What do you really have to know when sourcing something from China or other locations? How do you win the Amazon race and adapt to the ever-changing rules of the game? How do you keep margins high when everyone else struggles with supply and damping prices?
Only practicing Amazon sellers and ecommerce entrepreneurs really know the answers.
Sellzone’s good friend and one of the leading Amazon experts, Robyn Johnson, invited David Applegate, founder of ImportYeti and a successful long-standing ecommerce seller, to share his ecommerce journey and ask some of the most pressing questions within the industry.
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Online Marketplaces in the Early Days
David Applegate started selling as a teen, back in the days when eBay was the Wild West of ecommerce – few rules, low competition, and highest margins.
Robyn: How did your ecommerce journey begin?
David: I started out selling cigar cutters in my early teens, which my mother hated, but you know, it’s cool. I was selling these things for like $10 a cigar cutter. And my costs from China were 50 cents or something like that. We were charging $3 in shipping. So the profit margins were bananas!
In the beginning stages, anybody could sell exercise rings and make a killing. And now it’s changing as everybody has access to those suppliers, everybody can bring these products in. And the question becomes, how do you create a product that is truly unique in the marketplace and sells itself?
With vast experience across various marketplaces (eBay, Amazon, Walmart, etc.) David noticed that these changes—higher competition, wider access to various suppliers, more rigid rules dictated by online stores—come around faster. If it took eBay years and years to get to the point it is at now, Amazon’s changes came faster. And any emerging marketplace, say Walmart, is likely to adopt these policies in an even shorter timespan.
The Gold Rush Is Over, So What Do You Do?
David: To stay in the game, you have to kind of grow up. If you came in on the gold rush, you either feel like it doesn’t work, and somebody ruined it. Or, you take some time, and you learn how to get more strategic and more thought-through about your marketing plans and product creation.
As things started shifting around the platforms, David was using a brand new approach to promote and sell his products, which he says was the only way to keep the margins and stay afloat.
Innovate and Build Unique Products
Robyn: So, David, what’s the most important thing you’ve learned throughout your ecommerce journey that helped you to navigate through the end of the gold rush across all of the marketplaces?
David: I think the biggest kind of impact that I noticed was when I stopped selling things that were commodity-like and started really trying to innovate on products that I’d sell. And then the question becomes, how do you create a product that is truly unique in the marketplace and sells itself based on its virtues rather than just doing the standard thing?
And that’s when I started to notice the impact because I was building products that people would fall in love with. They’d want to order them, and they’d talk about them online, and I’d get natural sources of traffic. This way, I managed to turn Amazon into a distribution method rather than a marketing platform.
The Key to Product Innovation for Sellers
Robyn: So, how do you keep up with the demand and discover the right direction for innovation? As in, how do you find that product tweak that adds a pinch of uniqueness?
David: My ‘innovation model’ is close to Amazon’s own 14 principles, with customer obsession at the very center of it all. My success was very incremental; it was never about a big pop that suddenly got me six-digit profits.
I was always sticking to the fundamentals and just trying to create things that can kill it. I was always trying to come up with that 1% thing that can make my product better every day. And just like that, I manage to perfect – one tweak here, one tweak there.
But the key is to always listen and ask your customers. I always reach out to people who buy my products, asking them what it is they think I can make better. Say you’re selling pet leashes. Ask your customers whether they can be longer, which colors they’re looking for, do you have all the patterns, is this the right strength, etc.
So yes, encourage any unadulterated feedback and really try to grasp what needs to happen to make your product more awesome.
Leveraging Amazon’s Distribution Power
Robyn: Earlier, you mentioned that you managed to use Amazon as a distribution platform rather than for marketing. What does that imply exactly?
David: I like to think of Amazon as what the App Store was to apps. It made it so that you can sell software at a rate that nobody ever could in the past, at a fraction of the cost. And so, people sometimes think that Amazon is the business, which it technically is.
But I like to think of it as a distribution platform. It allows you to sell ecommerce goods at a fraction of the headache you ever had – having a physical warehouse, a warehouse team, dealing with HR issues, NetSuite as your ERP, and so on, that stuff is just complicated. It takes an insane amount of time. With Amazon, you can do that at 10% of the effort, 5% of the effort, you can scale so much faster, but you still have to have an actual product and a business.
Challenges of Entering Into Amazon Sales
While bringing a lot of ease to sellers, Amazon has set extremely high expectations among ecommerce customers – lightning-fast delivery, excellent customer service, smart logistics, etc. So entering the sphere of ecommerce for sellers is no longer an easy endeavor managed by Amazon and the like.
#1 Challenge: Access to Educational Information
The information, while abundant, is often hard to get. How so? David elaborates.
Robyn: From what you’re saying, it is clear that Amazon is never constant; things change and shift pretty much all the time. So I think one of the hardest things for those starting out is to discern which Amazon experts (YouTubers, coaches, etc.) are still relevant, right?
David: I think it is about making sure that the information that you’re gathering is recent. Is that person who’s sharing educational wisdom still practicing? Maybe once upon a time, they made a big splash and sold loads of goods on Amazon, but is that still the case, or they failed and decided to monetize Amazon in a different way, the educational way?
Robyn: Yes, or they’re selling that volume you see on the screenshots, but they’re doing it at a loss so that they can show the image. But you can pick it up in the language – for instance, they refer to programs that no longer exist.
#2 Challenge: Access to Suppliers
Another big struggle for any Amazon seller, but especially for those just beginning their ecommerce journey, is to understand the supplier landscape. This is exactly what David’s ImportYeti helps with.
Robyn: How did you understand that something like ImportYeti is what the world needs?
David: I myself have been struggling with Alibaba. For instance, if you look up barbell manufacturers in China, you’ll see, say, 6,000 producers. In fact, you only have 30 manufacturers, 10 of them lack the quality, 10 of them are mediocre, and only 10 produce exactly what you need.
So the problem is to get through all the noise and find those 10 producers. So what ImportYeti does is it pulls in all of the shipping data from ocean freights’ bill of lading. That document (we have like 90 million of those) specifies which international supplier was in charge of the supply to the US. And we accumulate all this data, categorize it, and help our users find those ‘real’ barbell producers, to use my earlier example. Moreover, you can find the factory’s customers, estimate the product volumes and frequency, and be very well-equipped to start a conversation.
#3 Challenge: Counterfeits
In David’s opinion, building a strong relationship with your supplier is the key to preventing any issues with them re-selling your designs to other sellers.
David: China has loose standards with some of that stuff. And my mindset has always been: if you’re creating the best product and you’re choosing the right partners, generally speaking, these problems don’t present themselves. The real trouble starts when you’re choosing those kinds of less than top-tier suppliers and those suppliers that aren’t really partners with you. If I’m a good client and they understand and value my business and we have a strong connection, I don’t run into the problem of them sharing their molds with other people.
Robyn: But is developing a product that goes heavy on intellectual property the best way to protect yourself against counterfeit issues?
David: Yes, sure. Generally speaking, if you are importing something that’s a commodity, people won’t have a hard time finding a supplier of that commodity, no matter what. So the emphasis needs to be on how to create products that are unique, with something behind them like a brand name. You know, Nike doesn’t care about me knowing its factories. In any case, I can’t create their brand affinity.
Robyn: Right. The key is to develop a product that solves a problem or fills a need that’s not already there. And then, that eliminates a lot of the trouble.
David: Yes, and that also solves the problem of razor-thin profit margins.
Robyn: Exactly. One of my clients has a 30% gross margin, and everyone keeps getting surprised, saying it’s impossible. It’s not impossible; it’s just harder.
#4 Challenge: Margins
COVID brought a lot of chaos into the supply chain. And the logistics costs quintupled. That’s where higher margins helped to sustain the business. But there are also some optimization tweaks that can save the day.
Robyn: There’s a lot of things you could do to try to increase margins. Product uniqueness is one thing. Anything else from your experience?
David: What sellers typically do is they start to push every penny from manufacturers who are already typically selling things for pretty rock bottom, but that’s not very sustainable, right? So putting different strategies in place, like choosing the right freight forward, is really driving costs down.
Re-working the product’s cost structure
David: Another thing I’ve had some success with is really understanding the cost structures of the products you’re trying to make and breaking them out into different categories. Let’s take mugs, for instance. What’ll happen a lot of times is they’ll say, okay, this is $5, but really, it’s a thousand dollars in mold costs that they’re distributing across the test units on buying. Think artwork fees, photography fees, R&D fees – and you can take that and then change your unit, restructure the pricing, so the unit cost becomes $2.50.
You’re paying them a grand in mold costs. And then the research and development costs, which drastically decrease your tariffs. And you know, these things are cutting what’s being put on the commercial invoice by half, all legally.
Optimizing the packaging
David: Here’s another stellar strategy. Working through packaging is a huge one with so many goods, as the packaging costs can be shocking.
Few factories have in-house packaging, so they outsource that almost a hundred percent of the time. The key is to work out the packaging as aggressively as you can. Consider different packaging options, understand the cost differences between them, and make use of the spacing to fit more things per container.
I’ve seen people import a wok as an example, and they’ll put the wok in a giant box versus stacking them into each other and then assembling them in the United States, which seems like it would take more labor. But if you can fit 40 or 50 times as many woks in a container because they’re stacked just on top of each other, you can cut the shipment costs down drastically.
And then the other thing about the packaging is if you’re going with the manufacturer, they might only have limited options and, sometimes, packaging can be a big point of perceived value and help make your product stand out. So, if you’re putting it in a plastic bag because that’s all that they had, you could really be hurting your marketing long-term.
How to Get Off on the Right Foot with Suppliers
There’s another undervalued aspect of Amazon sellers’ jobs that can help you drive costs down – communication with suppliers. And David knows a ton about this.
Robyn: If somebody’s new and they wanted to source something from China or from some other country, what would be the most important thing that you think that they would need to know?
David: I think the biggest mistake people make is how they portray themselves to those vendors. Let me use a really concrete example. In the intro email, they would ask for the MOQ [minimum order quantity] and price right out the gate.
What the vendor hears there is that you’re extremely price-conscious and you’re a small orderer. Instead, think of how Walmart would send that email.
“Hey, my name is Robyn. I’m a purchasing manager at Walmart, we’re interested in bringing in ceramic mugs. We’d like to learn more about your company. Can we set up a call to introduce each other?” And then, they would have this call and talk a lot about what the factory is good at, what the factory is bad at, and build a relationship.
And through that good relationship, you can start to work out some of the harder details.
They’re not going to share their hard cost structures with you if your first email says, “Hey, you know, what is the MOQ and price?”.
And as another side note, I would never say I’m an Amazon seller. There are a lot of great Amazon sellers out there, but there are also a lot of really horrible ones. And you peg yourself into that market when you say, “I sell on Amazon.” It’s better to just introduce yourself as a retail or ecommerce representative.
This and a slightly different intro can set you up for a much better price, a much better outcome, and even better quality because they’d think you’re not a one-off purchaser and will come around for round two.
What Will Selling on Amazon Look Like in 2022?
With endless shifts and challenges, Amazon is still a very attractive marketplace for any ecommerce seller. But each year brings its peculiarities and nuances, and David walked us through his take on Amazon’s 2022 landscape.
Lower shipping costs
David: In terms of next year, I think shipping prices are going to drop. So far, they’re still holding pretty high, but they will come down as the backlog starts to alleviate. Unlike 2021, when things were very shaky, this year, factories are opening and producing higher output.
David: As Thrasio [an Amazon aggregator that buys and scales third-party Amazon and other marketplace merchants] enters the scene, I think the competition will get even fiercer as these newly acquired companies will be truly putting best practices into place. So you’ll now be competing against much smarter and more well-equipped players.
David: I think we’ll be seeing fewer and fewer mediocre products because they will find it harder to survive in the marketplace. Instead, we’ll see more sellers that create cool audience-centric products that really add value, make a difference in the marketplace, and connect with the customers.
Over to You
As David says, “how you make the million dollars is by figuring out how you stack the woks. You need to take the emphasis away from “million dollars” and focus on the process, which is maybe not as glamorous, but how it all works in the real world.”
Tune in to the video below to hear the full conversation with David – hear more Amazon tips, more hands-on advice, and just a very smart, relaxed conversation about all things ecommerce.
If you want to connect with David Applegate and find out more about his supplier database, visit ImportYeti.
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