E228: How Our New Ecommerce Brand Hit $1 Million in Yearly Run Rate
Around mid-2017 Dave embarked on a journey to build another million dollar brand after he sold his first one in 2016.
He originally planned to reach a $1 million revenue run rate in 12 months, but certain things happening in 2018–including a legal dispute, among others–contributed to a slow growth throughout the year.
21 months later, Dave finally hit his $1 million revenue goal. In this podcast episode he discusses the things that lengthened the process so that you can avoid it in your own business. He also shares tips and hints for increasing the profitability of your brand, along with growth strategies you can employ.
Some conversation points:
- Why he is directing almost all sales to Amazon
- How he brings cold outside traffic to Amazon
- The benefits of creating a content-only website that is completely separate from an ecommerce site
- Why hiring one VA to handle both customer support and article writing is not a good idea
- How Google Shopping and Facebook is contributing to our growth
- Growth plans for 2019, including creating a secondary “stealth” Amazon account
Thanks for listening to this episode! If you have any questions feel free to leave them below.
Until the next one, happy selling.
Full Audio Transcript
Dave: Hey guys, Dave Bryant here doing a solo podcast. In today's episode, I'm going to give a year and summary for my newest brand and an update on my million dollar journey, where it stands, and of course give you real revenue figures. Along with that I'll talk about some of the things that have been working for me, some of the things that haven't been working so hopefully you can apply this to your e-commerce brands as well. So, let's get into it.
Guys, Dave Bryant here giving a solo update of where my Offroading brand stands after 21 months. And at the same time, I'm going to give kind of a year-end summary of 2018, how we looked from a revenue standpoint, and basically give an overview of what's been working on what hasn't been. And hopefully you can apply this to your own brands that you're developing. So in December 2018, and I measured that actually from December 14th until January 14th, just a way kind of my accounting works, we have revenues of $92,000 and change. And that brings the yearly run rate up to drumroll, $1.1 million. And if you've been following this series, you know that it was kind of my goal to get this new brand up to a million dollar run rate after 12 months. And that's been achieved here after 21 months.
So, it's taken more or less around twice as long as I expected. And definitely, this whole process took a lot longer than I would have ever imagined. I thought that I could get 20 or 30 products launched a lot quicker than I have. But it's taken like I mentioned, about twice as long as I ever foresaw. Now, to give a breakdown of where that revenue occurred, around 63,000 occurred on Amazon.com, 23,000 occurred on Amazon.ca, 600 bucks occurred on eBay, and just over $5,000 happened on our Shopify store. So overall, Amazon.com is accounting for around 68% of our total revenues.
And I think that's something I want to kind of talk about in this podcast is that I talked about this Offroading brand being primarily an Amazon brand. And that's true, 68% of our revenues are coming from Amazon.com. And if you look at Amazon.com and CA together, almost –not almost, over 90% of our revenues are occurring from one type of Amazon site or another. Now, although this is an Amazon only brand, a good deal of effort is being spent off Amazon. And what I am doing is I'm putting a lot of attention on off Amazon channels. But I'm still trying to channel all that traffic into Amazon as much as possible.
And this is something Mike and myself have talked a lot about on this podcast is that Amazon severely rewards sending external traffic to your listings. And there's two trains of thought when it comes to building an e-commerce brand today. There's that group that sells on Amazon, they're trying to do everything they can to get their customers off of Amazon with the logic that you're going to own the customer and of course, referral fees are going to be less, and you're not as dependent on Amazon as a sales channel if something ever happens to them.
And the other train of thought and this is kind of more my thinking is there's those sellers that sell on Amazon and they want to do everything they can to get any off Amazon sales on Amazon to hopefully get basically a bump and a multiplier on those orders that would have typically happened off of Amazon but now they're occurring on Amazon. The theory is that you're going to get better SEO rankings, and better SEO rankings are going to get you a lot more organic sales on Amazon.
So, how we're getting traffic from our Shopify store to our Amazon listings is simply by hard coding a CSS button on our Shopify product listing page using an Amazon affiliate link and sending that directly to our Amazon product listings. Now, I wish there was a better way to do this and actually manually coding up a CSS button that basically occurs in the product description. I've looked for a plugin; if you know a plugin that automatically will create a nice kind of buy button for Amazon, you basically plug in your ASIN and the Shopify plugin does all the magic in the back end, please let me know. I haven't found anything that allows you both to continue to buy on your Shopify store, but also have the option to buy on Amazon.
So, the only option that I've found is to hard code up the CSS button and link to it manually. And what's happening, we have this big button on our Shopify store on our product listings that's going to our Amazon listing page. And roughly half of all of our sales are occurring on Amazon instead of our Shopify store. So, we get 10 sales for one of our products on Shopify, we're getting 10 that are occurring on Amazon. I can see this, of course, through the Amazon referral link tracking.
So, there are negatives to this, of course, now aside from losing that customer, because once they go on Amazon, they're probably not going to give us their email or their email address ever, and we're basically going to lose that customer into the Amazon ecosystem. Aside from that negative, which is definitely significant, the other negative is that it costs more money. So, in the automotive category that we sell in, the referral fee percentage is actually only 12%. And that's a great thing about being in automotive is that it's 3% lower than the usual 15% referral fee.
So, take that 12%, we get a four and a half percent commission from Amazon Associates for everything we sell. So, that brings that commission down to about seven and a half percent. And if somebody buys on our Shopify store, there's about a two and a half percent commission that we will pay to Shopify, which doesn't occur on Amazon. So, we're more or less losing somewhere around 5% by sending people to Amazon directly. And that's manageable. I mean, that's not going to break the bank in any way. And again, like I've talked about, that uptick that we're going to get, hopefully in SEO rankings on Amazon easily pays for that 5% that we're losing on sending people directly to Amazon.
So, just a little pro tip here too, when you're setting up your Amazon Associates links, you can actually set up multiple profile IDs within one account. And so basically, if your link tracking ID is Dave Bryant, you can make Dave Bryant dash Facebook, Dave Bryant dash email, Dave Bryant dash Shopify, and that will kind of allow you to track where your sales are coming from. Now, it's not as granular as you can get with say, Google Analytics. But it does allow some granularity where you can at least see where your sales occurring that you're sending to Amazon. So, they're not completely lost and you're not going into this completely blind. You can somewhat see what campaigns are working and what ones aren't.
And like I mentioned, we can see now that basically half of our sales that occur on our website are ultimately also occurring on Amazon. So that means if we have, for example, a $20 cost per conversion reported in Google through a shopping campaign, it's really half of that because half of those conversions are not being accounted for in Google. Google cannot see those conversions that are going to occur off of our Shopify. So, I guess the most unique thing that we're doing in terms of traffic perspective trying to get it to our Shopify store is a content only website that is completely separate from our Shopify e-commerce store.
And why I'm doing this is that I have this logic that Google is going to penalize an e-commerce site anytime they try to rank for informational articles. And the theory is that Google sees an e-commerce site, probably has a biased viewpoint on things if you're trying to rank for something like best cheap products. Google is going to say, okay well, this is a transactional commerce based website, they're probably biased and trying to sell their own products when they try to rank best cheap products.
So by developing a totally separate entity, a separate website from our e-commerce store, what we can do is remove that veil of subjectivity that Google would see with our e-commerce site and write an article like best cheap products. And hopefully, Google is going to see this article as being objective, and not simply tilted towards our own goals and intentions of pumping our own products.
Now, of course, we're ultimately hoping that people will one way or the other be led to our e-commerce store to buy our products. But this whole philosophy of giving first and then asking for their credit card later is a very proven method, especially in today's internet world. So number one, we do it with EcomCrew; we deliver hopefully, really high quality free content, which ultimately leads people to hopefully buy our paid premium service. But if you even go and look back at the podcasts we did with Dave Huss, Dave Huss is developing an entire Facebook group of hundreds of thousands of followers, and it doesn't have an explicit commercial goal to it.
They're simply sharing left, right and center various articles on how to sell, reviews of products, all this other free content, and every now and then they'll slip in some type of commercial messaging for one of their products. But overall though, it's 99% free content that people don't necessarily associate with the e-commerce brand directly. You can even see this to a larger scale with our favorite frenemy, Amazon. Amazon owns goodreads.com, they also own imdb.com. They are not explicitly hiding that they're an Amazon company. And of course, they couldn't do that, they are a public company, but they're also not making it overtly clear to visitors that they are an Amazon company. In fact, I didn't even know that Goodreads was an Amazon company until probably late last year.
So, this whole philosophy of having a commercial website, and a not so commercial website or property is a big trend occurring in e-commerce. I think in the long run, this is something that's going to be necessary for e-commerce brands to survive. Whether it's a content only website, or a YouTube channel or a Facebook group, something that's not explicitly tied to your brand is going to help your brand succeed in the long run. So, in terms of developing this website, like I mentioned, I've hired a full time VA to write topics for this basically one intensive article per week. And he's doing about 60% content writing and 40% customer service for the brand.
And this probably isn't the best approach because you're either going to be great at customer service, or great at content writing, probably not both. And that's definitely what I'm experiencing with this VA is that by having two things on his plate, neither thing is being eaten completely. That's probably a bad example. But the point is that he's not doing either one of those things tremendously. But what it is doing though, Google always seems to put a brand new website, which this website is, they always seem to put a brand new website into a sandbox for anywhere from six to 12 months. And basically, Google wants to see that you're a credible website that's being regularly updated and that type of thing.
So, in the first six to 12 months of developing this website, the content doesn't necessarily have to be great. I just want to give a signal to Google that, hey Google, we’re here. And hey, Google, we are continuously updating this website and putting some degree of effort into it. Now, the goal is after six to 12 months, once this website is starting to rank to really go through and actually heavily refine these articles. And right now, they do look like they've been written by a VA, that's kind of the problem always with Vas. It's hard to find a great writer, especially in a very niche specific topic like I am four by fouring.
Most people outside of North America and Australia have no idea what four by fouring is; they're not enthusiast about it. So it's really hard to get a Filipino to talk in a tone that's appropriate for the audience. But the ultimate goal is to have him write kind of get to the drafts of these articles, get them up and somewhat ranking on Google and then at a later point in time go through and really heavily revise these articles to make them top A plus grade articles. So, I started developing this website in September of 2018. Predictably, I had zero traffic in the beginning, it just launched. However, it is now starting to slowly get traction. And by slowly getting traction, I mean that it's getting one or two organic visitors a day.
And you can see this all growing, especially in the last couple of months. So it's gone from zero visitors a day to one visitor a day, now to two visitors a day and hopefully in two or three months it'll be up to 10 to 20 organic visitors per day. And this slow trudge is always necessary when developing a content only website. You never get out of the gate running fast. It's always especially in that first year, it's always a very slow trudge, at least in my experience. If you have a different way to rank a site fantastically in the beginning, organically, please let me know because I have not figured it out after nearly 10 years of doing this.
So, aside from this content only website, a few of the other strategies that we're doing that are working and some of them that aren't working are organic SEO for our main e-commerce brand, Offeringgear.com. That's doing actually very well. It's getting close to 100 organic visitors a day. And again, this site was started early in 2018 and you can see kind of this uptick slowly in traffic where it started off like this content only website Offroading.com, started off at one or two visitors a day and then eventually it just snowballs after it gets out of that sandbox from Google. Traffic starts to snow ball and now it's up to almost 100 organic visitors a day. And I can actually see now that we are getting a decent amount of revenue coming through organic SEO. And that's fantastic because that's free revenue. It's not ad based.
So in terms of paid traffic, Google Shopping is by far the biggest contributor to sales for our main website and then subsequently that trickle-down effect to Amazon. And Google Shopping, our cost per conversion is around $19. And again, half of those conversions are occurring off of our website and we can't track those. So that $20 cost per conversion is realistically about $10, which I'm completely okay with. We've tried experimenting with Google ads. Google ads, I've seen this happen over the last five or six years, their profitability has gone from extremely good to extremely bad over the last four or five years to the point now our cost per conversion is close to $100. I think it's $90 and some odd pennies and that's just not profitable.
Even though we sell a high ticket item, most of our items are above 100 bucks, at $90 cost per conversion that's not profitable. And I don't want to get trapped in this frame of mind where I think, we're going to pick those, we're going to make those customers profitable and we're going to have such immense long term value of each individual customer that we can afford to pay $100 to acquire a customer. I know it's just not the case. We cannot afford to acquire a customer at $100 per lead even if that's $50 because we're losing half of that traffic to Amazon is still too high.
And the next big contributor is cold traffic from Facebook. And so, we do this in a couple of ways, so the most profitable way by far is retargeting current customers. And we simply have a retargeting campaign setup with our catalog in it, so it's like catalog ad within Facebook and we target via that way. Costs per conversions are still a little bit high, they are around 40 bucks. That's probably a lot to do with the fact that the creative is not great and if we spend some more time kind of holding that in, that cost per conversion could probably be reduced quite a bit. That's always a problem with Facebook. The amount of maintenance and setup time with Facebook compared to something like a Google Shopping campaign is off the scale ridiculous more.
Facebook takes a long time to set up to get the creative right, so that's kind of the big downside. We're getting conversions, they're minimally profitable but they could definitely be a lot more profitable if a little bit more time was spent on that creative. We're also targeting cold traffic basically as a lookalike audience of 1% lookalike audience of our past purchases on Offroadinggear.com. This is not profitable as of yet. It's pretty close to it; I think it's around 60 to $70 cost per conversion. Again, half of that traffic is being lost on Amazon. So hopefully, that cost per conversion in reality is about half of that. But still, it's barely profitable, and maybe even borderline unprofitable.
The goal is that hopefully over time, though, we can kind of hone that creative in and get them from being just barely profitable to considerably profit. One of the other things that we've been playing with is Messenger. And with Messenger, we've actually been managing to get leads for really cheap, well under 20 cents per lead. And Mike would be amazed by that, the fact that we can get leads that cheap. Thankfully, we're in an industry that there's not a lot of sophisticated competition. And so, we're able to get leads that cheaper. We're also hyper focused; there is a direct audience of four by four enthusiasts. And by all those things, we've managed to get leads for really cheap.
Now, the problem is converting those leads. And because we have a really needs driven product and product selection, so if you need to replace your muffler because your muffler is broken, well, come to us. However, we don't really have a lot of impulsive items. And that's kind of the problem with Messenger. If you don't have an impulsive item, you can't convince somebody to buy something they don't need. Now, if you on the other hand, do have an impulsive item, something like a health care product or a beauty product, you can always convince somebody to buy a product to make them look better or live longer. But if you have a needs driven product, converting that cold Messenger traffic can sometimes be difficult.
So, that's a summary of the things we're doing to get people onto our website, and then hopefully on to Amazon to complete their purchase there. In terms of growth plans for 2019, we're basically a million dollar company right now. So, our revenue seems to have pretty much stabilized around $80,000 a month. And that's right now in the winter months, which for us is not our peak season. Our peak season begins, like I mentioned before, in spring. So, I'm hoping that come spring, those revenues are going to be well above $100,000 a month just by virtue of the fact that we are a fair weather company.
People start to bring their toys out more during the spring and the summer. Now, by the end of the year, though, I'd like to see that our revenues get closer to 150 to $180,000 a month. And that would basically give us a run rate, an annualized run rate of around $1.75 million. Now, I'm kind of at an inflection point now for the company where I'm having to decide, okay, how quickly do I want this company to grow? Where do I ultimately want it to get to? And at $1.75 million, the problem is there is a lot of capital requirements. And this is the game of e-commerce, how much money and how much skin in the game do you want to have?
And I'm pretty self-aware of the fact that to get to that degree of revenues is probably going to require 15 to 20% of those revenues need to be in inventory at any time. So, let's just make the number easy to make the math easy. Let's say we're at $2 million in revenue, we're going to need anywhere from 300 to $400,000 in inventory. And when I start looking at those numbers, that's where it's kind of a moment of truth. So thankfully, with the exit of my last company, I had a little bit of a windfall in cash. And I’ve been comfortable with the amount of inventory and money invested in inventory that we've had up until this point. When we're starting to talk three or 400,000, that's getting outside of my comfort zone, it's still manageable for me.
Now imagine that it's a $5 million company, then we're looking at nearly a million dollars in inventory. That is something right now that I'm not comfortable absorbing. Even if it was possible, it's not something I want to do, because the only way that we're going to get a million dollars in inventory is one of two ways for the most part. So number one is to somehow manage to raise that cash and take it out of my own wallet and put it into the company, or number two, some generous bank comes along and it's actually willing to lend money for inventory.
Now to that latter part, banks in Canada are a lot more tight than in the US even though in the US they're quite tight as well. We also don't have access to Amazon lending or anything, not that I would necessarily want to take an Amazon loan because their interest rates are very high. But we don't have access to those lending mechanisms like Amazon, our banks are tight. And even if the banks were willing to lend that much money and this applies pretty much all over the world; they are going to want a personal guarantee. Now I do not feel comfortable personally guaranteeing basically every asset and every dollar I have in my life.
And this kind of is a result of where I am in life. We have a family now and I would not feel comfortable mortgaging basically everything we have. If it was 10 years ago when I was a younger guy and I didn't have two other mouths relying on me, three months actually, if you included our little cocker spaniel sitting here, if they weren't relying on me, sure, I would have no problem giving a personal guarantee. I've given lots in my life up to this point. But right now, it's not something I feel comfortable doing.
And a big part of why I don't feel comfortable doing this right now is the fact that there is so much reliance on one sales channel and that's Amazon. And this is unfortunately all of e-commerce. This is not exclusive to FBA only businesses. I have a good friend with a $20 million business, they do almost nothing on Amazon, but they have almost everything coming through Facebook. So, the only difference in her life is that she's reliant on Facebook, we’re reliant on Amazon, most everyone is reliant on one or two, if they're lucky channels for their businesses, at least in e-commerce. And that's the big catch 22 with e-commerce. So, that is the reason why I don't feel comfortable basically risking everything right now.
Now, in terms of that risk, that is going to be a lot of what 2019 is about and trying to manage that risk. So, like I mentioned no personally guaranteed loans. The other thing is that I am going to open up a secondary Amazon account. And this is going to go into more or less be a stealth account. And when I say stealth, we actually got approval from Amazon for a second secondary account. However, Amazon, they have a little bit of a loophole there where they say, yeah, sure, you can open up another account, we don't have to necessarily wave our flag and say, hey Amazon, this is our second account. You can kind of open that one anonymously.
So, what I'm going to do is open that with a separate IP, separate computer, do all the steps necessary to make sure Amazon is not totally aware it is connected to our main Amazon account. That way, if one Amazon account does go down, the other one is hopefully not going to get swept up in an automatic suspension scenario. Having run multiple Amazon accounts before, I know that eventually they make and realize that there's a connection between those two accounts.
And the normal sequence of events is that Amazon reaches out to you and says, hey, why do you have a second account? And at that point, if they kind of catch us, which is not the most appropriate word, but if they catch us, then we can point them to that case log where they've actually said, okay, it's okay for you to open a second account. So it's kind of the best of both worlds, we can operate it without Amazon really knowing it's us. And if we do get busted, and they figure it out it's us, well, we have a backup. And once you give them that case log, at least in my experience with my previous business, they go, okay, thanks for letting us know.
Now, this second account is going to be operated under a separate company. And that's not actually a requirement to have a second account with Amazon; it doesn't need to be a second company. But I am going to have a separate company for a few different reasons. There's liability reasons with having a second company. So, if something ever happens to one company, in terms of say, a product liability issue, or some other type of liability issue, which we're all subject to in the private label business, then at least one company is insulated from the other. The other thing is with even sales tax.
Now, that's more of an issue now, because if you have multiple companies, sometimes you're able to scoot around different thresholds that exist at the state level. A lot of states have economic Nexus, and let's pretend it's $100,000 in a particular state. If you can all of a sudden divide your $100,000 between two companies, then you may be able to escape some of those economic Nexus thresholds. And again, we're not accountants here or tax advisors, so I'm not giving you tax advice. But that's one potential way to somewhat leverage or not leverage, mitigate risks there in terms of a sales tax perspective.
And I hate running multiple companies. It's such a pain in the butt in terms of administrative work. It's also expensive to run multiple companies, especially in Canada where corporate filings start to add up quickly. But I think it's a necessary evil just in terms of being an e-commerce company. So, that was kind of a wrap up of how my 2018 looked for my new brand and also a little bit of an outlook for 2019. Like I mentioned in the intro of this, we’ll have a blog post on EcomCrew.com which gives a lot more visualization of some of the things I talked about here. It goes deeply into a lot of different analytics and data more or less. So, feel free to head on over to EcomCrew.com, take a look there, and until the next one, happy selling.
Hey Dave. Just listening to your episode and had an idea that might work for collecting email from customers sent to amazon. How about offering them a discount that gets delivered either to their email that they can apply on amazon or by registering with messenger
YES! The discount code to messenger we’re working on now.
Hey Dave, when you said inventory of 15-20% of sales, is that at cost or at retail price? Also wouldn’t that be revolving? Like once you’re down to 5% That’s when you’ll buy the next 15-20% so in practice your inventory is just at 10-15% per cycle?
Hi Mark. 15-20% of retail sales is in COGs. Yes, it’s revolving, but overall that’s how much capital we need to allow for the biggest cash flow demands.