon, will get the sale. But, if you come back in a week, let’s say that you decide to buy a second one, you might notice that instead of saying ‘ships from and sold by Amazon’ it might say something like ‘shipped by Amazon and sold by Liquid Audio.’ Amazon is going to do the fulfillment to ship it – that’s FBA, Fulfilled by Amazon – but the person who you is actually providing the product to you is Liquid Audio, this other company that you’ve never even heard of.

Chances are that you’ve bought all kinds of stuff from Amazon and not even ever realized that when you were hitting the Buy It Now button these products were really coming from a third party. Maybe you’ve noticed that before and not realized what it meant.

What it really means is that this company Liquid Audio has purchased a bunch of these Zoom H4N recorders and sent them in to Amazon and listed them for sale. Under certain conditions they will be awarded the buy box, so that when a visitor arrives on Amazon instead of saying ‘ships from and sold by Amazon’ it will say ‘sold by Liquid Audio and fulfilled by Amazon.’

Your experience as a customer won’t be any different. You’ll click the buy button and a robot – literally a robot – at an Amazon fulfillment center will go get this Zoom H4N off of the shelf, put it in a box, wrap it up, and ship it to you. It will come with an Amazon receipt. You’ll pay Amazon. As far as you know, the thing came from Amazon, but really the cost of the inventory and the act of placing the inventory in the Amazon warehouse was done by another company. In this case, Liquid Audio.

There’s no reason that you, as a normal person, can’t take advantage of this. In fact, you can sign up to participate in Amazon FBA. You can, within certain restrictions, sell anything on Amazon that they’re already selling, just by registering, sending it in, and setting your price on Amazon.

The next question is how does Amazon decide who gets the buy box? When you go to buy a Zoom H4N and there are seven or eight sellers, and all seven or eight of these sellers have these Zoom H4N Pro multitrack recorders sitting in Amazon warehouses, how does Amazon decide who gets the sale?

It’s interesting. Amazon had decided that basically what they do, with some exceptions, is they rotate the buy box between qualified sellers of the product every time there is a new customer.

What’s a qualified seller? A qualified seller is someone who has the lowest price or something that is very close to the lowest price, and someone who is going to deliver the product with Prime delivery, because that is a key customers care about inside of Amazon, so you have to be able to deliver the product with Prime. If you’re a part of the FBA program and you’ve sent your stuff into an Amazon warehouse, it’s automatically Prime eligible. Everyone who is doing Amazon FBA Wholesale is doing it using Prime.

Then you have to have a good seller rating. You have to have a track record of not shipping the wrong item to customers or pretending that the item is something that it’s not, all of that kind of stuff. You have to have good customer feedback.

If you have those things, then you’re a qualified seller. If you have the best price or very close to the best price, within a few pennies, you have good customer feedback, and you’re in good standing with Amazon, you can get the buy box and they’ll rotate it around. Some people argue that maybe when Amazon is one of the sellers that they have their thumb on the scale a little bit and they get the buy box a little bit more.

In cases where Amazon is not involved as a seller, when they’re not also buying the product and using their own FBA, and you’re just duking it out amongst a bunch of other marketers, it’s a fair rotation and you get your slice. That means that if there are 1,000 Zoom H4Ns being sold every month and there are five qualified sellers selling those, every month each of those five sellers will get about 200 orders.

That sounds really great. If the Zoom is selling for $220 and you can figure out a way to buy them for $100 and ship them into Amazon, you’ll have to pay the cost to get them to Amazon and then Amazon will take a cut for a commission for actually making the sale for you, and they’ll also take a fee for the delivery, warehousing, boxing, and all that stuff that they have to do. They’ll return to you the difference between what the customer pays, $220, and those fees. Maybe they give you $140. You paid $100, so you made $40.

That’s how Amazon Wholesale FBA works. That’s fine, but the question is how do you find these products to go sell? How in the world do you decide whether or not they’re going to be profitable? The answer is it’s a pretty straightforward process, you need to find wholesale suppliers that are willing to sell you stuff.

In my case, what I did (and what most people who are doing this do) is I established a business for this purpose. I used my existing business. If you don’t have one, you establish a business. You approach wholesale suppliers and you say, “Hello. I’m a business owner and I’m an online ecommerce seller. I would like to buy products from you so that I can sell them retail.”

This is done every day. This is what every brick and mortar business and every online store does. That’s the business that they’re in. They buy things wholesale and sell them retail. That’s how product distribution works. You’re just another person in that machine, so the sales guy at the wholesaler is in general happy to hear from you and would love to sell you a bunch of stuff in most cases.

What I do, and what a lot of people who are doing this do, is I ask for a list of all of the things that they sell. Surprisingly, if you find a wholesaler that specializes in sporting goods equipment, they might 5,000 – 20,000 products that they sell wholesale.

You can imagine these big wholesale operations, giant warehouses full of cases of binoculars, tents, sleeping bags, hiking boots, and all this stuff. Someone who is in the wholesale supply business for sporting goods is going to have brands that they’ve negotiated with the manufacturer and they’re getting amazing prices because they’re buying in super huge volume. Then they’re selling at medium volume to retailers like you.

I’m going to get this list back from the wholesaler, a spreadsheet usually, and it’s going to have 15,000 items they have for sale, the UPC code, the bar code that is usually on it in the store, and the price that I’m going to have to pay.

Let’s say one of the things they happen to sell, although it would be unusual for a sporting goods retailer, is the Zoom H4N. I look on that list and I see that they will sell it to me for $100. I look on Amazon and I see that it’s selling for $220. I say, “A-ha, I can make money on that.”

What if my wholesaler has the Zoom H4N for $200? Then the margin is only $20 and that’s not a good deal for me. By the time I pay Amazon, I’m losing money.

What I’m doing is I’m looking down this list of 15,000 items, one item at a time, trying to find things on Amazon that are selling well. That’s another component here. I need to have some estimate of how many Zoom H4Ns are actually selling every month, because not only do I need to figure out whether or not I can make a profit on one, I need to get some estimate to figure out how many to buy.

You can probably already imagine that going through each one of these items a bunch of times like that, 15,000 items just from one wholesaler, that’s not going to work. That’s going to take forever. As with most things, there’s software out there that you can use.

You can use this software in order to analyze these lists that you get from wholesalers. For every item on the list, it will look it up on Amazon. If it’s for sale on Amazon, it will give you some estimate of how many are being sold per month. It doesn’t know exactly, because Amazon doesn’t release that data, but it has the ability to make a decent guess about what the general sales behavior is for this particular product.

It will look at the price that it’s currently for sale at. It knows the price that you would have to pay for it, because that’s in the list that wholesaler gave you. It knows the formula to compute what Amazon’s fees are going to be, based on the weight of the item and the amount of commission that they take and so forth, which is also based on the price. The shipping cost and all that kind of stuff goes into that.

Then it can tell you this would be profitable if you were to send these into Amazon and recommend that you send in 10, or 20, or 30. Software like this exists. There are a couple of examples of this software. I haven’t used a lot of them, and I’ll tell you why in a little bit, but I’ll put some links in the show notes so you can look at some of the software that I use for this sort of business. There is software available to do this because more and more people are doing wholesale.

I would order these items and I would send them in to Amazon. When it was my turn to get the buy box, assuming that I was a qualified seller and I had a competitive price, the shopper on Amazon would click the Buy Now button or they’d add it to their cart, and when they checked out I would get the sale. I would get credit. In the case of Zoom H4N Pro digital multitrack recorder, $220 would appear in my account minus the Amazon commission and minus the fees for actually delivering the product to the customer. In the example we gave here, maybe that’s $140. I take my $140, the Zoom H4N cost me $100, so I make $40.

Now, that’s an extreme example. The things that I like to usually work on are things in a lower price range that have higher volume and you’re making $2 – $5 an item. Those are the things that I’ve been experimenting with. They also carry less risk.

If I buy ten $20 items, that’s a different kind of risk. They probably cost me $10 apiece, so maybe I’m in for $100. If I buy ten $250 that cost me $150 apiece, I’m in for $1,500. You can manage the risk of what you buy and send in to Amazon by understanding the price points that you’re going to work at.

I’ve also found in this business that the return rates on higher priced items seem to be higher. At least that’s my experience. People are more willing to return a $250 item that they’ve had second thoughts about than they are a $12 item. My theory is that the hassle of returning a $12 item is barely worth the effort that it takes.

That’s the way this works. It’s very interesting, because what people say about Amazon FBA Wholesale is that you can expect to make, if you’re running your business well, something on the order of 15 – 20% margins. When it’s all said and done, and you’ve paid all of your costs, and you get your money back, what you should find is that you’ve made $0.15 on every $1.00 that you spend, or $0.20 on every $1.00 that you spend.

I can confirm that I have definitely had products that make returns of 15%, 20%, or 25% in some cases, and more in a few cases. The margin has definitely been there.

I’ve also had products where I made mistakes and I lost a few dollars on every product that I shipped out. I made a bad purchasing decision and I had to liquidate that inventory at a loss.

The great thing is, though, if it’s a $20 item, a loss doesn’t mean $20 per item. It means $0.05 per item or maybe a $1.00 per item, or whatever you have to cut the price to in order to dump the inventory. Usually you can just cut the price low enough to get it out of Amazon and get most of your money back and start again. That’s great.

I have online friends, people that I know, who are doing this that are running something on the order of $100,000 a month at 15% profit. So, it is possible to scale this up to $10,000 or $15,000 a month worth of profit in a pretty straightforward manner.

I haven’t gotten that high. It’s something that I’ve been interested in, but it’s part-time on top of part-time for me. Even doing that, I was able to get up to $3,000 – $5,000 a month. The problem was, I think because I’m a little bit sloppy, I wasn’t really able to ever get to much of a profit.

I was able to easily break even; but getting to that 10 – 20% profit is not something I’ve been able to do yet. Now, I haven’t stopped doing this business. That’s sort of where I am in my journey. I’m able to do it successfully, but not at the profit levels that would be necessary for me to find it as an interesting business.

Here are some other tidbits about this business, if you’re thinking about it. It’s really interesting.

Where Are Your Costs with an Amazon FBA Wholesale Business Model?

Obviously, you have a cost associated with finding suppliers. The big name in this game is finding suppliers.

For me, a lot of the supplier work that I’ve done has been outsourced. As a lot of you know, I have an excellent virtual assistant in the Philippines. She has done some work for me finding suppliers and that is pretty effective.

She’s able to send form emails to suppliers to say, “I’m interested in buying your stuff,” and start the conversation, and then I’m able to finish the conversation. She’s able to screen them and we work with shared Google Sheets and so forth in this constant and never-ending search for new and better suppliers.

That’s a big part of this business, because the marketplace is dynamic. As you go forward, maybe you find a winning product where you’re able to have good margins. If five or ten more sellers come on and start driving the price down, over time that product may no longer be viable. So, you’re constantly trying to add more products, grow your product portfolio, grow the business, and as old products fall off you want to add new products on at a higher rate.

From that perspective, this can feel like a little bit of a treadmill until you get some of that outsourced to people who can help you. I think it’s a very straightforward process and easy to outsource. I certainly wouldn’t want to start with it outsourced, because you need to learn the business yourself, but that is something you can do as well.

Those are some costs for the wholesale part. Then you have the cost of actually buying the products. You can start with as little or as much inventory as you want. When I learned this, the recommendation that I got was to start with just a few pieces of each new item to test them out and make sure they really sell.

You don’t want to go buy 2,000 items of something and have them get stuck at the Amazon warehouse. You want to buy a handful, maybe two weeks’ worth of supply, send them in, make sure they sell and that everything is good. Then when you reorder you can start increasing the amount of reorder so that you never run out of stock and you’re always in the game on that item.

You have the cost to ship the item from the wholesaler to wherever you’re going to prepare the items for shipment into Amazon. That can be free sometimes, because sometimes wholesalers, if your order is big enough, will include free shipping. Usually, if you’re making an order over $500 or $750 shipping will be free. I try to take advantage of that and make those size orders.

Don’t let that scare you. You don’t have to start there, but you can definitely get to that level pretty quickly. Particularly if you have good suppliers, you can get to that level.

Then you have the cost to prepare the products. Amazon FBA requires that each product be labeled with a special bar code, so you have to apply those bar codes or pay someone to apply those bar codes.

In my case, because I’m a part-time internet marketer, I have a third party logistics firm that does that for me. They will apply the labels and get them ready to ship to Amazon, they’ll pack them up and ship them for $0.70 per item. I just figure that into my costs. If the Zoom H4N is going to cost me $100, when I’m doing my calculation I assume it’s going to cost $100.70, because I know I’m going to have to pay this third party logistics company money to deliver this product to Amazon.

Then I need to pay for shipping it to Amazon.

I need to pay Amazon a fulfillment fee, the fee that they’re going to charge me in order to deliver the product to the customer, warehouse it, and all of that stuff.

Then I need to pay Amazon their sales commission for actually doing the marketing to get the thing sold.

By the time I do all of that, that can be a pretty significant amount. I have to do that calculation very carefully and make sure that’s once that is all done I have enough room to handle the other variable in this business, which is the fluctuation in price.

That’s the other really interesting thing about Amazon is that the price of a lot of things changes. In fact, you can see this. There’s a really cool website and Google Chrome plugin called Keepa. You can plug that into Chrome and it will show you what the price of something has been over the last six months to a year.

Consumers use this to set alerts. The price of something on Amazon is changing every day, usually. When there are multiple sellers competing on price, you’ll see that in order to win the buy box sellers will reduce their price, and then they’ll be the lowest price and they’ll win the buy box more often than somebody who has a higher price.

Of course, what happens typically is the other sellers will come down to that price. Then somebody will sell out and another seller will realize that, and they’ll raise the price because the competition has gone down. Really, it’s true microeconomics supply and demand with people fighting back and forth, so these prices are changing on Amazon all the time.

That’s a really interesting part of this business. You can see that kind of activity by looking at the Keepa tool.

You might be asking, “If I have 100 products, or 1,000 products, how do I keep up with the price changes and how often do I need to change the prices?” It turns out you need to change the prices maybe every 15 minutes. Like most things in life, there’s software for that.

These are called repricers and there is a vibrant software-as-a-service community that provides different kinds of repricers. The repricer that I’m currently using is called Informed.co. I also am looking at BQool, because it’s a lot cheaper.

Basically, what that does is you give it rules for how it’s allowed to reprice – how low it can go, how fast it should go there, and so forth – and it watches the prices of your items that you have in inventory every few minutes. If your competitor changes the price, it will change the price as well, with the goal of trying to make sure that you get your fair share of the buy box.

In fact, the metric of success with these repricers is what margin you’re able to get and how often you win the buy box. You can change algorithms. Maybe you want to move product as fast as possible, or maybe you want to move product with the maximum profit possible. There are lots of options for the kinds of things you can do, but these are repricers are part of this as well.

There’s also software that you can get for accounting. I use Fetcher to keep track of the profit per each item so that I can tell when it’s time to reorder whether or not the item is profitable.

The final software that I’ve been experimenting with is inventory software. Once you get a lot of inventory – 100, or 1,000, or 10,000 items – you might want some software to help you understand what to reorder, when, and how much. There’s software that does that. I’ve been using Forecast.ly to do that.

A Few Final Thoughts About Amazon FBA Wholesale

Basically, the fundamental thing here that is very interesting about Amazon Wholesale FBA is that it’s really pretty straightforward. You buy stuff at a great price, you analyze the data on Amazon, and you send that product in to Amazon, then Amazon sells it for you and you keep the difference. It’s just like what real retailers are doing in the store down the street from you, the only difference is you’re doing it in Amazon’s store. That’s pretty interesting.

I hope that is helpful to you. If you have questions about Amazon FBA, I’d be happy to try to answer them. Like I said, I’ve been doing this for a while. I’m not the world’s leading Amazon FBA ninja, because I’m still trying to figure out how to do this part-time and maintain the right kind of profitability.

One of the questions that I’ve been asking myself, and I’ll leave you with this thought, is can you buy a swimming pool with an Amazon FBA wholesale business? It’s a funny question, because my kids want a swimming pool, it’s hot in Texas.

Swimming pools are expensive. I don’t know if you’ve priced an inground swimming pool, but here in Texas if you want an inground swimming pool with a spa and a pool, it’s going to cost you a lot of money. It’s going to be somewhere between $50,000 and $100,000 just as a broad range.

Let’s say that you decided to do that by taking out a loan. I don’t recommend that you do that, but just for the purpose of this discussion let’s say you’re going to borrow $75,000 at 4% for 20 years and that’s going to cost you $750 per month. I don’t know, I don’t have an amortization table in front of me, but your pool payment would probably be between $500 and $750 per month. Just for round numbers, let’s say it’s going to cost $750 per month.

We talked about the fact that you might be able to run 20% profit margins. In order to clear a pool payment of $750 per month, you would have to sell five times that in inventory. Let’s just say in round numbers you would have to sell $5,000 worth of Amazon inventory each month in order to make enough money to pay for a swimming pool loan so that your kids didn’t have to go to the community pool.

That’s kind of what we’re talking about here. The reason that’s an interesting story to me is because there’s this very famous story of John Lennon wanting a swimming pool, so I often think about this when I’m thinking about businesses.

Legend has it that John Lennon wanted a swimming pool and he didn’t have the money for it at the time, for whatever reason, so he wrote a song and used the money from the advance that the record label paid him for that song to pay for his swimming pool. He wanted the pool, he needed the money, so he wrote a song, and, bingo, he had a pool.

Internet marketing is a lot like that. You want a pool, you start a business, you get the money, bingo, you have a pool.

Cliff Ravenscraft was just telling this story on his podcast the other day. His wife wanted a car. He put together a course, sold the course, and used the money to buy the car.

Those kinds of amazing miraculous things are really possible. This Amazon FBA Wholesale business seems like the kind of thing that you might want to do that with.

If you want to ask more questions about Amazon FBA Wholesale, please check out the show notes for this episode. Let me also encourage you to go to LateNightIM.com/start, my new absolutely free, no questions asked, no strings attached introduction to internet business course. I’d love for you to check that out and let me know what you think.

Until next week…

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