Million Dollar Update – 12 Month UpdateMay 24, 2018 in Blog
Last Spring after selling my company I set a personal goal of trying to rebuild an ecommerce brand from $0 to $1,000,000 in revenue within a year. 12 months later and here are my results. Did I succeed in reaching a million dollar run rate in revenue? Did I fail? Read below for the results and to get some insight into what you should and shouldn’t do if you’re trying to create a million dollar business from scratch.
- Start date: April 2017, when I placed my first order for products
- Goal: $83,333 in revenue per month
I started my new business focusing on Offroading 4×4 parts in April of 2017. I set my start point as the time at which I placed my first order for products which was around April 2017. I could have (should have?) set my start date as the day I first started selling products, which was around the end of June 2017. However, as any entrepreneur first starting an ecommerce business knows, the time spent researching and developing products is the real work of starting an ecommerce business. Selling the products is actually the easier part of the equation.
For my revenue goal, the $1,000,000 number is based on a monthly revenue run rate, i.e. the amount of yearly revenue my business would achieve if I continued on this trajectory for another 12 months.
Million Dollar Update
The final results after 12 months of starting my Offroading brand are as follows: After 12 months I have an annual run rate of $546,810.96. This is nearly 50% less than my $1 million goal.
|July 2017||November 2017||April 2018|
This revenue is the result of 33 SKUs. However, if you exclude variations, I only have 13 different products.
Profitability and Per Product Profitability
In the table below you will see my sales per product on Amazon.com (I’m transparent but I’m not going to tell you what exactly each product is!). Each month I download my transaction history as a CSV file on Amazon by going to Reports -> Payments -> Date Range Reports and compile a per SKU profitability analysis. I deduct all Amazon and FBA fees, estimated inbound freight from China to Amazon FBA, and duties and then run a quick Pivot Table. I, like many business owners, do not have up-to-date bookkeeping (I’m typically 3+ months behind). Running this report each month takes me 10 minutes and ensures my profitability targets are being met. If you do not keep up to date accounting, I strongly encourage you to do the same.
You can see that of my 33 products, 11 actually had zero sales and are not shown (most have not actually launched yet). My top 6 products accounted for 69% of my revenue and my top 9 accounted for 92% of my revenue. I always say that I expect 60% of the products I launch to be mediocre products that I continue to re-order, 20% of my new products to be failures that I never order again, and 20% to be home-runs that account for the bulk of my revenue. When you’re starting your ecommerce business, try to launch multiple products to allow for a normal distribution of product failures and home-runs.
You will notice that my gross profit margins are 24% (this takes into account all variable expenses except advertising which is approximately 3-5% of my sales). My goal is to be around 27-30% for a gross margin. I am always very skeptical of anyone who says they have a gross margin above 35%: normally it means they buy a new luxury vehicle every year or they don’t understand their numbers (normally the latter). Keep in mind, that after the smoke clears, my net profit margin before taxes and paying myself will likely be closer to 10-15%.
Reasons for Not Meeting $1 Million Goal
So why did I not achieve my $1 million revenue goal within 12 months?
- Too ambitious of time frame
- Risk aversion from me (I was afraid to invest more money)
- Chinese New Year production and shipping delays
- Slowed product development
- Focus on profits
Arguably my biggest reason for not achieving my million dollar goal was simply setting too ambitious of a goal, especially as a one man show. I kept my foot on the pedal relatively steady the entire 12 months and even moved to China in part to expedite my product development. In hindsight, I think 15-24 months is a more reasonable time frame to achieve a $1 million run rate.
The other factor was that my risk tolerance started to grow smaller and smaller the more money I invested. As money invested in inventory started to approach $100,000US (I think 10-20% of annual revenues held in inventory is a reasonable inventory level) I started to realize I was all of a sudden having a lot of money tied up in inventory. All the continuous stress inducing fears I had while running my previous company–Amazon suspensions, suppliers stealing money, boats sinking, etc.–started to keep me awake again. I started to become much more cautious with what products I purchased. There’s no denying it: running an ‘Amazon’ business is very stressful.
Aside from personal and psychological reasons for failing to meet my $1 million goal, there were also very real business reasons. The largest reason was arguably Chinese New Year. I had planned for all of my products to arrive in February. However, usual Chinese New Year delays combined with an unusual Shanghai (where most of my factories are based) snow storm meant many of my products didn’t arrive until March. Product development for several new products I am working on has taken slightly longer than I had anticipated as well and I probably won’t receive them until during the summer.
Finally, focusing on being profitable also considerably slowed my growth. There’s a joke in business that the quickest way to have a million dollar business is to sell $20 bills for $10 each. While I’m not nearly as profitable as I want to be, I have been achieving relatively healthy margins.
Take away for other entrepreneurs: If you’re starting an ecommerce business, be realistic with your time expectations. If you’re trying to recreate a $50,000 income in 6 months, it’s very difficult, especially if you have limited money to invest. Start early and allow yourself 1-2 years to grow your business into a full time income. Shorten this time frame if you’re willing to invest more of your money.
Strategies That Have Worked So Far
- Amazon.ca (Canada) is a big share of my sales
- Driving off-Amazon traffic has increased organic rankings
- Shipping full containers to Amazon has decreased my 3PL costs
Before I launched my brand I said that I expected international selling to be a huge component of my new brand and this has not disappointed. Amazon.ca is now more than 25% of my sales and I only have approximately 60% of my product catalog there. The best news though is that I’m seeing approximately 40% higher margins on Amazon.ca due to less competition (my advertising ACOS is around 3% on Amazon.ca).
I have also been focusing on driving off-Amazon traffic to my Amazon listings. This is possibly the biggest trend right now in all of Amazon marketing. This is something Mike talks about at length in his Product Launch Strategy podcast. In essence, I am sending paid Google Adwords traffic to my Shopify landing page and then directing customers to my Amazon listing. My organic rankings on Amazon have increased dramatically–I can’t say definitively that the promotion of off-Amazon traffic is the only cause of this but my strong intuition is that it is. If you are not sending off-Amazon traffic to your Amazon listings you are suffering from it.
I have also been focusing on keeping my shipping as lean as possible as I know shipping and logistics are arguably the easiest way to increase profits (that and advertising). Subsequently, I’ve been trying to send shipments directly to Amazon, either FCL or LCL and avoid all 3PL intervention. I go into detail on this subject on How to Ship Full Containers to Amazon. By shipping direct to Amazon I save thousands of dollars per container on 3PL costs and I decrease transit times by 1-2 weeks.
Strategy Going Forward
- Product grooming
- Developing 5-10 new products
- Focus on off Amazon list and audience building to 2500 to 5000 people
- Hiring a VA
Over the next several months I plan to do some product grooming which consists largely of eliminating a few loser SKUs from my inventory. I now have a handful of products which are earning break-even or negative returns. These SKUs will be eliminated to free up cash and increase profitability. I will also work on reviewing all of my existing listings and re-optimizing them. By re-optimizing I mean doing things such as reviewing for poor photography and taking new photography, rewriting product descriptions/bullet points/titles, and reviewing all advertising campaigns.
As I cut some products I will also be developing 5-10 new products. My feeling is that this number of products is the required amount to get to $1 million in revenue.
I will also continue to build my email list and audience off of Amazon (ironically for the purpose of driving them to Amazon). Currently I am paying approximately $0.30 per subscriber for my Facebook ads plus approximately $0.25 per subscriber in give-away products. This means to build a list of 5000 I will be paying approximately $2,750. My hope is that in the long run this will help me to launch new products and keep my current products ranking well.
Finally, I’ll be hiring a virtual assistant sometime within 2018 simply to help clean up some of my processes. I have been shocked how little customer service time I have needed even at over $500,000 a year in revenue–I answer maybe 3 or 4 emails a week. However, my goal is to remove myself from most aspects of the business that are not product development or financial.
The Path to $1 Million (and Beyond)
I suspect over the next several months my revenue will approach close to $70,000-$80,000 per month as new products come into stock and existing products continue to gain traction. Even as I write this, I’ve watched my revenue from the previous 30 days exceed $50,000.
Later in the year, I’ll have to evaluate my path forward. Specifically I’ll have to determine whether I want a nice lifestyle business doing $1,000,000-$2,000,000 in revenue or whether I want a real business with offices, warehouses, and employees. Part of me gets very nervous about scaling the business as I know how stressful it can be running a large ecommerce business, especially given the inherent dependence on one sales channel, Amazon, and the huge cash flow demands.
Ultimately, the path to a million dollars has taken longer than I expected. More importantly, it has been far more time consuming than I thought it would be. However, despite the setbacks, I’ve managed to create a business on pace to do well over $500,000 in revenue a year and around $80,000 in profit. More importantly, this is all now relatively predictable revenue going forward if I continue to run the business. If I decide to sell the business, I have an asset worth roughly $240,000 based on a 3x multiple. Factor in that the business is likely to only continue to grow organically over the next several months and there’s no denying that ecommerce is still a very profitable and accessible business to get into, even for those just starting.
Do you think it’s still easy for entrepreneurs to start ecommerce/Amazon businesses? Share your comments below or any questions you have about this article.