Launch Cycle, Sourcing & More with Special Guest Danny McMillan
Launch Cycle, Sourcing & More!
with Special Guest Danny McMillan
Do you feel like you waste time on your private label product research? In this episode, we go over some tips that you can utilize during your research process even before you talk to potential suppliers. We discuss launch cycle, sourcing tips and more. All coming up with a special guest, Danny McMillan in this episode of the Amazon Seller Podcast.
Liran: Today we have with us, Danny McMillan from “Seller Sessions”. He is out of the UK, sells internationally, and speaks at conferences all around the world.
Danny, what is your number 1 goal for 2018, and what you’ve done in order to be able to scale your sourcing in your business?
Danny: My number one goal is, like anyone, to get more products out there and to speed up the product cycle of sourcing products. There are people who love doing this but I don’t enjoy the grind element of it. So what I’ve worked on with guys in my team is that we are working on our own in-house stores to speed up that process of validating products. We’ve got “Jungle Scout”, we’ve got “Market Intelligence” and that’s great but then you got to price up the product and work out your route to market and if you can make it work. We cut out a lot of time by having some proprietary tools to help with that.
Andy, you’ve talked a little bit about one of the challenges that people face when they’re looking for products and then they figure out the numbers don’t really work.
Andy: Yes, this is actually the hard part of the process of building your brand. Private labeling or finding products, it’s finding those initial products and trying to figure out if the margins are there. Because there’s a lot of different factors that you have to add into those initial per piece costs that can be complicated. So a lot of times folks will spend many hours finding a product, talking with a manufacturer, etc. Only to find out 2 weeks after they have done all this work, that by the time they get their product into Amazon it’s gonna be unprofitable, they’re not gonna make any money. It’s really interesting and fascinating to me to be able to shorten that process and then come up potentially with some tools or ideas on the way.
Danny, talk us through a little bit, you’ve developed these proprietary tools, you’re not selling them or putting software out there. Essentially, if somebody wanted to go through that same process, before actually talking to a factory or a sourcing agent or going to Alibaba, what would that process look like? In terms of figuring out if this is a product that I should even think about sourcing?
Danny: I think the common thing is, we get exhausted through that process of trying to find something that’s gonna be working for you. And that’s always hard. Quite often, you turn up a product that you think is gonna work and it doesn’t. You can spend a week, 2 weeks on it. I’ve done that way too many times and I need to learn from my mistakes. That’s why there are 3 parts to the tools that we’ve got in development.
The first tool is, one of the biggest mistakes I would often make is, I would find a product I like and then I work out too many units on to a palette. And even by sets, it could become very expensive even the initial stages. The only way to get around that is to order more units or a container. That’s great when you have done a lot in but if you did it with a brand new factory you don’t know what the QC is gonna be like. You don’t know what the feedback of the market is, you don’t wanna be spending that much on containers of launch.
What the first tool does for us, it works out how many units fit into a carton. Because there are tools out there that work out the, if you’ve spoken to a factory, you’ve got the gross and the net weight of the cartons and the sizes, you can punch them into a palette calculator and work out those calculations. But what this does is-where able to work at, how many units ideally would fit inside of the standard size cartons. And then optimize the size of these cartons.
So, for instance, the longest side I think is 63.5 cm, maximum weight is 50 lbs. So what you got to do is optimize for all those things. You got to think about, if you keep your stock like I do, most of the time, outside of Amazon in a prep center, you got a handling fee per carton and then you got the cost of sending them in Amazon.
I know it sounds a lot more complicated but it actually for us is beneficial because it reduces long-term storage fees. And in the event that you get suspended or your stock is not tied up inside of Amazon. I am not saying that we got out of our way to get suspended. But what this does is then we can work out how many products are gonna fit in these cartons, how many cartons fit on the palette with the maximum weights, etc? And then we can work out the per product cost from there to put into storage.
Now to pull up that information on that tool is entering a couple of items but basically, you get the answers to that within a handful of minutes. I just then skip that stage if it doesn’t work, let’s just say it cost me $3 or $4 to fit onto a palette because that’s the way I’m trying to work with the market I’m entering. Then I know that’s not a product worth going after at factory level. So I probably save myself 10 or 12 hours doing the back and forth with the factories before you get to the point in getting the information that you need.
Danny, so essentially you’re going through a process that will ultimately save you a lot of time by just going back and forth with multiple factories, negotiating prices. Because you have a pretty good idea of where the price is gonna be for the product. Then when you figure out the additional costs, then you can quickly figure out whether or not a product is good to go after or not good to go after, essentially. If you have 10 or 15 products that you’re looking to source, you can quickly narrow them down and then figure out what are the best ones to target.
Danny: Yes, the second part of the tool, which is basically a breakdown of launching a product with all the discounts. Because it can be quite complicated to work out like staggered discount codes and what your true profits are. So, I take the first tool and combine it with what we call the “shipping matrix” and bring that into three shipment structures. Because I wanna see what it looks like over a course of 3 shipments, and then I can save those.
Let’s just say most people when they get to that stage are pretty exhausted at looking at products and just happy to find one. And then in the third stage, I wanna be able to take 10 of those products and then put it into a simulator to challenge. I wanna work out a bit like treating it like it’s the market. You’re investing in a stock and you wanna know what your return investment is. Ideally, there’s a difference between spending 50 grand on one product, 2 products, 3 products or 5 products. And then you wanna look it on how long it will take me to take this initial investment and from the return on the investment to actually take care of the cash flow for that product. It allows you to create more products into the marketplace based on the budget you have on hand.
It can be quite complicated and it’s very difficult to pull that stuff into spreadsheets and jump between the sheets. But the idea of these tools is one stage to look at products and go, “Yes, I think it’s a winner”. But imagine if you can take 10 and then narrow them down from 10 to “I’m gonna choose 3”. Obviously, there’s no guarantee once you’ve launched, it gives you a good indication, it allows you to work out your cash flow and what your plans are for the next 12-18 months.
Generally, when you’re looking at your first shipment, do you expect to make a profit on your first shipment or you’re more looking at expecting you’re second and third shipment to really be what actually makes profit margin? I know all the upfront cost of launching a product, photography, discounts, and giveaways etc. I’m not really making money on my first shipment. I often see people who they have their first shipment and they are like “Oh my profit margin is really low”. They don’t necessarily realize that maybe you need to factor in all these upfront costs you have with the first shipment.
Danny: Yes, my strategy and I think this is an advantage that you can use if you got some cash flow to work with, not everyone has. But a lot of people would look at a product and go, “Well, that’s not very profitable”. And That’s because they’re basing it on the first shipment, not the life cycle. That’s why you use aggregation over 3 shipments.
Why don’t we look at it as shipment 1- is break-even, lose a bit of money, Shipment 2 – you would look at 12-18% margin. That’s once all of your cost come out, let’s be realistic about it. Then sometimes depends on what it is because I’m trying my best to be realistic with this like 50-60% margin is not real for me. But if I can get to 28-29-30% margin you can by the time you get to your 3rd shipment, you’ve tucked out most of your cost. That’s the basis that I’m looking on. And once you’ve looked at that, then you look at how much cash flow you’re gonna need to bankroll these products.
That makes a lot of sense and yes I do think that people like you said in the first shipment are often like “I’m not making enough margin”. But they’re not looking at the long-term and so understanding the life cycle of a product makes a lot of sense. You said one of your goals this year was getting ahead of the competition. Is this strategy essentially to source more products part of that strategy or what else are you doing to stay ahead of the competition and differentiate products?
Danny: The other thing that I’ve been looking into it as well is just developing my own products. I’m not experienced in this so this is just a very beginning process. So, I’m not like other people that have developed stacks of different products and go through this process. So it’s new to me but one of my goals is I want to be able to work out a way of developing my own product but where the demand is. I’m not talking about developing a product that doesn’t exist so you create in the market.
Let’s take a spatula, for instance, it’s very simple and there are not a lot of moving parts. What I’m looking at is let’s just say there’s this spatula that’s in the market I can get a guy doing CAD work pay a few hundred bucks to bring the idea life from a sketch or whatever it is and determine what the tolerances are. What materials are and things about that and have it rendered in 3D drawing or if it is a prototype for another means.
Then obviously make a mold done. It depends on what it is from the people I’ve been speaking to, you can get a really good product design CAD person, sketch up or depending on what program they use. Pay a few hundred dollars then you got your iterations and then there’s 3D printing process you can go through so you may find that with a mold. This process you can pay as little as $1,500 to $2,000 that’s on the very low side and then you look at that and say
I can actually go to the market with my own products as long as it’s simple and it’s small, etc. and that’s my point of differentiation as well and if there’s enough difference in there, I can then file for a patent so certainly you go into the market you already got a trademark, your in brand registry 2.0. You’re starting to build a fort around your business.
There are my goals, I’d like to get into developing products but not in a “Steve Jobs” sense of bringing in new products to market. But literally, take existing products and move from that stage of what we call the badge in the typical private labeling into the new level. And grow up slowly from there and get more experienced with it with more complex products down the line.
As far as design, are you hiring somebody to come up with a better design for a product or are you getting inspiration online? Or thinking up designs yourself? Or how does somebody go from looking at a spatula and saying “hey, I’m going to come up with my new product”?
Danny: The obvious one is negative reviews but the downside of that is reading all the negative reviews, that you have to go through. There’s a tool coming out soon which will be used for which they have a learning algorithm. Which means they can suck in a load of Amazon reviews selling that product and that it will bring out suggestions based on the data. They’re still trying it at the moment so there will be technology soon to utilize that and I would be all over that because that’s going to be the simplest way of doing it.
I think there’s also some plugins where you can extract Amazon reviews then put them into a spreadsheet and then you can filter through words and look up words that way. That’s another way of doing it. Or the good old-fashioned way is to get your VA to sit down, read each review and pull outlines of the negative through hundreds if not thousands. Could you imagine through a spatula review page one must have 25000 reviews you need to take a VA on full time?
That’s one of the things that you always talk about is reading those negative reviews and making notes and trying to figure out how you could do better. I know Andy, you’ve done this with a product of going up against a major brand and you been able to beat them at their own game of dominating the market by consistently tweaking the product to making it better.
Andy: We say all the time that “there’s gold in the reviews that the customers leave” because you’re talking about pain points. And that’s a typical business tactic if you solve people’s pain point then you gotta great product. So if you go through those reviews, customers are going to give you exactly what they want or exactly the problems that they’re experiencing. Go back to the factory you usually can make a few tweaks to correct those. We talk about that all the time too. One of the biggest challenges we face when we bring products from China or India is quality.
Danny, I know you preach this often you have to have a quality product. And if you don’t have a quality product, the Amazon customers are going to dime you out right from the beginning. It’s going to tank your product, and so reading through those reviews, you can see folks who are private labeling who haven’t done their homework. Those sellers don’t do their job in bringing quality products to the market. It has to start with good quality products.
Let’s talk about sourcing. So when you source products, I think you mentioned earlier you have an agent. But you’ve also been to China. I know you speak at Global Sources. I have never been to that specific show, you have a very well known article about sourcing mistakes or mistakes not to make while going to the Canton fair. If you’ve never read that, Google that article by Danny McMillan it’s a really good read. What are your thoughts on sourcing from Alibaba to sourcing with a sourcing agent to going to China? Somebody who’s starting up, what do you recommend that they do? And then somebody who is more established with private label brands. What are the advantages and disadvantages of the various types of sourcing that are out there?
Danny: I think the advantage is when you use a sourcing person, it’s almost like a complete reverse of the process that you do online. I find that when I’m at the trade shows I fly up and down the aisle, just like “Hawkeye” and what I’m looking for first is quality, what you normally look for online is you find the product and then you don’t find out the quality until you get the samples. But this is done in reverse, I’m not looking for specific products, I’m looking for product quality. So if something catches my eye, I’m at the event, I’ve got a pass around my neck that says, “I should be at this event”. And I’ve traveled thousands of miles to get here.
Then I can look the guy in the eye and have a conversation and then I can get a feel for a guy or girl for who they are. Because business is about building relationship and trust. Almost instantly without, (you should never ask for the price right then and there). What you got in front of you is the person, contacts. You build relationships faster than you would over 20 emails. Plus you’ve seen the quality of the products. Almost right away you cut out all of the stuff when it comes to the traditional way of sourcing online. That’s the biggest take away for me for that part.
Let’s say you’re talking about Canton or Global Sources. Are you doing a lot or part of the research ahead of time saying I have these 20 products in mind and I’m looking for them? Or are you just really walking down and just looking for quality. For me, I find when I go to Canton, it can be very overwhelming especially if you’re there for the first time. Because there’s just so many options where you can go to. What’s a good strategy, do you plan ahead? How do you go about it?
Danny: The first time when I went to Canton back in April 2016 near the time when I put out the article. When I went to Canton for the first time, basically what I did was, do all this pre-research got VA working on board doing stuff. I found an interesting one Hong Kong was interesting in terms of it is almost a filtered version of Canton. Because you got more high-end products in the smaller holes in Hongkong. In Canton, it’s like the same product but in multiples especially in the kitchen category. So I found that quite an interesting aspect.
So, would you favor that over somebody sourcing through Alibaba? Are you dealing with the traditional things wherein Alibaba you don’t know somebody is the factory, or if it’s their trading company? Maybe it doesn’t matter necessarily if service and quality and price are good. But I imagine when I went to Canton I couldn’t tell if somebody was necessarily or it’s not easy to tell if somebody is a factory or trading company. What’s your thought process there as far as who you are actually dealing with? Are you trying to actually find the factory?
Danny: There are two parts to that, the good and the bad. Having a trading company in a situation where they’re earning a percentage, therefore, its costing you more money per unit. On the flipside, a lot of the factories don’t want to deal with the English-speaking language for instance or don’t have the staff to. So they’d rather outsource and you don’t want to work with a factory that doesn’t want to communicate with you. Because that’s bad for business. That’s a double-edged sword. But normally at these events, you can’t always see if it says trading co on the stand or you can pick up a brochure. And that can be part of the opening question: “Are you a factory or are you a trading company?” And then you can pretty much tell straight away if you like this products generally they all come from the same factory.
Any other tips that you can give people in terms of staying ahead of the competition and sourcing products for 2018. Where should people be focused on, is it getting most of the product out into the market, differentiating product? What would you say if you have to tell somebody coming into the game for 2018 with Private Label? What should be the end goal for the end of the year? Let’s say they have a capital of $25,000 or $20,000. Should they have 10 products by the end of the year or should they have 2 quality products at the end of the year?
Danny: I think the key is to have enough capital there because you need to allow for mistakes. I would say first of all people got to learn what they’re doing and understand all the different facets to this is business. Because when I was coming to the game I might have had PPC background but that is pretty much it. In my experience with the music industry when we used to release vinyl and CDs back in the day. So I had some manufacturing experience. I had to fill in all the void in between.
So I think year one, rather than think about scaling too fast learn about what you’re doing. Have an understanding of the marketplace. And have enough cash on hand so that if you do make a mistake cuz you could do all the work put your cash out over like 25k that can be two products. It could be one product. And if you squeeze it could be three, not for remanufacturing, reorders and stuff. I would definitely say you got to learn the business first don’t just go after the “me too” stuff. If you can find a way of making it work.
Going back to designing products I think if you can get into that at an earlier stage I think that’s going to be key as well. I know it’s going to be a little bit more expensive but you know what it’s like Liran. You’ve ranked products but there are products that just don’t stick. So we can do all this great work and find it don’t stick and then basically you get to turn the machine haven’t you for the next product to get to the next stage.
You could look at configurations where some of the things that you’re doing let’s just say you put together a gift set it doesn’t require a mold. So in that way you create differentiation as you go into the market as well. So you may have a beauty kit and everyone does the same old product in this kit. But then you might bring something different to that beauty kit as well. Maybe a better version of the scissors and brushes or whatever goes into that kit, if that makes sense.
And you don’t necessarily need a mold but I like the idea of opening up a mold, also. When I talk to my factory they sort of use that word “you know, hey if you want to do this kind of design, we need to open up a mold.” How do you get to opening up an existing mold. Do you send the factory the product?
Danny: This piece of the conversation is what I have been having it’s what I want to get into. So I that’s what I love about seller sessions. I need to understand about this so I’ll do a series on product design. And then you can get there and it’s only some of the tips from the pre-records that they’ve shared with me on that. But I understand it but as I’ve said I’ve not got my hands dirty with that stage yet.
Another tip I would give which I’m working with on is with trademarks. Let’s say you’re selling in the US and you want to take advantage of all the opportunities of brand registry 2.0 gives you. Get a trademark done in the UK which takes 8 weeks. I just put one in yesterday which cost me with the two classes I’ve used for two different products for this particular brand I paid 240 pounds. I would get a letter in about 7 days if there has been some issues with it. If not, I’ll get the trademark in 8 weeks time now.
On one of the other brands that we’ve got we have applied for a trademark and we used the typical wording. It’s almost like if you’re doing a spatula don’t use the word spatula. You’re better off doing a product line called “such and such by Andy Slamans”. Because Andy Slamans is not associated with that class or industry so the opposition chance would be lower.
So what we’re looking at is coming up with generic names that are not tied to an industry to avoid the opposition. And if you can get through that, I mean trademarking can cost a lot of money and over the US it can take 7-8 months to get a US trademark. If you’re only off to getting into brand registry 2.0, I got an email from support confirming in writing that I can use a UK Trademark. So we are gonna launch that product in the US, convert an existing product over under that umbrella as well. So we can take advantage of some of the additional brand registry tools for that.
That’s Awesome, so basically that would be instead of applying in the US, you’re applying in the UK. You know one thing I recently heard too was that GS-1 codes in the UK are a lot cheaper than in the US. And you can use those GS-1 UPCs anywhere in the world, they’re universal. And for some reason, I don’t know why, it’s just a lot cheaper in the UK. Thanks to the UK, we should get our trademarks and GS-1 codes there even if you’re just selling in the US market.
Get a hold of Danny McMillan’s content look him up at SellerSessions.com on Spotify, iHeart Radio, Google Play, iTunes, and YouTube Channel “Seller Session”.
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