My guest on today’s show is Kevin Mahoney, the President of FindTape and what I call an accidental ecommerce entrepreneur. He is a website developer who stumbled into ecommerce by an initial rejection to build a web site for an adhesive tape distributor. Kevin went on to build a drop ship ecommerce store that was supplied by this distributor. After about 3 years of moonlighting, he hit the $1m revenue milestone and was able to quit his day developer job.

FindTape.com sells on two main channels: to business via the website and then to individuals via Amazon. In 2015, Amazon sales made up just under $2 million in revenue out of a total revenue of $5.3 million for the business.

This episode is good for you if you are wondering about getting into Amazon as an additional channel alongside your website. While enjoying the benefits of selling on Amazon, Kevin warns of pitfalls to avoid, what to list and what not to list, as well as other tips for choosing, testing, and selling products via FBA. Kevin highlights the importance of having good relationships with suppliers in his business. And he explains why investing in customer acquisitions via Google is going to be better value for you than via Amazon. Enjoy this episode!

Key Points in e-Commerce Success via Amazon and Website Channels

1: Creating an Amazon-Friendly Drop Ship Business

How It Started

A friend was in the business of tape converting, which is getting master source roles of tape from companies such as 3M and Shurtape, and then converting them into various smaller sizes. And I suggested to him, because I make a living building websites, that I build him a website so they can use the internet to sell direct online. At the time he really didn’t want the channel conflict. He was selling to resellers and other distributors and didn’t want to interfere with their business.

So I suggested, ‘I’ll build the website and I’m just going to send the orders over to you electronically any you’ll drop ship for me. So I’ll own the company and you’ll just be my drop shipper.’ And I launched the website about a year later in 2004.

Back then I got one or two orders a day – that was great. I was very excited.

My total gross revenue for 2004 was $40,000, it jumped to $220,000 the following year, and then again to $500,000. I was able to quit my job in the fall 2006, as by 2007 it did $1.3 million. And I basically now work from home four days a week and one day a week I go in to where I have two employees, they work out of the primary tape converter we use.

Reaching Out to All Customers

Our customers are different based on the channel. Through our website, we sell to a lot of businesses, resellers, and event related companies. So we mostly sell by the case on FindTape.com and we have a lot of repeat customers, because what’s great about tape is it’s an expendable.

We ship to Canada and the US and territories like Guam and Puerto Rico. But we’ve just added consolidated shipping. Before that we’d offer UPS to say the UK or Germany and the issue it’s just so pricey. Plus we couldn’t give a fully landed cost and so when they delivered then they’d ask for customs brokerage fees and taxes. With the consolidated shipper, now that’s all built into the rate and we’ve slowly added countries. So we ship to a bunch of the EU countries and places like Australia and New Zealand.

In 2007, that’s when we started with Fulfilled By Merchant Amazon, and then in 2009 we started with their Fulfilled By Amazon program. So right now, Amazon represents about 30-35% of our total revenue. But from a total number of orders they’re shipping, they’re about 75%, because the average order size is much smaller on Amazon than FindTape.com where we are selling by the case.

No Free Shipping Lowers Website Conversion Rate

We have about 4% conversion rate through the website. Probably around 30-35% are repeat customers, but yeah the conversion rate, it’s not awesome. I think a lot of that has to do with the fact that I can’t really offer free shipping or shipping promotions and customers are used free shipping now. If I’m shipping that across the country, sometimes the cost of shipping is such that people get a little turned off. And we don’t make you proceed to checkout: as soon as you punch in your ZIP code it’s going to tell you what those shipping rates are.

2: Doing Business on Amazon

Testing for FBA Market

2009 is when we started FBA a small amount, and it wasn’t until 2011 when our Fulfilled By Merchant was less than Fulfilled By Amazon. So at this point, we’ve mostly converted over to an FBA model where pretty much 90% of our orders are Fulfilled By Amazon compared to how many orders are sending us the shipping. We have about 900 SKUs that are at Amazon fulfilment centres and another 300 SKUs selling on Amazon that we ship out ourselves. Why I don’t list everything on Amazon:

1. A lot of these tapes are converted, we have to purchase a UPC code to send it to Amazon. It doesn’t make sense to do that as it may be a colour or size that’s never even been purchased in 10 years. But I look at reports and once we get to two Fulfilled By Merchant orders in a month, I’ll convert that product and start sending it to Amazon for FBA.
2. I made the mistake earlier on where I would say you know, ‘I think this product would sell so great on Amazon.’ But you know, we’d send it to FBA and then Amazon, if something’s been up there for six months and hasn’t sold you get long-term storage fees or you have to do long-term removals. So I realized that that wasn’t a great strategy. So now I just set it to Amazon Fulfilled By Merchant, see if there’s demand for it and then once I know there’s demand, that’s when I send it to the FBA fulfilment centres.

Supplier Relationship is Key with Amazon

One of the pitfalls with Amazon is, Amazon figures out what products on their site has high demand and then they’ll try to undercut you and source/sell it themselves. Because you’re never going to be able to compete. So we’ve been burnt in the past where we had a fast-selling product with a tape converter we worked with and then Amazon undercut us. And we didn’t get any heads up that that was happening so I had to pay, we had the original cost of bagging up every roll, putting an item label, shipping it to one of their fulfilment centres, and then I had to pay a pick-pack to get it back to me and it was about a palette of tape.

I realised looking at the data you know, nothing had moved, the product hadn’t sold. And I went online and Amazon was selling it direct.

Our primary converter who, he’s really who we work with the most. We have other tape converters we drop ship from but it’s a smaller segment, and then some things we’ll import directly ourselves. But really, everything goes through that primary tape converter. That relationship to us is pretty key. Our primary converter, I’ve known this guy since middle school. Amazon has contacted them directly, but he won’t do that. So without having that relationship, I mean that is so key for our business and I have two employees that work at his location so we’re the majority of their business at this point.

Choosing Products to Sell on Amazon

So we’re very careful now, we generally only send products that we convert in some way, doing something different, that you wouldn’t be able to get in a store. But sometimes it will be a retail pack product that for some reason Amazon hasn’t started selling direct yet or sometimes there are some retail packed items that Amazon will run out and then it’ll switch back to a marketplace seller fulfilled item.

So you need to find something that you customise in some way, or you can private label it and buy your own UPC code and just list it differently. I mean, that’s another option you can go if you think price-wise you’re still going to be able to compete.

You need to find something that you customise in some way or you can private label it.

Gauging Competition on Amazon

1. We tie into Amazon’s APIs so we can go in and see, did we win the Buy Box? So you know, we want to be competitive, we’ll change our price.
2. If it’s a JVCC item, kind of like a private label item, a lot of times we’re the only seller, so that’s a little tougher. So what we have to do is figure out, what is the primary ace in that’s competing against our ace in? We’ll go in, we’ll do a search. Say if it’s JVCC GAFF30YARD, a popular gaffers tape we sell there, but if instead of searching on that I’ll just try on ‘gaffers tape’ and see what comes up and we’ll see, you know, I got to find one that’s a similar length and width but then we’ll make sure our price is comparable to their price.

Repricers

We were using a repricer over the last couple years but we’re doing it ourselves now via the Amazon APIs. Because the issue is a lot of what we sell doesn’t have direct competition, it’s not as easy as just typing in that one product, you need to find what the primary competitor’s product is. And for every product we really want to do that ourselves and set it, so we’ve developed our own repricing model code, just tying into the marketplace web services from Amazon.

3: Customer Acquisition and Retention

Customer Acquisition: Amazon vs Google

We actually just recently started playing around with Amazon’s sponsored listings. So you almost have to pay twice. You’re paying them the commission obviously, if it’s just merchant fulfilled. If it’s FBA, then there’s all these other fees you really need to account for. But now, we’re also paying a pay-per-click advertising within their channel.

So all in all, Google is better for us. We don’t bid more on broad terms like ‘duct tape’ for instance, that’s just too generic. What works for us is more long-tail, so ‘wide-width duct tape’. But if I can bring that customer via Google to our site and get them to buy, that customer is much better for us. With Amazon, once I get that customer, I can’t market to them, I can’t send them an email. And our brand name is not in the core of our products, so there’s not that presence of mind after they’ve bought it. They may only remember they bought it on Amazon. So I’d much rather get people via Google and have them become a regular customer where I can send them those reorder recommendation emails and everything.

Measuring Repeat Business on Amazon

Amazon kind of skewers email address, they have this long email address they create for somebody so you never get the customer’s real email, it goes through their message centre and then gets forwarded on. But I can look at that email address, that usually stays the same, if they place the orders.

Why Sell on Amazon?

Why do you stick with Amazon? And that really is, it’s just the volume.

It’s just the volume. They’re tape orders for 1-3 rolls of tape, but they’re 75% of total volume of orders. It allows us to place orders from suppliers much more frequently, from Shurtape and Scapa and 3M and everybody. We could do it twice a week and instead of once a week. We also get noticed more and get new tape suggestions from them about what might sell well for us.

4: Managing the Business

Managing the Call Centre

1. The people that call always have a question, you know, ‘I have this specific application. I need the double-sided tape that is under 10 mils thick, that needs to support a least 300°f temperature.’ It’s a lot of questions like that and early on when I had an outsourced call centre it was hard for people to answer those kind of questions. So I built on the site the Advanced Tape Finder, that’s very helpful to customers, where you can put in all your criteria, ‘I need a double-sided tape, I want a red 4-inch tape, I don’t care what the backing is, it could be a paper tape, a cloth tape.’ You can put that all in that Advanced Tape Finder and find stuff. So that limits calls.
2. But most of the calls we get are, they want to place an order or they’re checking on something like, ‘I need three cases of 3-inch red gaffers tape. Can you get it out by this date?’ And by having my call centre employees in our primary converter’s facility, they can just walk into the back and ask, like, ‘Do we have the source material? Can we get it cut in time?’

The Team

Basically it’s just two call-centre employees. So that’s probably about 25% of their job is calls. Most of the orders come in nobody ever calls, they just place it online. So the other 75% of their job is boxing up and bagging everything for our Fulfilled By Amazon shipments.

Outsourcing

1. The pay-per-click advertising and the marketplace management, that we outsource to a company called ROI Revolution, which have been great, we’ve been dealing with them for a long time. We do send feeds to Shopping.com and marketplaces like that. We just recently started putting some stuff on eBay. Just kind of testing the waters a little bit, and some of them have started to sell well, so maybe we’ll broaden that. And we’re integrating with Jet.com.

Most customers got one email every three months, which isn’t a great marketing strategy.

2. For the emails, I had written all the code to figure out the algorithm, what somebody orders and how often they should get a reorder email. But we recently just outsourced that aspect to Windsor Circle and they’re going to take that over. For FindTape we were really only sending one email when we thought it was a reorder time. So most customers got one email every three months, which isn’t a great marketing strategy. I mean, email’s such a big driver business and we’re mostly selling to repeat customers and it’s a replenishment business. So that was probably one of the things I waited way too long to outsource that aspect. Because I was trying to do it, I think that wasn’t done well, so.

Amazon Tip

Make sure you’re accounting for all the costs associated with FBA, if you’re going that route. So if you look into FBA you know, for us you have the material cost of bagging and ziplocks and item labels and getting those out the door, the labour associated with that. Then you have the transportation costs to get that to their different fulfilment centres. Then Amazon charges you a pick-pack fee, an order handling fee, a weight handling fee. And that’s easy, they show that right on their help centre what that will be. But I think a lot of people only focus on that because that’s the table they show you. But then you also have warehouse storage fees, they charge you per cubic foot every month what you have there. You have their commissions that they’re charging. Then if you have an FBA return, you’re paying a pick-pack fee and an order handling fee and a weight handling fee to get it back and put it back on the shelf.

So if I look at like a 1-pound item, that’s about a $2.70 return fee. But if someone buys and returns 24 roles of inexpensive electrical tape, that’s 24 × $2.70 in return fees. So we’ve had orders where we’ve had over $50 in return fees for an order that didn’t even cost $50. But then Amazon may have determined after the return it wasn’t sellable, and so then you have to decide do you want to dispose of it or do you want to do a removal order? And both of those options you have to pay for. When we first started I think we concentrated a lot on just those fulfilment fees table that we were looking at and then kind of ignoring the storage cost and the labour and material cost to get it to Amazon and what the returns are really costing us.

So if somebody’s starting out, you really need to make sure you take that all into account when you price your product. And we have reports every month, both Fulfilled By Merchant and Fulfilled By Amazon, we look at the profit separately across both of them, and account for all the storage and the returns.

5: Parting Advice – The Lightning Round

Future Plans

The main thing we’re working on right now is the integration with Windsor Circle to really tackle the email marketing aspect that we really haven’t having done well to this point.

Hiring People

Typically for the call centre I usually start a temp, through a temp agency, and then we’ll go to full time from temp. Because for us, 25% you’re on the phone, 75% you’re doing pick-pack and labelling, which are very repetitive work, a lot of people really don’t want to be doing that. But I need somebody who speaks very well because 25% of their job is talking to our customers. So that’s a tough position to fill so we really like to hire as a temp and then convert to full-time employee once that works out.

Hiring Freelancers or Agencies

Having worked for the interactive agency, I had a lot of contacts already. I like to go through referrals if I can. I’m a part of Entrepreneurs Organization, a business group, and we’ll meet in small forum situation, like 6 to 8 of us. But I like to go through that network of people for referrals to hire those agencies. I’d rather not just do a web search, I like to have somebody I could speak with that have worked with that group before.

Indispensable Tools

1. I would say most of the tools are stuff I’ve written. We have a content management system that has a lot of custom reporting, siphoning through all that data. Once I find myself having to repeat something over and over, I try to automate that and build my own tool.
2. Zoho for invoicing.
3. Evernote

Best Mistake

The best mistake was dealing with that other converter who started selling to Amazon direct, because it really cost us but it really shifted the business. Having that happen, I think it made me really key-on having strong relationships and also it drove for the Amazon product selection that it has to be converted, it has to be hard-to-find, I need to get my own UPC code. That changed the whole way I was sending products to Amazon.

Recommended Resources

1. I go to conferences, like Magazine’s conference so I’ve heard great people speak.
2. I work from home and entrepreneurs, it’s hard to find people you can speak with about a lot of the issues you’re dealing with. To find that peer group that you can talk about those issues with, that would be a great resource I’d recommend for somebody. That Entrepreneurs Organization I talked about, we have a lot of learning events, like once a month I go to a learning event. So the peer group, hearing what their experiences were and getting that experience there, that is really what has helped me.

Key Takeaways

(02:00) Introducing Kevin Mahoney

(03:20) Creating an Amazon-Friendly Drop Ship Business

(19:45) Doing Business on Amazon

(34:20) Customer Acquisition and Retention

(41:07) Managing the Business

(54:27) Parting Advice – The Lightning Round