Originally published on November 10, 2015, updated May 6, 2020
Dan Meadors, a VIP RestockPro super user and one of the brains behind a multi-million dollar Amazon business, shares some tips behind “The Wholesale Formula.”
Amazon has many types of sourcing methods you can employ to be the fuel for your sales and profits. Your sourcing methods are essentially the lifeline to your business. As many of you reading this have probably done, Eric (my business partner) and I have experimented with many types of sourcing methods in our Amazon journey. We believe we have found the method that truly gives us the best opportunity to succeed and scale our business.
In July of 2014, our company made a major paradigm shift in how we acquire products. At the time, we were looking to supplement our existing sourcing methods. However, once we really were able to understand wholesale and how it worked, it supplanted them. Before this point, we were Retail Arbitrage and Online Arbitrage based – and were working long hours that only grew our revenue. While our sales and profits grew – they were directly tied to the time we spent on the road sourcing and processing product. We were not building a brand – which is truly an intangible asset. Now our business is around 92% wholesale, and this estimation is liberally low. And we have more time to market our brand.
There are many ways that you can do wholesale, all of which function differently. The model that we utilize consists of contacting the brand owner/manufacturer directly and setting up a direct account with them. By using this method, the vast majority of our products are replenishment-based, which means that we realize monthly recurring profits from them. In turn, this means we are able to grow our business simply by adding new accounts.
This has truly changed our business (for example, 2014 saw $1.28M in sales, and this year we should do around $4.2-$4.5M in sales. We project we can easily double that in 2016). A benefit to our current business structure is that we go home at the end of the day and still see our loved ones - something we were not necessarily guaranteed before. Now I will tell you the five reasons, in my opinion, you should add sell wholesale on Amazon.
Cash flow is king in any commodity-based business. Our current product selection, by working directly with the manufacturer, allows us to purchase products in the windows we need. For example, we project the amount of product we will need for a given window, say 30-45 days of inventory, then we order that much. We reorder and replenish when necessary. This allows us to project our sales, profits and investable cash to scale our business. In your business, cash is a weapon. Being able to predict your sales and profits will give you the knowledge to use that weapon effectively.
When you transition your purchasing to wholesale, you will realize that you are able to process products much more quickly. Your products come to you case packed and are uniform. This was a very noticeable change for us. Instead of coming up with strategies, or makeshift plans to process small quantities of individual items, we were developing streamlined processes to deal with large quantities of the same product. Now our products are generally received by our staff and are processed within a 24-48 hour window. This is simply not possible with an unsorted set of inventory. Another amazing phenomenon here is that your processing costs go down as you grow. The more items you process within a window of time reduces your processing cost per item, which allows you to become more price competitive!
Whenever we were sourcing products using arbitrage methods, time was our biggest limitation. We simply could not go to more stores. Cloning ourselves would have been the only solution. Training employees to make decisions on a case by case basis is also far more difficult. However, with our current model, we are able to segment and create training opportunities to break down tasks. Now, we train specialists and have them focus on certain aspects of the job to help grow our company. In our business today, our goal is to coach and train. Training our competition is not the same concern that it used to be. As your company grows, you build brand presence as well as an infrastructure that is harder to compete with. This allows us to grow our business with a more hands off approach and actually be able to enjoy personal time with our families.
I mentioned that our goal is to create partnerships with our vendors. We want them to work with us and give us opportunities to grow their brands. This means that we don’t receive the dreaded Cease and Desist from being an unauthorized seller, and we don’t have to worry about IP Infringement issues with Amazon. Most importantly, if there is a customer complaint with our products (inauthentic, missing pieces or otherwise) we are able to use a manufacturer's invoice. This gives us a REAL level of solace in our business. It gets us away from some of the uneasiness associated with selling on a third party platform that you don’t control. Our products are real, and we have the ability to prove it beyond a reasonable doubt, not to mention our vendors are in our corner when something goes wrong! This is invaluable for your peace of mind.
You have to realize when you are selling on Amazon that nobody likes to lose money. It is our goal, when we set up a new account, to get the best price possible. This will allow us to be as competitive as possible in the Amazon marketplace. Whatever your sourcing methods, if they do not offer you the opportunity to get the best possible price you can easily fall victim to price degradation. Your competitors may have sourced the product at a better price. Our margins may be thinner than taking advantage of a marketplace deficiency through something like RA (retail arbitrage) or OA (online arbitrage), but our ROIs are generally more stable and consistent. All of this leads back to the fact that our cash flow is more consistent and allows us to plan and scale our business.
Our business has truly flourished by adding consistency and predictability. Too often, an entrepreneur will create extra work for himself or herself. In that situation, a structure is created that relies on the tasks and yields a paycheck for time-based efforts. Our goal as entrepreneurs was to NOT be tied to a time clock, but in 2014 we realized that we had created our own without meaning to. Wholesale has given us the flexibility and clarity to grow our business, create processes, relationships and build a lasting structure that doesn’t quit functioning when we take a much-needed vacation with our families. Hopefully, this has inspired you to make the changes to your business that will create long-term opportunities and give you a chance to build something great!
Originally published on November 10, 2015, updated May 6, 2020
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.