Jungle Stix is a collaborative product launch case study that demonstrates how to launch a private label product on Amazon.
When I started this collaborative product launch with you guys, I wanted to share every aspect of launching and selling online with full transparency. Of course, I anticipated that would include various challenges along the way. Until now (can you hear me knocking on wood?), we have had good experiences with our supplier. But now we’re seeing some increased competition with new sellers in the niche. Bring. It. On!
What is the Jungle Stix case study?
Before we go any further, here is a high-level overview:
Jungle Stix: two months on Amazon.
Our product went live on Amazon on December 7th. Since then, we have sold 471 units and $12,307 in sales in two months. Not bad! Regardless, we need to figure out what it cost to achieve this figure in sales.
This is what our unit sales and revenue have been like:
Sales/revenue vs. gross margin: what’s more important?
People often get starry-eyed seeing a handsome six-figure number for Amazon sales. However, it’s the Gross Margin that is more relevant.
Your gross margin is the amount of revenue you have left after you subtract direct costs such as ads, fees, and cost-of-goods-sold.
My goal for any product that I sell on Amazon is to hit a 100% Return on Investment (ROI).
In other words, for every dollar I put in, I would expect to receive a dollar coming out.
What are fixed and upfront expenses?
So let’s first review what the fixed and upfront expenses are. Fixed costs will be anything that does not change, no matter how many units are sold. For a typical business, this would include rent, salaries, insurance, etc. Fortunately, the beauty of Amazon’s business model means that we don’t have many of these costs to deal with.
However, we did have upfront costs in order to get the product and listing active.
The good news? We will not have to pay any of these costs again.
Here they are:
- Product Samples from five factories: $350
- Label Design: $55
- Product Photography: $40 * 6 = $240
- Stock Image (image of a boy by campfire and graphic of 6-foot tall man): $19
- Photoshop work for graphic images: $30
- Total Upfront Costs: $694
What are the variable costs?
Next, are our Variable Costs, or those that change depending on how many units we sell. In a typical business, a variable cost may be hourly wages, material or ingredient costs, fuel for your car, etc. In our case, these variable costs include the cost of goods sold, shipping, Amazon fees, etc.
For our first 1000 units ordered, variable costs are as follows:
- $812 for 100 air express shipping (3 days)
- $1499 for 200 air cargo (15 days)
- $1125 for 700 ocean freight all-inclusive, fees, customs
- $942 for Inbound Shipping to Amazon Warehouses from Port
- Total Shipping Costs: $4378
Note – on order 2, our total shipping will be under $2000, we chose to expedite the first order so we could start our case study sooner.
Cost of Goods Sold:
- Bamboo Sticks: $2640 for 1000 (includes polybag and label)
- Total Cost of Goods Sold: $2640
Promotions and Advertising:
- Product Giveaway Cost (50 units): $647
- Total Product Giveaway Cost: $647
Pay Per Click Advertising Campaigns (PPC):
- Amazon PPC Advertising Costs: $357
- Total Advertising Cost: $357
Amazon FBA Fees:
The cost that we pay to Amazon per unit depends on our final retail price. I am currently experimenting with different price points to find the optimal price that maximizes profits. More on this later. Here is how the FBA fees have looked thus far:
- Priced at $27.99, FBA Fees are: $11.12 for 354 units = $3936.48
- Priced at $19.99, FBA Fees are: $9.92 for 117 units = $1160.64
- Total FBA Fees (for 471 products): $5097
What are our total expenses?
Now, it’s just a matter of adding all of this up.
- Total Expenses: $13,813
Jungle Stix Revenue
Before we get discouraged with the laundry list of expenses, let’s take a look at the revenues. The overall sales are a bit easier to calculate. We can simply take that from Amazon’s Seller Central Dashboard.
For the dates 12/7/15-2/3/16, we have accumulated $12,307 (which you can see in the Seller Central Dashboard screenshot earlier). The sales trends per day are as follows:
- Total Revenue for (471 sales): $12,307
How do you calculate gross margin for an Amazon FBA product?
Our Gross Margin will simply be the difference between revenue and expenses. “Net Income” or “Profit” technically include other operating expenses and taxes. For simplicity’s sake, let’s just focus on the gross margin.
What does all of this financial information mean?
Long-story-short: we are off to a great start!
We’ve just about recovered all of our initial investment and we still have over 500 units to sell. Remember: selling on Amazon is an opportunity that requires a long-term perspective.
It’s about building a real and sustainable business.
The gross margin analysis above combines upfront one-time expenses and promotional giveaway expenses, which I don’t plan to incur again along with variable expenses. Variable expenses will change according to the number of units that we sell. Additionally, we paid a premium on our shipping for our first 1,000 units. The only reason we did that was to launch faster for this case study.
What if you save money by changing shipping methods?
So, how does the cost per unit change between the first order of 1000 and the second order of 1000 when we account for the different methods of importing? As a reminder, the first 1000 units were a combination of Air Express (100 units), Air Cargo (200 units), and Ocean Freight (700 units), while the second 1000 units are all Ocean Freight. This is how the costs change between the two shipments:
This reduction in cost will have significant ramifications on the profit margins, regardless of where we price the product.
To understand the long-term outlook on this, I like to look at the per-unit breakdown, as our costs are significantly lower for the second 1000 after we incorporate a normalized shipping cost and amortize the upfront investment costs across more units. So the $1341 that we paid to get an optimized listing will now be spread over 2000 (or 3000 units) as opposed to 1000.
The final net margin that we get per unit will be a combination of what the retail price is, and what the associated FBA fees are. This is how it breaks down for various price points, and whether it is the first 1000 or second 1000 shipment:
How did Jungle Stix come up with its pricing?
As I mentioned earlier, we have started to see some new entrants in the “bamboo marshmallow sticks” niche. This was certainly expected and is the reason most people do not share which products they are selling.
If you tell someone exactly what product you’re selling and how much money you’re making, you’re bound to have copycats.
We have felt the impact of this and our average daily sales decreased. These competitors were selling at $20 per unit, so even though they had fewer reviews, they took potential customers away from us with competitive pricing. We were selling about 8 units per day before these competitors. But that has decreased to approximately 5-6 per day since.
That’s why on 1/26 I changed the price to $19.99 to see how that would impact our sales and profits.
Since changing our price to $19.99, we have seen sales nearly triple to roughly 18 units per day.
But how would the new pricing structure change your profit margins?
My goal with experimenting with pricing is to gauge how the units sell at different price points, and what the optimal price is that generates a maximum net margin and sales velocity. So we have seen that based on current seasonality and competition, we can sell about 8 units per day when priced at $27.99, we can sell 20 per day at $19.99, and if I split the difference at $23.99, let’s just assume that we will sell an average 14 per day.
Check out the pricing table below. This shows the trade-off between lower-priced and faster-selling items:
Looks like $23.99 might be the sweet spot for profits and sales velocity.
Are Jungle Stix a success?
Overall I think Jungle Stix are certainly a success. On the second shipment, it’s nice to see that even at the very low price of $19.99, we can still make a profit of $5.23/unit which is a 128% ROI. I imagine the sweet spot for this product is going to end up around $23.99 which would mean 213% ROI (and roughly $3,000-4,000 PROFIT/month).
On another positive note, going into this, we knew that January through March would be our slow time, and we would see increased momentum as summer and fall approached. So that is good news.
As our Jungle Stix sell more and we gather more reviews, we should see both an increased conversion rate (people more likely to buy a product with many reviews), as well as an improved organic ranking for various keywords (we are currently on the front page for our main targeted keyword, “marshmallow sticks”).
What happens when you run out of products?
In early January, we ran out of inventory! This was a result of the ocean freight shipment being held up at customs in Hong Kong for a few days, and delays in the States upon arrival. Argh, not ideal. However, I often see comments online about how this can be a momentum killer and plummet your hard-earned Best Seller Rank. While this may be true, depending on the strength of a listing and competitiveness of category, it is an inevitability at times with only so much you can do.
I did what I could to mitigate any problems: I turned off our paid campaigns and discontinued any promotions. There were three days of flat-lined sales (while we were out of stock) as you can see from the dashboard screenshot, but did it really hurt our BSR? There was a spike in BSR while the product was out of stock (and Amazon automatically removed the product from search results), but you can see from the chart below that the BSR eventually recovered within a few days:
So what’s next?
We have ordered another 1000 units which will be manufactured and shipped via ocean freight. I would like to exceed our baseline goal of 10 units per day and see if we can push that up to 20 per day, as we have been doing while priced at $19.99. And I will keep an eye on the competition to see how they price as we move towards the summer months. As I’ve mentioned before, I am not keen on selling products on Amazon that become a race-to-the-bottom—there are never any winners in that situation! So stay tuned to see how this plays out, and please share any comments below.