If you are a regular reader of my blog, you know that I mainly resell goods (used and new) on Amazon using FBA. But recently, I’ve been learning how to brand, source and import goods from China to sell on Amazon — or simply, private label.
There can be no learning without action and no action without learning.
Reg Revans
With this quote in mind, I took the plunge and began researching potential markets using Jungle Scout. And not long after, I found a product that I could make mine. I was excited yet anxious because I had never imported.
But despite choosing a product with low competition and high demand, it still failed. I wasn’t, however, put off because that order was small — about 250 units (£1,000).
Determined to make private
In this post, I’m going to use the latter product as an example to illustrate how to evaluate product costs, determine profit margins and costs (in terms of both money and time) involved in launching a product on Amazon.
The currency conversions used in the calculations below are based on the Pound Sterling to US Dollar exchange rate, which was £1:$1.31 at the time.
The numbers
Here’s the numbers:
| Oct - Jan 2018 ($) | Oct - Jan 2018 (£) | % | |
|---|---|---|---|
| Sales | 4330.51 | £3305.73 | 100 |
| COSTS | |||
| Product cost | 1497.00 | 1142.75 | 34.57 |
| Packaging | 345.00 | 263.36 | 7.97 |
| Shipping | 200.00 | 152.67 | 4.62 |
| Samples | 155.99 | 119.08 | 3.60 |
| FBA fees | 1216.73 | 928.8 | 28.10 |
| Duty | 64.74 | 61.42 | 1.49 |
| Photography | 276.41 | 195 | 6.38 |
| Giveaways | 258.07 | 151.2 | 5.96 |
| Amazon PPC | 446.71 | 341 | 10.32 |
| Other costs | 145.04 | 97.72 | 3.35 |
| ----- TOTAL | 4605.70 | 3515.8 | 104.45 |
| VAT | |||
| - Input VAT | 546.27 | 378 | 12.61 |
| - Output VAT | 722.01 | 551.15 | 16.67 |
| ----- VAT Paid | 175.74 | 173.15 | 4.06 |
| Net profit | -450.93 | -344.22 | -10.41 |
Product costs
For obvious reasons, I’m not going to reveal my product (yet) but I will provide some information for the purpose of this article. The product is in the Luggage category on Amazon UK. This category is saturated and a copy-cat product wasn’t going to cut it. I had to differentiate and brand my product.
And to reduce the risk, I
- Sample(s) — $156 (£119.08)
- Cost of goods — $1,842 (£1,406.11)
- Shipping — $200 (£152.67)
- Other costs — $95.26 (£72.72)
The total initial cost: $2,293.26 (£1,750.58)
Here is a a breakdown of the above costs in more detail:
Sample(s)
After reaching out to ten suppliers on Alibaba, about six replied back and only a handful of those were professional, reliable and receptive. And after a few days of back and forth messaging (via email and Skype), I developed a good idea of the supplier I wanted to work with.
In the end, I ordered a sample from just one supplier. And it seemed like I made a good decision as it only took two samples to turn my idea into the final product.
Sample one
The first sample fee was refundable. I would be refunded the fee once my order hit 1,000 units.
- Custom sample: £70
- Express shipping: $40
- Alibaba handling charge: $6
Note: The supplier had put down the sample fee as the sample’s value instead of the agreed price for the product. I, therefore, had to pay £35 in duty and VAT. The supplier later admitted this mistake.
Sample two
- Sample fee: $0
- Express shipping: $40
Total sample fee: $156 (£119.08)
Cost of goods
Bringing a new product to market is a high risk, high reward strategy — there are no guarantees that it will sell. But the key is to find a product that isn’t completely novel nor an exact copy of what is already popular.
To reduce the risk of losing money (again) and being put off of private
Product cost
Here is the quote I received.
| Quantity | Price (EXW) USD/piece |
|---|---|
| 300 | $4.99 |
| 500 | $4.59 |
| 1,000 | $4.19 |
| 5,000 | $3.59 |
300*4.99 = 1,497
Total product cost: $1,497 (£1142.75)
Packaging
Most manufacturers don’t produce packaging. They hire another factory to that. I could have, therefore, found a packaging manufacturer to save money. But that would have tedious.
Here is the quote I received for the packaging of my product:
| Quantity | Price (EXW) USD/Piece |
|---|---|
| 300 | $1.15 |
| 500 | $0.75 |
| 1,000 | 0.69 |
| 5,000 | 0.59 |
300*1.15 = $345
Total cost of packaging: $345 (263.36)
Other costs
- Logo set up fee: $50 (£38)
- Alibaba handling fee: $35 (£26.72)
- Bank non-sterling transaction fee: $60.26 (£46)
Other costs total: $145.04 (£110.72)
Shipping
This product is small and light. So Door-to-Door shipping was the best option.
Shipping: $200 (£152.67)
Profit margins
To calculate the final profit margins, these are the other costs we need to consider:
- Amazon fees
- Marketing
- Photography
- Import duty
- VAT
Amazon fees
When selling on Amazon, the Amazon fees is comprised of the following:
- Selling on Amazon fee — Also referred to as just the ‘commission,’ this is what you pay Amazon for selling to its customers. This is a variable fee and is usually depends on which category your product falls in. Most categories have a 15% (of the sale price) commission fee.
- FBA (Fulfillment by Amazon) fee — This is what Amazon charges for picking, packing and then shipping — as well as dealing with customer service — orders on your behalf. This fee is usually fixed and is based on the weight and dimension of the product.
- Monthly storage fee — The fee you pay for Amazon to store your product, ready to be dispatched.
The total Amazon fees came to $1,216.73 (£928.80).Duty: £49.42
Marketing
I launched a completely new product on Amazon. It had zero reviews and sales history. This meant there was no way Amazon was going to recommend my product to its customers when they searched keywords associated with my product.
The aim of this order, therefore, was to build my product’s review count and its sales history. There are many ways that you can do this. But I chose to do giveaways and Amazon PPC (Pay Per Click) advertising. Because I didn’t have an audience.
Giveaways
As the name suggests, ‘giveaways’ is when you give products away for (almost) free. I’m not exactly sure if you can give products away for free on Amazon now. But most sellers get around this by setting a very low price and offer deep discounts (up to 80% off).
You would have thought to give your products away for almost free would lure customers, but I found out that it doesn’t. Price doesn’t have much effect if the product is not ranked for keywords related to it.
I used a website called JumpSend to do giveaways and rank for the main keyword of my product.
Here is a breakdown of the costs:
- JumpSend subscription (2 months): $60 (£45.80)
- Giveaways: 28 units at 80% discount — $198.07 (£151.2)
Total giveaways cost: $258.07 (£197)
Amazon PPC
Amazon PPC (Pay Per Click) advertisement service is great because you can increase your product’s visibility. For a fee, Amazon will put your product on the top of page one for a keyword relevant to your product.
You can choose these keywords through a manual campaign or you can let Amazon do it for you through an automatic campaign.
I started off with an automatic campaign, found the keywords that were making sales, and targeted them in a manual campaign.
Total PPC cost: $446.71 (£341)
Photography
Getting professional images of your product is a must. Good images are important grab attention and communicate higher perceived value. It can also be used as way of differentiating your product, especially if your competitors have low quality images.
I wanted to give this product the best chance of succeeding so I used a premium photography service. I paid about £25 per photo got seven done. You can find cheaper options on sites like Upwork and Fiverr.
- Seven shots: $148.85 (£195)
- Three products: $12.21 (£16)
Total photography cost: $276.41 (£211)
Input VAT: £39
Import duty
Import duty is simply the tax you have to pay on goods that you import. And it varies for different products. Import duty is charged on the sum of the cost of goods and shipping cost. My product has a 1.5% import duty.
Import duty: $64.74 (£49.42)
VAT
VAT (Value-added Tax), as the name suggests, is a tax charged on most goods and services. The VAT rate for most goods and services in the UK is 20%.
If you are not VAT registered, you only have to worry about input VAT. This means you don’t have to collect VAT from your customers. But it does mean paying VAT on the sum of the product and shipping cost and import duty.
Since my company is VAT registered, I have to collect VAT from the customer. But it also means I get back any VAT I pay initially.
Here is the VAT that I’ve paid and will get back:
- Import VAT (on costs of goods, shipping, and duty): $495.18 (£378)
- Photography input VAT: $51.09 (£39)
Here is the VAT include in the price of my product. This is the VAT that I’ve collected for the government:
- Output VAT: $722 (£551.15)
The total VAT that I’ve paid is the difference between output and input VAT.
Total VAT paid: $175.75 (£134.15)
Net profit
Net profit is simple the difference between the net revenue and cost. In this case, the difference between:
- Sales: $4330.50 (£3305.73)
- Total costs: $4,781.43 (£3,649.95 )
Net profit: -$450.93 (-£344.22)
Conclusion
I had put in a lot of time and energy into developing and introducing my own product on Amazon. It took almost four months to source and launch on Amazon. And about two months to sell the initial 300 units
I know what you’re thinking: ‘You went through all that to make a loss?’ Good point. Although I made a loss, it wasn’t huge. Plus I don’t see it that way. I see it as an investment, an initial investment that will pay off in the future.
My product has an established listing on Amazon with ten positive reviews and a good sales history. And although this doesn’t guarantee sales in the, it does increase the likelihood
It’s currently selling about 5 units a day at a £5 net profit. I expect it to sell about 1,000 units a year. That’s a £5,000 net profit. Now, imagine having a portfolio of, say, ten products. That’s about £50,000 in net profit a year.