Business Model Breakdown - Selling Physical Products Online

Sophie Howard:
Hello, Aidan Booth. Lovely to have you on the podcast. Welcome.
Aidan Booth:
Great to be here.
Sophie Howard:
So Aidan and I are fellow New Zealanders. And since COVID lockdown, we've both found ourselves at home with some small children and some big business ideas, and we've been scrambling through the air and we recently met in person, which was wonderful because we operate in very similar parallel worlds in business. So great to have met in person and advanced lots of big business ideas around. And we've got some things in common in our backgrounds and business and some very different, and I thought Aidan would make an excellent guest because he's had huge, huge success in some really diverse areas of online business, much more experience on the eCom side of things than I've ever had. I've been predominantly Amazon and so that's really my first question for you, Aidan, talking about products and the beauty and the lovely profits and the real needs that real people have to buy stuff. What got you into selling physical products online?
Aidan Booth:
We started selling physical products online, would've been around about 2010 and I just at that point, drop shipping was such a new idea. There was no Ali Express, Amazon was in its infancy and it just sort of made sense. It made sense to me coming from doing affiliate marketing and things like this. I really liked the eCommerce business that I could actually explain to my friends, to my family, what I was doing. I wasn't doing some random thing that no one could understand. I was actually creating my own physical products, put my own personal touch on them if I wanted to. And there were things I could get in behind and feel proud about and make money along the way. That I think is what really drew me to eCommerce in the early days.
Sophie Howard:
That must be a rare thing for us online entrepreneurs to have product for sale that other people actually understand. And that's a really nice feeling for us. We shouldn't underestimate that feel good factor of selling quality products. So I know both you and I sell really high quality stuff, and there's a lot of junk out there as well, which we carefully avoid. But I do think for listeners, if you are creative, there's a really, really nice feeling about seeing something you've imagined, come to life and sit on a shelf or in a warehouse and shipped to somebody's doorstep and when we get reviews for those products and customers like it, it's a really good feeling. And we can explain to our families and friends what we actually do, for once. None of these are affiliate links and mysterious goings on on the internet.
Aidan Booth:
What's an affiliate link? It's like that though and I remember when I was getting started, I didn't have any experience, so I really couldn't explain what anything was anyway, I was just diving into the stuff, but all of a sudden I could be like, oh yeah, I'm selling coffee mugs or whatever it was. And they said, but how does that work? I've got the factory, it makes these coffee mugs and people buy them.
So I still remember my first couple of products that I was selling, they were so different and I was drop shipping them. So they were not my own products. They were other people's products. And one of them was this weird pregnancy pillow, which I'd had no idea even existed at that point in my life. This was long time, three kids for me. And the other was these barber chairs and these things weigh like 600 kilos each. They're very, very heavy, like half a ton. And it's not the type of product that you would think would make a good eCommerce product because it's not a contact lens that can fit in an envelope and it weighs next to nothing. These are 600 kilos, half a ton, giant things, but it was great because I would have barber's shops buying like five or six of them at a time.
So I would be able to make $3000, $4,000 in a transaction and then at the other end of the spectrum, I had these pregnancy pillows that were selling for, $40 or something. And maybe I would make, I don't know, $15 profit a transaction. That were my early days, but it was certainly easy to explain to people and just show them that, look, this is my website, it's all professional. This is how it all works and I was making money, so it was good.
Sophie Howard:
Brilliant. And so just for anyone who's not familiar with these terms drop shipping, and we'll talk more about the different eCommerce platforms later, but can you just explain what drop shipping is to somebody who's new to this?
Aidan Booth:
Drop shipping is essentially where you sell a product, but you don't hold any inventory. So I could sell going back to the pregnancy pillow example, I could have a website all about different pregnancy pillows, but I don't hold any of those products in my garage. I don't hold them in a warehouse or anything like that. I get an order on my website and when that order comes into my website and there's different technology behind the scenes, it tells the manufacturer or the distributor, someone else, it tells them, Hey, send out one of these pregnancy pillows to this person who lives in San Francisco. So I don't have to buy the inventory up front and I don't have to stock the inventory. So it's a great way for people to get started because you don't have that burden of needing to put a lot of cash up front. It's essentially set up a website, find a way to send traffic to it, and you can make those sales.
Sophie Howard:
So you've got some big advantages on cash flow and initial capital needed, but you do need to be a pretty savvy marketer to build that email list or get the attention on your ads. So did you teach yourself how to do the advertising and get the audience to follow your website? Or did you do courses or how did you learn the skills?
Aidan Booth:
I did courses. I think initially, my first two years, I was sort of tinkering around trying to fumble my way to success and I failed miserably. And then I discovered that there were actually courses by people that were teaching this stuff. So I was able to start going through them and then in a matter of weeks I was starting to get traffic and able to build websites and so on and so forth. So yeah, definitely courses.
And then I think also staying on top of different things like it's such a dynamic industry, online marketing and eCommerce. One of the things we're doing a lot with nowadays is Facebook marketplace and Facebook marketplace didn't exist a few years ago, but it's a place where millions and millions and millions of people are using it every single day to find products. So that's something that didn't exist a couple of years ago, but now it does exist and it's a good source of traffic. Just one example.
Sophie Howard:
You've got some really good training I know on how to tap into Facebook marketplace so we can pop some intro notes to you and your various websites and things in the show notes. So just back to choosing a platform. So you talked about drop shipping as sort of one model, which is where you don't hold inventory. If you go the other route, which is to buy your stock up front and then sell it, hopefully for a very healthy margin, you've got to be pretty confident choosing that product. Actually before platforms, let's talk about product choice. How do you go about choosing your products? This is obviously a key to success in this industry of eCom.
Aidan Booth:
I think it depends a little bit on the model that you're pursuing. With drop shipping, you're not buying any products up front and one of the benefits of that is you can test out a whole range of products because you don't need to buy a whole bunch of different products up front. If you are actually building your own products and you are buying inventory, and this is what we've done with a few different brands, and we can talk more about them, but if you're buying a lot of inventory upfront creating your own products, then the type of things to look for, well, first, you need to be able to provide value and ideally something a little bit different to what's on out there in the marketplace. I think people should attempt to go a little bit further than just changing the color of something. It's so easy to modify products nowadays, that you can basically create any kind of a product that you want and have a sample to you within a couple of weeks.
So, I mean, that's the way that we sort of look at it. And then also in terms of pricing, I want to be able to get at least, ideally sort of $15 or more profit from each sale that I make. So that means that in our business, for the most part, we don't sell products at a $15 or $20. Most of our products are probably going to be $30 or more. And it depends a little bit on the model that you're using as well, but Amazon is an example. If you're selling something for 30 bucks, you're probably going to have $10 in fees just right off the bat. So I think being aware of price and what your profit that you stand to make is going to be a big considerations.
Sophie Howard:
We'll go onto platforms eventually I promise, but I do want to ask one more thing just around your product selection. So there's a very creative part of the brain needed to come up with the points of difference and to do something different from what's already out there, then you need quite a kind of analytical assessment of each idea you come up with. So everybody always asks me, do I outsource that or how do you do so many products? I've never outsourced that, which I do it myself, so I'm intrigued whether you outsource that. I don't think anyone else really gets it or cares as much about whether it's going to work or not.
Aidan Booth:
We definitely don't outsource that. So in the early days I did it all myself. Now we've got a team that can help us with that, but we don't outsource it and I would still sign off on a new product that we're going to bring to market. It needs to be validated. There's different tools that will tell you if it's going to get the search volume that you need. Enough people searching for it, is there enough interest in it? Are you going to be able to have enough profit margin? If you are looking at using Amazon, then there are lots of tools out there that will even tell you what the sort of purchase volume is going to be. These days, it's much better than it was five or 10 years ago. You can get a really good estimate of what money you stand to make before you get going. But yeah, going to your question. Absolutely. I think it's important that you don't outsource that part. At least that's my perspective.
Sophie Howard:
I completely agree. And that's the most common question I get asked.
Aidan Booth:
I also think it's quite a fun part of the process though. There are lots of other things that you can outsource, but looking at a product and thinking, oh, well, how could I change this? Or is this something I would be happy to get behind? And it was something I could be proud of then I think that's quite a fun part of the process.
Sophie Howard:
As a listener on this episode, if you haven't done the entrepreneur profiling test, when you do complete that and get your profile back, and if you come out as a creator, you'll probably love an eCommerce business because there's definitely a creative element coming up with ideas, coming up with variations, working with designers.
If you are a hundred percent analytical, I'd say you would find this business model quite challenging because you actually have to do something that hasn't been done before by definition to be successful at it. So you need to have a bit of a creative streak, even if you have to kind of have spreadsheets and checklists to make sure that you are being creative and original. That's certainly my advice for anyone getting into eCom.
Now eventually as-
Aidan Booth:
And it is-
Sophie Howard:
Okay.
Aidan Booth:
Oh, sorry to jump in there. I was just going to say that if someone is more analytical minded, then they might prefer the drop shipping model, because that's one where you're not personally attached to any product and you're really just looking at the numbers and you're throwing things at a wall and seeing what sticks. So that's less creative or even almost zero creativity on that side of eCommerce.
Sophie Howard:
And you can start small. So there's pros and cons to both approaches. There's also pros and cons to which platforms we set up our products for sale on. So we've got the options of Amazon, Aidan's favorite, classic, first and most loved, but still has its challenges and does have some cons, as well as a lot of really big pros. Then you can either set up your own website on a Shopify type platform, which is nice and templated and easy to drive and quick to get up looking professional or Facebook marketplace. So Aidan, over to you, I'd love to hear your thoughts, pros and cons on those three platforms, obviously product dependent, but I'd love to hear your sort of pros and cons on each of those three platforms.
Aidan Booth:
If we just start with Facebook marketplace, the thing that I really love about that is that it's free traffic. It's Facebook has got its own ecosystem of people that are going there to buy. And Facebook marketplace, a lot of people have a misconception that it's people selling used items, but 99% of the products that you're going to find on Facebook marketplace for the most part are new. Or maybe it's more like 90%, but it's a huge portion of the products that are sold there are brand new. So you've got a place that you can publish products, super, super simple, get free traffic and start making money.
The downside of Facebook marketplace is you probably can't scale it as big as some of the other platforms. So I think Facebook marketplace is great to build a $5,000 per month business, or sort of be that first stepping stone and building an eCommerce empire. You can get to $5,000 profit per month with free traffic, but it's probably going to be more difficult to build out to $50,000 per month with a Facebook marketplace.
So there are a few thoughts about Facebook marketplace. Amazon, fantastic from a point of view that it's also got its own ecosystem of traffic. More competitive than the Facebook marketplace, but also more room to scale. So it works slightly differently to the Facebook marketplace. I mean, we've had lots of products over the years that have grown to just one single product, $50,000 a month. So scale, great with Amazon, but then they've also got a few more fees.
And then Shopify and similar types of stores. The sky's the limit with these. What a Shopify style store doesn't have is it doesn't have its own inbuilt traffic system. It doesn't have its own native traffic system. You have to have a way of driving traffic. And there are lots of different ways that you can do that.
I think in an ideal world, if I was starting out with eCommerce all over again, I would try to come at it from sort of a holistic approach where you could have the best of all of these worlds and also have something which you could sell offline, as well, if you want to. This is something that we're doing in a big way, and there are a couple of other websites I'll mention for offline. And I really feel like these are huge opportunities for people at the moment. There's one called FEA, and this is not specifically selling offline. It's not like you're selling in an offline shop, but you're selling to wholesalers. You're selling to people who are buying products to sell in their shops.
So let's say you're selling some beauty cream or something. Then maybe the local hair salon is buying their beauty creams from these types of websites. There are a few of them that we use a lot. One is Abound, one is FEA, one is Tundra, and there are others out there as well, but these are fantastic ways to get these sort of bulk orders coming in and that can turn into a really big income stream as well, so slightly different to the other platforms, but certainly something that people should have on their radar to use at some point.
Sophie Howard:
Very smart to not be dependent on those huge platforms, because if Facebook changes a rule or closes an account, or Amazon changes a policy, suddenly you can find yourself out in the cold. They do have all the power and they also don't like multiple accounts, which means you're pretty exposed. And it also can make some of those businesses harder to sell as well.
So I know there's a thriving industry for existing Amazon businesses being snapped up. There's billions of dollars being raised to buy Amazon accounts. And they're sort of all getting rolled together. It's a bit of a murky area in terms of Amazon's policy, about being allowed to sell an account, but that's happening. But something like a Facebook account, it's pretty hard to transfer those over. And if something goes wrong, there's just no humans that you can appeal to and have a common sense conversation about what's broken or what they saw in an ad that they didn't like, which didn't break any policy, but some bot picked up a word they thought looked wrong and kicked you off. There's always that sort of wanting to sleep while at night factor.
In terms of risk and reward, how would you compare them? The sort of the Facebook marketplace, the Amazon platform and shop. I will talk about offline separately, but where do you feel people with different risk profiles would be best suited?
Aidan Booth:
I think it's very, very, very low, almost no risk, I would say in the Facebook marketplace, because anyone who's got a Facebook account normally just by default has access to sell anything they want on the Facebook marketplace. Any products that are legal, you can't sell guns and drugs and those kind of things on there, but anything that's legit, you can sell on there. And there's very, very little risk in doing that. I can't really think of any downside to doing that. The only downside to Facebook marketplace in my mind is that it doesn't have the scale potential as some of the others. I think it's completely, 100% upside for anyone who's new and wants to get money coming in without having to put out a lot of money. And the other thing about Facebook marketplace is, it lends itself perfectly to drop shipping.
So this is one thing that Amazon doesn't really lend itself to, but with Facebook marketplace, you can drop ship products. So you don't even have to be buying hundreds of thousands of products upfront. You can just start selling someone else's product on Facebook marketplace and make sales. So very, very little risk there.
I think looking at Amazon, if you've got some kind of a training that shows you how to identify good products, then there's very little risk in being able to break even. Worst case scenario, you launch a product on Amazon. If it doesn't become like a home run product that makes you crap load of sales, you can always sell it at a breakeven price and recoup your investment. So from a financial standpoint, you will have to buy inventory upfront. You will have to ship that into Amazon. That's probably something that you can do for under a thousand dollars, and you can recover that quite quickly if it doesn't become a home run.
So I don't think there's a huge risk there, certainly not the scheme of building a business. A little bit more uncertain perhaps than Facebook marketplace, and that you do actually have to send some products in, but I don't think there's a huge risk there. And Amazon have worked with people like us that are selling products for a decade now. So it's very, for the most part, clear and they've got processes in place for what you need to do to set up an account and there's a ton of good training out there as well.
I think the biggest risk for people that decide to create their own store, so this is on a Shopify or similar, is that they underestimate the importance of the traffic. So you can have the most beautiful store in the world, they could showcase your products to perfection, but you still need to get traffic there. And that is the challenge. So where are you going to get that traffic? Are you going to get free traffic from search engines? If so, how are you going to do that? Are you going to use paid traffic? And if you use paid traffic, how much is it going to cost you? Where is it going to come from?
Is it going to come from Facebook ads? That's one good source. Is it going to come from shopping platforms like Google and Microsoft? That's actually a really good source in my opinion. I think it's a bit easier than Facebook, but have that as a consideration, when you get going, I think that's the biggest risk is that just, people don't understand that traffic is such an important component there.
Sophie Howard:
Certainly in my experience. I'm a big fan of Amazon just because the traffic's already there and the conversion rates, the other big metric, matters here. I don't know what my average conversion rate on Amazon would be. I'd aim for 30%. I've had products on Amazon that were 128% conversion rate. Everyone who saw it bought at least one on average, which is pretty special. I'd like to find more products like that, please. But what do you see on say, a good Shopify site? Not usually 30%.
Aidan Booth:
No, it really depends on the traffic, but you might be looking at 1% to 3% conversion rate. And it really does come down to the traffic though, because if you are sending your traffic to your Shopify store and you're using Facebook ads, those Facebook ads are interrupt, driven ads. Someone's browsing on Facebook and then all of a sudden they see something that's interesting and maybe they click on it. And sort of juxtapose that with Amazon or Facebook marketplace, it's the reverse. People are going to those websites to search for their new coffee mug or their new iPhone case or, or whatever it might be. The traffic is completely different. That's why I think traffic is also more of a bigger consideration. It's almost an afterthought with Amazon and Facebook marketplace, because they've got this ecosystem that already exists. And if you've got a good product and you sort of optimize your listing, then you know you're going to get some of that. It's not the case with Shopify style stores.
Sophie Howard:
And also on Amazon they've got the lovely one click ordering. And if you're a prime member, you get the free shipping. So it's very low friction to actually pay for the thing you've seen and liked. Whereas Facebook going to a Shopify store, they don't have any trust in your name, they don't know you, they've still got to plug in the annoying address line by line and credit card details and will this thing turn up? If it turns up from Amazon and it's not as expected, back it goes, and everything's very low risk for the customer. So a lot less friction and thinking hard before making a purchase.
Aidan Booth:
The other thing is, if you're setting up your own store, you need to have a way to deal with payments. It's not difficult, but it's an extra consideration with Amazon. You don't have any of that because it's all there, out of the box. Amazon handles all of that and you just get to have your profits. Now I don't think that's something that should stop someone from building their own store, but it's an extra consideration. Luckily there are companies like PayPal and Stripe out there that anyone all over the world, anywhere in the world can use and sort of set those up in a couple of minutes, but there's still one more thing that you need to set up.
Sophie Howard:
One more big difference we mustn't forget to mention is with Amazon, you don't get to know your customers. You don't get that lovely list of people who've bought and liked your products who might be interested in the next thing you launch, whereas Shopify, that's a really big part of the game plan. So you could share with us maybe for a few minutes, how you go about building your list of customers. You've got sale number one, then what happens?
Aidan Booth:
Where we've got a Shopify style store, that's where I'm driving traffic to. In fact, when we're selling through the Facebook marketplace, a lot of the times we actually send that traffic from the Facebook marketplace back into our stores. So we are still able to process that order. We're still able to capture the name and the email address and everything related to that order. So what happens is someone comes and they buy something or even maybe if they don't even buy something, they come to your website and you start building up this information about the people that are visiting your website, but let's say they do buy something. Then you've got their name, you've got their address, you've got their email list and if you've got other similar products or maybe it's a product that they're going to buy again and again, and again, then you've got the ability to send them out an email and have them potentially come back, build that relationship with your store even more and make a repeat sale. And this is, I think probably the biggest upside of having your own store is, you get to control that. You own all of the information that comes in, the customers that come in they're your customers, and that opens up an enormous range of possibilities for marketing to them.
Sophie Howard:
Really, really huge advantage, that one. Excellent. Well, I think we've sort of done a pretty high level whizz through the three kind of main platforms that you can sell physical products on. So we've got Amazon, we've got Shopify and then Facebook marketplace and you are one of the few people I know who's really mastered all three. So that was really fascinating to hear your take on the pros and cons and what you like. And don't like about each of those three platforms.
Just another final question on products, because this is such a cool business model. We've got these really healthy profit margins. We only need to create the product and the brand once and it can keep on selling. So there's some upfront work and it's very front end loaded, creating that brand and product and the supply chain, finding the supplier and then running it through for hopefully a nice recurring profit margin. Especially if you've got repeat purchases. Are there any categories that you really keep clear of or particularly fond of that you'd like to share as a tip for anyone thinking about getting into products?
Aidan Booth:
I think if you're getting started with a product, it's helpful if the product is easy to customize, and I'm talking about a case where you would want to customize your own products. So not drop shipping, but you're building out your own products. And if you think about this, it's easy to customize anything that's made out of fabric. It's just stitching, but it's much more complicated to customize binoculars, for example, because there's technology in there and apart from that, it will be much, much more expensive to do that.
I always stay away from things that are breakable or could hurt people because you want to sort of mitigate those two risks. You don't want something that's going to be, arrive broken, or scratched or damaged because it's only going to cause headaches. Where possible try to find something that is not a 600 kilo barber chair, but something that's a little bit more lightweight, small, ideally could fit in an envelope. Contact lenses would be fantastic because they can fit in an envelope, people are going to be buying them over and over and over and over again. They have got a bit of price for them, so you can make some money.
I'm not saying that you're going to be selling contact lenses, but ideally something that is relatively small and lightweight. With the world that we are living in these days I think it is helpful if it's not too heavy or bulky, because it means that if you're manufacturing it outside of the United States and the most commonplace is China, then it gives you the option of sending it to the United States or wherever you need to send it by plane. Whereas if you've got a big, bulky or heavy product, then your only real option is to go by sea and if logistics, supply chains and stuff are a little bit messed up, then that can take a long time and just be an extra headache.
So I think if you look for products that are not going to be breakable, products that you can customize easily. So think about fabrics, think about bags, think about clothing, accessories, think about sporting accessories. Different accessories that will sort of piggyback on a hobby or a passion that people have already got. Then I think there are so many options there are just thousands and thousands and thousands of options. And if you start using some of these idea generation tools that are, that are out there, you'll be blown away by things you can come up with. So I think that would be my tips there, Sophie.
Sophie Howard:
Brilliant. Well, thank you very much. That's been some great ideas and insights from a very, very experienced eCommerce seller. So I hope as listeners, you got some great value out of that and I always love chatting to Aidan. Before this show started recording, we had a big chat about all sorts of other unrelated business things. All the different things that are popping up as exciting opportunities and there's so many to choose from, which is why, as you're getting started out, you really need to do the thinking upfront. Which business model suits you, how are you going to make money out of it? How does it use your skills and your strengths? How do you manage what you've got budget for, your risk tolerance? So there's no one size fits all for these online businesses and we all end up just scanning so many opportunities and they're all so tempting and some, well, some sound too good to be true, but there's always some real work involved and that's what this show's all about. Helping you understand what the people who've been successful have done, how they've got there and what they're paying attention to, to keep getting those consistent results. So, thank you very much, Aidan.