I started selling on Amazon using the “Private Label” method. Basically this means I “create” a brand new product and brand on Amazon and try to sell it. The key here is to find a generic item that sells well with no established brand selling it yet. I tried this twice. The first time I made a lot of money but ended up violating a patent. The second time I basically broke even but wasted a lot of time and ended up with a bunch of excess inventory. I decided to try the wholesaling method next. Basically purchasing brand name products (like Nike shoes or Hasbro toys) from Distributors and selling it on Amazon. I have now place 5 orders with different distributors and will use this article to explain the errors I made and what I would have done differently.
Deal #1
It took a long time to get my first deal. For some reason I thought no one would want to work with me unless I had a legitimate brand. I spent several months building and writing blog articles on a website. I do not believe this helped whatsoever. Once I stopped screwing around with that I focused on closeout suppliers. They will sell to literally anyone. This seemed like an obvious place to start. Unfortunately closeout suppliers can be tricky. After looking at deals for several days I jumped on some Elmo backpacks that sang when you pressed a button. They sold pretty fast and I was making a decent margin on them. After about a week Amazon closed the listing down stating products with batteries needed special documentation if the intended use was for children under 5. To this day I have no idea what documentation was needed. I took a bath around $300 on those. I tried selling them on ebay but had to lower the price so much it just wasn’t worth it.
Deal #2
My second deal was a colossal nightmare I am still dealing with. A very good rule for wholesale is to never “bet the farm”. Basically you don’t want all your money and risk tied up in one supplier if something goes wrong. I spent about 25% of my total budget $3,000 on an order. After weeks of delays I finally asked for a refund. My supplier agreed but offered credit on another shipment I had previously expressed interest in. The total cost was $6,000. He offered to take of $300 because of the hassle I had gone through. I told him that was fine. That purchase was completed June 8th 2020. It is currently mid september and due to shipping delays and Amazon’s backlog of orders. It still has not been unpacked in the fulfillment center. This is a nightmare scenario that has half of my cash flow tied up with no end in sight.
Deal #3
Deal #3 was with a legit toy distributor. I was excited that I had finally broken through the “glass ceiling” of closeout suppliers. I bought two items and both sold out in about two months. The only issue was the profit margin. About half way through Amazon started selling one of the toys. I lowered my price and luckily was able to secure the buy box. However, my total profit margin ended up being 7.5%. I have not reordered from them because the profit margin I project typically is between 8%-12% and does not give my enough room when there are 5+ sellers on a listing.
Deal #4
My fourth order was from the Elmo backpack guy again. I bought two different kinds of soap. Around this time there was a ton of weird stuff going on with the buy box. It seemed like the store with the most reviews would get the buy box no matter what they charged. It took a little over two months to sell out of this but I ended up with a 9% profit margin. I would reorder from him again but want to move away from closeout suppliers whenever possible.
Deal #5
I found a distributor that worked with a lot of arts & crafts companies. I ordered several sewing accessories from them. There were several issues with this shipment. First of all, Amazon lost some of the kits. This took over 30 days to reconcile. Secondly, the margins were super thin. most of the items retailed under $10 which meant even though a profit margin of 15% was good I was making less than a dollar a unit. Not really worth it for a $300 order. I would be willing to order from them again but most of the items have 10+ variations and the price fluctuates pretty dramatically. Coupled with shipping issues it would have to be a really good deal to risk going through that recap.
Summary
Overall it has been a bumpy ride on Amazon so far. I think ultimately the strength of a brand is the only thing that will let you survive and thrive in that marketplace. I have set a timeline of Christmas for myself to get one solid supplier or I am going to close up shop and begin working on something else.