Updated June 10th, 2019
Launching A Private Label Product on Amazon
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 complete transparency. I fully anticipated it would include various challenges along the way.
Until now, however (can you hear me knocking on wood?), we have had good experiences with our supplier. But recently we started seeing an increase in competition, with new sellers joining 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, 2015. Since then, we have sold 471 units and $12,307 in sales in two months. Not bad! Regardless, we needed 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 private label product I sell on Amazon is to hit a 100% Return on Investment (ROI). In other words, for every dollar I put into a product, I aim to get a dollar in profit.
What are fixed and upfront expenses?
First, let’s define fixed and upfront expenses.
Fixed expenses 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 the Fulfilled by Amazon’s business model means we don’t have many of these costs to deal with.
As for upfront expenses, those are charges we pay out-of-pocket when we accept an offer on products and services. In this case, we did have upfront costs in order to get our product, and listing, online.
The good news? We won’t have to pay any of these fees again:
- Product Samples from five factories: $350
- Label Design: $55
- Product Photography: $40 x 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
Note: We didn’t pay all of these costs. Thankfully, the Product Photography was donated to us by Robert House, and we were in China when receiving samples, so we got those for free as well. Not even a penny for shipping! Not to mention, our in house graphic designer did our label design.
That being said, I figured it would be much more helpful to include what it would normally cost, as opposed to free.
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. And for our first 1000 units ordered, variable costs are as follows:
- $812 for 100 air express shipping (three 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 – For the second order, 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): $807.50
- Total Product Giveaway Cost: $807.50
What are product giveaways?
Product giveaways are the units we give to shoppers at a deeply discounted price. Sellers do it to generate sales momentum and, hopefully, positive reviews. It does come at a price though.
I calculated the “Product Giveaway” cost as $11.12 in Amazon Fees, based off a $27.99 retail price. Then I added the $7.02 cost per unit, minus the $1.99 that we “sold” it for on the Jump Send marketplace. This means we spent $16.15 for each unit we gave away.
Multiply that $16.15 by our 50 giveaways and we get the $807.50 I listed in our above-variable costs.
As for my giveaway limit, I don’t plan to do any more giveaways for our first order of 1,000 Jungle Stix. The 50 units we discounted produced the boost in sales velocity we were looking for, so doing more is unnecessary at this point.
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): $5097.12
What are our total expenses?
Now, it’s just a matter of adding all of this up.
- Total Expenses: $13,973.62
Jungle Stix Revenue
Before we get discouraged with the laundry list of expenses, let’s take a look at our revenue.
The overall sales are a bit easier to calculate. We can simply take that from Amazon’s Seller Central Dashboard. From December 7th to February 3rd, 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, while net income, or profit, technically includes other operating expenses and taxes.
For simplicity’s sake, though, we’re just focusing 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.
The gross margin analysis above combines upfront one-time expenses and promotional giveaway expenses, which I don’t plan to incur again. Variable costs 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 quickly, 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), The second 1000 units are all being sent by 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 units after we incorporate a normalized shipping cost and amortize the upfront investment costs across more units.
So the $1341 we paid to get an optimized listing will now be spread over 2000 (or 3000 units), as opposed to 1000. And the final net margin we get per unit will be a combination of the retail price and the associated FBA fees.
This is how it breaks down for various price points, and whether it is the first 1000 or second 1000 shipment:
My PPC Strategy
In my advertising spend projections, I like to spread the advertising spend in each unit sold, whether advertising contributed to the sale or not.
For example, we’ve sold 471 units so far, and have spent $357 on advertising. That means we’ve spent $357 in advertising for 471 units sold, or $0.76 per unit.
I plan to maintain this spend going forward and can adjust this figure if conversion rates or CPC costs change.
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.
We expected that to happen and is the main 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.
These competitors are selling their marshmallow sticks for $20, and even though they have fewer reviews, they’ve taken potential customers away from us with their competitive pricing.
We’re feeling the impact of this, and our average daily sales have decreased. We were selling about eight units per day before these competitors. That has since gone down to approximately five to six Jungle Stix per day, however.
That’s why, on January 26th, I changed the price to $19.99. I wanted to see how that would impact our sales and profits. Thankfully, by changing our price to $19.99, we have seen sales nearly triple to roughly 18 units each day.
But how would the new pricing structure change your profit margins?
My goal with experimenting with our price is to gauge how we sell at different price points, and to determine the optimal price for the Stix–one that generates a maximum net margin and sales velocity.
Based on current seasonality and competition, we can sell about eight units per day when priced at $27.99. We can sell 20 per day at $19.99. But if I split the difference at $23.99, I’m assuming we’ll sell an average of 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 a success.
It’s certainly nice to see that, even at the very low price of $19.99, we can still make a profit of $5.23/unit. That gives us an ROI of 128%. And if I’m right about the pricing sweet spot, the $23.99 price I’m considering would mean a 213% ROI (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. We figured we would see increased momentum as summer and fall approached. So we’re very happy with the sales velocity we’ve seen so far.
Plus, as our Jungle Stix continue to sell, 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.
Our ocean freight shipment was held up at customs in Hong Kong for a few days. It also experienced delays in the States upon arrival. SO frustrating, and far from ideal.
However, I often see comments online about how this can be a momentum killer and plummet your hard-earned Best Seller Rank. And though this may be true, the negative consequences of running out of stock will depend on the strength of the listing and the competitiveness of category.
With Jungle Stix, I did what I could to mitigate any problems, which was to turn off our paid campaigns and discontinue 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 but did it really hurt our BSR?
True, there was a spike in BSR while the product was out of stock (and Amazon automatically removed the product from search results). You can see from the chart below, though, that the BSR recovered within a few days:
So what’s next?
Well, as I mentioned earlier, we’ve ordered another 1000 units. They’ll be manufactured and shipped via ocean freight.
Ideally, I would like to exceed our baseline goal of 10 units per day. Can we can push that sales number to 20 per day, as we have been doing while priced at $19.99?
I’m also going to keep an eye on the competition to see how they price as we move towards the summer months.
Like I’ve said before, I’m not keen on selling products on Amazon that become a race-to-the-bottom for the price. There are never any winners in that situation!
So stay tuned to see how this plays out, and please share any comments below.
Sorry for this silly question. Actually the calculation say it’s totally 471 Units sold. But your first purchase is 1000 Units .Then how you got out of stock. Is it the Ocean freight of First Order ???. Then You had already some Units in your hand from your first order. Then What’s the Plan behind the Second Order so earlier.
You really made my day, Wonderful B/D.
My question, Most of the REVIEW platforms on Amazon had been cancelled, What do you suggest to the new sellers to generate Customer REVIEWS.
One of the best ways you can get early reviews is through great customer service, having a great product, and using an automatic email follow up system.
Here’s a pretty good article on some tricks to get more reviews: https://www.jumpsend.com/blog/email-copywriting-for-attracting-reviews/
You might also try building an email list outside of Amazon. The Genius Series will cover some of these tactics in this week’s episode.
Thanks for sharing this.
Just a heads up, if you plug the ASIN into Amazon’s fee calculator the fees come out to about $10.32 (excluding 30 day storage fee), as opposed to the $9.92 shown here. Was that the effect of Amazon’s fee increase this year? It pulls the ROI down about 10% (or 13% if you include storage fee).
Have you had to fundamentally change your strategy on any private label products due to the rate increase? For example, being forced to go with ocean freight in situations where you would have previously not needed to before the fee increase.
Can you layout the formula you use for the 128% ROI calculation mentioned above? Trying to figure out what you are viewing as investment and what you are viewing as return.
Hey Greg!! Thank you for this amazingly informative article! SO helpful. We recently purchased the JungleScout Chrome extension. It’s amazing!! Quick question, with covering being out of stock. We have a private label product that is ranked at about 2,000 consistently and does 10-15 sales per day. We have had some issues with our supplier and will most likely be out of stock for about a month. Do you have any suggestions with being out of stock that long. We are very worried! Do you think it’s possible to still get back to where we have been with some big promos maybe? Thanks! Natalie
Thanks for the detailed breakdown. Can you please tell me that how much did you have to pay for custom duties? And what about custom broker and custom bond?
Do you think you would go with retail stores in usa with jungle stix after this?
Hi Greg, nice article! I just purchased the Jungle Scout pro and it works as promised! I would like to know what do you tell to the suppliers to be sure they send everything directly to Amazon. I´m kind of concerned about labeling and item preparing. Thanks
Wonderful article you guys, thanks! The guy at DHL said we need an FDA approval letter to import a non-electric steel coffee pot. Is this true? Is this difficult to get? Do we go through the FDA or the supplier or both?
Thank you for your help.
Great article – really is fantastic!
Where did you get the 6ft grey outline image of a person for your listing. I’ve been searching all over the internet and can’t find a source for these.
Have you tried istockphoto, fotolio, or shutterstock? you should be able to come across something that can fit your needs there.
Our graphic designed actually drew this for us. If you can’t find a stock photo, you can try hiring someone on Upwork to do it for you.
Really enjoying the Jungle Stix updates. I just went to check out the listing and noticed that the main image has the words “longest on Amazon” and the Jungle Stix logo on it. I remember in one of the blog posts you did say that it is not within Amazon TOS. I’m just wondering what made you decide to put these in anyway, does it boost your sales so it’s worth taking the risk? Thanks
You are right, it is a calculated risk and technically not within the ToS. However, we can replace the image easily if it does become an issue, and the benefit as that it makes the unique value proposition immediately apparent to a potential buyer, therefore increasing the likelihood of conversion.
Great to know, thanks!
how does OEM work with the suppliers?
Thanks! for sharing this awesome info.I am a wannabe seller.
A few questions-
Do you have to register your company name in China, since you are doing business with suppliers from China?
If yes, did you get a firm which was able to get contracts for you in Chinese?
Who do you use for your pre production, production, and post production Quality control service?
How do you know you are working with a manufacturer and not just a salesperson who deals with different factories, especially for someone like me who is in the US and not visiting these factories personally
Glad that you are enjoying the info!
To answer your questions:
-Greg did not register the company in China, in fact you do not have to have a legally formed company, you can be a sole proprietor as well.
-Quality control was essentially getting many photos at different stages of the process, and receiving the first shipment to confirm that the quality standard was up to par.
-There is no way necessarily to confirm a supplier vs. manufacturer with certainty without visiting, but if the numbers make sense, which it did for the Jungle Stix, and the relationship with the overseas supplier/manufacturer is built on a mutual trust, that can be sufficient to move forward.
Great article, loved the breakdown and your plans moving forward. I had one question around your on-costs, particularly shipping. In the Gross Margin table, you put the shipping at 47% of cost, can I ask why, have I missed something here.
We used 47% of the shipping costs in order to pro-rate the costs….at the time of writing, we have been through 47% of the first shipment (471 units out of 1000 that were initially purchased), so we wanted to have a true reflection of our costs to date, and not incorporate future costs if we were not incorporating future revenues as well. Does that make sense? Hope it helps!
Hey Greg, many tanks for sharing this.
I just have a question that probably can help just let me.
When you ship to the US do you ship directly to Amazon or to a quality inspection company like FBA Inspection?
I’m close to ship my first product and even if my supplier is reassuring me on this point, I would like to hear others opinions.
Greg did an inspection of the initial shipment to confirm that the quality was the same as the sample. He did not use any quality inspection service though.
Many thanks Gen.
Hi Greg – Great post! Shouldn’t you also take into account storage costs at amazon warehouses? Also, what about costs of returns/damaged units?
The short-term storage costs at Amazon are accounted for in the FBA fees that were included as an expense, and you are correct too that returns should be included as an additional expense. We did not include that in these calculations, but it should be incorporated into the overall costs. Great point!
Hey great case study. I wondered how you identified the sticks to be a good seller to start with? Did you use Jungle scout to see data on other people selling the same product? or did you create the product from scratch, with simply a hunch that it would work.
Greg found the sticks by using the Jungle Scout Web App, entering the criteria that he wanted to see from a potential product, and the bamboo marshmallow sticks fit the criteria and had good metrics after a week of tracking the data as well. You can catch all that in writing and video here:
From following your PPC campaign I learnt that you put a 100$ budget a night?
I unfortunatly, chose a very competitive product for my first product. It has a very high demand too. My Breakeven ACOS is 40%. I put a 10$ a day budget, 0.75$ per click on an Auto Campaign, I receive about 25 clicks a day. I enable the campaign at 1 pm until 12 pm, and it sells 2-3 units/day. I tried increasing the daily budget but didn’t sell more…. My Auto campaign is getting out of budget every day and Amazon advices to increase budget to 17$ a day. What do you suggest?
What is your ACOS on the conversions you are receiving? If it is under 40%, and 40% is in fact your breakeven point, than you would theoretically want to have an infinite budget if you are still profitable for any conversion less than 40%!
It may be helpful to increase your budget to $17/day just for a few days, so that you aren’t missing out on any conversions, while also collecting significant keyword data that you can use to create a manual campaign that is more targeted and doesn’t allow Automatic targeting by Amazon, which may also include some bad traffic.
Hope that helps.
Nicely done! You mentioned Variable Costs but the next heading said Fixed Costs. Was that a typo?
So exciting to be following this progress.
I’m trying to figure out packaging options on my end for my own import product. Is there a blog post or a resource you recommend for research these options? Thanks so much.
Greg covered the packaging during negotiations with the supplier, which can be found here:
Obviously it may not be directly applicable to what your product’s needs are, but seeing the images and his rationale may help!
Thanks for sharing this.
Were there any returns or refunds? If so, it would be nice to incorporate them into the numbers too as they do affect the bottom line.
As more and more competitors are entering with the same product, what would be your game plan moving forward? Will there be a point where you would just drop the product because of over saturation?
The $1341 for the optimized listing who do you use for this service?
We didn’t use a service per se, for product photography, we used Robert House at http://www.productphotography.com, and graphic design we used our in-house designer, but that would just be a “service” you could find on http://www.upwork.com or use http://www.canva.com to design yourself.
THANK YOU GREG & TEAM!!! As always, fantastic information – and very detailed. As I sit here pulling my hair out waiting for the end of 3 weeks of Chinese New Year and my first order, this was very timely. I am struggling with my price point because I am entering the market with a new variation in a category. It was really interesting to see your breakdown of projected sales and net margins at various price points and that $23.99 seems to produce the highest net profit. (FYI, I had to do my own math because I think you mistakenly entered the same graphic twice instead of the one that shows your COGS x Units sold/day at the three prices.)
Thanks again. Looking forward to getting the spreadsheet from Gen and to your continued great posts!
Glad that it helped….we posted the spreadsheet recently in case you didn’t catch it, it is here:
Can you provide any recommendations for Air Freights that will provide A thru Z service where they handle all the customs, duties and taxes for importing the good from China?
Also on 1st shipment I will probably use a Courier to get the units to me faster. From your experience which courier is the cheapest out of UPS, Fedex and DHL. And do you have another other you would also recommend.
UPS, DHL, TNT and Fedex are all air express companies that handle everything A – Z. It seems like DHL is usually the cheapest but just ask your factory to provide you quotes for each.
Great stuff, Greg. Thanks so much for all the awesome value you’re providing. Just curious, looking back, is there anything you would have done differently or changed during any phase of this Collaborative Product launch?
Not really. Overall its gone pretty smoothly 🙂
I feel like I’m on my way to a mini-MBA. Thanks for sharing.
Question on shipping. I read an earlier post of yours (or Gen’s) that you could only ship max 500 units for oversize, yet you shipped 700 from your freight forwarder.
I’m looking at an over-sized product and that has me concerned.
I actually didn’t ship all 700 from my freight forwarder right away. I asked them to store 240 in their warehouse for a few weeks until I had some more room at Amazon. They charged me like $12 for this.
Thanks Greg for Sharing. This is very informative. May I ask what ocean freight forwarder did you use?
Popular question 🙂 We use Flexport
Greg, do you use only as your forwarder for ocean freight or do you use them as well for your air freight?
Hi I think he use dhl regards
Greg great work, ive been using JS since last month for amazon UK.
One thing I’d say though is that JS does not need to be used for seeking out new products or niche products but also to search for products in a saturated category that require another product to make it work…i.e. those cheap ipod mp3 players (people still buy them, but I use this as an example), those devices need a larger memory and very often you need to buy an sdcard, so the key would be to bundle the mp3 player with an sdcard and you now have a new product.
I entered a category similar to this in the UK where the price of the individual unit was 15.99GBP (no sd card) my offer went in at 19.99GBP and was an instant hit….page 1 no13 within 3 days. Total product cost was 8.45, amazon fees 3.50, profit 8.05 per unit. I also varied the price up to 24.99 and is still sell….now im almost out of stock and china has shut down…nightmare. JS predicted 500/month sales and guess what..its not far off.
I am constantly on JS looking and love the product, so im rolling up my sleeves and looking forward to the next few products ive identified…..just waiting on china now.
Canton in oct-nov is going to be very interesting.
Sorry ive gone on and on but you don’t need a new product, sometimes just thinking outside the box and bundle can be the key.
Hey Paul! That’s a great point and a solid strategy. Also always happy to hear the JS estimates are good, we put a lot of work into them 🙂
Thanks so much for all of the information!It is a great help to this newbie…please keep it coming!
Will do! We’ll keep posting updates.
Hi Greg, watching this collaborative product launch was a real eye opener right when I needed it. After feeling a little discouraged following a failed attempt to complete my first product purchase (after 5 months of working with a supplier), watching the various stages of the launch made it seem like a fairly simple process overall. Now I know there are many details to each step along the way which can make it feel like many little mountain to climb, but because of this product launch, I felt like I could give it another try and now I’m working on my “first” product again. Because of my first failed attempt this second time is going much faster because of all the things I learned the first time around.
Thanks Greg for deciding to put this launch on for all of us to see. It inspired me to keep going.
That’s great, I’m glad we were able to help. Overall, its not that complicated process, the important part is to just keep on pushing forward 🙂
I’m a little confused on the shipping.
$1125 for 700 ocean freight all inclusive, fees, customs,
$942 for Inbound Shipping to Amazon Warehouses from Port
Is this $942 what it cost for the 700 to ship from American port to Amazon?
Sorry, we should have been more clear on that. The $942 was actually the total cost from UPS for us to mail the cases from either our house (where we got the first 300 sent) or from our freight forwarders location (where the 700 were sent).
Greg, thank you for being so transparent with this case study. I think you touched on a crucial point for all the newbies out there- that, this is a long term model and not a get rich quick scheme. Putting in quality, means longevity in a highly competitive market. I’m excited to see the next update, because this just shows with good research comes good outcomes!
Yep – that’s defiantly a key point! We’ll keep you updated.
Thanks a lot Greg for this very detailed and interesting update on Jungle Stix!
Could you tell us what freight forwarder you’re using for the 2nd shipment?
Yep – we’re using Flexport.
Beautiful breakdown, very thorough. Thank you so much for sharing Greg, always appreciated!
Sure thing! Glad it was helpful 🙂
Greg thanks for the thorough analysis. In regards to ROI, would you be disappointed with something slightly below 100% in the first couple of months? The way that you explained ROI makes me think that you would actually be losing money over time with anything under 100%
? Is your goal to establish junglestix as a brand and then later on figure out ways to get the ROI up?
100% ROI if my goal, however, its not big deal if its less than that. I wouldn’t be losing money until my ROI drops below 0%, not 100% 😉