In finance, the term "leverage" refers to using debt to start or scale an investment or business venture.
In this article however, we're going beyond that basic definition. Leverage here includes financial (leveraging debt) but also includes anything that can be used to produce faster, easier and/or better results.
My most sincer apologies to finance majors who will cringe at my abuse of the word. 🙂
When you have the types of leverage I'm going to share here, you'll start to experience the following.
- More opportunities start to appear. Luck seems to follow people who grow their leverage.
- Capitalize more and more often on opportunities. Opportunities are rare, it hurts to watch them come and go. Leverage widens your net and shrinks the holes in it. You can take full advantage of the opportunities that arise and will notice that more appear as you grow your leverage.
- Get results from the opportunities more quickly. Patience might be a virtue, but we don't have to practice it if we don't have to! Build your leverage and you can achieve your goals on Amazon faster.
- Get results with less additional work. As you grow your leverage, your effort starts to disconnect from your income. You can earn more money while doing less work day after day.
Ready? Let's get into it.
#1 Financial Leverage
Alright, let's cover leverage as it's commonly defined, using debt to grow a business or invest.
Biggie Smalls said, "Mo money mo problems."
There is some truth to that, but not when it comes to sourcing products and landing deals with suppliers for your Amazon business.
The more capital you have, the better your opportunities for products become.
More capital means...
#1 You can capitalize on "economies of scale." This allows you to buy more products but at lower profit margins than someone might who has less capital to spend.
In the world of marketing, we have a saying that goes along the lines of "whoever can afford to pay the most to acquire a customer wins." This assumes that they are spending more AND remaining profitable.
In Amazon, whoever can pay the most to acquire products AND remain profitable wins.
Sellers who have very limited amounts of capital have to pass on many profitable deals and hold out for higher margin goods. This isn't the case when you have the leverage of cash on hand.
#2 You can land deals with suppliers who have higher MOQs (Minimum Order Quantities). Many of the better suppliers prefer to work with deeper pocketed buyers. It's just easier to work with fewer people who buy more products than selling to many people who buy smaller quantities.
1 Customer | 10 Customers | |
|---|---|---|
Total Spend | $100K | $100K ($10K Each) |
Total Support | 1x | 10x |
Risk of Problems | 1x | 10x |
It's pretty obvious why suppliers favor deep pocketed partners. Less is more. If they can do the same amount of revenue with fewer buyers, they will absolutely do that. Make yourself one of those high value customers.
It would be great if there was a quick hack to getting more money. There isn't, but there are best practices that will help you get there faster than others.
Tip #1 Leverage Good Debt
Many Amazon sellers are wary of using loans or credit cards to buy inventory. Some of us grew up on Dave Ramsey content and were taught that if we can't pay for something in cash, we need to wait.
But business is inherently risky. Fortune does favor the bold and if you're going to be bold with money, it should be for inventory in your business.
So, once you're confident in your ability to turn purchases into sales revenue, consider taking that Amazon loan. Take out credit cards. Build up your credit score so you can get larger amounts year over year.
Tip #2 Reinvest Aggressively
Compared to other make money online models I've done, selling on Amazon is extremely unique. First, you see your first revenue much earlier than most other models. The difference though is that revenue is full of deferred value. If you continually cash out profits from your business, you won't scale.
The more profit you can defer until later, the faster you'll grow. So, if you're ultimate goal is to scale to 8 figures+, no matter how much you earn the first year or so on Amazon, force yourself to live off as little as possible.
Reinvest aggressively and keep your cash flow moving back into inventory.
Tip #3 Add or Keep Additional Streams of Income
The million dollar question in our community is "when should I quit my job and sell on Amazon full time?"
My advice is always, "wait as long as possible."
There are obvious reasons like...
- Health insurance benefits
- You might decide that you actually hate selling on Amazon
- Security and time to build a financial safety net
- More capital to reinvest early on
The investment capital is probably the most important one.
Many of the most successful Amazon sellers that I know have other sources of income. That income is very often placed right back into Amazon inventory.
I quit my job to go full-time on Amazon only after I felt I was losing money by going to my job everyday and not working on the business.
#2 Information Leverage
Information comes in two forms.
(1) Industry and market information and (2) knowledge of the Amazon business.
Industry and market information includes things like identifying the hot trends and products, planning your sourcing based on seasonality and understanding how consumer buying behavior is changing (and it's always changing).
Amazon business knowledge refers to things like understanding how to use the tools that make you money (Keepa, Tactical Arbitrage, etc.) as well as how to do the "hard skills" such as optimizing listings, creating bundles, repricing effectively etc.
#3 Personal/Relationship Leverage
"If you want to go fast, go alone. If you want to go far, go together." - African Proverb
I've always said that "working for yourself shouldn't mean working by yourself." This is absolutely true in Amazon selling.
Tip #1 Network with Other Sellers
Your competition on Amazon isn't a handful of sellers. You'll be shocked at how much you can share with other sellers without it harming your business. It will actually have the reverse effect.
Share leads. Go in on group buys. Do things that you couldn't do alone.
Tip #2 Go Beyond Basic Transactional Relationships with Suppliers and Other People You Work with Regularly
Yes, your professional relationships should be professional, but that doesn't mean you can't connect more deeply with the people you work with. Being more than just another generic business transaction can be a fantastic advantage.
#4 Tool Leverage
Tool leverage refers to physical and digital tools that make your business easier or more effective. Physical tools include things like...
- Your thermal printer if you do your own prep work.
- Forklifts if you process large shipments in house.
- Your computer and internet (what I call top of funnel productivity tools) that make all of your work more efficient.
Digital tools are the software products that assist in managing your business.
- Programs like Keepa, Seller Amp and Tactical Arbitrage that help online arbitrage sourcing.
- Tools like Aura that help with repricing your Amazon products automatically.
- Tools like InventoryLab that help with managing your shipments and inventory.
Software, especially ones that run 24/7, are one of our greatest advantages as members of the 21st century. Software doesn't need a break, it doesn't ask for a raise (ok, sometimes the owners of the software do) and it doesn't need to talk to HR.
Here's how to make sure you're not missing out on getting the most from the tools at your disposal as an Amazon seller.
Tip #1 Regularly Test and Train Yourself on the Latest Tools of the Trade
There is a lot of money to be made in the software industry so there are a lot of very smart people working very hard behind the scenes to create things that you didn't know you needed. Get in on them before they are mainstream.
Tip #2 Don't Pinch Pennies on Tools
It boggles my mind when people cancel a software subscription over a relatively "expensive" price point. At scale, even a tool you use scantly likely provides a massive ROI compared to its cost.
I've found that the more expensive option is often the cheaper option long term with many products. With software and tools, there is often a higher ROI with the higher priced tools (ceteribus paribus*).
A Latin phrase that translates to "all other things being equal" in English. It is a concept used in economics, science, and philosophy to help isolate the effect of one variable in a complex system.
Imagine you are trying to figure out how the speed of a car affects its fuel consumption. There are many factors that can influence fuel consumption, such as the weight of the car, the type of fuel used, the terrain, and so on. To understand the specific effect of speed on fuel consumption, you would say "ceteris paribus" to mean that you are only changing the speed while keeping all other factors (like weight, fuel type, terrain, etc.) the same or constant. This way, you can clearly see the relationship between speed and fuel consumption without the influence of other variables.
So, when someone says "ceteris paribus," they are essentially saying, "if we keep everything else the same and only change this one thing, what will happen?" It is a way to simplify complex situations and understand the impact of changing a single variable.
As a writer, this is a mechanism that makes my job much easier. 🙂
#5 Location Leverage
Although e-commerce has allowed sellers to transcend many of the barriers of physical locations, there are still benefits to where your business is located.
For instance, regional buy boxes might be easier to snag in certain areas. Also, your proximity to a supplier can be a benefit that sellers further away won't experience.
Fortunately, everyone has some location leverage. You are by definition closer or further to all locations than every other seller. Finding the suppliers that are close by can save you on shipping and storage fees which allow you to keep higher profit margins (all things being equal).
How to benefit from location leverage is a little more difficult to explain since moving your business isn't totally feasible or desirable. Anyone can benefit from location leverage though. Here's how.
Tip #1 Leverage a Prep Company
Prep companies can help you save on local sales taxes. Here's how that flow works.
Tip #2 Find Suppliers Near You and Use That in Your Pitch to Work with Them
Favor suppliers who are closer to your warehouse or your prep center.
#6 Team Leverage
This refers to your team. Whether virtual or in your physical locations. The better trained your team is, the easier everything becomes.
Although the idea of being a "solopreneur" can seem sexy on the surface, it's absolutely the slowest way to scale an Amazon business.
Tip #1 Continually Invest in Hiring and Training New Employees
Hire slow and fire fast. This process gets easier with experience. Resist the urge to give in to the "I can do it better myself," mentality. Hiring employees can be costly upfront (time, effort and money) but it is a fantastic investment at scale. Additionally, implementing some sort of HRM software can provide timely insights into employee management results and progress.
Tip #2 Train Employees to Hire and Train Employees
Use tools like ScribeHow to document all of your SOPs (standard operating procedures). Doing this will make hiring and onboarding new employees much easier. It can make it so easy in fact, that you can outsource the process of hiring and training to an employee at a relatively affordable price.
Scaling with employees you hire is great, but having employees who are scaling FOR YOU and bringing new employees onboard is next level.
Tip #3 Hire an Executive Assistant
You are the epicenter of your business success. There are countless smaller tasks that will consume your time and keep you from the higher value ones. Hiring a world class executive assistant is a game changer. This person can be a virtual assistant or a local hire that you see in person regularly.
#7 Track Record Leverage
It's easier to land higher value suppliers when you have a great track record. Your track record can come in several forms.
- Your Amazon sales metrics.
- The amount of time you've been in business.
- Examples of suppliers you've helped succeed.
- Examples of listings you've made successful.
The better your track record, the easier it will be to land high value suppliers.
You should always be protecting and building your reputation, but here are some key points to consider.
Tip #1 Defend Your Amazon Health Metrics
You should be doing this anyway just to avoid an account suspension. If a supplier sees that your storefront has a subpar track record, landing favorable deals will be hard.
Tip #2 Collect Testimonials and Referrals
Reviews shouldn't be limited to product reviews. You should have references of big brands you've worked with. Landing suppliers is much like landing a great job. Quality references help. You'll need to proactively collect these.
Tip #3 Have a Professional Website and Business Presence.
We will cover this in more detail shortly, but having a professional website, professional email address and overall professional appearance online will go a long way.
#8 Off-Amazon Traffic Leverage
The beauty of selling on Amazon is that you get to leverage Amazon's existing customer base. The drawback is that so does everyone else.
If you have an owned audience outside of Amazon, you have a competitive advantage.
An "owned audience" includes the following.
- Organic sales that come from non-Amazon websites.
- Social media followings that buy your products.
- Email lists that you can promote your new products to.
- Shopify or other e-commerce sites that you own that don't rely on Amazon organic traffic.
Having these gives you a massive advantage over other sellers and will make your storefront worth much more if you decide to sell it.
Tip #1 Build a Website and Fulfill without Amazon
Unfortunately, this is only feasible when you niche down. Arbitrage sellers, for example, won't be able to create a logical niche website where they can fulfill their goods. Wholesale and private label sellers are able to do this much more easily.
Tip #2 Grow Your Owned Traffic
Owned traffic includes anyone you can promote your products to for free. This includes things like organic traffic to your website, followers on social media and people on your mailing list.