Is it just me, or is one of the most frequently asked questions about this Amazon FBA business, "How much do I need to get started?"
We've been selling on Amazon for almost 2 years now, and it seems like this question gets asked a lot and the general consensus is $5,000. Seriously, $5,000? Why?
It sounds like a nice number, but realistically it varies greatly from person to person.
That's why we knew just how important it was not to tell YOU what to start with, but to share what WE started with.
In this article, we're going in-depth but very high level on just that. You'll come to find out:
- Who we are and how we got started. (Like really started!)
- Our spending and accounting philosophy.
- How we are able to generate so much cash flow.
- How much money we spent on inventory, how much we sold on Amazon and how much we profited, in 2015. (Diving deep into key periods of the year, like when I quit my job!)
- What we're doing in 2016 to increase profitability and work less.
By the time you're done reading this article, you might completely disagree with how we've gotten to the point we're at today.
And that's totally cool.
Again, this isn't about the "perfect" way to launch your Amazon business. It's simply how we launched our business with a strong focus on achieving the goals we set out for.
(Please note! We are not recommending this as an investment philosophy. It is purely a recap of what we did to grow our Amazon FBA business.)
NewlyPreneurs, What's Their Deal?
If you don't know a lick about us, here are the deets.
In November 2012, Nessa and I (EJ) moved from New York to San Diego without ever visiting California or knowing a soul in the city. (Some may call that ballsy, but we call it destiny!)
Yup, we stuffed the ish out of our Volvo and hit the road.
Although I had a job lined up, I was taking a significant pay cut to make this move. And on top of that, Nessa and I were living together for the first time and she was a full time student getting her Master’s Degree.
So, you can imagine, we were strapped for cash. Not to mention the fact that I HATED my job!
After 4 months in the worst job I ever had, I was contacted to interview for another company. And they apparently liked me enough to hire me, pay me more and offer fantastic benefits. (What more could I ask for?)
But you know the saying, “The grass is always greener on the other side.”
And for me, after I came off of the “high” of the new job, I started to realize that I didn’t want to work for someone’s company.
No, I wanted to start our own company. And Nessa felt the same way. (That’s why we’re married. Well, it’s not the only reason.)
Yes, I know. So many people said, “EJ, you have a great job, great benefits and you’re on a career path, why throw that away?”
The answer was easy. Nessa and I wanted 4 things out of our business:
- Freedom to work whenever and wherever we want
- Working to live, rather than living to work
- Unlimited earnings potential
- Ability to work together
Unfortunately, these aren’t typical benefits of working a 9-5 job.
While trying to figure things out, one day Nessa started randomly selling some stuff around the house which she said we never used – like my video games and DVD collection.
First she started off on Craigslist, then eBay, and then Amazon.
I saw how much success she was having, so I joined the party. (No, I didn’t start selling her shoes.)
With an immense collection of hockey cards gathering dust in the closet, I started to get my feet wet selling them on eBay. And I made a few dollars here and there. (I wouldn’t recommend getting into selling hockey cards online. Let’s call that your first free piece of advice.)
The 1st AHA Moment!
Since we both worked in retail, we started to realize all of these products that would go on clearance, selling at 50%+ discounts. And we’d often be shocked by the type of products that retailers clearanced.
It’s not uncommon to see top sellers go bye-bye, to make room for new-and-improved models. (Hey, even Ford completely overhauled their top selling F-150 by going with an aluminum frame. Companies take chances even on their hot products.)
So we began to wonder what the market was like for these products online.
And then, in the midst of our 2014 online sales dabbling, I happened to be in a big box store and saw this item on the clearance rack which was $98 and had been selling full price for $168. With our curiosity rapidly increasing, I decided to take action and buy the product and sell it on Amazon.
Yes, we got started with good ole' Retail Arbitrage (RA).
After getting home, Nessa and I created our Amazon Merchant Fulfilled listing, and then we waited. Within only 3 days we sold it!
WOW! We were so excited. After Amazon fees, we profited $18!
So we jotted down the buyer’s shipping address and took the product to the post office. But when we got there, we soon realized how little we knew. Because shipping this over-sized box cost us $20!
Yup, we lost $2 in the deal.
While it was a small loss, it was a great learning experience. After getting our first sale we saw the potential, but knew that our margins had to be much higher to make up for the all the fees involved.
For sure, the biggest change to this early part of our business was using FBA.
Although we were pumped and bought some great products, we kind of hit this peak after going gangbusters on a few products.
Looking back, I think we were under the impression that since finding these products were so easy and immensely profitable, that we would never find more of the same again.
It's pretty obvious, we had a solid 3 months in there and then we fizzled out like a candle in the wind.
But Then, The Real Turning Point!
Nessa had become determined to pursue a lifestyle full of travel. I mean, she always had the dream but in December 2014 she started to take action.
After reading through all the blogs from Extra Pack of Peanuts, Nessa basically became an expert on strategically using credit cards to earn a ton of miles so that we could travel for free.
If you want to learn more about the Best Current Credit Card go directly to Extra Pack of Peanuts and Click on "Best Credit Card" tab.
However, one of the things that was hindering how many miles we could earn was just how much we spent each month.
Although you might not believe me after reading this article, I assure you that we are not big spenders when it comes to our lifestyle. Yes, we like to travel, but going on shopping sprees or out to dinner all the time isn't our thing.
While Nessa looked for economical ways to earn miles, I was inspired to quit my job and had been listening to podcasts while driving around during my day job to find inspiration for new income streams.
And that's when my wife's "Miles Monster" was fed a glorious plan.
I had been really hooked on Pat Flynn's "Smart Passive Income" Podcast, and he happened to be interviewing Jessica and Cliff Larrew.
And you know what they were talking about? How she sold over $300K on Amazon FBA doing mostly Retail Arbitrage*.
At that point, the psychological block that made me think this was only a side hustle income and not a serious income stream got its ass beat.
Everything came together so quickly in my head, and when I got back home I looked at Nessa and said, "Babe, you HAVE TO listen to this podcast."
After Nessa tuned in, she came to me with a huge smile, we took a long walk around Mission Bay, San Diego and began to plan what I'm about to lay out for you.
As the cliche goes, "we never looked back."
Understanding Our Buying & Investing Philosophy
It's important that you know just how we fund what we buy and how we use our earnings to reinvest.
Summing things up pretty simply, if we had to rank our Risk Adversity on a scale from 1-10 with 10 being Not Risk Adverse, we would be a 27.
Seriously, we have had such a strong passion to run our own business and travel the world that we wouldn't let any doubts or "what ifs" get in our way.
And to make sure that we were building a business and not just making a side income, we reinvested 100%+ of every dollar we had.
Now, let me tell you what has really become the game-changer for us.
Look, if you're old school, hate credit cards and think that they ruin peoples lives, I get it. Many people do go ass up with credit cards because they spend without the means or reason.
We, on the other hand, knew exactly what we were doing and leveraged the cash flow potential of credit cards to rapidly grow our business.
The thing is, you can totally start an Amazon FBA business just using the cash you have and reinvesting it. And that's fine. It's just that we felt it would be much quicker to go the way of the credit card.
I mean, who the hell else would give us a loan of $15K for our new business? Exactly.
Since we had already been using the credit cards we had very responsibly, when it came time to get better credit cards with higher credit limits, these companies were basically throwing "cash" at our feet.
Believe it or not, we've NEVER had a late payment and pay ALL of our credit cards down at a minimum of every 2 months. (Except that one time...**cough**cough**Nessa forgot...**cough**)
And that just covers the buying power aspect.
As you know, the credit card fury was commenced by Nessa's desire to earn enough miles to get us to the Sun and back, for free. (That's 93 million miles, if you didn't study astronomy in school.)
So, let's cover what funds we started with.
What Money and Credit Card We Started With
Look, this isn't a "rags to riches" tale. Not saying that we were rolling in the dough before Amazon FBA, but I had a decent job making $50-$60K a year with solid benefits and Nessa pulled in about $20-$30K a year with the 10+ jobs that she blazed through.
Although living in San Diego can whittle away your funds pretty quickly, by routinely putting money into our Barclay USA Savings Account, after about 2 years we were able to save nearly $10K from our 2 jobs. (Yea, not going to get rich off of this Savings Account, but we wanted to have our funds as liquid as possible.)
Now, this money was not intended to be used for our Amazon business, per se. Rather, to enhance our buying power even more and to keep a super healthy credit history if we needed to pay off some bills.
For the real spending for our business, Nessa locked in on what she found to be the best credit card at that time - the Barclaycard Arrival Plus.
The Barclaycard Arrival Plus was full of the things we wanted, including:
- 40,000 bonus miles after spending $3,000 in 90 days.
- 2x points on every dollar spent!
- Access to the Barclaycard shopping portal. (When you shop online, simply go through the portal and you get bonus miles. What we call "double-dipping!" This has been HUGE for us with Online Arbitrage.)
- "Miles" can be used for Travel Statement Credit, Cash Back (starting at 2,500 miles for $12.50), Gift cards (5,000 miles for $25) and merchandise.
- Statement Credit basically means if you spend $400 on plane tickets, you then go redeem 40,000 miles/points to get a $400 credit on your account. That versus being stuck with one airline, and only being able to use your miles for Delta or American Airlines.
- No annual fee in the first year, and then $89/year thereafter.***
Something that I didn't mention earlier is when I worked for State Farm Insurance I sold Nessa on getting a credit card to establish credit history. After using it for about a year, completely responsibly, she applied for the Barclaycard and was given a $5,000 credit limit.
However, as you'll come to find out, $5,000 wasn't cutting it. So we called Barclaycard after a month or so and got a credit line increase to $7,500.
On top of that, I got the same credit card in my name not too long after, so we had another $10,000 of credit. (Yes, I've always had very good credit.)
We were pretty stacked!
(Please note that we are not giving advice on putting yourself into or getting out of credit card debt. This is merely an account of how we grew our business.)
What Credit Cards We Use Today
While the Barclaycard did us well, we don't use that one too much anymore. No, they didn't cut us off. 😉
Currently, we have two primary cards that we use and they are both with Chase.
To make purchases and expenses easy to track, we designated one credit card as the "personal card" and the other as the "business card."
Why are we all-in on Chase?
They just happen to have the best benefits for travelers and have one of the best online shopping portals to earn us those "double-dipping" bonus miles when we do Online Arbitrage.
Our Personal Credit Card:
Chase Sapphire Preferred Card (AKA the Traveler's Best Friend)
- 50,000 bonus miles after spending $4,000 in 3 months. (That's enough for a round trip, just about any where in the world. We bought a round trip from San Diego to Paris with 40K miles in the low season.)
- Get another 5,000 bonus miles when you add an authorized user and make one purchase. (Nessa added me, we bought two beers and drank to 5K miles.)
- 2x miles on travel and dining purchases.
- 1x miles for everything else.
- Ultimate Rewards shopping portal. (Don't use it much for personal, but for business...miles, miles miles!)
- $0 foreign transaction fees.
- Great exchange rates. (We've found that in Costa Rica, when we spend what amounts to $100 US Dollars in Costa Rican Colons (50,000 colons), it ends up being about $93.)
- No annual fee in the first year and then $95 Annual Fee thereafter.***
Our Business Credit Card:
- 60,000 bonus points after spending $5,000 in the first 3 months.
- 5x points on the first $50,000 spent on all office supply stores, cell phone, landline, internet and cable tv.
- 2x points on the first $50,000 spent at gas stations and hotels.
- Unlimited 1x points for everything else.
- Ultimate Rewards shopping portal. (We use this ALL DAY LONG for Online Arbitrage. Simply go to the shopping portal site, login and search for the site you're shopping on. You MUST use your card for the purchase in order to get the miles.)
- $0 foreign transaction fees.
- $95 annual fee.
Alright, alright...we won't make this all about what we use. We understand that some people prefer cash back and don't want to pay an annual fee. In that case we would totally consider...
- $200 bonus cash back after spending $3,000 in first 3 months.
- 5% cash back on first $25,000 spent on all office supply stores, cell phone, landline, internet and cable tv.
- 2% cash back on the first $25,000 spent at restaurants and on gas.
- Unlimited 1% cash back.
- Ultimate Rewards shopping portal access.
- No annual fee.
*** With exception to the Chase Ink Plus Business Card, we haven't paid an annual fee yet. After the annual fee is charged, we ask if there are any free versions of the card, as we don't want to pay the fee. If there aren't free versions, you can politely suggest that you will look at closing this card and opening a credit card somewhere else if the fee isn't waived. Not only has this worked for us, but we've also gotten bonus miles when calling in regards to this matter.
How We’ll Explain Our Finances…
We are going to break up our finances into three sections: Cost of Inventory, Amazon Sales and Profit.
-> Cost of Inventory
This is the money we spent in the month, ONLY FOR INVENTORY.
*The screenshots were taken directly from Xero, where we manage all of our accounting.
-> Amazon Sales
This is how much we sold in total dollars on Amazon, not actual revenue. Therefore, we are not subtracting the fees and such that Amazon would take out after the sales price. (This is accounted for in our Profit.)
Also, you need to keep in mind that Amazon Sales are for all sales, pending and complete.
*The screenshots were taken from our Amazon Seller's Dashboard, under "View more of your sales statistics."
Well, this one can be a bit tricky...
Here's the thing that you need to understand when trying to figure out how much money you're "really" making in this business.
You can either count the Cost of Goods Sold or the Cost of Goods.
The difference being:
- Cost of Goods Sold
- (For example: In April, you buy 10 widgets for $10/each which equals $100. At the end of the April, you sold 5 units. Therefore, your Cost of Goods Sold is $50 and you wouldn't count the other $50 spent as an expense at this point.)
- Cost of Goods
- (Using the same example as above, at the end of April your Cost of Goods would be $100. That's because it does not matter if you sell the Goods or not, the Cost was still incurred in that month.)
To make our finances easier to understand, especially with us spending so damn much, we decided to use the Cost of Goods Sold to show you how much we profited on a month-to-month basis.
*The screenshots were taken from Inventory Lab, where we track all of our expenses, research products and create shipments.
Keep in mind, Inventory Lab only accounts for sales and profitability when the order is complete, meaning that it is shipped to the customer and NOT pending sales. (Different than the Amazon Sales screenshots.)
In addition to the Cost of Goods Sold, the expenses that Inventory Lab accounts for and are reflected in our profitability are as follows:
- FBA Fees
- FBA Inbound Shipping Cost, Pick & Pack Fees, Weight Based Fees, Order Handling Fees, Amazon Commission, Selling Fee Refunds, Refund Administration Fee, Variable Closing Fees, 30 Day Storage Fees, Inventory Placement Service, etc.
- Amazon Advertising
- Shipping Supplies
- Software (Like the cost of Amazon Pro Account, Inventory Lab, Merchant Words, etc.)
- FBA Prep Service (Handles prepping, packing and shipping our FBA products.)
- Accounting Fees
- $/Miles Driven (For Retail Arbitrage)
Honestly, other than the Cost of Goods, the difference in our expenses/profitability shown in Inventory Lab versus the expenses/profitability shown in Xero are not entirely different.
Now that you have a clear picture, let's jump on in.
December 2014: Nothin' But Coal In Our Stockings
Just so you're clear, although we had some sales in 2014, we did not sell a penny's worth in December. That's because we didn't have any inventory, because we weren't looking for any inventory.
Remember, this is just about the time we hit that integral turning point and decided to take things serious. The screenshot below is so you fully understand how much we were able to scale our business in such a short period of time.
January - March 2015: The Initial Burst
Like I said, we were both working in retail at the time so when we made our "Initial Burst" we did nothing but Retail Arbitrage.
And I would actually call it "Clearance Arbitrage" for that matter. That's because we were specifically looking for products that had very high markdowns, meaning more profit for us.
Even though we took such a narrow focus, we were able to find a lot of great product.
Cost of Inventory
You can pretty clearly see why we needed to up our credit limits and get that second credit card. But that's totally what we wanted to do.
Total Cost of Inventory: $22,669.25
Jan: Spent - $6,423.68
Feb: Spent - $4,031.70
Mar: Spent - $12,213.87
Now you may be asking yourself, "why did the buying amount go down in February and then up real high in March?"
Believe you me, it wasn't because we didn't want to spend more or didn't have the money.
What happened was, since we focused in on Clearance Arbitrage and hit our top stores so hard in January, by the time February rolled around, most of that non-replenishable clearance inventory was cleaned out.
Then, in March, we added some other big time stores to our list and that made a huge difference. Plus, we expanded our search outside of clearance products to products that were selling above retail prices on Amazon.
While the spending might have slowed down in February, the sales did not. That's because we filled that proverbial pipeline.
Like all other types of sales, the more you feed the Amazon Monster now, the more it will pay off down the road. And that's just what we did.
Total Amazon Sales: $23,733.48
Steady profits were rolling in off the bat, only buying products that met our strict criteria.
Total Profit - $5,808.78
January - $200.11
February - $3,238.31
March - $2,370.36
July-August 2015: Big Changes After I Quit My Job!
After a week-long business trip to New York and continued success with Amazon, we had a big talk about quitting my job.
Nessa had already quit her part-time job with Nespresso, but my full-time job was eating up 50 hours a week and was certainly impacting how much we could accomplish with our business.
With a little bit of extra money saved from hosting guests on AirBNB, we decided in July that I would quit my job.
Although I had made a lot of great relationships, actually liked my job and had some anxiety about losing the "security" of my "guaranteed" paycheck, I knew it was time.
Ironically enough, what helped me out the most with deciding to quit my job was reading about how Jeff Bezos went on to create Amazon.
See, Mr. Jeff Bezos was a super-brilliant, immensely successful senior vice president of an investment firm in New York City and had this grand vision for what is now Amazon.com.
Before quitting his job, he took a walk with his boss in Central Park and described how he was going to sell books online. (While this might cause some people to crack up today, imagine what that must have been like 20 years ago.)
That said, his boss advised Jeff to think about it for the next 48 hours and then come back to him with his final decision.
According to Jeff Bezos, the turning point in his decision was when he asked himself the question, "What will I regret more? Quitting my career today, failing at my dream venture and getting another job in the same field. OR. Not quitting my job and always wondering what could have been."
At that point, the decision was made. Jeff quit his job and went on to change the world of eCommerce as we know it.
That's exactly what I said to myself. Seriously though, if not now, when?
So I quit my job, and in July and August we started to diversify our sourcing strategy, with Nessa taking the initiative to source products with Online Arbitrage. But still, Retail Arbitrage was our "go-to" and made up at least 80% of our during this time.
Cost of Inventory
...and we didn't get gun-shy after losing my 9-5 income.
Total Cost of Inventory - $35,726
July - $10,940.07
August - $24,785.94
Wouldn't you know it, in August we had our best month of sales ever! The first day in August, which was my first day as a full-time entrepreneur, we had our best day of sales!!! We knew that it was a sign of good things to come.
Total Amazon Sales - $43,327.26
July - $13,922.68
Yea, so we spent like mad, set a sales record, but most importantly, we finally made over $10K in profit!
That's what this business is all about, in the financial sense. Not the spending, not the sales, but the profit. Always remember that, and you'll make the best sourcing decisions.
Total Profit - $13,949.30
July - $3,365.61
August - $10,583.69
December 2015: 1 Year Full Steam Ahead + Q4 Lovin'
By the time Q4 started in, we were buying and selling all-day-long.
But after hitting a little burn-out, we realized that while we were hitting our business goals, we weren't really working towards our lifestyle goals.
That's none other than to work less and travel the world.
At that point, we made some big changes to our business model.
First, we moved to Quebec City, Canada for five weeks during the holidays and then planned to travel around the world after that.
To make this happen, we completely switched up our sourcing strategy to comprise of 90% Online Arbitrage and 10% Private Label.
We made a few last, great Retail Arbitrage runs in November, but after that, RA was in the books.
By developing a relationship with a FBA Prep Warehouse, we were able to confidently send all of our Online Arbitrage and Private Label Inventory to them, where they prepped it, packed it and shipped it to Amazon.
All we had to do was create some shipments in Amazon for them and they handled the rest.
Wow, did that give us a ton of time!
Cost of Inventory
From September-November we had gone through the first two orders of our Private Label product. However, we ran out of stock by December, and our 3rd order which was supposed to be ready for sale in December got held up due to some customs' mistake.
But that didn't slow us down too much, because we had been filling the pipeline pretty steadily and found some really amazing replenishable Online Arbitrage and Wholesale products.
By finding replenish-able inventory, we saved tens of hours a week hunting for products to buy online.
The time we saved there we put towards doing more Private Label research, ordering samples and testing the market. (Which we're still in the process of, but have 3 products that we're moving forward with.)
Our goal in December was to find more sustainable, long term products that we could buy as many as we wanted, as opposed to quick hitting products that were non-replenishable and took valuable time to hunt. (Not to diminish the value of buying these non-replenishable goods, as many of them provided amazing profits and solid cash flow to go and invest into these replenishable goods that I'm speaking of.)
Total Cost of Inventory – $23,642.38
Alright, December wasn't our best month in sales or profit, but it was a great month nonetheless.
Seriously though, we went from $0 in December 2014 to $30,000 in December 2015. That's crazy growth in our opinion.
Something that slowed us down just a touch in December was going from a mixture of RA/OA/PL to OA/PL. And like I said, we moved away from buying whatever was profitable, to buying only replenishable products.
The beauty of Retail Arbitrage is that you can buy a product in stores, go home, create the shipment and have it on its way to Amazon all in one day.
Whereas with Online Arbitrage and Private Label, there are a lot more steps to the replenishment process, especially when you outsource the prepping process.
Again, it all comes back to steadily filling the pipeline.
Total Amazon Sales - $30,114.28
Getting hit with some big ticket returns impacted our total profit in December, but $7K was way more money than what we had been making in our 9-5 jobs.
Merry Christmas and Happy Holidays! 🙂
Total Profit = $7,264.21
Recap on 2015
Needless to say, 2015 was an amazing ride with our Amazon FBA business. We spent a shit load, earned hundreds of thousands of miles, sold more than we ever imagined and turned a handsome profit in just our first year.
The big lessons that we learned looking back:
- Don't be afraid to start
- Take chances
- Look at quitting your job as a new venture, not as some dreaded reality
- Quitting my job alleviated one of the biggest road blocks to success, as it freed up extremely valuable time and mental space.
Let's look at the final numbers...
2015 Total Cost of Inventory = $157,350.33
2015 Total Amazon Sales = $239,050.53
2015 Total Profit = $60,699.37
Like everything we have done with our business so far, we will continue to take risks, grow our business, and most importantly, automate the tasks that free up our time and give us the lifestyle that we want.
From January to April, we'll be living in Costa Rica...after that, Panama. Who knows where we'll go next.
To continue to make it happen and live the dream, we are going to do even more Private Label, while keeping a healthy flow of Online Arbitrage. (Online Arbitrage is just so much easier and takes a lot less cash, startup time and marketing.)
Private Label will allow us to spend the time finding great products and marketing them (which is WAY more difficult than it's made out to be), but once the juice is flowing it's just a matter of hitting the replenish buttons.
By the end of 2016, our goal is to have 5 solid Private Label Products, $500,000 in Sales, and 50% ROI. Yes, the number 5 is totally calling our names.
We've found that it's not money that drives us, but the feeling of success and helping to inspire others, like you! Work less, make more and travel. That's what 2016 has going on for us.
Make sure you plan too, as "those who fail to plan, plan to fail!"
Words of Wisdom
I would have never thought that I would be writing this article, sitting on my balcony in Costa Rica overlooking the Pacific Ocean. That may seam like a pipe dream to you now, but looking back, I know how possible your dream lifestyle is.
Set goals, tell yourself that you can do it and make it happen. Forget what other people have to say. They're only negative because they're jealous or don't understand entrepreneurship.
We've been faced by much adversity, but we haven't let it get in our way. People will always doubt and tell you what's best for you. But only YOU know what's best for you.
Surround yourselves with people who are on the same page, like in our Facebook Group, NewlyPreneur's Arbitrage Lifestyle. Those are the people that will be their for you and help take your business to the top.
Remember, if you want to take your business to the next level, you need to make the decision if this is going to just be a side-hustle income or a real business.
Because the only way that this is really going to happen, is when you make this a real commitment.
Business ain't easy. It's a roller-coaster, and that's why so many people choose to work for someone else's business.
However, in this world of uncertainty, one thing I can assure you, wherever you may take your business, it will always be an adventure!
EJ & Nessa
Entrepreneurs & Travelers!