This past summer an alumnus from my school offered me the opportunity to learn how to source OEM products, post them on Amazon, and optimize them for Amazon’s product ranking algorithms to generate organic sales. I want to share my experience selling on Amazon and some of the lessons I learned.
Many of the product listings on Amazon are private label products. The Bluetooth earbuds I sold (pictured below) are no exception. Manufacturers produce products like these and third-party sellers brand them and sell them through e-commerce channels like Amazon and Ebay. Priced at only $12.99, this was a very affordable set of earbuds. It is also worth noting that these earbuds stood out in their price range for their unique package design / branding. Many of the competitors at this price range have unappealing package design and their logos / brand names are generic. In many cases, the Amazon consumer decides to make a purchase based on the aesthetic of the product / listing, which helped these earbuds sell quickly. Ironically, sound quality was the earbuds’ biggest weakness. They lacked clarity in the high frequencies and fail to deliver the pumping bass in low frequencies that is common in hip-hop and electronic music. That being said, they were pretty solid for listening at the gym or going for a run, especially for under $13. This made them a good option for buyers who didn’t want to worry about losing or breaking their expensive earbuds.
The Business Side of Things
I sold the entire inventory (2,400 units) within two months of posting the product listing on Amazon. The early days were slow; I had to utilize Amazon’s pay-per-click advertising to increase the product’s ranking on Amazon’s search engine. This means that the product shows as one of the top listings for specified search terms, regardless of its rank, and has a tag that says sponsored on it. The ACOS (Advertising cost of sales) varied for each search term, but the entire campaign of sponsored listings costed $306.92, which resulted in sales of $623.52. This is an ACOS of 49.46%. The entire pay-per-click campaign allowed me to get 25,276 impressions, which I found pretty surprising. The average cost-per-click was $1.73 and there were 177 clicks total. The click-through rate on these sponsored listings was 0.7%, which is relatively high on Amazon. This helped generate organic sales because a high click-through-rate on sponsored listings encourages Amazon’s algorithm to show the product when consumers search for one of the keywords targeted in the ads. Thus, the keywords used in the pay-per-click campaign were terms that I was interested in getting the product ranked for.
In the two months of selling I reached over $30,000 in revenue with a profit margin of approximately 40%. The main thing that reduced the profit margin was the high number of returns. The return rate on this product was around 4%, which is pretty high for Amazon. This is because it was a cheap product with unreliable Bluetooth capability. In hindsight, I recognize that electronics are more likely to be defective than other goods. Anticipating these challenges should have been an important part of my product research. Another important lesson here is to perform an enormous amount of due-diligence with manufacturers. Since this was not a long-term project, the relationship with the consumer was much less important than it is for other sellers on Amazon, who continuously sell the same products and replenish their inventory multiple times a year.
The manufacturer for the earbuds was found on Alibaba. Finding a good manufacturer is an important part of the process, but it requires due diligence. In many cases, it’s necessary to reach out to 30 or more manufacturers. If they respond in a professional manner with their lead times and product list, you can get samples from them to test their quality. Even after finding samples it can be tough to find high quality manufacturers. There were 10 samples before the earbuds that were used in this project, but they still weren’t great quality in the end. Alibaba is a solid platform, but there are so many factories (and trading companies) that finding the good ones takes time.
I used Amazon’s FBA to handle order fulfillment because I didn’t have the time to individually ship out orders. This means that I only had to ship a large box containing the products to their fulfillment center and they handle the rest (including returns). I appreciated the convenience of this especially on the days I sold over 100 units. For this product, the FBA cost was approximately $3.19. The biggest factor in the FBA cost is the weight of the item. Additionally, using Amazon’s FBA makes the product eligible for Amazon Prime, so Prime members can get free two day shipping.
If customers ran into a problem with their earbuds, they would send me an email or message me on Amazon. This was entertaining because many thought that I was a customer service representative at a large company. They were very impressed when I was responding in an hour or less (I could respond from my phone, so it was pretty simple).
Amazon is an incredibly powerful distribution channel for e-commerce businesses. Many consumers already go to Amazon to buy specific products; this takes the pressure of customer acquisition off the shoulders of entrepreneurs. That said, there are thousands of products on Amazon that don’t sell any units each day. Optimizing the product for Amazon’s search engine is crucial for organic sales. These earbuds sold well because they ranked well in an existing high-volume market. In future projects, finding the best product to sell will become an increasingly important part of my process.
Finding what to sell
- the best products to sell on Amazon are high-volume (>1000 units per month) and low competition
- market depth is also important–does the 50th listing sell significantly less than the 1st or are they relatively the same? analytics tools like Jungle Scout are useful here because they allow you to see how many units a product is selling
- if top listings are ranking with less than 50 reviews then the competition is pretty low
- ideal price is > $20 (because of Amazon FBA fees)
I think entrepreneurs will enjoy selling products on Amazon if they:
- have the risk tolerance to invest in 1,000+ units from a manufacturer
- enjoy the personal touch of interacting directly with consumers and performing their own customer support, but don’t have the technical skill or resources to develop their own platform for doing so
- are excited by the prospect of increasing a product’s SEO / sales