This “Amazon FBA Step-By-Step Course” is a FREE gift from me to you to bring more luck! 🙂 I will share everything I know to help you learn, grow and succeed in doing the Amazon FBA business. Enjoy EP2 How To Get Best Quotes
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Full Transcript:
Hello, everyone. Welcome back to the Goodlife Warrior channel. I hope your day is truly amazing. This is the episode number two of the Amazon FBA beginners course. My intention of creating this course is to help you have a good understanding on what does it take to start and succeed an Amazon FBA business. If you know me, I’m a strong believer for everyone to start and own something that belongs to you. And I’m a strong believer in investing into human capital, which is ourself. It doesn’t matter what your job does to you or how the financial market crashes make you feel so anxious. As long as we have the skillset inside of ourself, we will always feel somehow secure and confident that we can survive and we can succeed again. This is why we’re all here. I’m trying to share what I know to help you. You’re here trying to learn as much as possible to better equip yourself whenever you’re ready to invest into the Amazon FBA business.
So let’s start the episode number two, how to get the quote and get the best price for the product. By the way, if you haven’t watched the episode number one on how to select your first product, please do watch that video first. These two videos are interlinked. We’re going to use the quantity discussed in the episode number one, and getting the quote from the supplier. Why do we need to get a quote? It is obvious. We want to know the product cost, but that is not the goal. The ultimate goal is to know exactly how much profit we’re going to make out of this new product that we’re selecting. So getting a quote is to validate this new product that we’re thinking to spend thousands of dollars.
If you get the quote wrong, if you didn’t get this quote complete, it will be impossible for us to do an accurate profit analysis. Trust me on this, there’s many beginners, 80% of the beginners don’t know how to do these complete quote analysis. The end result is some people get into the business, spend thousands of dollars, but later realize that they don’t actually have the profit margin. Some overestimated on the cost. Therefore they bypass the opportunity they selected at the beginning.
What information do you need in order to have a complete quote? Minimum you need four elements of cost information. If you miss any one of the four, you won’t have a complete cost analysis. Therefore your margin projection won’t be accurate. I said minimum four.
I’ll touch base on other elements of cost. Cost number one is product cost. What drives product cost? Driver number one is your specific product design. Many people want to customize your product. So you need to understand your customized specification is going to drive your product cost. In my hand, this is a Hydro Flask water mug. I want this top to be screwed on with a handle, very bright orange surface, and double wall insulation. This specification is going to drive my water mug cost comparing to other cheap water mug. There is another layer of the cost driver. That is volume. How to get a quote is highly dependent on what volume you ask your supplier to quote. This is an art.
In the business of getting a good quote just remember this, volume speaks volume. Let’s do a quick fun exercise. You will remember this forever. Let’s say I’m sitting across my supplier, Linda. “Linda, could you give me a quote for 10 pieces of the Hydro Flask water mugs?” Linda looked away. Looked at her phone. Looked at her coworker. Checked her email. I said, “Linda, I asked you to give me a quote.” And Linda said, “What? What did you say, Ms. Wang?” Let’s try again. “Linda, can you give me 10,000 pieces of a quote on the water flask water mugs?” Now what Linda says, “Of course. You want 10,000 pieces? I’ll prepare the quote right away.” This is what I mean, volume speaks volume. If you understand this, let’s get back to the quote and see how we’re going to use volume to get the best quote.
Remember in the episode number one, we based our total budget and reverse engineered the unit cost that we can afford for this new product. The assumption we made during the calculation is that we’re going to sell 300 units per month. Is this 300 units a good number? Maybe yes, maybe no. How do you know for sure? You use either Hellium 10 or Jungle Scout research to find out what your competitors are selling on page one. So you average the top 10 competitors monthly sales volume, so you get one number. Or you average top 10 competitors on page two and you get a number. If you want to sell on page two to sell under the radar, just use that number. That number is your critical monthly number. Why do you need either page one or page two’s monthly sales number? Because that’s where you want to compete in order to succeed, to sell your product.
Now, once you have that number, we’re going to plug this back to the quote template I prepared for you. In the quote master, we’re going to ask the supplier to give us three quantities, the price for three quantities. The first price we ask the supplier to quote is based on a trial order quantity. It could be 200, 300, it doesn’t matter. Whatever make you feel comfortable. I’m not a big fan of placing a trial order. 90% of the time we’re going to lose money on the trial order because shipping cost is going to eat a big part of your profit. However, some people feel like I’m willing to lose this money to validate the market. Then go for it. Ask the supplier to give you a quote based on the small 12 order quantity. That’s the first price we need.
The second price we need is based on the average monthly sales quantity that you get either from page one if that’s where you want to compete, or page two if that’s where you want to compete. And then use that monthly sales volume times six. Why six? In the episode number one we talk about based on the total lead time, this is how much we need to prepare our inventory for, for the first purchase order in order for us not to run out of stock before the refill order comes in.
Then the third price we need from the supplier is your average monthly sales volume either from page one or page two times 12, 12 months. You might be scared now, “I will never issue a purchase order. I will never buy 12 months of inventory.” Relax. We’re never going to buy 12 months of inventory, but that number is critical for us to use as a leverage when we negotiate our price for the first order or for the trial order quantity, because we have this budget split into what we are going to tell the supplier is we’re going to purchase this quantity of 12 months, however, I’m going to split my purchase order in two. So that’s the purpose of getting that third price.
Now I want to give you a tip. The price you get based on six months buying quantity, most likely is going to be the closest, the most realistic cost on product for your profit analysis. The price you get for 12 order quantity is too high. Don’t use that quantity to estimate your profit margin because you might bypass the opportunity. The cost you get based on 12 months buying quantity might be too low. Don’t get too illusional. “Oh, this cost is so low. I can make a lot of money.” In fact, you will never buy 12 months worth of the quantity. So try to use the six months buying quantity, that price as a base for your profit margin analysis.
Cost element number two is packaging cost. Packaging cost is becoming a bigger and a bigger and a bigger cost of the total product because more and more sellers want their customer to have that premier experience. When they receive their product, it feels like, ah, it’s so well thought out. And it reduces the return rate too. So if you’re in that space, when you receive the cost for your product, make sure you ask your supplier, does this quote include your standard packaging? If it does, please remove the part of the cost, if that belongs to your standard packaging and add the customized packaging.
When you ask your supplier to quote, most likely you don’t have any information available for your packaging yet, no logo, no prints, no design yet. Where do you get as accurate information as possible to get the quote? Well, look at your competitor’s product design. Use their packaging to get a quote or use other website where you get the inspiration and forward that picture to your supplier to get a quote. That quote is not going to be a hundred percent accurate, but it’s going to be close. Until you’ll finalize your logo the number of colors and the thickness of your boxes, then the packaging design cost is not going to be finalized, but to get an idea, you use a close image to get the quote.
When it comes down to getting package quote, once again, volume is the key. How do you know how many to quote on your packaging? Well, just to match your product quote quantity. If you’re putting two or three in the same box, then just reduce your packaging quote quantity by two or by three.
We’re moving forward to cost information number three, shipping cost. Shipping cost is becoming a big part of your total cost. Sometimes shipping cost, cost more than the product cost to be honest. In order to calculate your profit accurately, you need to get this down. You need to get the shipping cost estimated as accurately as possible. This is the most headache part for most people because shipping in itself is quite kind of cumbersome and mysterious. And two, where did you get the basic information in order to get a good quote? Well, I have made it so easy for you in the quote master because the template is already designed for you to get the information, to give to the freight forwarder. And there’s a forwarder in our Facebook group that we recommend the one and only freight forwarder we recommend.
Anyway, whether you use my quote master template or not, you are going to need three basic elements of information in order to get an accurate shipping quote. The first one is, weight. You need to know how much your product weighs. And you also need to know the second one, which is dimension. If this product is super light, whether it is the airline or ocean shippers, they are going to charge you, they call it volume weight, because they’re not going to give you the space for free. They’re going to charge you. There’s a little formula they use for the volume weight. So you need both weight and dimension in order to get a quote.
What’s the third thing? The third thing is the Incoterm. Is the supplier is going to pay for the export cost or you are going to pay for it? Is the supplier going to pay for delivery of your product from their factory to the port, whether it’s airport or the ocean port, or you are going to pay for it? This is called origin cost. The origin cost could be a big part of the cost. Two most popular Incoterms, I would say three, but two most popular ones are either Ex Works, meaning the product is available at the factory. And then the supplier just wash their hands. You’re responsible for everything. You appoint a freight forwarder to go to the factory, pick it up, and export out of the origin country. Doesn’t matter how much it costs, it’s on you and deliver to the destination.
The FOB, which is free on board means the supplier has the product available on their factory, but they’re responsible to deliver the product to the tail of the ship. And they are responsible to export all the origin countries customs. There is a third one, which is DDP. The supplier is responsible all the way to the destination. This is the Incoterm that I don’t recommend because a lot of times the supplier quote you the DDP, you end up have to pay the clearance at the destination because they don’t have the importer of record at the destination country to clear your shipment. You end up having to pay a broker to clear your shipment and then make the final delivery. So the DDP end up is not a true DDP. For this reason for your profit margin analysis is the best if you can get the equal term, either Ex Works or FOB to get an accurate analysis, how much I’m going to pay to ship this product from point A to point B.
Now, the three pieces of information in getting a shipping quote. Now, let me ask you, what truly drives your shipping cost? Once again, same answer, volume. If you are getting a shipping quote for 300 pieces versus 6,000 pieces versus 12,000 pieces, you’re going to get three different costs. Why does it matter? It matters because per unit, per unit shipping cost is going to decrease as you ship more. This ties back to the quantity you are asking the supplier to quote for your product. The key is to get the weight and dimension for the quantity you are asking the supplier to quote. We’re asking the supplier to quote the 12 order, for the six months purchase quantity in the 12 months purchasing quantity.Get the weight and dimension for these three quantities and then get a quote. This is the only way for you to get an accurate per unit shipping cost for your product.
The cost information number four is duty. Duty cost could be a big part of your product cost. Don’t forget that. Okay? It could be 3%, 10% or 25%. By the way, your free forwarder are not getting paid for your duty. They’re just collecting the money and then give to the government. Where do you get the duty information? Well, the first stop is your supplier. They have exported their product to different countries. They know exactly what HTS or HS code this product is exported under. So ask them first. By the way, HS or HTS code, it should be very, very close because this is harmonized among countries. You can also look up online of your specific HS code. I believe I have made a specific video helping you to understand how to look up HS code.
If the supplier doesn’t give you an HS code or the HS code they give you doesn’t seem to be appropriate based on the description, you need to contact a freight forwarder, ask for advice. Based on my product description, what is the HS code you think I should use? And what is the duty I should pay? This is ultimately it is your responsibility, because if you’re responsible for paying the duty, you need to make sure your HS code is correct. Because if you use an incorrect one where you cheat, if you get caught you’re going to pay a lot of penalty.
Your duty apply to the commercial invoice value. Whatever is declared on the commercial invoice for the product, the duty is going to apply. For example, if this product costs $10, that’s including the packaging, that’s including the product inside of the packaging, then the duty is 10% applied to this $10. The duty is 24% it then applies to the $10. So it doesn’t really matter how you negotiate the packaging and the product differently, the custom treat this product as one product.
The second question is, does duty cost depend on your volume? We have said many times, many costs are totally dependent on your volume. Not duty. Duty applies to your cost of product and packaging. Once you have finalized your product cost and your packaging cost, whether it is six months purchase quantity or 12 months purchase quantity, whatever you negotiate, whatever is declared on the commercial invoice, the duty applies on top of it. So duty is just to add on for your profit margin analysis.
To summarize this episode in getting the best quote, the most important thing you need to remember is getting the quote is for the purpose of getting the profit estimate right. In order to validate the new product we’re going to select before we spend thousands of dollars. So there are minimum four costs you need that we talk about, the product cost, the packaging cost, and the shipping cost, and the duty cost. There are other costs which could be customized tooling, which could be the patent, trademark, all these cost could be part of the total cost. However, those costs could be one time as the product development cost. For an ongoing business if you want to be successful, you have to treat the one time cost separate from the ongoing cost.
I hope you really learned something from this episode. If you did, don’t forget to like the video and continue to watch the episode number three, which is getting samples. That is the most important step to validate the product before really committing to the purchase orders. I hope to see you soon. Take good care of yourself. Talk to you later.
Video Version:
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