Podcast: Mastering Amazon for DTC Brands Part 1

Episode Summary

In this episode of The Free to Grow CFO Podcast, host Jon Blair, founder of Free to Grow CFO, is joined by his co-founder and Amazon expert Jeff Lowenstein to break down the basics of Amazon and explore how it can be used as part of the growth strategy for Direct-to-Consumer (D2C) brands.. Jeff shares his extensive experience with Amazon, from working on strategic finance at Etsy to leading M&A at Boosted Commerce. The conversation delves into the differences between Vendor Central and Seller Central, the pros and cons of Fulfillment by Amazon (FBA) versus Fulfillment by Merchant (FBM), and the strategic reasons for expanding into Amazon. They also discuss the financial nuances and cash flow considerations essential for making the transition successful. Tune in to learn how Amazon can be a part of your overall strategic growth, balancing both near-term sales and long-term brand equity.

Meet Jeff Lowenstein

Jeff was previously leading M&A efforts at ecommerce aggregator Boosted Commerce where he was the 5th employee. He built processes across M&A, finance and operations to support rapid growth from 0 to 30 brands under management in 2.5 years.

He previously co-founded and exited an app for Shopify merchants and spent time in the Strategic Finance departments of Etsy and Caesars Entertainment. Jeff holds a BA from the University of Pennsylvania and an MBA from Harvard Business School.

He’s worked with hundreds of brands over his career and founded Free To Grow because of his passion for supporting entrepreneurs and helping them succeed. The analytical and financial tools he has developed over the years are specifically crafted for the modern consumer brand.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Jeff Lowenstein - https://www.linkedin.com/in/freetogrow-jeff/

Free to Grow CFO - https://freetogrowcfo.com/

Outlive: The Science and Art of Longevity, by Bill Gifford and Peter Attia - https://peterattiamd.com/outlive/

Episode Transcript

00:00 Welcome to the Free to Grow CFO Podcast

00:30 Introducing Jeff Lowenstein

03:39 Jeff's Journey: From Etsy to Boosted Commerce

07:07 The Birth of a Partnership: Jeff and Jon's Story

13:29 Deep Dive into Amazon Strategy: Vendor vs. Seller Central

18:30 The Realities of Selling on Amazon: Opportunities and Risks

24:11 Building a Brand on Amazon: Strategy and Differentiation

28:48 The Journey from D2C to Amazon with Guardian Bikes

30:45 Navigating Vendor Central Challenges and Transitioning to Seller Central

32:44 The Financial Nuances of Selling on Amazon

35:39 Strategic Use of Amazon: FBA vs. FBM Explained

53:08 Final Thoughts

[00:00:00] Jon Blair: Hey, what's happening, everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations with brand founders and industry experts about scaling a D2C brand with a profit focused mindset. I'm your host, D2C Blair, founder of Free to Grow CFO. We're an outsourced finance firm that specializes in fractional CFO and bookkeeping services for growing D2C brands.

[00:00:27] Jon Blair: Alright, today's a big day. Why is today a big day? Because I've got my good friend, brother, as I call him all the time in text messages, co founder, partner in crime, psychologist, therapist, whatever you want to call it, Jeff Lowenstein, on the show with me today. Hoping this is the first of many of Jeff's appearances.

[00:00:49] Jon Blair: Jeff is coming on today to help us talk about Amazon as a sales channel. Jeff's got a deep background in Amazon. I'll let him give his story in a few [00:01:00] minutes. But Amazon is one of those channels. That as a D2C brand is always top of mind if and when you should consider expanding into Amazon. And so I've got Jeff on board with us today.

[00:01:13] Jon Blair: Jeff, thanks for taking time out of being a dad of a little baby and joining me on the show. What's happening, dude? 

[00:01:21] Jeff Lowenstein: Thanks Jon. Finally, finally made it on and happy to be here. Definitely. This will definitely be the first of many and and yeah, hopefully people enjoy listening to us jam. About e commerce topics.

[00:01:34] Jeff Lowenstein: I mean, we're, we're talking about all this stuff all the time on the phone. So hopefully it'll be helpful to bring it you know, to the audience here. And you know, you forgot that we're in a business marriage, right. To add to your list of titles there. So D2C and I spent quite a lot of time together trying to build free to grow and, clients [00:02:00] in the best way possible.

[00:02:01] Jeff Lowenstein: So, it's been a good partnership and I'm excited for the future, for, for our business and for our relationship and friendship as well. So absolutely. Cool. 

[00:02:13] Jon Blair: Absolutely. It's funny because what we're going to basically be doing right here is recording. About an hour of like what my life and Jeff's life looks like on a typical day of us just riffing on different e commerce and and scaling topics.

[00:02:30] Jon Blair: So, really quick, why should you care about what we're talking about today? Because as I mentioned, if you're a D2C first brand, one of the easiest places, and I'll say tempting places, to consider sales channel expansion. First is Amazon. We've been talking the last couple of weeks about retail. There's a place for retail expansion in your strategy, depending on your goals, the pressing go on that, turning that on the operational challenges, the finance challenges, the [00:03:00] shift in mindset, much different than considering an expansion into Amazon.

[00:03:04] Jon Blair: So this is very important for you to understand the basics of Amazon. And to understand how it's different and maybe the same as D2C and how you can use it strategically to enhance your growth and ultimately enhance the brand the blended. cross channel, multi channel profitability of the company.

[00:03:22] Jon Blair: So before we get into chatting about Amazon, just like we always like to do, I'd love, Jeff, for you to run us through your story, and then ultimately ending with how we met and how we joined forces. For sure. 

[00:03:39] Jeff Lowenstein: For sure. And feel free to ask me to speed up, right, if I if I go on too long, but I, let's see, I've been in the e commerce business Since I worked at Etsy over in Brooklyn, I was there for a few years on the strategic finance team.

[00:03:58] Jeff Lowenstein: And so we did [00:04:00] anything that the CFO needed. That's where I learned about what is a marketplace, what is, e comm and how is it different than retail? You know, who are these merchants and what are their businesses look like? And Etsy is a pretty special place. It's a unique player in this econ world, it, it's kind of the anti Amazon in a lot of ways, right?

[00:04:22] Jeff Lowenstein: All the goods are unique and the that's, that's their heart and soul, right? And they really try to stay true to that. Whereas Amazon is built for efficiency and mass produced products, right? So very interesting, contrast there, but anyways, that was a great learning experience. I, I helped, team.

[00:04:50] Jeff Lowenstein: I was, I was dealing with the marketing team. I was dealing with the international team very closely among other responsibilities. So, so learned quite a bit about e commerce while I was doing that. And then I got an MBA after, after Etsy and worked on a Shopify app while I was doing the MBA. And I am not a product person is what I learned, but I learned a lot, a lot, a lot through that experience and got familiar with the whole Shopify experience.

[00:05:21] Jeff Lowenstein: Ecosystem and that was a really eyeopening experience as well to learn a lot about all the tech solutions that are on the market and, and have empathy as well for our, our friends and partners who are building SAS. And, you know, so, so I know quite a bit from that experience and then most recently before joining D2C, I was the 5th employee at one of the e commerce aggregators.

[00:05:48] Jeff Lowenstein: This one was called boosted commerce. It's based in LA, but I was, I was working remotely from New York and I helped lead the M and a team. So I was responsible for finding brands, [00:06:00] finding entrepreneurs wanted to sell their brand, negotiating the deal, doing the due diligence, and then finally integrating and helping to operate.

[00:06:10] Jeff Lowenstein: The brand into the portfolio. And so we grew from zero to, you know, nine figures, nine figures in revenue, extremely quickly in a way that you can't, scale organically. Right. It was, a real, a real crash course in, in Amazon brands, direct to consumer brands, really dissected the financials of those acquisitions.

[00:06:37] Jeff Lowenstein: And, and other targets as well that we did. And so was able to take some of that experience with me and some of those playbooks that we built out with me as well. And so that's a story probably for another day, right? That could be a whole podcast on its own. Some of the, some of the, the, war stories from being on the front lines of the whole [00:07:00] aggregator craze.

[00:07:02] Jeff Lowenstein: That's probably another podcast for us. But anyways, as I was, as I was. Leaving that job, you know, just over a year ago, I was considering starting my own fractional CFO business at that time. I had a few ideas. I even thought about acquiring 1 and I was. Exploring a partnership with someone and that person introduced me to D2C and that was a very faithful introduction that you know, set us down this path.

[00:07:31] Jeff Lowenstein: Right? So, I'm happy to go more into that. How did it all came together? D2C? But, anyways, that's all the background that led us to meeting. 

[00:07:44] Jon Blair: Yeah. And you know, I think it's important to share this for people to know when, when I met Jeff through a mutual friend, I had been running free to grow for a little over a year, maybe about a year and a half, not quite.

[00:07:57] Jon Blair: And it was very clear that there was, [00:08:00] there is a gap in the marketplace that, that we were you know, we were meeting a very important need within. And so, I was actually actively on the hunt for a partner, but, you know, have, have been an equity holder and on the executive team of several early stage startups and kind of learn the do's and don'ts of who to partner with and who not to partner with and what that checklist looks like of attributes that are needed.

[00:08:25] Jon Blair: And so at a very long list that I've. I kind of quite, quite frankly thought was probably unrealistic and I'd probably end up partner lists because of that. But when I met Jeff, we it was just very clear that he checked all those very important boxes and, and I honestly, I sat down with him and just said, Hey man, how about we join forces instead of you starting your own firm?

[00:08:48] Jon Blair: Because I think we could be. we could be quite the formidable team and most, most importantly, we can scale and we can reach more of these e commerce brand [00:09:00] founders faster if we join forces. And that was really the, the heart behind it all is like, how do I find another good human being who wants to build a business full of good human beings who want to try to help other good human beings in a very overwhelming situation, which is scaling an e com brand.

[00:09:17] Jon Blair: And so. Fast forward to a year later and, and we've got instead of the nine or 10 clients I was serving at that time, we've got, you know, getting close to, to two dozen and, and growing. And it's just been really, really awesome getting to this point. One thing I do want to actually ask, just so you can clarify for the audience before we dive into talking about Amazon, how many Amazon brands do you estimate you've touched?

[00:09:44] Jon Blair: in either the M& A process or the integration process when you're at Boosted? 

[00:09:50] Jeff Lowenstein: Well, it's a great question. And if you include brands that we negotiated with and we analyzed financials [00:10:00] but did not progress to the due diligence stage, well into the hundreds. So several hundred over a few years. And so you get a really good feel for how these businesses look.

[00:10:14] Jeff Lowenstein: On the financial side, after reviewing hundreds, literally hundreds of P and L's, you know, looking at financial trends and KPIs, looking at the balance sheet as well, right? So, there's a real crash course. And I threw all that right through all those touch points. I knew from my background being in strategic finance roles, and then also doing that, you know, analysis and due diligence at boosted commerce.

[00:10:40] Jeff Lowenstein: That the financial analysis that's needed for it for an e commerce brand is challenging in some ways because of the working capital, requirements because of the variability of margin when you're marketing efficiency can be [00:11:00] all over the map. And so I knew there was a need for this type of work. But I wasn't seeing it right.

[00:11:06] Jeff Lowenstein: We would see financial statements that, were sloppy, incorrect. And I, I felt pain. I felt that pain internally for entrepreneurs who had worked extremely hard that they had poured their blood, sweat and tears into their Business over many years, right? Invested their time, their, their family's capital, right?

[00:11:31] Jeff Lowenstein: And they may or may not have been able to pull out any cash over that time period. And when they come to sell it, right, that's probably the most money they'll make is, is upon exit. And it was, it was heartbreaking to see that actually what they thought they were, making in terms of profit was just incorrect in some cases.

[00:11:52] Jeff Lowenstein: And so that. That feeling always stuck with me that there needed to be a little more rigor introduced into the space [00:12:00] and some of that same work that I was doing at Boosted could be. Offered as a service and, and, you know, trying to help level up the financial discipline of e comm brands was, was the driving force behind why I wanted to originally start my own fractional CFO firm.

[00:12:18] Jeff Lowenstein: And when I met D2C, he had the exact same. deep feeling that it's stressful, it's hard, and we can help the brand owners with making decisions, but also feeling with also with feeling more confident about the financial situation of their business. So we were, we were extremely aligned on that, on that part, right.

[00:12:39] Jeff Lowenstein: I would say shockingly. So 

[00:12:42] Jon Blair: absolutely. Absolutely. And look, I'll say one more thing and then, and then I'll shut up and we'll talk, we'll talk Amazon strategy. But, Really our, our, our mission is to help fight back against the stress and overwhelm of scaling and econ brand. And it's [00:13:00] because we believe every, every business owner deserves to experience the freedom and growth of being an entrepreneur and it sounds cheesy, but that's where the name free to grow comes from.

[00:13:11] Jon Blair: We believe that when we do our job well as bookkeepers and fractional CFOs, we help clients get a little bit closer to experience the freedom and growth that draws every entrepreneur into wanting to own their own business instead of work from, for someone else. So, So with all that being said, let's chat Amazon strategy.

[00:13:32] Jon Blair: So there's a lot to unpack here. I want to start with some basics, but some basics that like, if you don't know the acronyms, if you haven't been in a, if you haven't been in the Amazon space before, you may not know some of these things. You may not even know that there are different ways to sell on Amazon and fulfill on Amazon and things of that nature.

[00:13:49] Jon Blair: So I want to start with bare bones basics. First one, vendor central versus seller central. What's the difference between Amazon Vendor Central and Amazon Seller [00:14:00] Central? 

[00:14:01] Jeff Lowenstein: And they sound similar, right? Vendor Central, Seller Central. It's quite confusing. So there's a difference. There's a big difference.

[00:14:12] Jeff Lowenstein: When you think about Amazon, people think of I'm buying something from Amazon as a consumer and that's right. You are logging into amazon. com and. ordering from Amazon, it shows up in an Amazon branded box, right? You return it to Amazon if you need to. However, there's multiple different ways that that product can be sold to you going on behind the scenes.

[00:14:41] Jeff Lowenstein: And there's multiple ways that a brand can interact with Amazon's Platform and the business model can be quite different based on what they choose to do. And so, so vendor central is just like traditional wholesale. You could think of it [00:15:00] like what used to happen at big or what happens today in big box stores, right?

[00:15:05] Jeff Lowenstein: This was, you know, the only way that brands made money in the past, right? It was either sold into a big retailer. Yeah, basically you would sell it to a big retailer and that's the same thing here, right? The brand sells at a discount to Amazon, Amazon owns the product, and sells it on to you, and Amazon itself has to mark up the price to make their margin.

[00:15:30] Jeff Lowenstein: If the product doesn't sell, that's Amazon's problem for the most part, right? And they can play with the price, or they can do other things to try to move the product, but They own the inventory, which is really key. So there's a negotiated price between Amazon and the brand. That's a wholesale price.

[00:15:54] Jeff Lowenstein: And of course, Amazon's a big player and they can negotiate very hard. And [00:16:00] so. They have quite a lot of power in the marketplace, so that can be challenging for lots of reasons for for brands But the upside right is that you know if Amazon does a good job selling it they can be a steady customer and and And they'll buy from you in bulk.

[00:16:22] Jeff Lowenstein: That's Vendor Central. Seller Central is completely different. Seller Central, and bear with me, because it's confusing to think about if you haven't encountered a marketplace before, Seller Central is actually a third party marketplace within Amazon, where a brand can list their product. Input their own listing images, input their own copy for the descriptions, all that stuff, and sell it to you as the consumer through Amazon's platform.

[00:16:56] Jeff Lowenstein: The key difference is that the inventory [00:17:00] is still owned by the brand. Amazon charges the brand a fee to hold that inventory in their warehouse, and then another fee to sell, send it on to you, the consumer, within two weeks. You know, 24, 48 hours for it to participate in in the prime program. And so it's quite different because, well, you can think about it like this, right?

[00:17:25] Jeff Lowenstein: Who actually owns the inventory at any point in time? That's the key difference. But the business model is quite different as well, because you as the seller, you as the brand and seller central, you get to control the pricing, the copy, the images, how much you spend in ads, how much inventory you have in the warehouse.

[00:17:44] Jeff Lowenstein: Or how much you don't have in the warehouse. All those things are in your control. However, Amazon will charge you fees for services all along the way at every step of the chain. Right? So it is quite different. It was several years ago that over 50 [00:18:00] percent of goods on Amazon were, were sold through the third party marketplace through seller central.

[00:18:09] Jeff Lowenstein: In 2023, I just checked this before we got on, D2C, somewhere around 68%. Of goods sold on amazon. com are third party. So interesting for those of you at home, you're thinking, what do you mean? I buy everything from Amazon, right? Well, actually probably most of this stuff you're buying is sold through this third party marketplace through seller central.

[00:18:35] Jon Blair: So a couple of things I want to riff on there. One, I, this is just spec or this is hearsay. I heard back when Guardian bikes and we're selling on Amazon, I heard that seller central is actually more profitable for Amazon. Because they don't have to take the inventory risk and, and and you know, they don't, they are not as not being not the seller.

[00:18:57] Jon Blair: They have actually lower costs and [00:19:00] actually just charging the fees that they charge on seller central. They actually make a much higher margin. Don't know if that's true or not, but I, it, I, it did, it. At least from my experience and discussions I had with people in the earlier days of econ, like seven, eight years ago, it used to be easier to get on vendor central and they're making it a lot harder.

[00:19:19] Jon Blair: I've heard to be accepted into vendor central and And there's also this, you know, again, I don't know if this is true or not, but like really Amazon is looking for a way to, you know, if your product crushes it, they want to just white label their own version of it and sell it if they can. And so interesting story.

[00:19:39] Jon Blair: This is actually really, really interesting. Guardian bikes. We were selling on Amazon about Seven, seven, eight years ago on started on Vendor Central because Mark Cuban was an investor of ours and he got us connected with the vice president of our product category. So we got a really sweet deal on Vendor Central getting containers purchased direct from China.

[00:19:59] Jon Blair: You know, [00:20:00] so getting like half a million dollar POs. There was a time when it, when we had this weird kind of like lull in communication and didn't, didn't hear anything from them. Fast forward to like just a couple of years ago, one of our investors was skiing out in Idaho and he was sitting down at a bar talking to a guy who was like, Oh, I know guardian.

[00:20:20] Jon Blair: I was the vendor manager. They handled their account. I won't say his name to protect him, but he told, he told our investor. He said, Hey, listen, for, for like a good three months, we were pouring over your patents, trying to figure out if there was any way for us to introduce the same thing and get around the technology and not have to purchase from you guys anymore.

[00:20:42] Jon Blair: But we could not figure it out. Your patents were like, Locked up and so we kept purchasing from you guys. But so like that, I'm just pointing out that there is a risk. Amazon really does sometimes take over a product category after someone, after a brand crushes [00:21:00] it on there. Now I'm not saying that that should scare you from Amazon.

[00:21:03] Jon Blair: It's just to know that like you are selling on someone else's platform. You're not selling on your platform, right? So one of the drawbacks is. You don't get to keep all the data. Amazon has all the data on the customer. They know who's buying. They, they also, you know, kind of, you know, they're always looking at, at ways to introduce new products themselves as a retailer.

[00:21:23] Jon Blair: And so that, that's one thing to consider. Another thing is, and we can get to this more in a, in a few, but like, or actually maybe we just drill into this here. On the Seller Central side, Jeff mentioned The fees for fulfillment and storage, that's unique to a fulfillment method called FBA, but there is also something called FBM.

[00:21:45] Jon Blair: So I don't know, Jeff, maybe you want to like drill into, if you're selling on seller central, what are the different ways that you can fulfill product? 

[00:21:53] Jeff Lowenstein: For sure. And I just want to respond to something that you said there that that's really interesting about. [00:22:00] Guardian and Amazon trying to find a way to replicate your product.

[00:22:07] Jeff Lowenstein: It totally happens and it totally is a problem. Amazon will launch a private label version of a successful product and steal market share. And there's even unfair advertising practices that they do where I've seen. Certain placements that they'll, they'll put their own products in. I've seen listings from Amazon that don't comply with the terms of service, meaning your, your first image has to be a plain photo of product and white background, and that's it.

[00:22:40] Jeff Lowenstein: There can be nothing else in there and they don't know it. You know, I've seen the Amazon products that violate that rule. Right. So it's a problem that they don't always play by their, their own rules. However, I'm, I'm not convinced it's the problem that people think that it is. It gets a lot of mention in the press and a lot of [00:23:00] media outlets pick up on it because it's a very obvious, unfair example.

[00:23:06] Jeff Lowenstein: But I think that the number of Amazon private label products that are actually that successful is, is, is very small. I'm It's, it was, it was certainly around, it's certainly less than like two or 3 percent of GMV. I remember reading it in an article and that I don't know what the number is exactly today, but it was pretty small.

[00:23:28] Jeff Lowenstein: And so while it's something to watch out for, I would, I would actually say it's not a great reason to not launch on Amazon. And I would, I would for sure from being too, too frightened, like, like you mentioned, D2C. So. It's an interesting one. He gets a lot more airtime than, than the dollar impact. 

[00:23:51] Jon Blair: For sure.

[00:23:51] Jon Blair: I mean, it's also like, come on, there's the classic, like, Oh, the big guys, like killing all the little guys in the marketplace with unfair practices, news [00:24:00] outlets, love to talk about that kind of stuff. Right. But like, the other thing is it comes back to your, your strategy, right? Like, what is your strategy for building a brand?

[00:24:09] Jon Blair: Like the word brand, we don't say, that we work with D2C product companies. Like, we work with brands. You have a brand name that is unique to what you sell. You may have a product category that there's competition from other brands. But when you're selling on Amazon, what's the difference between, I mean, there's a lot of differences, but generally speaking, what's the difference between an AmazonBasics, which, like, yeah, I've got an AmazonBasics mouse right here, so I'm part of the problem.

[00:24:39] Jon Blair: And your branded product, right, is that you're building a brand that stands for something above and beyond just the product itself, right? And so like, if you decide that there's a strategy within growing your, there's a brand growth strategy, where Amazon is a good fit for one reason or another. [00:25:00] Most certainly don't let the whole like private label thing freak you out because you're building a brand that hopefully stands for something that would stand up against a private label product should, should Amazon try to copy what you're doing anyways, right?

[00:25:16] Jeff Lowenstein: Well, I think you nailed it on the head, right? If you're scared to launch on Amazon because your product is going to show up Alongside competing products in the category. Maybe that's not an Amazon problem. Maybe that's Your product problem that you're not feeling confident That there's a compelling reason customers should choose your product and maybe pay a premium for that products as well.

[00:25:41] Jeff Lowenstein: Right. And it comes down to innovation, you know, differentiation, right. And then of course, marketing is, is important too. In some ways, Amazon is actually the most egalitarian platform. 

[00:25:58] Jon Blair: If you totally 

[00:25:58] Jeff Lowenstein: compare it to [00:26:00] direct to consumer, right. If you happen to have a better hook. In your Instagram ad, right?

[00:26:05] Jeff Lowenstein: You might outcompete. You know, the next guy in your, in your category, but that's not going to be very long lived if your product quality is not there and there's not a reason for people to keep coming back on Amazon, people can see your reviews, ratings, photos, real customer photos right there on the platform, right?

[00:26:27] Jeff Lowenstein: And that, feeds back into the algorithm, and so better ranked, better reviewed and better, you know, better received products should be ranking higher. And of course, people would argue, well, they say, well, it's pay to play, you know, that, that algorithm can be manipulated, and of course it can, and people do that, and that's, you know, good business as well, right?

[00:26:51] Jeff Lowenstein: It's a good business practice, but it is actually You know, a place where, where products can stand on their merits much more than, [00:27:00] you know, the vast, like ocean of direct consumer, where really you're competing for attention on who can, who can design the catchiest to serve someone, right. And that's, that's how you pull someone in.

[00:27:13] Jeff Lowenstein: So, I would, I, yeah, I would say like people need to be confident in their, in their actual product that it can stand against the competition. And another just thing I also want to mention. In terms of business model, right, is that depending on your strategy, it's not, it's not either, or it should be, I think it should be very much a both and, and I think they serve different, different purposes at different times in the life cycle of a brand.

[00:27:44] Jeff Lowenstein: Amazon can be better for near term cash flow and near term sales. And I think direct to consumer can be better for brand, building brand equity, building a relationship with the customer, building that LTV. You know, it should happen on your [00:28:00] website, which where you can control the messaging and build a relationship with the customer.

[00:28:04] Jeff Lowenstein: And so I think both are important, and I think people get some get sometimes lost in the, like, competing nature of the two. But when you get them both working synergistically, right, that's when you can really succeed. 

[00:28:18] Jon Blair: Yeah, so actually we'll come back to the FBA versus FBM in a second because I actually this this segues nicely into something else I want to talk to talk about which is like it's it's the strategy of using Amazon It's not just some sales channel that exists to like bring in more sales volume There's a strategy to why you may want to leverage Amazon and going back to this vendor central versus seller central I'm gonna tell a little story so like At Guardian, we were D2C first when it came to our e commerce business.

[00:28:48] Jon Blair: Brian, Kyle, the other guys on the founding team, the original founders, they went on Shark Tank. We got an investment from Mark Cuban and that was when the company could afford me to start full time. [00:29:00] And Mark was like, Hey, this needs to be on Amazon. Let me connect you with someone over there. So Mark connected us.

[00:29:05] Jon Blair: We got lucky. This doesn't usually happen. We got connected with the VP of our product category. And at first they wanted to do what are called domestic shipments, meaning they would just send us weekly shipments, small shipments that we'd send from our 3PL. to various fulfillment centers for Amazon.

[00:29:22] Jon Blair: The problem with that is that we had to double ship everything, ship it to our 3PL and then ship it from our 3PL to all these distribution centers for Amazon. So the margin really sucked. So we pushed back and I think we had some clout from Mark that really helped. And we said, you guys need to buy direct import called your DI for short, direct from China, containers at a time.

[00:29:44] Jon Blair: So the risk for Amazon is they had to place big POs. We are getting PO six figure POs from them. But the advantage was they picked it up FOB China port, and so they use their shipping rates and their shipping rates. Amazon has incredible shipping rates, right? And [00:30:00] so that took a bunch of costs out of the supply chain we both got to share in that margin improvement, right?

[00:30:04] Jon Blair: But coming back to the strategy, We were very concerned about not having the data, the customer data, because that was a big part of being a D2C brand, was having a direct customer relationship, right? But at that time, getting six figure POs that we could invoice as soon as the goods left China, which is only like three days after we had to pay for them, we could go take that receivable, and because Amazon is a great paying customer, We could go factor that receivable and we could borrow 85 percent of that receivable and get cash today to keep scaling the business.

[00:30:38] Jon Blair: So we decided to do vendor central for about a year because of like Jeff was, was referring to, like we were able to get this quick, steady flow of big orders and orders that we could turn into cash quickly by financing those receivables. We did it for about a year. We ran into a lot of issues with like, Amazon's algorithm changing the pricing and the pricing [00:31:00] dropping super low relative to our site and We just all these issues with the customer experience and pricing and we finally decided Hey, we're going to go seller central But strategically we couldn't do it until we could afford to right so we actually had to do a little bit of an equity race We went back to our investors.

[00:31:17] Jon Blair: We said, Hey, this equity raises to help us transition from vendor central to seller central. And we need some capital because the cash cycle is different. We have to buy the inventory ahead of time. There's no receivables, the factor. And so we moved to seller central. And all was good, but we had to raise capital to do so.

[00:31:33] Jon Blair: Right. And so the point I'm making going back to Jeff's point is that like, there are strategic reasons of how to use Amazon and, and, and when, when to use it and to what extent. And we even eventually on seller central, eventually started taking some of our products off and only offering our lower price point entry level bikes on Amazon and not our full [00:32:00] flagship product line and all of our accessories.

[00:32:02] Jon Blair: And the strategy there was, Hey, we're going to get new eyeballs on the Amazon platform on the brand that we wouldn't get through our DTC marketing efforts. And so we'll just have these products visible and available. And we'll execute some sales, but hopefully we got some brand loyalty of people coming back to the site to purchase later on.

[00:32:21] Jon Blair: So I'm telling this story to all to say that like there are strategic, there are strategic reasons to consider expanding into Amazon. It's not just, it's not just, Oh, let's just open up another sales channel. It's why, how does this fit into the strategy? 

[00:32:38] Jeff Lowenstein: Don, what I'm curious, what kind of terms were you getting from Amazon when they would.

[00:32:43] Jeff Lowenstein: Cut those POs. How long would they take to pay you? 

[00:32:47] Jon Blair: So we had net 90 days with them and they do a very typical thing that I feel like most retailers do which is like They'll, they'll give you shorter payment terms for a percentage [00:33:00] discount, right, on the invoice. And you can take longer terms for no percentage discount.

[00:33:07] Jon Blair: And we actually ended up taking the longest terms they had available to us with no discount. And it's because if you annualize the discount you don't realize this because it's usually floated as like 1 to 2 percent. But if, in this case, the, the discount they floated was 2 percent for 30 days, 2 percent for 30 days is 24 percent annualized.

[00:33:29] Jon Blair: I could factor that receivable for 15 percent annualized, right? So, we actually took the longer payment terms with no discount and factored that receivable to accelerate the cash inflow and it was a lower annualized cost of capital than giving a, giving a discount. So, it was 90 days is what we landed on, but how we floated the cashflow to buy the inventory was we negotiated with our, our factory.

[00:33:56] Jon Blair: Cause we had to pay everything before the goods left the facility. And we said, Hey, for [00:34:00] Amazon orders only, can you give us net seven days? Cause it takes about three to five for it to transfer title at the port and then invoice Amazon. And so what that allowed us to do is invoice them, factor the receivable, pay the factory, and that's how we're able to float 

[00:34:15] Jeff Lowenstein: that.

[00:34:16] Jeff Lowenstein: That all makes sense, D2C. Thanks for sharing, and certainly we could spend a whole hour on cash conversion cycle and how to calculate it, and what you did there was obviously pretty impactful for the cash cycle of Guardian bikes. It's interesting, right? Because vendor central, yeah, the benefit is you get those big POs and quickly and they can be great for cash flow, but you're also at the whim of Buyer, right?

[00:34:42] Jeff Lowenstein: And if those stop coming, all of a sudden your whole business can, can take a left turn really quickly. And so that trade off in, it's really control is what you're talking about, right? Amazon can set their price low because they own the inventory if they want on a certain day, [00:35:00] but that, you know, it doesn't work for your website.

[00:35:02] Jeff Lowenstein: However, if you're on Seller Central, you're, you're selling it yourself. You're in control of all those aspects of, you know, the customer experience and your business, right? So that's a key difference. I think you were asking about FBA versus FBM. Should we go back to 

[00:35:21] Jon Blair: what I wanted to ask you about there is like, okay.

[00:35:24] Jon Blair: And I know you probably get this all the time too. Brands ask me a lot, like when they're looking to expand from D2C and Amazon, like, should I do FBA or should I do FBM? And, and why does one matter over the other? Like, just explain to the audience the difference between the two and what the advantages and drawbacks are of using each of those fulfillment methods.

[00:35:47] Jeff Lowenstein: So specifically didn't mention this before, so it didn't get too confusing, but within the seller central version of the world, there's, there's two main types [00:36:00] of ways to sell on Amazon. One is called FBA, which is what I was mentioning before. FBA stands for fulfillment by Amazon. You set you as a brand, send your product into Amazon's Fulfillment centers, they store it there.

[00:36:18] Jeff Lowenstein: They charge you a fee for that many different types of fees, by the way, which again is a topic for another podcast. And then once, you know, a product is purchased by a customer, they'll send it on and deliver it to that person's doorstep, but the key thing is. With Prime, right? Because they have the inventory in their warehouse, they can plug it into their fulfillment network and deliver it with the Prime shipping promise of 48 hours in most cases, and they're trying to get it down under 24 hours, is their big push currently.

[00:36:56] Jeff Lowenstein: They're making quite a lot of progress. So that's a [00:37:00] huge advantage because, you know, I do it all the time, right? I think of something, it's changed the way that I shops and the way that I think about acquiring products in my life, is this program of Amazon prime, right? I think of something boom within 10 seconds.

[00:37:17] Jeff Lowenstein: I click a couple of buttons by now. I don't have to think about it. It's on my doorstep the next day. 

[00:37:25] Jon Blair: So that's one thing I want to say about that is that like, for you as a DTC brand, to be able to ship, to be able to get product to your customers within 24 to 48 hours, you have to have your product in many more warehouses than you think.

[00:37:39] Jon Blair: I learned this at Guardian. You can't just have two to three fulfillment centers and reach everyone in the U S in 24 to 48 hours. And so although Amazon takes some of these fees from you, I, in my experience, they can get your product to customers in the prime, like, time frame much cheaper than you can in the early days.

[00:37:59] Jon Blair: Later on down the [00:38:00] line, when you're at scale, depends on your product category, but when you reach some sort of critical mass or inflection point, you're You can begin to get product to customers in two days yourself because you have enough inventory to expand into all the fulfillment center nodes that are needed.

[00:38:14] Jon Blair: But this is one advantage to going seller central in the early days is you can, you can really benefit from their economies of scale and their fulfillment network and reach people faster. So I just, I just something I wanted to note. 

[00:38:27] Jeff Lowenstein: That's it. I mean, when you think about the retail side of Amazon. not AWS, right?

[00:38:32] Jeff Lowenstein: That's probably their biggest advantage and moat as a business is this amazing, amazing fulfillment network. And it's been quite controversial, but just in the last They started charging for that distribution of your product across the different fulfillment centers across the country. It used to be that you could just send it into the closest one to your warehouse or to your manufacturer.

[00:38:59] Jeff Lowenstein: And they [00:39:00] would do that placement on your behalf to get it closer to the different you know, zones that they need to be in to deliver on the prime promise. But anyway, so that's an amazing benefit of Amazon. And that's why they have so many eyeballs and customers, right? Is because of that prime promise.

[00:39:20] Jeff Lowenstein: So anyways, that's one version of selling on seller central. That's, that's called FBA. The other option is, well, there's other, there's, there's two more options, but the other main option I'll mention is FBM, which is fulfilled by merchants. And that just means that you've listed your product in Amazon.

[00:39:40] Jeff Lowenstein: You still control the pricing, the image and the copy on on the listing page, however, after the customer checks out, you as the merchant use, you ship that on to the customer. And so like D2C was saying, unless you're paying for, you know, overnight or rush shipping, you're [00:40:00] probably not going to get it to the customer.

[00:40:02] Jeff Lowenstein: And certainly not going to get it to them within two days, just operationally. And certainly not at any reasonable cost to you. On your own. And so, but you'll notice, right, when you buy from a website, you typically don't get it in that same 1 to 2 days. So it's, you know, leveraging the merchant shipping network and whatever, whatever operations they're using for the direct to consumer side.

[00:40:26] Jeff Lowenstein: They're typically using to fulfill the Amazon order in this case as well. And FBM can be great, especially if you, if you ship heavy products, for example, that may not make sense. With with FBA or, made to order products can work for, there's, there's certain categories that it makes sense for. It also makes sense when you're first starting out, when you're first getting launched on Amazon.

[00:40:54] Jeff Lowenstein: A lot of people like to do this to just get the wheels turning. Figuring out how does this [00:41:00] whole Amazon thing work and, you know, you may not have the operations set up yet to actually store product in the Amazon warehouse. And so it can be a good bridge to getting you started on Amazon. But the key drawback in FBM is that you probably will not have the prime badge on your listing and you probably will not be able to, you know, sell it through the prime program.

[00:41:25] Jeff Lowenstein: And that means that customers are going to see that and. They're just not going to buy your product at the same rate. And that shows up in your conversion rate is often much, much lower on an FBM listing than it is on an FBA listing. So, so hopefully that makes sense the way I explained it. I know it can be confusing.

[00:41:44] Jeff Lowenstein: And one other thing I would add as well, it's not to confuse, confuse people further is that FBM is often used as a backup for FBA as well. Sometimes you run out of stock or. Maybe [00:42:00] something expires or goes bad in the Amazon warehouse and as a backup, you can, you can fulfill from your own warehouse, right?

[00:42:07] Jeff Lowenstein: So that's another way that people utilize the FBM program 

[00:42:11] Jon Blair: that you bring that actually reminds me of another important distinction between the two operationally. And using FBM as a backup. There's a processing time for product to become available on FBA, right? So one, one disadvantage is that you've got to ship the goods from your manufacturer, right?

[00:42:29] Jon Blair: And maybe you ship them to your 3PL and then you ship them to FBA. That that whole like lead time is long, right? Because normally d2c it gets into your 3pl. They check it in. It's a live on shopify right away You then have to ship it to amazon and it depends on the time of year peak seasons right before the holidays You better get those shipments in early because if you don't they might not get checked in in time for like black friday Or like the holiday rush they're a warehouse Yeah, just like everyone else's warehouse.

[00:42:58] Jon Blair: Like if your 3PL has [00:43:00] delays during certain times of year, Amazon likely going to have delays at FBA during that time of year. And it's even harder to deal with because at least at a 3PL, you can call up your account manager and say, yo. what's going on with that container. It's hard to get ahold of anyone at Amazon and track your, your shipments.

[00:43:16] Jon Blair: You literally, I mean, you literally are sitting there checking seller central every day to see if your product got checked in when you have those issues with that longer lead time to actually get stuff checked in and available on FBA because it's got to go through the whole DC, like the whole distribution process and receiving process at Amazon.

[00:43:34] Jon Blair: You can have FBM on where you're selling product and just drawing and off your three PLS inventory. Like Jeff said, you're going to probably have lower sell through and lower conversion because you won't have the prime badge, but you can still have your listing live, right? And like, the thing is, those listings work off momentum.

[00:43:51] Jon Blair: And so you're, you're better off, you're better off to go from FBA to FBM and have no prime badge and keep some momentum. Then you are to go from [00:44:00] FBA to the listing being inactive because you have no product in FBA. And so like it is a good, it is definitely a good backup option. Every brand that I work with who sells on Amazon has to switch to FBM at some point.

[00:44:12] Jon Blair: 'cause it is very hard to keep FBA stocked adequately, but not overstocked. There's an art to it and it's very challenging. And so just something, just something to point out there. I think the other thing I wanted to mention too about Seller Central that I thought of as you were talking. It's to just be, make sure you understand cause I, we learned this the hard way at guardian and Shopify, you're getting payouts every single day from payments, right?

[00:44:39] Jon Blair: On seller central, you get them every 14 days. And so there is like actually a little bit of like kind of accounts receivable, so to speak, where like whatever you're selling on Amazon, that your merchant account balance is building up over two weeks and then it gets paid. over to your bank account.

[00:44:55] Jon Blair: Whereas like, there's kind of like this daily cash coming in when you have a Shopify [00:45:00] store. And so that's something you've got to be ready for. And also if you're a newer seller with no history, be ready for them to hold a reserve at the end of the statement period. We're like, you're like, Hey, there's, there's a hundred grand that I should be getting, but there's like, whatever a 25, 000 reserve they're reserving for returns and refunds and other things.

[00:45:20] Jon Blair: because you're a newer seller and they don't know what that return rate is going to look like. You can even be a seasoned seller and your return trends start going in a bad direction and they'll hold a reserve. And it's so that there's enough cash in that account to cover refunds and other chargebacks.

[00:45:37] Jon Blair: And so just, just know at the beginning when you're getting into that, getting into Amazon, you're going to get your cash every two weeks and expect some reserve holds of some of your cash. For at least the first little bit while Amazon gets to know you and you get, you got to prepare for that cash cycle difference because it is different.

[00:45:55] Jeff Lowenstein: It is different. There's some, there's [00:46:00] there's a new feature where you can, you can request a payout in some cases, which, which helps a bit to shorten that, that two week cycle. And the reserve is interesting. I was going to mention it and, and you, You already did the reserve is interesting. It got very complicated, maybe not complicated, but contentious.

[00:46:18] Jeff Lowenstein: Think about when you're doing an M and a deal, you're acquiring the business and the question is, there's this reserve amount that's sitting there week after week, month after month that never gets paid out. It's just a balance that Amazon holds. Well, if you're buying that business, do you want, you know, do you want to pay for something that you're never going to receive and if you're selling that business?

[00:46:41] Jeff Lowenstein: Right. That is money that you earned, but it's just never going to come to you. You feel like it should come at some point, right? So you want the buyer to compensate you for that because it is. It is earned money so it, it definitely got contentious at some points to be honest, right? There's a lot of [00:47:00] debates over it.

[00:47:00] Jeff Lowenstein: Is that something that, is it essentially should be treated as cash on the balance sheet or should it be treated as a receivable or not that reserve amount? So that was something that was always tricky and, and it And an acquisition that we had to deal with 

[00:47:18] Jon Blair: for sure. I could actually, I've never thought about that cause I've never been in that scenario, but that definitely, cause you don't know for sure.

[00:47:25] Jon Blair: I mean, more often than not, you end up getting the money, but you don't know for sure. What's going to happen to that, to that reserve. It's really kind of like, okay, let's see what happens here. You know, well you 

[00:47:34] Jeff Lowenstein: get the money, but then the next payout, you know, the reserve might be higher, right? So for sure, kind of lingering there and it fluctuates.

[00:47:43] Jeff Lowenstein: So it's, it's hard to predict, but, yeah, anyways, it's it's only two weeks, right, which is. Still not as bad, as the net 90 we were talking about earlier if you're on Vendor Central, right? So that's something to keep in mind. [00:48:00] 

[00:48:00] Jon Blair: Another, just another little, like, tactic that Amazon uses to generate their beautiful negative cash cycle is not just their payment terms with their vendors and with their Vendor Central.

[00:48:11] Jon Blair: Or their vendor central vendors and then selling, you know, direct to consumer, but they also have they get to hold on to seller central, sellers money for 14 days. It's, quite the crazy thing that, and then they're taking everyone's ad dollars on top of that. It's quite the business model they have over there.

[00:48:33] Jon Blair: But look, what I want everyone to take away from this is that there's just again, there are strategic ways to use Amazon, okay? And it's all about like, we wanted to break down some of the basics of vendor central, seller central tell some stories. So that you can get a sense of like, what are some of the strategic levers that you could potentially pull and this does all ladder up to you need to be able to answer the question.

[00:48:55] Jon Blair: Like, why do I want to potentially expand to Amazon? It's it's not just a [00:49:00] mindless. Turn it on, right? One other story I'll tell is like I have a brand that that is a client of ours that scaled up to you know, very healthy eight figures very, very fast on their D2C site and their marketing efficiency ratio started coming down a little bit.

[00:49:16] Jon Blair: They were still profitable but they were spending heavily on meta and so they had, I mean, like they're spending millions of dollars a month on meta driving a lot of top of funnel awareness. And so they went ahead and just turn on Amazon FBM, didn't even go FBA, just FBM to see how that would enhance the overall blended M.

[00:49:33] Jon Blair: E. R. Of the business. And as soon as they turned it on, Rose significantly. And so what that told us in part was, Hey, there are people who are not converting on the Shopify side of the funnel who went to, who went to Amazon and bought, right? Cause when we turned it off. MER dropped again. We didn't change anything else anywhere else, right?

[00:49:55] Jon Blair: And so they use it as kind of like a just another [00:50:00] point of sale point of purchase Like place for someone to check out, right? And the thing was there just are some people who prefer to buy on amazon because they feel safe buying on amazon, right? And then as you start building more and more reviews if they're positive you know, there's more of this kind of like a social proof, honestly, on Amazon.

[00:50:22] Jon Blair: We're like, okay, like I've never heard of this brand before. I saw this Facebook ad and maybe it was a little bit cheesy, right? And like, does this thing really work? Does it not work? And you go to Amazon and you see this social proof there. Some people are willing to convert there again, even if it's not on prime.

[00:50:39] Jon Blair: And so, like, that's just another story of, like, how to consider using Amazon strategically as you're scaling your brand. 

[00:50:45] Jeff Lowenstein: Totally. I think a lot of brands leave money on the table by not launching on Amazon earlier in their history. And if things are going well direct to consumer, fine, right? Don't overcomplicate things.

[00:50:58] Jeff Lowenstein: But I, I, I really do think it [00:51:00] should be part of the overall strategy from an early phase. And I think you're leaving a lot of sales and efficient, efficient sales on the table, by not selling on Amazon. And when you say MER was higher for that, that brand you mentioned overall, that means that, you know, on, on a weighted average basis, it was higher.

[00:51:23] Jeff Lowenstein: So Amazon's. MBR, if you just compare that against the direct to consumer, clearly it was much higher, right? 

[00:51:29] Jon Blair: Yep. Yep. So 

[00:51:30] Jeff Lowenstein: you're certainly capturing some demand that's already there. And, you know, I worked with a brand that I think they thought of themselves as direct to consumer when they started out, but they launched fairly early on Amazon in their history, and Amazon far surpasses that.

[00:51:51] Jeff Lowenstein: Their website in terms of sales now. And, you know, they're thankful that they, that they started early with Amazon because otherwise they would not nearly [00:52:00] have had the same success as they have. So, yeah, I think it should be part of an overall strategy. And if you're not thinking about it I think you 

[00:52:09] Jon Blair: should.

[00:52:11] Jon Blair: Absolutely. Look, there's, there's so much more we could talk about here. I mean, we're going to have Jeff on more episodes regardless, but we might have to honestly have an Amazon strategy part two, maybe even a part three, because there's a bunch of stuff we couldn't even get to here, but this was all like super, super helpful, super relevant things that you need to be thinking about.

[00:52:33] Jon Blair: As a DTC brand operator. But before we land the plane here always like to finish out with, Asking a little bit about our guest's personal life. So, a lot has changed in your personal life in recent months with becoming a dad. But would just love to hear a little bit from you about something that you're loving right now.

[00:52:57] Jon Blair: About being a dad and then [00:53:00] on kind of like the more personal development or even business side. What's something you're reading or listening to or something that's just like really hitting you right now? 

[00:53:08] Jeff Lowenstein: Yeah, for sure. It's been, it's been a big transition. My son is about four months old now and, D2C has three kids.

[00:53:18] Jeff Lowenstein: So he's shown me the way on a lot of things. But, I mean, what I'm loving is, is he just. started smiling back at us. So that's been amazing to see. And I'm trying to figure out all the little, little tricks to get him to smile, all the time, which is probably annoying him, but that's too bad too bad for him.

[00:53:43] Jeff Lowenstein: And, something, something I'm reading or listening to. I mean, you know, not much time for reading these days or even listening with, with, with him and everything. But I've. I've enjoyed reading [00:54:00] Outlive, which is Peter Attia's book on how to live a, a longer and healthier life and, and extend the years in which you're, you know, able bodied and, and feeling good in your own, in your own body.

[00:54:13] Jeff Lowenstein: So that's, that's been interesting. And, even though I'm not always perfect at it, you know, I do try to take care of my, my physical health as we go. So, so that's been important. And then you can find more info by the way, I'm free to grow. Or myself freetogrowcfo. com. My email is jeff, J E F F, at freetogrowcfo.

[00:54:37] Jeff Lowenstein: com. And my LinkedIn is, is alive and well, and my DMs are open there, too. So, feel free to message there if you're interested in chatting about anything. 

[00:54:49] Jon Blair: Awesome, awesome. Well, what an awesome conversation today. It's been a long time coming, getting Jeff on the show. This'll be the first of many. You know, if you want more helpful tips on [00:55:00] scaling a DTC brand, consider following me, D2C Blair on LinkedIn.

[00:55:03] Jon Blair: And like Jeff mentioned, you can find him on LinkedIn at Jeff Lowenstein. And look, if you're interested in learning more about how Frida grows e commerce accountants, And fractional CFOs can help scale your brand alongside healthy profit cash flow and confidence Like jeff mentioned check us out at free to grow cfo.

[00:55:21] Jon Blair: com Hope today's conversation was helpful proves to be fruitful for your business and until next time scale on. 

[00:55:30] Jeff Lowenstein: Thanks