Can you still make money selling on Amazon in 2017? You have probably already heard about running a Private Label business and selling through Amazon FBA (Fulfillment by Amazon).
This article is a practical case study of my own experiences in China. I don’t have any experience in this field and I’m already running an IT business. So this was a bit of an experiment for me.
Running a Private Label business in China has its own particular advantages, so I will also focus on these.
How it all started:
I have always wanted to sell physical products but didn’t have the time to develop my own products so Private Labelling seemed perfect. The idea behind private label products is that you have your goods produced by a third party and then sell them under your own brand name. So you save a lot of time and costs on product development, design etc.
For selling a private label product, Amazon’s Fulfillment by Amazon (FBA) is ideal. They basically store your new product in the biggest warehouse on the planet and do most of the marketing for you. Plus Amazon takes care of storage, shipping, returns etc.
When I moved to Shenzhen in early 2017 I decided to start my own private label business on Amazon together with a good friend of mine who lives in Germany. This way we were able to split most tasks. Thomas registered the company in Germany for example while I am in close contact with some of our suppliers here in China. The best part is that we can easily extend our operation to other countries, in fact, we are considering selling our products outside of Germany within the next few months.
What You Will Need
Starting a business on Amazon isn’t difficult. You don’t need to have any prior experience with physical products (I don’t) and you don’t need to know how to develop (again, I don’t).
There are some requirements for you to start your own private label empire on Amazon though:
- $2,000 budget
- At least two free hours a day (that’s how much we invested)
- An internet connection and if you’re based in China a reliable VPN
- A legal company in the country where you’re planning to sell (for us Germany)
- A bank account
- A graphic designer (we work with 99 designs)
- A Private Label supplier (I explain how you will find one later)
- Freight Forward contact for your shipments
- Some grit (there’s a good chance you will encounter roadblocks)
Finding products to Sell
Product research is one of the most fun yet difficult parts about creating your own private label company. When I started out in late 2016 I built my own excel tables and scoured amazon.com for hours every day to find promising niches and products that sell well. This method can definitely work but for us, it was a frustrating exercise. As you probably know there are thousands of categories and millions of products on Amazon. At the same time, you need to create accurate sales data, keep track of product ranks, find products with low competition and ideally include factors such as seasonality, weight, profit margins and so on.
I remember vividly my excitement when, after days of number crunching, I discovered there are research tools out there that do most of the work for you.
Of course, if you’re on a budget this may not be an option for you, for us, finding Jungle Scout was a major breakthrough. We were able to find our first product within two days of using the software. You still have to invest some time and carefully consider your options. For us, it was perfect because it took the dull part of research away while still being able to hunt for interesting products. Go, check out their blog, there’s a lot of free information on how to get started as well.
What kind of products you should sell on Amazon (some ideas)
None of these product guidelines are written in stone. But if you are a beginner with Private Labelling and are on a budget this list will help you find the right product idea:
- Your product should fit into a shoebox and be light-weight (so you save on shipping costs and can reduce potential shipping issues)
- Avoid getting into markets that are dominated by big brands (e.g. sports shoes dominated by Nike, cellphones). It’s very difficult to compete with these players and you may easily get into legal trouble.
- Is your product in an unsexy niche that you’d be a little embarrassed to tell your friends about? Garbage bags are a perfect example. If yes, you may have found yourself a winner.
- Sell products that are reusable (a product that is bought multiple times a year, garbage bags, anyone?)
- The top ten results in your products niche should have less than 50 reviews on average
- Price point between 20 US$ and 60 US$ max (if products are too cheap there is no profit margin if products are too high the initial investment will be too much).
Fair warning: You will find yourself in states of uncertainty where you can’t really decide on a product. That’s when it’s useful to have a business partner or friend to discuss your ideas with and of course you need some persistence yourself. Don’t feel like you need to find the perfect product. We weren’t 100% sure about our first product so when we netted 1,172 Euro (around $1,300) in our first month we were over the moon! And all this despite our rookie mistakes. So don’t worry, you don’t need to get it perfect the first time.
Doing the math: Calculating costs for your products
Once you have discovered a few promising products ideas, it’s time to make sure your product can be profitable. As a first measure, you should check prices of your private label product on sites such as Alibaba.com where you will find millions of private label products, mostly produced in China. There are other websites but Alibaba is a good starting point.
With these prices, you can now utilize Amazon’s FBA calculator and calculate your margins.
It’s easy to use and free of charge so there’s no reason not to use it.
Ordering your first product sample: The China advantage
The cool part about private labeling is that after a few days of research and zero expenditure, tools aside, you can start ordering your first samples.
Now, if you’re based outside of China this can be quite costly. Suppliers charge anywhere from 50US$ to 150 US$ per shipment abroad. For our first product, we ordered samples from six different suppliers. You may get lucky and hit a home run with your first sample, for us we wanted to compare quality and be sure we buy the best product available on the market. As I’m based in Shenzhen we have the huge advantage that I will receive samples at very low prices. Many suppliers even sent out their products completely free of charge. Of course, time is another factor and again, living in China is a huge advantage. Whereas shipments to Europe or the US may take a week or worse may get stopped at customs in China you will receive samples within a day.
Before you order your sample you need to do carefully select your supplier. A first important indicator is how well your supplier communicates. Do they reply quickly to your emails? Are they proactive or pushy? Are they reasonable in their communication or asking for money upfront? We found a supplier that we had “chemistry” with from the beginning, they are professional and friendly. We will probably sell our second product with them next month.
Also, make sure you negotiate “minimum order quantities” (MOQs) of your product that you can afford to pay. Often, suppliers will ask an MOQ of 3,000 units or more which is a lot to sell as a first batch. Fortunately, these numbers are, like almost everything in China, negotiable.
How to negotiate with your Chinese Private Label Supplier
Most Chinese Private Label suppliers have experience with FBA. All the more important that you present yourself in a professional manner.
A good technique to negotiate order quantities we apply is this one: Say you want to test the quality of the product with your first order and then expand order volume based on your product research projections for the following order.
Another alternative to ordering large volumes through Alibaba is checking Aliexpress. The lower your ordering amount the higher your cost of product per unit though. For us, we were always able to negotiate quantities that made sense and went through Alibaba right away.
Creating a unique brand identity for your product:
Now that you have been able to test a few samples and hopefully found a supplier you want to work with, it’s time for you to create a unique brand identity and product design. Depending on your product this will include a brand name, a logo, and packaging. This part is really fun, do keep an eye on your budget though, it’s easy to get carried away here.
We like 99designs because it’s affordable and we get to choose from lots of excellent designs.
Check out our design for one of our products:
Your brand identity is where the real value of your product lies. If you manage to create a brand that people trust and value, you can even consider selling on other platforms. It will be much more difficult for competitors to copy your product since you’re already established in the market and people value your products.
You can optimize a lot in this area: You may want to consider building a website (we recommend WordPress) for example. If you want to dive deep into the strategies of building your own brand I highly recommend ImportDojo. ImportDojo’s founder Manuel lives in Hong Kong and his BrandEvolution course has really helped us get things off the ground quickly. Manuel has more than 17 years experience in retail and is an expert Amazon seller. We basically recommend his course to anyone who is serious about selling on Amazon.
A giant step: Placing your first order with your Private Label Supplier
Alright, now that you have tested a number of samples and created a unique brand it’s time for the biggest step in your Private Label Journey: placing your first order.
We prefer to use PayPal to pay our suppliers for shipments. It provides quality protection and the transaction process is faster. For suppliers we have been working with for a while we also use WeChat now. There are no fees and it’s even easier to use than PayPal once you get the hang of it.
Since our first product was quite light we actually sent our first shipment to Germany via air freight. Unless your product is pretty heavy or you’re ordering huge quantities we’d actually recommend you do the same. Air freight is a lot faster and for smaller quantities, the price difference isn’t significant.
Let’s start selling! Or: What’s in a Review?
Now that you are shipping your product to Amazon FBA the cash will start rolling in right? Wrong! If you want your product to sell like hotcakes you need positive reviews, the more the better. Don’t worry though, if you find a decent niche 20 reviews are enough to get your product off the ground.
After that, you can start running PayPerClick (PPC) campaigns on Amazon which will help with product exposure and sales.
Where do you want to go next?
Right now our three products all rank on page one within their respective product listings. We don’t have any bestsellers out there though but still manage to net at least US$ 3,000 a month. For the amount of time we are investing (about four hours a week) this is a lucrative little side business. We have just recently been to the Canton Fair and were able to source some more promising product ideas. So we will definitely extend what we have going.
If you want to build your own FBA business, you can definitely execute your Amazon Private Label business much faster. If we had found Jungle Scout earlier, we could have avoided wasting weeks on research we didn’t need to. It also took us a lot longer than it should have to get our products to market, again: Courses like Import Dojo really help with the implementation. But if time isn’t an issue, you can do everything yourself and still create a lucrative business.
With this, you have all the ammunition to start your own Amazon business. Now it’s your turn: Go execute and create your own lucrative venture. Or close this post and go about your life. There are lots of opportunities out there, just make sure you implement otherwise you will never know.
Also, be sure to share your own experiences and feedback in the comment section. We would love to hear from you!
To your success,