Dispelling Myths: Diversification (Follow the Data Ep. 5)

 

Follow the Data Episode 5: Diversification

Selling your product on Amazon alone is a bad business model. Or is it? Join Viral Launch CEO Casey Gauss and Amazon Seller Coach Cameron Yoder as they discuss whether diversifying your business efforts across multiple ecommerce platforms is really worth it.

Follow the Data Show Notes

  • Amazon is the go-to online retailer today, and Prime shipping is a huge incentive for shoppers. According to RetailWire, “The average Prime program participant spends $1,300 per year,” and Prime membership is only increasing, which means the potential for third-party sellers continues to grow.
  • Check out this recap of 2016 Amazon third-party sales. With 2017 shaping up to be an even bigger year, there’s no denying that Amazon offers third-party sellers a sales opportunity like no other online retailer.
  • Another great recap from last year is this infographic by Visual Capitalist, depicting online market share.
  • Take a look at these Viral Launch Case Studies for a few examples of sellers who decided to double down on their Amazon businesses and saw huge results
  • Don’t forget to check out our redesign of Market Intelligence. With a brand new look, a built-in FBA calculator, and the most accurate sales estimates in the galaxy, Market Intelligence has everything you need to streamline your sourcing process. Check it out at viral-launch.com/newMI
  • Want to be on the show? Leave us a voicemail at (317) 721-6590

 

Podcast Transcript

Casey Gauss:                      

Approximately 55% of online shoppers start their product search on Amazon.  As an online retailer you know Amazon is the place to be.

 

Cameron Yoder:              

But is selling strictly on Amazon the most profitable approach?  I’m Cameron Yoder.

 

Casey Gauss:                      

And I’m Casey Gauss, your host for Follow the Data: Your Journey to Amazon FBA Success.  In this show we leverage the data we’ve accumulated at Viral Launch from over 20,000 product launches and our experience working with 5,500 brands to help you understand the big picture when it comes to selling on Amazon, and most importantly, the best practices for success as an Amazon seller.

 

Cameron Yoder:              

The first four inaugural episodes of Follow the Data are all part of our Dispelling Myths series in which we explore topics that have garnered a lot of conversation among the Amazon seller community but until recently have not been proven or disproven using factual evidence.

 

Casey Gauss:                      

We’ll talk about why these Amazon theories make sense and what the data is saying about what’s actually happening.

 

Cameron Yoder:

Today we’re talking about diversification.  Now there’s this conversation happening among sellers, whether to focus solely on Amazon or whether to diversify and sell on other platforms.  We’ve heard a lot of people talk about this at conferences.  For example, some sellers are listing their products on eBay or Walmart, Shopify, BigCommerce, Squarespace or other big names  that others are talking about. But this is the conversation today.  The conversation is whether it’s worth it or not. Casey, you’re passionate about this.  Take it away.

 

Casey Gauss:                      

Yeah, so I mean it’s pretty much like public knowledge at this point that – or general consensus:  Okay, I need to diversify away from Amazon as soon as possible because Amazon is going to ruin my business.  And I totally get it, right.  So everybody assumes it is like okay, I have a business on Amazon.  I have to diversify right away.  And there’s just a lot of issues with that.  So basically – but I get it, right.

 

Cameron Yoder:              

But why do people think that right away?

 

Casey Gauss:                      

Yeah, yeah

 

Cameron Yoder:              

Why is that?

 

Casey Gauss:                      

I mean it totally makes sense.  At the end of the day if you are amazing at Google PPC and/or Facebook ads and this is just a talent that you have, then it completely makes sense.

 

Cameron Yoder:              

Sure.

 

Casey Gauss:                      

And I totally get it, right.  So the area of seller that we see this happen the most are the guys that are doing, you know, they hit that million dollar a year mark, or maybe the 1 to like 3, maybe 1 to $5 million a year mark, and then they really, really want to protect what they have.

 

Cameron Yoder:              

You’re saying diversify – like those are a lot of people that you see consider diversifying?

 

Casey Gauss:                      

Yeah, yeah, yeah.  So once they get to this mark they’re like wow, I really want to protect what I have, and so what is the biggest threat?  Well, the biggest threat is that I’m on the Amazon platform.  I don’t control the customer, which is a totally valid consideration, right?  Those are definitely – I totally see where you’re coming from.  But there’s a few issues with that.  

 

So what I typically see happen is that those sellers that try to begin diversifying – one, they’re paying all this money for these courses teaching you how to diversify, which generally don’t work.  But the thing is that people forget what got them to that 1 to $5 million a year mark, and what got them to that 1 to $5 million a year mark is launching more products on Amazon and/or really just figuring out that launch process on Amazon.  If you’re doing, you know, $2 million a year, you know how to launch products on Amazon.  And so how do you go to $4 million?  How do you go to $10 million?  Well, you just launch more products through that same exact process you’ve already established.  The answer is not to go and diversify.  Anyways, so –

 

Cameron Yoder:              

Well do you think having – do you think having a presence on these other platforms does contribute to extending your – as other people would say – brand reach?

 

Casey Gauss:                      

Yeah, so I think that you should have at the very least a Shopify store.  I think that you should go and have – you should have somebody on your team go and list your products on these other platforms.  I mean just by happenstance, you know, if you are the only vitamin C serum – which isn’t the case – but if you’re the only vitamin C serum on Walmart, yeah, you’re going to get some traffic.

 

Cameron Yoder:              

Sure.

 

Casey Gauss:                      

Right?  But you – I don’t think that you should be consid — spending a considerable amount of time on these other platforms.  But again, we’ll get into that –

 

Cameron Yoder:              

Sure.

 

Casey Gauss:                      

– in a minute.  So basically at the high level people want to protect what they have.  I totally get it.  There’s a lot of gurus that are pushing for people to diversify.  We’ll get into that in a minute.  But again, you know, if this guru that is, you know, absolutely killing it is telling you that they’re doing this or that you should be doing this, no, you know I totally understand why you think that.  And again, logically it makes sense.  Okay, I’ve had this success on Amazon.  People like my brand or whatever.  Brand is in quotes.  Then like I will be able to go and replicate this in these other platforms.  And the answer is just no.  It just doesn’t happen that way.  So, yeah.

 

Cameron Yoder:              

Let’s take a look at – so one main aspect of what other people are saying in this argument for diversifying is that a seller can control the buyer experience more, right?  So in Amazon – you touched on this at the beginning, but when a seller is on Amazon the control of the buyer experience is not – it’s not that much.  You can’t control it as much as you would in your own website, for example.  So people, again, are saying, right – and correct me if I’m wrong – but people are saying that oh, my argument for diversifying is that I can control my buyer experience.

 

Casey Gauss:                      

Yeah, and I totally get what you’re saying, but my answer to that is, for how many people, right?  Oh yeah, you can go and control the conversation for 100 new customers a day.

 

Cameron Yoder:              

Right.

 

Casey Gauss:                      

But I’m going to go sell 5000 units a month on Amazon, right?

 

Cameron Yoder:              

Right.

 

Casey Gauss:

The problem is yeah, you get to control the buyer experience, but for how many people?

 

Cameron Yoder:              

Yeah.

 

Casey Gauss:                      

You know what I mean?  Like sure you can have control of 100 people a month that are coming and visiting your Shopify store or that you’re paying an insane amount of money to get to your Shopify store or wherever.  But I’m going to be on Amazon selling 5000 units a month while you’re selling 100 units a month on Shopify.  We’ve seen, you know, we’ve seen this happen so many times where basically sellers, they’re doing really well on Amazon.  Again, these are the guys doing that 1 to 5 million, sometimes a little bit more, but then they try to diversify.  They try to get into retail, or they try to push heavily into Shopify, and they spend all of their time or a good portion of their time not growing their Amazon business.  And so what happens is yeah, maybe you grow revenue by 5% or something, but what we see happen a lot of times is in the meantime their Amazon business starts to lose traction.  It starts to lose market share. They get out of tune with what’s working.  And they’re just, you know, out of touch.  And so competitors just start to pass them by.

 

So yeah, they started making a little bit extra money on their Shopify store or whatever, but they’ve really started to lose out on their Amazon business.  They are trying to avoid the very situation they end up creating, which is they are trying to protect their sales for the long-term by diversifying, and calculating opportunity costs they lose out on sales in the long term.

 

Cameron Yoder:              

Right.  Other arguments that people have, which I think there is kind of one main answer and you already touched on it to all of these, a couple reasons that sellers opt into listing on different platforms, there’s a pretty comprehensive list.  One is a lower barrier to entry.  So again, Walmart is an example.  Walmart has a much lower barrier to entry than Amazon.  There’s less competition. There’s no monthly fees or startup fees, lower listing or product fees, and you own your own storefront, right?  But, but like you said, I feel like all of these arguments can be honestly just like crushed with the fact that all of the traffic is on Amazon.

 

Casey Gauss:                      

Yeah, okay.  Lower product fees, okay, yeah.  I’ll pay – versus paying let’s say it costs $5 to ship my widget and sell on Amazon.  But it only costs $1 to sell on Walmart.  No, that’s great, but you’re still only selling 100 units.  And so –

 

Cameron Yoder:              

But dude, you don’t have a $35 monthly fee.

 

Casey Gauss:                      

Those things just don’t make sense.  So really I mean we’ve worked with over 5500 brands.  I have really good relationships with guys that are doing 100 million a month.  Whoa.

 

Cameron Yoder:              

Holy –

 

Casey Gauss:                      

100 million a month would be insane.

 

Cameron Yoder:              

I’d like to meet them.

 

Casey Gauss:                      

Yeah, me too.  100 million a year, 50 million a year, guys that are doing – plenty of guys that are doing around 20 million a year, and everybody in between, right?  And the thing is is I do not know – I’m not aware of any seller that has successfully taken their success on Amazon and then brought or built a considerable revenue stream outside of Amazon from their private label business.  Like it just absolutely doesn’t make sense.  These guys that have a major $35 million brand, it’s the third-largest brand in their category, in the top-level category: I’m talking cell phones and accessories or beauty or health and household.  Like these guys have the third-largest brand by volume, and their sales on their website, they’re spending – they have a huge team, and they’re spending a good amount of money trying to drive those sales on their website.  And they’re just not seeing the volume.

 

So what – you know I have some friends that they do 50 million a year, and they tried pushing on their website, and they realized it just didn’t work.  And they saw a dip in revenue when this happened like two years ago.  And now they’ve just doubled down on Amazon because they know exactly how to launch products when it comes to Amazon.  So they just doubled down on that.  

 

The opportunity is on Amazon, and if you are spending, you know, a week – let’s just say a day.  You’re spending a day out of your week trying to build these other sales channels.  Well that’s a day a week that you’re not building your Amazon business.  And so for every dollar, you know – these are arbitrary numbers, but it’s something like for every dollar you spend building your Amazon business you get $10 back, let’s just say.  But for every dollar you spend building your Shopify business you’re getting like $1.50 back.  Maybe you’re getting $2.00, but probably not.  You know, net net across your Amazon sales in everything you’re seeing maybe $1.05, or you’re seeing $0.95 out of that dollar spent.

 

And so, you know, I do think that you should diversify.  Like I said at the beginning, you know, if you have the team or you have the skill set – if you have the skill set to drive an insane amount of Facebook ads or whatever, yeah, definitely check out that model.  But you still need to run the math and calculate: Do I make so much more money when I’m spending that same amount of time and that same amount of money pushing my Amazon brand?  Well, then do that.  You know, like – and again –

 

Cameron Yoder:              

Keep on going

 

Casey Gauss:                      

So the other argument for diversifying is everybody’s afraid of getting banned from the Amazon platform, and now their revenue stream dries up.  That’s what these guys that are selling $1 million, $5 million a year, that’s what they’re so afraid of.  And the thing is is we’ve worked with 5500 brands, right, and we know of a lot more, of course, right?  I only know – we only know of one brand that has actually gotten banned from the platform, and these guys were asking for it.  Like these guys had gotten suspended so many times.  They just kept doing, you know, whatever it was that was getting them suspended, and they were pushing the envelope in every direction.  And you know, eventually Amazon said no, we don’t trust you guys to reinstate you because you’re just going to keep doing this stuff.  You guys are banned.  You guys are not able to sell on the Amazon platform.

 

And so at the end of the day, again, thousands and thousands of brands – we’ve definitely seen people get suspended, but they get pushed right back up.  And so I don’t know how legit that fear of getting banned is.  I understand why you’re afraid, of course.  I totally get it.  But at the end of the day, how likely is it to happen?  Well, according to our sample size –

 

Cameron Yoder:              

Not very.

 

Casey Gauss:                      

– one in 5500, which is pretty low. I would like to think that it’s more. And again, the thing is is sure, you can go spend a ton of time trying to diversify.  But in reality will you be successful at it?  You know, I really doubt it.  The data just does not show us in the 5500 brands that we have worked with. That it is likely that you can take your Amazon success and turn it into external success.

 

Cameron Yoder:              

I like to relate, I like to relate this subject to – and Casey, you’ve heard this before – I like to relate this, the idea of diversifying, to the gold rush, right, like the classic American gold rush where once people heard that there was a ton of gold in one place they all rushed to it, right?  I feel like Amazon is that source of gold right now. More and more people are starting to hear about it, and not that – I mean there was a limited amount of gold, right, and not that Amazon is going to run out or go out of business or anything, but the game is changing as time goes on.

 

Casey Gauss:                      

And it’s getting more difficult.

 

Cameron Yoder:              

And it is getting – it is.  It is.  The gold has not run out yet at all.  If you see this huge mine of gold that you know is there, it’s Amazon, then why would you go to another gold mine, like Walmart or Etsy, that you can’t see the gold?  Like sure there’s some benefit there, and there will be benefit in the future. I think, just in terms of taking advantage of the moment, that’s the best thing.

 

Casey Gauss:                      

Yeah, you know, I think maybe if you have that 1 to $5 million brand and you have a team, then maybe you can hire somebody that’s great at customer acquisition or digital advertising or whatever.  And they can try to build those sales, and you know, they can be compensated accordingly.  And you can have them focus on that, but what you need to be focused on is on what you know how to do really well, and that is selling on Amazon.

 

Cameron Yoder:              

Right, right.  And opportunity cost, right?

 

Casey Gauss:                      

Yes.

 

Cameron Yoder:              

Like it’s going to cost something.  If you choose to focus on another platform, it’s going to cost time

 

Casey Gauss:                      

Yeah, and again, every minute that you’re spent focused outside of Amazon, a competitor is focused on Amazon, and they’re just going to steal that opportunity or that potential from you down the road.  But I think that people are really underestimating the value of the Amazon business right now.

 

Cameron Yoder:              

Yeah, I agree.

 

Casey Gauss:                      

I think that time will show us that your brand is actually more valuable than you think.  And again, going back to Cam’s comment of reviews being the currency, like this is the way to go.  Yeah.

 

Cameron Yoder:              

It is.

 

Casey Gauss:                      

So basically to sum everything up, Amazon is huge right now.  It’s still growing.  It’s supposed to be growing an insane amount. They’re just snagging such a big portion of the e-commerce sales.

 

Cameron Yoder:              

Remember.  Remember what got you here, right?

 

Casey Gauss:                      

Yeah.

 

Cameron Yoder:              

Remember what got you here and triple down on it.

 

Casey Gauss:                      

Right.  Yeah.  So yeah, basically at the end of the day we don’t know anybody—doesn’t matter if they’re doing 100 million a year, 50 million a year—it doesn’t matter. We don’t know anybody that has successfully gone and diversified.  Does it mean it’s not possible?  No, it’s definitely possible.  But that’s not what’s happening.  That’s not where you should be focusing.  You need to be focusing on building your Amazon business.  Are we biased in saying that?  Yes.  Is it the truth?  Is that what the data is saying? Yes.

 

Cameron Yoder:              

Yes.

 

Casey Gauss:                      

Does it make logical sense?  No, not really, but it’s the truth.

 

Cameron Yoder:              

Well hey, that is all for this week.  Thank you so much for joining us on Follow the Data.  For more reliable information about what’s really happening on Amazon subscribe to the podcast and check out the Viral Launch blog at Viral-Launch.com

 

Casey Gauss:                      

And don’t forget to leave a review on iTunes if you like the podcast.  We really appreciate your feedback.  We love, love honest feedback.  We love to hear what your thoughts are.  And if you enjoyed the podcast and want other people to hear it, please share.  Reviews also help other people to understand how good or terrible of a job we’re doing.

 

Cameron Yoder:              

We’ll link to all of the information and sources that we referenced in this episode in today’s blog post.  Check out the blog and subscribe to our email list to stay up-to-date on all the latest Amazon updates and best practices.

 

Casey Gauss:                      

Want to be featured on the show?  Leave us a voicemail and tell us your thoughts on today’s episode, or ask us any of your Amazon questions.  Our number is 317-721-6590.  Join us next week when we dispel the myth of suspension.  Until then, remember, the data is out there.

Cameron Yoder:

Hey! I wanted to let you know about a webinar that Casey and I hosted last night where we made an exciting announcement. We’ve updated our product research tool, Market Intelligence, with a brand new look, easier navigation, and a built-in FBA calculator. If you missed us last night, you can find our announcement and our walkthrough of the tool on our YouTube channel. The calculator feature is super slick, essentially calculating how much it costs to break into a market showing you upfront costs, month expenses, monthly profit, and total profitability.

 

Market Intelligence offers sellers the most accurate sales estimates in the galaxy and up to 2 years of historic sales data so you can see big market trends like price and overall sales. With the newly integrated FBA calculator, this latest version of Market Intelligence really does have everything that you need to research your next product. Visiti viral-launch.com/newMI to check it out and to start your free trial.

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