Family Man Struggling with Personal Debt Makes $528,000 on Amazon
April 21, 2020
Debt.
It isn’t just the letters, the phone calls, and the fear of never being able to pay it off.
It’s holding cash you’ve rightfully earned in your hand but still feeling worthless.
How do you escape this seemingly hopeless reality?
I’d like to tell you a story about a family man, who later became a seller with us, struggling with the burden of owing money: a lot of money.
A full-time musician, he worked hard to put bread on the table for his family, while looking for ways to invest and get more from his earnings. And (you’ll be able to relate to this) he turned to the online world for opportunity.
Determined to change his life, he launched his first e-commerce business with mild success. He ran a few more stores in the hope of catching that lucky break. Then, in April 2018, his curiosity led him to an uncommon niche beginning to get a lot of attention.
Time to Set Up Shop. Or Was It?
You’d think success in the online business world, especially in e-commerce, was pre-written. You hear the same story again and again:
“I’d tried a few different niches in the past, but they just didn’t work out. Then I stumbled upon a really popular niche, caught it at just the right time, and the rest is history.”
Our family man’s story is no different. He found the trending product and created a makeshift Amazon store from which to sell it. But this was in April, and he was selling a winter product. Is it a good idea to set up a store for a winter product in the spring?
Looking back, the seller would tell you, “Absolutely!”
He launched the product to a small email list from one of his other e-commerce stores, and the orders came flooding in. It was clear he’d caught on to a trending niche with high demand and low supply that was experiencing rapid growth. Whether this was just a fad trend or not, he was enjoying the ride. To keep his success going, he knew he’d need help, so he reached out to his private investor contacts. With the contacts secured, he set about building his castle with a deep moat.
Preparing for Rapid Growth
Establishing an Authority-Brand
There were other stores offering this same product. It wasn’t enough for the seller to come out with just another version of the product – his had to be different. This belief was dear to his business philosophy:
“It’s not enough to throw out a product that’s the same as everyone else’s. Do whatever’s possible to differentiate yourself in the market, before sourcing the product. So whether that means being really innovative on the product, having a patent, creating a great brand story – all those things can differentiate you in the market and lead to a much, much lower level of risk.”
That’s exactly what he did.
While all his competitors were in pricing wars for the cheapest product, he saw an opportunity to offer a premium product. He’d tell you himself it was a shot in the dark, but it worked.
It worked very well.
Getting a Package that Matches the Quality
Chic packaging and a mystical brand design made customers happy to buy the product as a gift. They weren’t having to worry about handing over a brown cardboard box to their loved ones.
It was a gift they could be proud of:
“The Christmas sales and the holiday sales were doing so well because we have a beautiful packaging and we display that in the main image, and I think that led to a lot of organic traffic. And people love to give these for gifts. And to have a wonderful box, with a beautiful design, it just creates that perfect gift.”
Over 700 4.5+ Star Reviews
Social proof is one of the most powerful ways to win over any audience. If you’re like me, those golden stars are the first thing you look at when window shopping on Amazon.
Our seller’s store had hundreds of 4.5+ star reviews. They’d invested in good quality materials for the product, so his customers were nearly always satisfied with their purchases. Their reviews helped his business climb to the top of the niche. Once your store is at the top, it’s very hard for someone to come in and displace it. Good reviews act as a kind of sticky glue, helping to retain organic ratings and win more customers in a kind of profitable cycle.
‘Out of Stock’
Demand is the cost of popularity.
It put this Amazon FBA store in a position that not many face just a few weeks after launch. The seller thought three months worth of stock would keep the business going while he got everything together on the operations side.
He was wrong.
A flood of orders cleaned out the product warehouse in four weeks. On one hand, this was a fantastic win. It taught the seller that customers were more than willing to pay a premium price for this product. On the other hand, he had to scramble to meet the demand, borrowing money to airship in more stock, which cut into his margins.
Below is a Google trends graph for the search term ‘[Product name]’:
You can see the demand when the seller launched the product (indicated by the vertical line) was higher than the same March/April/May months of previous years.
After the initial launch, sales became steadier. Lesson learned: make sure you have enough stock to meet demand. Or was the lesson learned?
While sales per day averaged 12.2 units during the summer months, that shot to 52.3 leading up to Christmas. The average monthly profit exploded from $32,237.24 per month to $184,132.59 per month.
As an e-commerce or FBA store owner, you’d usually look at the sales data from previous years to forecast inventory needs for the Christmas season. The seller didn’t have any previous data to refer to, but he didn’t expect such a high demand. And, sure enough, the seller sold out one and a half weeks before Christmas – right when there’s a surge of customers panic-buying at the last minute.
Inventory management is something you can control, and we’ll talk in a moment about what the seller could have done differently. But first, let’s discuss something you don’t have control over – Amazon.
Amazon Throws a Curveball
You may think everything’s going smoothly with your FBA store, but on Amazon, you have to expect the unexpected. They can update their policies at any time, and you have to adapt. Or, as in this case, they can pull out the rule book.
The expansion of the niche drew attention. Many sellers were making medical claims about the product. Claims that couldn’t be proved, and someone blew the whistle.
Our family man was one of those sellers. Luckily, only a small portion of his storefront’s copy made any medical claims. Nevertheless, the storefront was taken down for a few weeks in November and December 2018, along with the product listings, until he made changes to the copy.
He was able to ride the wave, but sudden curveballs like this can really throw a business off. It would be difficult to avoid them all, and nigh impossible to swerve Amazon updates, but some common-sense precepts can help keep you running for the most part:
- Make sure you can back up medical claims.
- Don’t make false promises.
- Don’t treat your customers unfairly.
If you want to dive deeper into this topic, you can check out Amazon’s store policies.
Back on Their Feet, But Time to Move On
After two stock-outs and getting hit with a temporary shutdown by Amazon, the seller managed to keep the business performing well. He is experienced in getting organic traffic on Amazon, so the store remained near the top of the rankings. He also opened a supporting Shopify store for extra sales and to grow the brand. Some bloggers even started linking to the store without any affiliation, driving some extra traffic.
Once he’d strengthened the business’ foundations, his attention was pulled elsewhere.
The seller wanted to focus on other e-commerce opportunities and finally take care of the massive debt cloud hanging over his head. So he turned to Empire Flippers for a big payday exit.
On the Empire Flippers Marketplace
On March 13, 2019, the seller applied to list their business on our marketplace. We started our process to vet the legitimacy of the business, as well as the income and traffic figures. After deep investigative work, on April 3, 2019, we listed the business for sale on our marketplace.
Generally, it takes 2-4 weeks for us to finish the vetting process, depending on the size and complexity of the business. Because this was a straightforward FBA store that sold mainly on Amazon, with a small amount of business coming from the Shopify store, it didn’t take long to pass through.
When your listing goes live on our marketplace, it’s important that your business runs as normal – as our family man found out.
Just a couple months after the listing went live on our marketplace, the business took another hit of an 80% drop in sales. The seller had faced setbacks from their own inventory management errors, Amazon flexing their policy muscles, and now they were facing mother nature. In June 2019, a heatwave blew across America. Fewer people than ever were looking for this winter product.
But the performance drop wasn’t just because of the heatwave:
“I experimented with advertisements which were much more costly than effective. Ranking for certain keywords in Amazon fell below average but have recently recovered. I overspent on inventory at the start of the year and large storage fees directly cut into the profit.“
Whether everything was the seller’s fault or not – we of course know the heatwave wasn’t – this is why we try to drill into our sellers: “Maintain the business while it’s on the marketplace as if you aren’t selling it.” The obvious repercussion of a performance decline is the business value sinks right down with it.
Nevertheless, 50 verified buyers were interested in the business. After those buyers conducted their due diligence, we were left with two hot prospects for the sale.
Negotiating the Deal
The seller was new to selling an online business. Naturally, he felt uneasy about the process and worried about getting the best possible deal. This is where our sales team, who negotiated on behalf of the seller, made it easy for him. As an intermediary, we handle all communications between the buyer and the seller. This management of negotiations prevents unwanted outcomes, like a newbie seller being out-negotiated by an experienced buyer to give their business away for a fraction of its actual worth, or a buyer overpaying for a business. We even help online business owners prepare their business for sale, absolutely free.
The seller was especially glad to have the support of our sales team because two buyers were interested in making a deal. The seller was unsure who to go with, but our sales team helped him realize the more experienced buyer was right for this business and was more eager to make the deal.
The final sales price was a straight $600,000 with an inventory buyout of $227,678.66. This is the exciting stage of selling an online business, but the most important and most difficult stage of the process was next.
Handing Everything Over to the Buyer
This is where we’d say the majority of issues occur when acquiring an online business. Think for a second of everything you’d need to transfer to a buyer if they bought your business…
Just thinking about it is stressful, right?
Not only that, but in the world of online business mergers and acquisitions (M&As), there is no regulatory authority, so there’s a lot of risk in getting the money from the buyer and handing over the right assets. This could have been a very difficult time for the seller, but we handled it all for him. It’s included in our service. We’re actually the only online business brokerage to offer migrations support, with a legal team to back you up if you’re unlawfully swindled on our watch. The seller just needed to send over his business assets, and we took it from there.
The Buyer Looks Beyond the Assets to See the Value
When presenting his business for sale, the seller was open about its ‘deficiencies’: little variety of products, only one main source of traffic for Amazon, neglected social media pages, no advertising funnel, and a template Shopify store. The seller didn’t see them as deficiencies, though. These were opportunities. And that’s likely what the buyer thought too, so these were actually strong selling points for the business.
We give sellers an opportunity to talk in our seller interviews about the business’ growth opportunities, along with other facets of the business that a buyer could explore.
This seller shared the following opportunities:
- Start an advertising funnel – the more traffic avenues a business has, the more stable it becomes.
- Expand the variety of SKUs – top sellers on Amazon usually have a wide variety of products on offer, which also helps increase search rankings.
- Grow the Shopify store – this was a makeshift template site, so there was plenty of room for Conversion Rate Optimization (CRO).
- Expand to other Amazon marketplaces – the product was being sold only in the US, so branching out to other markets was a way to increase the customer base.
Here you can see how deficiencies can be flipped into opportunities for a potential buyer, thus making them value adds, not minuses.
What We Can Learn from this Story
Our family man certainly had quite the adventure in just a short time. But catching a rapidly growing trend helped him take a giant leap toward clearing his debt. Let’s finish this article by taking a look at what we can learn from his mistakes and successes and how we can apply it to help us achieve our own goals.
Inventory Management is Key in E-Commerce
Aside from disappointing your customers by being frequently out of stock, failing to manage your inventory effectively can create back-end problems, like extra storage costs when you have too much inventory or the loss of perishable products if you don’t track sell-by dates.
Here are some tips for keeping on top of your inventory:
- Forecast your demand – look at past sales figures, preferably from the same month of the previous year, to get an idea of how many units you can reasonably expect to sell over the next few days, weeks, or months – depending on how often you make your stock orders.
- Know your supply chain lead times – the supply chain starts with initial sourcing up to arrival at your warehouse. You should know your supplier’s manufacturing and delivery schedules, so you can better plan your stock ordering.
- Have a strategy for promotions – a good promotion can drain your stock quickly. It’s best to limit how many offers can be redeemed, so you know the maximum number of products you’ll sell.
A Premium Product Has Many Benefits
Some Amazon FBA or e-commerce store owners are hesitant to go for a premium product: it costs more to produce, there might not be enough demand, and buyer standards will be higher. Or a common misconception about Amazon: that people go there only for cheap products or the best deals. Amazon is usually cheaper than retail or private e-commerce stores, but not all customers are looking for a cheaper product. If you look around the marketplace, you’ll see there’s actually quite a lot of high-end products for sale.
And the bottom line? They do well.
Selling cheap comes with its own risks. For example, a business based on price is often just a moment away from a price war that races to the bottom, where they and their competitor may go out of business because of the small margins. Cheap products don’t come with the rewards of selling premium, like a higher return and less inventory management (because you sell fewer products). You might want to take a second to think before jumping into the cheap end.
Don’t Take Your Foot Off the Gas
A common problem when listings go live on our marketplace is sellers not continuing to maintain their business as well as they could. Running your business as if you’re not selling it is important to keep its value. Take our family man’s business for example: the initial listing price was $1,197,577 but, because of the drop in performance while it was on our marketplace, it sold for $600,000.
Post-sale, we have a two-week inspection period where buyers can pull out if the business performance drops by more than 50%, so keep that in mind when selling your business. Some of our more experienced buyers reduce this period to a week or even less if the performance is consistent, so they can begin making changes to the business.
Don’t Give Up Hope for that Successful Sale
The performance of the business in this case study took quite a large downturn. Yet the seller was able to make a successful exit.
A downturn does reduce the speed of a sale, though. The smaller pool of buyers willing to invest in a declining business will often lead to a longer sales process, as the buyer is taking on more risk than with a business that’s steady.
There are some things you can do to make your business ready for a big sale, whether your business is holding steady, raking in the profit, or in a bit of a decline. The main thing is to go into the selling process with the right expectations.
Freedom from Debt – It’s Possible
This is just one of many success stories of everyday people with 9-5 jobs who want a better life and take action to make that dream come true. That isn’t to say this is a guaranteed way to make a lot of money – we don’t believe there is such a thing. But if you’re smart, make careful moves, and get all the help you can, you give yourself a much better chance of success.
As for our family man, he didn’t scale to the very top of his debt mountain with this sale. But hey, making $528,000 after our commission, with just a few hours of work per week, in less than two years, isn’t bad, right?
Not to mention making over $300,000 in one month . . . we think he’s done alright!
If this story has made you just a bit curious about what your online business could be worth, have a play with our Valuation Tool.
It could be your first step to changing your life forever.
