Think of an entrepreneur, and it’s likely your image will be of someone who is extremely busy: taking calls, responding to emails, and dealing with dozens of problems that come up every day. It’s a manic life, or so we’re led to believe.
One entrepreneur who takes a more relaxed approach, but still manages to be extremely successful, is private label Amazon seller Adam Hudson.
In this interview, Adam talks about how he built a business with annual sales of one million dollars and a really high profit margin. He puts about 15 minutes a day into the business. This is how private labeling is supposed to work, but very rarely does.
Adam also bucks the private label trend for low cost, low quality products. He doesn’t try to screw his Chinese suppliers on price either. In fact, when he receives a quote, he asks them to charge him 20% more. Why would anyone do that? Read on to find out.
Andy: What business were you in before you started selling on Amazon?
Adam: I’ve been an entrepreneur for about 20 years, in fact, the last time I worked for someone else was when I was 20 or 21. I’ve owned lots of different small businesses over the years, but the last 10 years have probably been my most lucrative.
At the beginning, I set up a finance company which was in the crowdfunding space before it was called “crowdfunding”. We helped entrepreneurs raise funds in exchange for equity in their companies. That went quite well and I ended up selling it. Then I moved to Los Angeles and started a small animation company in Hollywood, making cartoons. I knew then that I would want to sell that company at some point and possibly relocate back home to Australia.
Did your time in the States influence your Amazon business?
I was in the US for four years, and while I was there I saw these Amazon boxes outside every second door when I came home from the office. I wondered what they were all about, because being from Australia, we have no Amazon.
My background is very varied, I’ve owned all kinds of businesses. I’ve even owned a hair salon, a flight simulator business, a finance company and an animation company, so very varied. But seeing all those boxes was really my first exposure to Amazon.
Did you make any mistakes when you started selling on Amazon?
When I first began I made some fairly fundamental errors. The biggest error I made was that I didn’t use FBA. I actually used a third-party fulfillment service called Shipwire and then put the products on Amazon. Now, that wasn’t an error in terms of Shipwire not being a great fulfillment company – they’re fine. It was an error in not using FBA.
At that time when you weren’t fulfilled by Amazon, you couldn’t buy advertisements there. Amazon probably won’t admit to this, but your ranking is not as good either when you’re not fulfilled by Amazon. There’s all sorts of other reasons why you should use FBA.
About six months into it, I had only one product and lagging sales. This product sold for maybe $170 and I was doing two or three sales a week. It was pretty bad and I was really embarrassed, because I’d launched it on my Facebook page to all my friends saying, “Hey, I’ve found this Amazon idea and this is what I’m doing,” and it turned out that it was going really poorly!
So I swallowed my pride and announced to my friends, “Well, guys, this is an example of what happens when you go into business. Sometimes you fail, and it looks like I’ve failed at this, despite doing everything I thought was right.”
How did you turn it around?
Well, I went to an Amazon event with other sellers who talked about the importance of FBA. So I switched over to FBA and then about eight weeks later I was up to $15,000 a month in sales, at about 40% or 50% margin. All of a sudden I had this income stream of $7,000-$8,000 a month, coming in on a very, very part-time basis, by doing almost nothing.
That’s when the penny dropped that this does actually work. I paid a little more attention to it and slowly – and I mean really slowly over four years – I’ve grown that to seven products in Europe and the US. I sell into Spain, Italy, Germany, France and the UK and the US. We do about a million dollars a year now, still in the same category with products very close to the one that I started with. I’ve had one failed product and the rest have all been successful.
After starting four years ago, I have pretty much ignored the business for most of the time since. I’ve always had other full-time companies that have distracted me. Amazon was just a side-project, and still very much is. I estimate that I spend maybe 15 minutes a day on my Amazon business even now.
Would you say that your business is private labeling?
Yes, it definitely is private labeling. Today, I’ve got two products at $130 each with the rest being $40 each. They’re all products from China which I’ve branded. There’s a lot of work at the start and it’s certainly not 15 minutes a day when you first begin. But now I have which a very, very simple business that pays me quite a few hundred thousand a year profit.
The key is careful product choice and working hard to deal with the right suppliers. If you work hard at the start on those areas then everything is easy on the back end. If you’ve got a bad supplier and poor quality products, then your day is filled dealing with negative reviews or people giving you a hard time because the product’s no good. I don’t have any of those problems. All of my products are pretty much five-star solid or four-and-a-half star. I have a very high quality product.
Why did you go for private labeling?
There are other things like drop shipping, but the reason I was drawn to private labeling is twofold.
First, nobody could compete with me on price – I don’t like businesses where you’re constantly in a price war. It’s just a race to the bottom when that happens. I only want to run high-margin businesses these days because I’m interested in “leftover”, not turnover. Private labeling means I control the price of that product, as nobody else can have it.
But the second reason is that, I figure if you’re going to build a business, you may as well build one you can sell. By having a brand that has developed a reputation in the market over time, or its own place in the market, it becomes valuable. People become loyal to your brand, and to the product, including the customer experience they get from you.
What’s the right place to start in this business?
The first question people usually ask is, “What would I sell?” Product selection is the most important aspect. You’ve got to know where on the river to go, in a crowded marketplace where Amazon’s the new gold rush. That is definitely the most important part of starting an Amazon business.
If I was to start today I would write at the top of a piece of paper, “I want to be in a high-margin business.” Many people are not clear about that when they start, they just want to be in something cool or they’re too emotionally attached. I would sell anything as long as it doesn’t conflict with my morals. Margin is what you’re after, and it is usually found in less competitive niches where design and branding matters. I try to look for niches where people are prepared to pay a premium because of a design feature, or because of the way something’s branded or its quality.
You need something that will capture their attention, something unique, which can be as simple as packaging or – preferably – a fundamentally different design. There’s a top-selling coffee cup on Amazon that looks like a prescription pill bottle which says, “Prescribed by Dr Feelgood, consume until alertness returns”, and it’s kind of fun. These kinds of unique products are what interest me, and people pay a premium because they are unique.
How do you narrow it down from that?
You could look at your own interests and hobbies, to try and identify something you know about, so you can get an insight into the features that matter to people. Some people advocate browsing around Amazon until you find a product, or using software tools to highlight those which don’t have much competition, but still have reasonable sales volume.
Being open-minded is key in the beginning. Jump into Amazon and Alibaba and click on Sports and Outdoors or Kitchen and then start falling down the rabbit holes. Click in and find products that you would never have thought of.
Another really good one, is to go on visual platforms like Pinterest and search for cool kitchen gadgets and awesome bike products. You’ll see boards that people have put together for bike, camping or cooking fanatics. There’s a really great app called Fancy which has curated visually cool products and Touch of Modern is an ecommerce store that curates unique well-designed clever products.
My brief to my Chinese manufacturers is to send me their weirdest products, because all my products are distinctly different when judged against the competition on Amazon, even before I apply branding and packaging to them.
How do your products rank compared to your competitors?
Pretty much all of my seven products are in the same category. Three of them are on page one for the number one search term for that product.
For those three products, the next most expensive competitor is half my price and every other supplier on the first page is cheaper again. So my price is double that of the next item, yet I’m on page one because the product is so unique. Moreover, Amazon’s algorithm knows I only have to sell half as many products to achieve the same profits as my competitors.
People pay a premium for cool design, for example if you think of a dog bed, that’s going to be sitting in somebody’s house, and their beloved little furry companion is going to sit on it. What could you do to make a dog bed premium and unique, and give you the ability to charge more? Design doesn’t cost more to manufacture, it just costs more to find and maybe create a little bit. It’s a onetime cost.
What’s the best way to research suppliers? Do you source online?
The best research of all is a trade show. If you can get over to the Canton Fair, Yiwu – any of those big shows – and actually meet suppliers, that’s the best.
If you’re one of those people who haven’t got the funds or time to go to a trade show, Alibaba’s fine, but you must understand that it’s not just Western buyers who have bad experiences there. Just imagine the experiences that the Chinese have on the other side, with people wanting free samples all day, and trying to lower their prices.
One thing I do when I get my quotes in from my suppliers, is to make it clear from the outset that I’m prepared to pay for a sample. When the quote comes in, I go back to suppliers and say, “I really appreciate your quote, what if I was prepared to pay you 20% more than you’ve quoted me?”
Invariably I get this silence, and they think I’m trying to trick them. Then I say, “No, look, I really want you to understand that I’m looking for a quality product. What if I pay you 20% more, how could you improve this product?”
If you’re buying a product for five dollars and you’re prepared to pay six, it does two things. It is likely to double the profit of the Chinese supplier, but it’s only one dollar that you paid extra. If you’re buying something for five dollars, you should be selling it for 20 or 25 dollars on Amazon. That extra dollar you paid at the manufacturing end is easy to recover at the retail end. Amazon is a naked platform, so if you get bad reviews your reputation will suffer. It’s that simple.
You’d be amazed at the additional quality or features that you can get for one extra dollar. It gives you a design edge that nobody else has, and gets you better reviews. It also gives you an easier life and higher margin. Everybody’s trying to squeeze the manufacturer’s profits all day. What you want to do is get the attention of somebody who genuinely wants to build a long-term relationship.
So treat your suppliers with respect but also be careful. With the Chinese, you’ll never actually beat them. They’ll say yes to almost anything. If you ask for a discount, sometimes they’ll say yes, but then they will change the “acceptable rejection rate” on the production line. Instead of having a standard 5% for faulty products, they’ll just increase it to 10% – and not tell you.
So paying more improves your relationship with the supplier as well?
Relationships are everything. I flew to China last year for the first time and saw the factories where my stuff comes from. On Reliable Education I actually have a video of me inside the factories. I have a friendship with them. I know their birthdays, and send them a text on their birthday. That sort of relationship building is what makes me have a business and not just a job.
People have this strange view of business and see it as combative. At the end of the day, I’ve found there’s two types of Chinese vendors. There are those who don’t care, and just want your first order. Then there are others who understand that if your stock sells, then you’re going to come back and keep ordering.
My orders have grown from two pallets to two containers, over the years. I just placed an order for $100,000 (US) two weeks ago. If you make it clear from day one that you want someone with you all the way, you’ll find it’s a lot better and you’ll repel those that don’t want to do that.
If you get into private labeling, when you’re doing product research you’ve got to look at a lot of products. You’ve got to kiss a lot of frogs. It’s the same thing with suppliers.
I’m just reading the autobiography of the Nike founder right now. Building Nike was exactly the same, the same issues that he was facing in the late 60’s and early 70’s are the issues that I face today in China. Nothing’s changed.
Competition is everywhere on Amazon. How can sellers stand out?
There are a number of ways you can beat competitors. One of the best ways is photography. Sometimes people have a beautiful product and poor photographs. A lot of amateurs just don’t have the eye for what great photography looks like.
Go to premium brand websites like Montblanc pens, Rolex watches, Mercedes and look at how they photograph the product details. Find somebody who can produce that level of close-up photography.
People often underestimate the ability of human beings to notice finer details. When you’re buying something online, looking at the photograph is akin to holding the product in your hand in-store.
A lot of Chinese sellers don’t seem to have the subtlety or nuance that we have in the West. We’re used to high-quality packaging and photography, whereas the Chinese are not. A lot of smaller sellers cut corners and take their own photographs using an iPhone, and don’t pay attention to big details like photography.
Not many people admit it, but reviews also shape people’s opinion of popular products. So amazing photos, good reviews and superior copywriting are all going to really help you.
What about the “brand” itself? Does the name and logo matter?
if you want to be charge a premium, logo development is really important. You’ve got to spend time looking around for the type of logo you want, and write good briefs. Some sellers haven’t taken the time to really think about the impression they want to make on the consumer. With design it’s always a case of garbage in, garbage out.
The better the brief, the better quality you’re going to get from the design community. They often struggle because a lot of people don’t give them quality briefs of what they want to achieve. Therefore entrepreneurs don’t get quality on the other side.
It might sound a bit grand but people should think, “What do I want my brand to stand for?” When you’re working out of your kitchen, imagine that if this blew up to one day be a multinational corporation, what would your brand stand for? You’ve got to think like that from day one.
So you’re not experimenting – throwing hundreds of products out there to see what sticks. Is it risky to invest so much in each product right at the start?
A fellow Amazon seller told me he was turning over seven million dollars a year. That’s a fantastic vanity metric. It sounds amazing but he has 1,500 SKUs, 80% of which don’t really sell well. You have to think how much of it is actually profit, and how much of his day is filled with dealing with negative reviews and returns and all that sort of stuff? What’s the real profit in that business? What sort of lifestyle do you have at the end of it?
I think there’s actually a greater risk to having a lot of marginal inventory. If you think about having 1,500 SKUs and turning over seven million a year in sales, how much inventory is sitting in Amazon’s warehouses at any one time? If you are turning your inventory over twice a year, as most sellers do, then you’ve got to have three and a half million dollars invested in inventory and stock. That’s a lot of capital invested. If sales drop 10%, you might break even or lose money.
I would rather have a small business that has carved out a genuine niche, because it’s simpler. If it’s easy to do, then it’s easy for others to do. You’ll always have new sellers coming in every week to your market, giving away free goods to pump up their sales, and stealing the traffic for that week.
So I like to build businesses that have a “moat” around them. My moat is the quality of my design – the thought that’s gone into the actual selection of the products. You have to be smarter in my opinion, to have a reliable business that actually produces cash flow without you having to watch it all the time.
How did you get your time down to only 15 minutes a day? Do you have staff running the business?
I have no employees at all in the Amazon business. I probably get about six or seven emails a day just from customers, because I have automated emails that go out when a sale is made.
I send four emails out after purchase in the first month. One of those is six days after, saying, “Did it arrive okay? If you have any problems, let me know.” So I get about six emails a day from people replying, “No, I got them, they’re fantastic, thank you.” That’s about the extent of it and I just email those people back and ask them for a review. Other than that I don’t do anything.
The only time that really changes is two or three times a year when I do a product order. Then I’ve got a day or two where I have to focus on how much I need, and sort paperwork with customs. Other than that, I’m a pretty lazy seller.
What about reordering and handling shipment into FBA?
I have freight forwarders in China who are specialists in shipping to Amazon. They put it on a boat at the nearest port, and ship it all the way to Amazon for me. I don’t touch the product at all. The container comes in off the boat, they split the shipment into batches for the different warehouses, then they road-freight them to Amazon.
You’ve got to have deliveries scheduled with Amazon, so they make the appointment and deliver the goods. It makes my life very easy. I literally deal with two people, one person at the freight forwarding company and my supplier in China.
You usually do not see the product before the customer does. That’s the scary part. You need to be thinking about everything what could go wrong between the production line and your customer. A little bit of logical thought can go a long way.
Should they be doing things like using gloves to pack your products? Will fingerprints on the item make a difference? Is dust in the environment going to be important? There are ways to safeguard things. I have such a good relationship now with my suppliers, that my contact in China catches the train out to the factory on the day that my products are ready to ship. She then sends me photos in real-time of the products being packed into my boxes.
Fortunately, I don’t have a product that needs to be electrically tested or anything like that. But if you do, there are companies like KRT Audit who will put somebody at the factory to check your products for about $200 a day. They take photographs and give you a full 30-page report. It adds a layer of transparency to what’s being done. Plus your supplier knows that on packing day, one of your officers will be there to test and check and make sure everything’s okay.
What’s your advice to other private label sellers?
I teach my students, in year one the goal is to get a product to market and reviews posted so that it starts producing cash flow. Then in year two you should double-down and get to maybe three or four products. In the third year build that up to ten or fifteen products.
For most people that’s going to give them a couple of hundred thousand dollars in inventory, that they’ve earned just through compounding their initial investment. If they turn that over twice a year at a margin of 30% or 40%, they’ve got a $140,000+ a year income from a business they compounded their way to over three years.
Most people out there teaching Amazon are saying, “You can get into the market with white label products. Start with a two-dollar item, sell it for twenty and turn over $100,000 a month in six months.” That’s a real shame because it misleads people, and sells short the opportunity. Most reasonably-minded people would be delighted to start a business with ten or maybe twenty grand, compound their profits for three years and then end up with a six-figure income at the end for life.
I say, “Don’t take a dollar out of your Amazon business for three to five years. Just leave the money in, compound your capital base and then when you have enough, extract the profits every time you turn your inventory over. That’s when you stop growing and just start enjoying your hard work.”
You have three other businesses, which provide software tools and services for Amazon sellers. What are those and why did you start them?
The first one was iLoveToReview, and that was born out of recognizing that reviews are critical to success on Amazon, and also out of necessity. I built a review service for myself and then quickly realized there was a marketing opportunity there.
It started very simply. I put up ads on Facebook to recruit people who wanted to get free or discounted products, and would write honest reviews of them. It grew to be a very large community of reviewers. Then I started reaching out to Amazon sellers who needed help getting reviews. We were the first Amazon review company in the world.
We have a whole team in Florida now and a CEO running the company. Last year we did over 100,000 reviews, and have become known as a very high quality Amazon review service. iLoveToReview was completely in compliance with Amazon’s terms, but we’re currently repositioning the service since Amazon changed their TOS and banned reviews given in exchange for free or discounted products. After the TOS update, iLoveToReview will not be sending any more campaigns out for Amazon products, but we have plans for the platform outside of Amazon.
Having helped thousands of sellers launch and grow their products over the last 2 years, we’ve applied what we have learned and formed MarketHustl.com. Our first service offerings are promotional campaigns to drive exposure and awareness of your product on Amazon. We have already tested hundreds of campaigns using our methods over the last 2 years while running iLoveToReview. Currently, we are only working with our existing clients but will be open for new clients very soon.
The second one I launched was ZonGuru. It does everything that a lot of other software has done in a fragmented way. You have software for researching products, software for automating your emails and software for cross-listing your inventory onto eBay. They’re all good tools, but the problem is you need an account with all of them.
If you chose the cheapest version of all of those, it’d cost you about $170 a month. So about a year and a half ago I started the coding process to create a tool which does all of that and more for less than half the price. That’s ZonGuru. We’ll keep adding more tools without putting the price up for most of them.
Then the last company is Reliable Education. I have a lot of people asking me, “How do I learn to sell on Amazon?” When I started out, I bought a course and I had been deeply disappointed by what I saw. So I decided to write one that told people the truth: you’re not going to make any money for three years if you’re smart. You’re going to compound your money, pay close attention to the quality of your products, and build something for the long term. I only want to deal with students who believe in that.
Now we have a community of people around the world who have bought into the concept and want to build quality-based businesses. I enjoy teaching, and I like to be involved with people. My passion really lies in education.
What’s next for your Amazon business?
I’m actually really excited about the future of online retail. We’re currently at $300 billion here in the US and growing to $1.5 trillion apparently in 2030. So there’s going to be more of a shift of brick-and-mortar retail money to online.
After four years I’ve mastered this type of thinking, and I understand what I’m doing. So now I’m diversifying the footprint. In the last months I’ve been in talks with Walmart and Jet as the first two marketplaces that I want to expand into with my brand. Walmart have accepted me as a seller and Jet is still in the process. By broadening the distribution not all the revenue’s coming from one spot.
Then I’m just shoring up the business. I’ve been putting more money into inventory, so that in 2017 I never run out of anything. When you run out of inventory it’s devastating to your cashflow. I can now get a full year of trading in without anything ever running out.
I also went and saw my broker who sold my last company. I’ve done two successful exits now. With the proceeds from selling the Amazon business, I’ll take a percentage of it and start a couple of new brands with more capital. Then I’ll take the money off the table and put it into something like real estate that’s lower risk, and do it all again.
So you would sell the business, but carry on selling on Amazon?
For me it’s a case of being financially savvy. It’s hard to really get ahead with profits because what tends to happen is that when your income increases, your lifestyle increases and you’re paying more tax and other expenses.
But when you sell a business for a million or two million dollars, and you get a check, that really changes your circumstances. You can pay your mortgage off. I think it’s good for entrepreneurs to take enough money off the table to pay off those big expenses in their life. Then they can make better decisions because they’re not under pressure. I was lucky to be able to do that before I started Amazon. So I’m not as rushed and I don’t do everything just for money.
I think that building and selling a company makes sense for a lot of people. As an entrepreneur, it can very tiring and your passion can diminish over time, even if you’re making money. I would certainly consider selling my Amazon business but for now I am focused on making it a company that someone would want to buy. That means having clean books, a solid brand and consistency of income.
Amazon is a phenomenal opportunity for the average person. A high profit, low headache, well-managed company is what people want to buy.
Adam, it’s been fascinating talking with you. A big thank you from me and the readers for sharing so much about your business.
Credit: Additional editing by Moira Magee.