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