You know what they say: “Fail to Plan, Plan To Fail”. Although not mandatory, having a business plan for the Amazon FBA business will greatly increase the chance to succeed. For the last few years, I have launched more than five FBA businesses and 4 of them made $1 Million dollars within the first 8 to 12 months. The secret recipe? You guessed it, a solid and implementable business plan.
How do you write a winning Amazon FBA business plan? For starters, there is no need to waste your time by following the traditional business plan framework. Instead, I strongly recommend the lean canvas business model as the foundation of your business plan and built it from there.
Based on the lean canvas model, I have modified the content and filling sequence to make more sense for an Amazon FBA Business. The following table presents the “Lean Canvas Amazon FBA Business Plan”.
Here is how to use the Amazon FBA business plan :
- Decide Who to sell to by identifying your customer segments
- Research and outline the problems the customer segments are having
- Write down a solution for each of the problems
- State the unique value proposition about the product you will be launching
- Outline the key advantages of the product offering compared to other competitions on Amazon
- Figure out all the channels which you will be reaching to your customers in addition to Amazon marketplace
- List your key metrics that define success
- Write down the cost structure for the next 6-12 months
- Write down the revenue forecast
I have attached a google sheet version of the lean business plan at the end of the article. If you need help filling each section out, please continue to read the detailed guide below.
How to Write Each Section Of The Business Plan
Before You begin
Write down the products you are planning to sell, if you do not know what to sell right now, you can check out some of the product selection courses offered for free on Youtube.
List all the key information including :
1) Product Name – Usually a short name would work
2) The most suitable sub-category – find what’s the most suitable sub-category for the product.
3) Competition’s ASIN – Find competitions that are closest to the planned products, then write down their ASINs
4) Price Range – Outline the price range of which you want to sell your products for
5) Variants – Will there be any variants? Color, Size, Package Quantity?
6) Best Season – Is this product a seasonal one? What month is the best month based on competition’s sales history
I will use an AmazonReboot branded Power Bank as the example product to showcase how to use this business plan.
You can use an external excel sheet to collect all the data if there is more than one product. However, if you are just getting started, I strongly recommend that you start with no more than 3 products at the same time.
Identifying the customer segments is THE most important thing if you want to succeed at selling on Amazon. For some reason very few people talk about this, I will spend some time to explain why.
Among all the things a successful business needs to do correctly, identifying the customer segments is the most important. This is because every single business decision needs to be made based on WHO you are selling to. The solutions you provide, the channels you pick, the price you set, the copy you use, etc all depend on who is your target customer segment.
Stay at home moms and young university graduates does not make decisions the same way. The spend time on different platforms, and they react differently to the choice of words. If you don’t have a clear definition of which customer segment you are going after, you will risk the danger of trying to sell to everyone. Your messages will not be on point, the channels you choose will be arbitrary, the value propositions will be vague. It commoditizes your product offering and forces you to compete with other commodity product sellers, who will beat you with more experience money.
There are several ways to segment customers, the most easy one is to segment according to demographics that include :
- Location (City/State/Country or Urban/Rural etc )
- Marital status
- Life stage ( single, married )
In our situation, the most easy way to identify a customer segement is by looking at your competition’s product reviews. Understand who has already purchase your competition’s product. Why do they like it or hate it. Dig through the pictures they post and write down all interesting information you discover. You can later use this information to improve your own product or design an audiance on other social platforms such as facebook/twitter.
With defined customer segments, write down the kind of problems your defined customer segment have that can be solved by the product offering you have previously picked. You can usually get this information by performing a survey.
For example, below is a list of problems our power bank can help to solve:
- Busy professionals who are always on the go can’t keep their digital devices charged
- These people find existing power banks bulky and heavy for keeping them in the briefcase or backpack
- Portable power banks have only one USB port and can only charge one device at a time
With the problems defined, proceed to outline the issues your competitions have as well. The issues can usually be extracted from the competition’s negative reviews. Just visit the product reviews of your competition, and filter for all of the 3 and 2-star reviews. I usually skip 1-star reviews because most 1 star reviews are left by people with an impulse of negative emotions and provide little value in terms of product improvement.
Reading the negative comments one by one and try to extract key issues is not easy and often time-consuming. Luckily there are tools available to help. Helium 10 has a chrome extension that can help extract and analyze your competition’s product reviews. You can use the feature if you sign-up a free user account.
By now you will have compiled a list of problems your customer segments have, as well as the issues your competitions fail to address. With this information, you can proceed forward to the solution section.
Finding a solution for previously identified problems is key for future market dominance. Make sure you address all the problems and issues previously identified. You will have to work closely with your vendors or factories to figure out exactly what improvements they can provide to address the problems you found.
This sounds a lot easier than it actually is if you are a new seller. With limited purchasing power, few vendors will be interested in entertaining your ideas to change the product due to the cost involved. As a result, you often will need to become really innovative when it comes to product improvement.
In our example, the majority of the negative reviews for the competition is about slow charging speed. By digging deeper, you will find out most of these complaints come from users with long 3rd party charging cables. One way to get around this issue is by providing good quality and shorter charging cable so power loss is limited to the minimum.
In summary, a possible solution that address the problems and issues can be as follows :
- A light weight portable power bank with two usb charging ports
- Enough power for at least one charge for several devices ( 8000 mhA or higher )
- Comes with a short and quality charging cable
With the solution clearly identified, you can proceed to beging looking for suitable products that fit your solution criteria. For the purpose of this post, I will not cover the part on how to do procurement.
Unique Value Proposition
Once you have decided who your customer segments are, what products to sell, the problems and issues you are going to address, the next step is to define the unique value proposition ( UVP ) of your offering. The UVP statement focuses on UNIQUE VALUE your product is offering to the customer segment. The UVP should not be a list of features or functionalities, but instead the benefit it provides to the customer segments.
Take the Power Bank as an example, the UVP in this case can be:
- lightweight, easy to carry around all-day
- saves time by charging multiple devices at the same time
- less device downtime with quick and stable charge
- one less cable to carry for ease of mind
Note how the UVP is worded in the perspective as a consumer instead of a seller. Unfortunately, these UVPs are not very unique. In the Amazon Marketplace where sellers can only do limited product innovation, being truly unique is quite challenging. However, find unique and innovative ways to differentiate from the competition can always be done.
The unique value propersition section helps sellers to articluate exactly what kind of product differentiation there is, the UVPs summarized here will be used as seed for keyword research and listing optimization later on.
The key advantages part mainly focuses on, as the name suggests, advantages, when compared to competitors. The key advantages need to cover all the aspects where your product offering is better or stronger when compared to competitors. Longer battery life, stronger case, more accessories, comprehensive warranty, friendly customer service, better design – anything that makes you more favorable when being compared side by side with other products.
A good example would be instead of the typical 1 year warranty, we can offer 2 years replacement warranty. Instead of the normal white plastic outter shell, we can work with indie designers to offer specially designed shells that make our power bank visually pleasing.
Although in the beginning, 100% of the sales will come from Amazon, there are situations when offsite traffic generation is required. Use this section to identify what external channels share the same customer segment as defined earlier. Given most Amazon FBA business will have a fairly limited budget when it comes to offsite marketing, find out which channel is most suitable will get the highest ROI on the offsite marketing budget.
Continue to work on our power bank example, given the demographics and product categories, Facebook will serve better than Pinterest, Twitter, or Instagram. It is also easier to get people to sign up on special discount deals on slickdeals and vipon.
In this section, outline the metrics that are important. Depending on the goal and stage of the product, a different set of metrics will need to be monitored. Make sure the success criteria are also defined. Having such metrics mechanism helps keep track of progress and goal status.
Following is a list of common metrics an Amazon FBA business will need to monitor :
- Gross Profit / Gross Profit Margin %
- Product Line Return on Investment
- Sell-Through Rate ( 30, 60, 90 days )
- Inventory Value / Quantity
- Total Inventory Turn Over Rate
- Time to Rank On Page One
Make sure you fill this section as carefully as possible, include all the potential fees and costs for running the Amazon FBA adventure. If you want to know how much Amazon FBA is charging, you can check out [How To Accurately Calculate Amazon FBA Profit]. This post covers all of the fees and charges Amazon collects when running an FBA business.
You will need to outline for the next 12 months, how much each of your product can bring in in terms of sales revenue each month. Of course, forecasting for 12 months at the early stage of a business will not produce accurate results. However, accuracy is not what we are after for this section. Consider this section a mental exercise for you to estimate revenue and cashflow. Combine the forecast together with the metrics and success criteria and find out realistically what is possible, And most importantly, how much investment is needed upfront to keep the business going for at least 12 months.