Archives for February 2017

Who says time can’t be bought?

Wrapping up 2016 is an exciting time for us. We are going to land around $7,000,000 in sales, currently have 10 full-time employees, operating a 10,000 sq. ft. warehouse, and are sending and receiving inventory on the FTL (full truckload) level. Things couldn’t be going any better!!

“It’s unfortunate that, despite being an experienced Amazon seller, you won’t be able to reach our level of success because getting there requires infrastructure and, more importantly, a warehouse.”

Perhaps that’s what you expected me to say next but I won’t because I believe that statement couldn’t be more wrong.

Make no mistake — our success is largely attributed to our ability to process thousands of items each week and our warehouse is what allows that to happen. After all, retail is a high volume business model that requires a high volume of products being sold to be successful.

BUT the emergence of prep centers over the last few years has completely changed the landscape. By outsourcing the prep of your products to one of these facilities you are able to fully scale your Amazon business without the prerequisite of a processing team or warehouse facility.  Today you are able to buy and sell tens of thousands of products without ever having to handle, prep, or pack a single product so, in that regard, prep centers have done to the Amazon wholesale business model what Fulfillment by Amazon did for 3rd-party marketplace sellers.

There are plenty of times I’d wished I had known about prep centers when we began because there is no doubt I would have utilized their services instead of having to manage employees and a warehouse. In fact, I’m rather envious of the opportunity available to sellers now. Being able to scale to (and even beyond) our level without ever having to lug boxes, adhere to labels, manage employees, carry workman’s comp and business insurance, upkeep maintenance….I mean, I could go on at nauseum about this! Not realizing the immense burden that comes along with operating a warehouse is often overlooked by sellers aspiring to get to our level.

Here’s a list of just some of the expenses, to help you understand some of the monetary cost of processing in-house:

• Rent
• Utilities (which are substantial, especially with “business” internet)
• Building and equipment insurance
• Workman’s comp and unemployment insurance
• Forklift/pallet jacks
• Electronic equipment (computers, printers, scanners)
• Prep materials (bags, labels, boxes)
• Employee payroll
• Tables, chairs, standing mats

Consider, still, that all these don’t even take into consideration the time investment of handling employee issues and overseeing operations.

What’s more, what if you hit a downturn or have a period of time without products coming in?  Unfortunately for you rent, utilities, and salaries all still have to be paid while you aren’t processing.  With a prep center, you are only paying for products that are being processed and if it goes ten days or two weeks without products being processed, you won’t be paying anything.

With so many different expenses of operating a warehouse, it’s difficult to quantify the cost of processing per unit. With a prep center, this is a known constant and takes a great deal of guesswork out of sourcing because you know exactly what it will cost you to have each unit processed and sent to Amazon.

As you can tell, I am very pro-prep center and encourage anyone thinking of scaling their Amazon business to, at the very least, research the possibility before diving straight into opening a warehouse. Beyond prep centers, it is not uncommon to have your vendor ship your products directly to FBA centers for you. Many vendors are versed in doing this already, but even ones who aren’t are generally receptive to the idea and learning how to do it for you, creating huge savings on shipping to your facility or prep center and any prep cost.

Since we don’t actively use a prep center, I reached out to someone that does to share their experience. Check out this take from The Wholesale Formula Alumni, Suzanne McDuffee:

“When I was learning the mechanics of FBA I did my own prep to learn. But as soon as I had experience packing and prepping in a variety of product categories, bundling and multi packing, etc., I outsourced 95% of my prep work to prep services. I’ve never looked back. I have used five different services to date, and I would say that pretty much all of them have been great to work with – some more than others. I would encourage anyone considering investing in running their own warehouse to try prep services before making that commitment. Not only do I value the freedom and flexibility it gives me, but they actually do a better job, and it is more cost-effective for my business.

Thanks to my prep service partners, my VA, Google Apps, and some other tools, I am 100 percent location independent. I can run my business from anywhere in the world as long as I have an internet connection. At first, I would travel domestically in the United States to make sure everything went smoothly. But I just put my business to the test internationally by traveling to Spain for 3 months. It went great with no major issues, and I plan on making more trips abroad regularly, which has always been a dream of mine. I’m pretty sure I would not have been able to pull this off if I had a warehouse to run. Next up I plan on visiting Cuba, Argentina, Singapore, and who knows where else. It has been by far the most fun, challenging and satisfying year for me in a very long time. It’s a really exciting time to be in business – even just 5 years ago prep services were not so widely available to small businesses like mine. I still can hardly believe I can live this way – I love it!”

– Suzanne McDuffee

Suzanne McDuffee enjoying a trip through Europe while her Amazon business operates back in the states thanks to a prep center.

Outsourcing is designed to provide a solution that you are unable to do or, in the case of prep centers, are too valuable to do. Prep centers grant you freedom and time to focus on the highest level tasks of your business, eliminating constraints normally reserved for operations and infrastructure of in-house processing, thus serving as a catalyst for growth.

Ultimately, deciding which manner of processing and prep is best for your business should be evaluated and determined by you. Be sure to consider alternate solutions and methods you otherwise may not have for scaling your business to our level without making the substantial investment of capital and time we have. While time may not truly be able to be bought, by outsourcing prep, time spent on your business can be and if you are driven toward success, the price paid will be minuscule compared to the return gained.

Congratulations!!

You’ve set out and started your very own online business.

No more boss or timeclock or annoying co-workers.  You are the master of your own destiny.  You’re the Big Cheese, Head Honcho, Chief Executive Officer.

Which begs the question, why are you not acting like it?

If you’re like the vast majority of online entrepreneurs, you have already or inevitably will fall into a pattern of repetitively performing low-level tasks that should be outsourced.  This can stem from any number of reasons such as comfortability with the status quo, the crippling fear of giving up control, or assurance that no one can do the tasks as well as you (spoiler alert: you’re probably wrong).

We are guilty of it too. In fact, we should have outsourced our labor at least 6 months earlier!

The glaring problem with these fallacies is they significantly reduce the ability of your operation to scale from a well-paying job to a true business.  Dan and I were relegated to this reality for nearly 3 years, making good money but in direct ratio to the amount of work we put in.  Soon, we ran out of time available in the day, reaching a scalability threshold, and came to realize that if we want to ever to build a perpetuating business, which we could remove ourselves from, we would have to outsource some of the low-level tasks we were performing.

Now, for us the answer was employees to handle prepping, packing, and shipping our products to Amazon, allowing us to spend the majority of our time researching and buying more profitable products.  As you might imagine, our business experienced explosive growth. During our three years of just Dan and I, we had revenue of $890K, $920K, and 1.3 million.  Now that’s not shabby, by any metric, but compare that to $3.9 million in 2015 (our first full year with employees) and $6.6 million in 2016.

I realize the primary reaction to this is “That’s great but you have a warehouse and employees.  I have no interest in either of those, so guess it’s not for me”.  Think again.  While it’s true we utilized a warehouse and employees to outsource and scale, that’s primarily because we had never heard of or knew of any other options, so if you believe a warehouse is imperative to growth, I’d invite you to read one of our previous blogs on exactly this topic:

https://wholesaleform.wpengine.com/work/do-i-need-a-warehouse-to-do-wholesale/

With the monumental growth of Amazon in the last few years, third-party solutions have been created and developed to make outsourcing more convenient than ever. From prep services that will handle your FBA shipments to Amazon to software that will automate pricing and restocking and even virtual assistants that you can assign to product research.

Obviously, you don’t have to outsource anything in your business and continue wearing every hat in your day-to-day operations but I would advise you to figure out what your value to your company would be if you were able to do only the highest value-adding task, eliminating everything else.

Is it $20 per hour? $50? $100? More?

Once you grasp this value, the opportunity cost of every task you perform is the difference between what you could outsource it for and that amount.  For instance, if your value is $50 per hour then every time you spend an hour labeling, prepping, or packing a box you are leaving between $35 and $40 on the table since these tasks can be handed off for easily $10-15 an hour.

The converse way of looking at this is, you are effectively paying $50 per hour for that task to be performed. This means that you make a profit of $35 to $40 per hour by paying someone else the suitable wage to do that specific task.

I know this is largely theory-based and you can’t be expected to spend every minute of your day doing only the highest value tasks but it’s a thought-invoking concept, challenging you to take a holistic look at and begin to realize the big picture potential of your business’s capability.

If you have never sold on Amazon or are just getting started and feel a bit intimidated or confused, don’t worry because this post is intended for an intermediate to advanced Amazon seller, as I would never suggest outsourcing anything in your business until you fully understand it and can properly train and entrust it to someone else.  But even for beginners, it’s a concept to be mindful of for taking your business to the next level.

Now that you have an idea of what your true value to your business is and how outsourcing lower-level tasks is the only way to achieve exponential growth, the first and most important step in transitioning your business is changing your CEO title from Conducting Everything Officer to Chief Executive Officer.