19 Jun June 20, 2019 – The Wholesale Formula Dan Meadors and Affiliate Guru Dustin Howes
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Amazon is shrinking the number of items it sells directly. We
have had reports that Amazon is reducing the size
of their retail department by 15%.
Dan Meadors began selling on Amazon with a bootstrap budget of $600 in 2011. It began as a joint venture with his good friend, Eric Lambert. Each weekend the two men would jump into a car, and go on road trips to find retail items they could list for a profit on Amazon. In time, their business grew, and they had to find ways to deal with scaling problems they encountered. They learned to outsource labor and research, work with other companies to source product, and found ways to maximize efficiency by setting up solid, reproducible business processes. Today, they’ve generated over $20,000,000 in sales, creating a runaway success that any of us could replicate with grit, persistence, and a little of their smarts. To that end, Dan and Eric created a course, The Wholesale Formula, that they open a few times per year to teach others how to share in their success. Each course comes with the personal attention of the founders as they walk students through the exact steps and processes that let them create a multi-million dollar business on Amazon.
10,000 followers with a niche market and an open wallet can be much more profitable than somebody with a million viewers.
Dustin Howes founded Coalition Marketing with a belief in the power of putting partnerships first. He developed the gift of network marketing over the last 10 years in the affiliate marketing industry. Dustin has cultivated thousands of partner relationships while observing the industries best practices. While researching programs in the industry, Dustin recognized that many businesses create an affiliate program without proper strategic planning and realistic goals. Coalition Marketing created a Quick Launch solution that helps businesses build a custom affiliate program at an affordable price. Once the program is built, Dustin teaches the business how to manage the program through a one of a kind online certification course, Performance Marketing Manager.
Highlights from Dan’s Interview
It’s been a heck of a ride. And we’ve done some crazy things. But you know, it isn’t a crazy story.
We worked for a game retailer that sold products online. They sold cards, like Magic: The Gathering, Pokemon, and all that stuff. One day, the CFO of the company came in, and he said he turned in his notice. And it kind of came out of nowhere. This guy got six figures, six figures! Plus, we live in Kentucky, man. There’s not a whole lot of jobs like that out here. So in our area, it was like, “Wow, what do you know? What’s going on?” And he said he was selling on Amazon, and making more money in his spare time than he was making at his job. And after work he went by, showed us, and it was literally buying stuff at Walmart and taking it and selling it on Amazon. That was our day one, right?
It started that evening in a Walmart, me and Eric bought some Disney Cars. Honestly, these things were $3 in the store, and they were selling for $15 on Amazon. I didn’t believe it. But it was like, Andrew’s having all the success with it, we might as well look into it. So we bought quite a few of those things, we send them in, and they sold within a day.
It blew my mind, because these things are so readily available. But what you’ve got to realize is, whenever Walmart buys those cases of Disney Cars, that may only be one of the ones that people want, and at the Walmart, if it’s sold out, guess what, then they don’t have the opportunity to get it otherwise.
I’ve got two kids myself, so I’ve been there. And when I started thinking about it in that perspective, it started making a whole lot of sense. But from there, our weekends became going out in the stores, looking for products that sold better on Amazon. I remember one really funny story. This was about six months in, and it really gave us the capital to be able to start growing and scaling our business, because at that time, we were still operating with that $600 credit card, buying and selling stuff, paying it off, doing it again. And we ran into this one product, and it was called Benefiber.
Now Benefiber is one of those products that help you go to the bathroom more regular, and apparently it’s really, really well known among pregnant ladies. On Amazon, it was completely sold out. We found some in a Walmart and one place, $10 for it, we went and listed it for $40. It sold out immediately. So me and Eric were driving around the country, going into Walmarts, Targets, Kmarts, and little family practices, the pharmacies and things like that, loading up with armfuls of Benefiber. They had to think it was the world’s biggest cleanse party or something like that going on, but we were just selling it. Ultimately, that one product probably generated us about $50,000 in profit over the course of a six month period, and really helped us kick our business off.
It can work and it can definitely get to be one of those strategies to generate extra money. I think it’s much harder to scale now. And there’s a lot more restrictions and things like that. Ultimately, for us, here’s the problem. It wasn’t hard to make money. But it wasn’t like a real business for us. We would go out, we would spend a whole bunch of money, we would come back. And then once we were out of a product, our sales went to zero, and we had to do it all over again. With a couple of the changes that Amazon has made, it’s a little more difficult to do that model at any level of scale nowadays.
Ultimately, what we did, was we transitioned to a strategy called wholesale. There were a couple of different reasons we moved into that strategy. Number one, we just didn’t have any time. We were physically driving around the country as much as possible, we were driving around five days a week, we’d come home, we would ship our products, stay home for a day with our kids, and then back at it on the road again, because there’s not a lot of stores. So our limitations were more than most people, and we just didn’t have a lot of places to shop and stuff like that. So we were always having to go to major cities and things like that. And the time away from our families was just super difficult.
Beyond that, I felt like it was getting harder at the time, right? Like you’re starting to get the brand restrictions and things like that, that Amazon’s pushing out, and we kind of see where things are going. We transitioned into a couple different businesses over the course of a couple summers to try to give ourselves some relief from having to go out and shop so much. We started a toy store locally, and that failed. Then we started a My Little Pony website that sold My Little Pony collectibles. That one didn’t quite fail, but it ultimately wasn’t something that we could really sink our teeth into. We did end up selling that website. The third thing that we tried was wholesale, and that’s really what stuck for us. For us, what wholesale means is developing a relationship directly with the brand owner to become an authorized seller of their products, particularly for us, in this case, on Amazon.
One of the things that we realized early on, when we transitioned to wholesale, was like most people, we didn’t have a lot of money. We couldn’t compete at that level, right? I couldn’t order people, I couldn’t get the discounts that other people were trying to do. So we built our model quite a bit differently. Rather than focus on trying to be the biggest order, being able to generate the biggest order possible, we focused on something called value.
I don’t think we were the first people that ever ran across it. But value is working with brands to help optimize the products for the marketplace. An example of that would be, maybe you go to a product page on Amazon, and you see that they only have two pictures. Well, a product can have six pictures or more. If they’re not utilizing all their pictures, that’s additional value that can help them convert more customers. If their listing has poor descriptions, or something like that, these are all things that are helping or that are preventing the product from being the best possible product it could be on Amazon. So what we did is, we delved into those types of things. And instead of just trying to place your orders, we look for ways that we could help them beyond placing an order with them, to develop that relationship.
Ultimately, what it did is that, as brands were able to start working with us, they got to see that their sales increased. But they also got to see that we were working significantly harder than a lot of their other retailers, which led us down the path of, you know, ultimately getting exclusives and things like that. And that’s how we’ve really grown our business is based on that value first mentality.
We did the same thing everybody else did. We went to Google, we typed in ‘wholesaler,’ and that wasn’t very fruitful. Then we heard about wholesale shows, and we booked ourselves a flight to Vegas. And that was measurable for us, because at the end of the day, we’re introverts. In the show that was intimidating. Beyond that, in the show they like you to place some orders there, and not have time to research the products. And what the result for us was we just lost a whole bunch of money going to the show.
After that Vegas trip, we went back to the drawing board when we got home. And we were just looking for products on Amazon, right? And I remember looking over there and being like, I don’t know why we contact wholesalers, we try to get on, we try to find out what their carrying. And hopefully it’s going to help, but that passes a lot of time. I was like, I just want to sell you this product, the one I’m looking at on the screen. Why can’t I just carry this one? And we sat there and thought about it. It’s like, well, let’s just call them and see who sells their product.
So we contacted the company, and we’re like, “Hey guys, can you tell us who you distribute through or what distributor we can contact? Then we’ll start carrying your guys’ product.”
They’re like, “Oh, well, we sell direct.”
And it was like, “You mean we don’t have to go through a crazy distributor, and look at these gigantic catalogs?”
And they’re like, “No, no, we do independent distribution.”
So we were able to set up an account on that call, and order right there. And that really is as crazy as it sounds, that’s really how it should work, is you should look for the product you want to sell, then you should contact the person who makes it, and set up that relationship. But from everything we had ever read and heard, that was the backwards way to do it. Most people said you should contact the distributor, see what they’ve got, find out which products work for you, and ultimately start carrying those products. But that method just wasn’t successful at all for us. I should’ve been going and finding the products that I wanted, and then googling and finding their website, and reaching out to them directly.
How do I know what makes a good product on Amazon? The number one factor is, I don’t want to be competing with Amazon. Amazon, those guys are really tough. I mean, it is their platform. So there’s rules built in, that make it much harder to compete against them. They don’t share the buy box the same way that normal sellers do. So that’s a huge negative for us, it makes our product and cash flow much more inconsistent. That was our first rule. We didn’t want to compete with Amazon.
The misconception is, most people feel like Amazon has a lot of coverage. But in reality, there are 568 million products listed on Amazon, and they carry 12 million. So, realistically, they’re a very, very small part of the marketplace. Not to mention that now they’ve even started shrinking beyond that. We’ve had reports of Amazon reducing the size of the current retail department down to 15% in the last three months. And that speaks a lot to the third party model that they’ve adopted, and has been successful for them.
I’m not quite sure I can tell you how to get to $20 trillion, but I can definitely help you get to that million dollar level, because there’s not that much that separates a million dollar business on Amazon and a smaller business. What is the real separator is outsourcing and automation. I’m sure you guys have got to the point where you realize you could probably work more in your business and do more sales, but there’s a limit to that, right? That’s true with any business.
One of the solutions that we had to come up with was we didn’t have time to sit there and sticker and prep our products and shipping. So that was the first part of the business that we outsourced. Currently, we have a multimillion dollar business, and all of our products go to what they call a prep center. That’s just somebody who receives your product, checks it, prepares it for shipment, and sends it to Amazon for you. Rather than having all those things happening internally, we outsource it to a prep center, which allows us to scale much faster. There’s less limitation on the amount of work that I’m able to do, because I’m outsourcing all that work. And the same is true for product research. You can get on there, and you can do product research for hours and hours and hours. But ultimately, there’s only so much you can do. And that’s one of the things that we ran into. So we started utilizing virtual assistants to do a lot of that research for us. We just hired and trained overseas employees to be able to parse Amazon data, and find products that would make sense.
One of the things that we originally did is we started utilizing that strategy. And, you know what is the Wholesale Formula? What is our course? It really is a written record of all the things that we do in our business. There’s no free or fluff with it, it’s just these are the things we do in our business every day, that help us create a successful business.
Part of that was, once we learned about virtual assistants, how to train and work with them. We started talking to our students about that, and sharing that experience with our students. And then one of our students created another course called the Launch Pad Man, that was a full course dedicated to hiring and training and everything to do with virtual assistants. Well, we saw the alignment there, because we knew it was a big part of our core. So what we did is, we bought distribution rights for his course, and give it free as an arc in our course. So the students are going through that process, they get to see how to train and hire virtual assistants, and put them into roles in their business where they can move the needle.
It depends on the training levels. Virtual assistants on some days are better than others, right? So here’s the thing for us, it’s not just about the training. It’s like when you train an employee to do something, that’s fantastic until they forget, or they start deviating from that path, or that employee leaves you, and then you’re stuck doing it all over and over and over. And so one of the things that we did is we started creating processes for our business. Those processes are the work that the actual virtual assistants do. So they’re able to go through the day.
Processes are just the documented steps that an employee has to do to accomplish a task. That’s the actual answer. What keeps people from scaling, it’s ultimately that they have to start over and over again. And we’ve had those same problems in our business. That’s ultimately how we learned about things like processes, because you pour all this time, effort, and energy into a person, and then the person leaves or whatever, and you have to transition on to a new spot and bring on someone else. It’s just a nightmare having to consistently retrain people. And then over the course of time, the bigger your operation, the more inconsistent that work becomes. If you don’t have something documented to go back to as a reference point and say, “This is how to do this job correctly,” your employees get lost in relying on word of mouth teaching. And that’s not a way to run a business.
The Wholesale Formula, we actually don’t open it up very often. It’s one of those things, we take in a class of folks, and we really dedicate our time to working with them. We put out a ton of free content. You can check out our website, thewholesaleformula.com, or our Facebook page, facebook.com/thewholesaleformula. Just sign up for our newsletter; we pump out a ton of free content. I try to help folks get started.
Highlights from Dustin’s Interview
I had a background from the Marine Corps, and I got a job in security. Then I got into the internet marketing game from a couple of friends that were working at one of the biggest affiliate marketing aids or companies in the world, Commission Junction. I got my first job, cut my teeth doing compliance for the network, taking away publishers commissions that were fraudulent. That’s how I got started, and fell in love seeing the people making money in this industry. Ten years later, I’ve developed a portfolio of working for publishers, for agencies, for merchants, and I run the whole gamut now. I’m doing everything on my own.
The affiliate. So you’ve got a person that has traffic, let’s say they have 100,000 visitors every month coming through their site. And what do you do with that traffic? You’ve got to make money somehow. Affiliate marketing is one of those channels where you can make money, and that affiliate can drive traffic to a merchant. They use affiliate links to drive that traffic so that the merchant can track how those links are coming to their website. Then once that end user, the consumer customer, they buy something from the merchant, then they will credit that affiliate with a percentage or a flat fee. Something to give back to them, so that they’ll keep on bringing customers to them.
Solid method doesn’t necessarily translate into sales, but it will get people to that website. So yeah, the chicken gizzard industry is not strong in the affiliate community. But that doesn’t mean anything, maybe it’s untapped. Getting in at the ground level is super important for you; start driving that traffic now. We can monetize it soon.
Traffic can come in various forms. In this industry, it’s moving into an influencer realm more than anything else. So affiliate links and banners are dying by the wayside. As we migrate into the YouTube influencer community, where people are actually using codes in their videos to promote brands and direct links down at the bottom. The that’ll be tracked back to that YouTube video.
The more the merrier? Absolutely. But with 10,000 views, and a really nice market that has an open wallet, that could be worth much more than somebody with a million viewers that doesn’t have that.
That 10,000 guy, I’ve had influencers that only have 10,000 fans coming to their website on a regular basis. But every one of those 10,000 viewers might be a potential customer. So it just depends how you’re going to monetize that traffic that you’re actually getting, and what kind of salesmen you are to those people that are visiting your site.
Most of the time, it’s good affiliate managers reaching out to high traffic sites that can be great potential influencers for a brand. But a lot of the time, the affiliates are the ones that are going out and joining programs that will be a good fit for their audience. For example, your chicken gizzard, we gotta get my audience over to believing that nuggets are the devil, and chicken gizzard is the way to go. I’ve got a hell of a spot for you to go check out this chicken-gizzard.com link that I’ve provided you. They’re better than chicken nuggets, they’re better for you, they’re more nutritious, they’re cheaper. This is the way to go.
That affiliate is really the salesman, and you want an army of those salesman, right? That affiliate figures out, “Hey, I’ve gotta sell this traffic to somebody, let’s go hunt down that merchant that’s going to make this a great partnership, who’s paying me out the most, who’s going to be there for me, and give me the most assets that I can use in my sales pitch to my audience.” So it definitely goes both ways. But if you’re building a niche community, affiliate managers should be finding that niche community that you’re presenting to.
As a potential affiliate, you could say a lot of things. You could say “Hey, what’s in it for me?” To begin, you learn about the commission structure; you look at the assets that they have provided for you. You see if it’s a good fit for your audience, and if all those things match your style, then you can test it out. Once you start that relationship, you start promoting it via content, via video, something of that manner, and you start building a relationship with that affiliate manager. Then you can go back to them and say, “Hey, I’m going to need higher commissions, I’m going to need other assets, like a deeper discount for my community.” I never say jump into a situation where you start asking for things as an affiliate. But once you establish that relationship, then you have a lot more leverage for that next partnership opportunity with that merchant.
A traditional affiliate will get a 10% commission. That’s an industry standard. But it absolutely varies on what the merchant is selling, first of all, and what they’re willing to give away. So it definitely varies in every niche. With chicken gizzard, that’s going to be a tough one. You know, since it’s such an untapped market so far, right? Selling those ticket goods; I can easily give away. You can taste one out at 20%.
With educational products, I’ve seen them up to 60% giving away, so for that $2000, you’re looking at an over $1,000 commission. But again, it depends on what kind of niche you’re going after, and what your audience’s like, and if they’re going to buy an educational product like that. So it depends on the merchant, what they can give away to an affiliate and still make profits.
Non-educational, I mean, every physical product is going to be out there. Software’s a service. There’s tons of products out there, that’re not educational. But software seems to be selling really well in this digital world that we’re living in right now. So it’s a good market to be in.
The number of affiliates is usually nonessential. I’ve had programs where I have 30,000 affiliates in the program, and only 1000 of them are sales active. It just depends on the quality of the relationships that you have with each one of those affiliates. I always preach quality over quantity, even though you can send a wider net to a bunch of people, that might send you one sale a year. That isn’t as profitable as getting a really good relationship with somebody that’s sending you 100 sales a month. Those are the guys you want to go after when you’re on the merchant side of things, and finding those big affiliates. So don’t worry about the number of affiliates, you just worry about the top 10 more than anything, and trying to put new ones in that top 10.
It can be an absolutely profitable channel for you. But it’s never going to be the first digital marketing channel that you’re going to go after. I always preach to companies, the merchants that I work with, they’re going to need a minimum of $50,000 in revenue coming in every month to even start thinking about an affiliate program. So there’s minimums that they have to get to.
Affiliate marketing is going to take you six months to build a really proper program and get a return on your investment. So there are other digital marketing channels that are going to be more fruitful for you before you can hit that kind of plateau. A plateau at $50K is that benchmark that I like to go after.
PPC campaign’s instant, you can get instant return on investment. Facebook retargeting, any kind of social media retargeting, you’re going to get instant gratification from the money you put in, as long as you’re doing good work. But affiliate marketing is a really long struggle, it’s a six month process before you’re going to see return on that investment. And after it is set up, you’ve got an army of salesmen going out there, and it’s only building and building exponentially, to increase the revenue coming into your company. But you’ve got to think about it from the affiliate standpoint, you’ve got to find the affiliate that you want to join the program, talk them into joining the program, talk them into creating content, get them to actually produce that content, then actually rank for that content, and then they’ve got to start making sales. That’s a really long process for each one of those partners that you’re working with. And it’s a commission, you’ve got to have somebody committed to making that relationship work, helping them out every step of the way, so that they can be successful together with you.
My online course preaches that it’s eight hours of conference style teachings. And in that conference style teaching, I preach the concepts of going to conferences and networking with people, because it’s absolutely essential to the growth of your program. And your real sanity, if you spend 60 hours a week on a computer, like I do, I need to go out and talk to people and start preaching the good word about affiliates. So I’m always out there at conferences. I actually teach conference hacks in my course. Getting out there, learning about the industry, learning about the latest techniques that are working for others. People are giving out free information when you go to these conferences, and it’s a good idea to be out there, and meeting new people, because you never know what kind of next opportunity that you might find at a conference. I love learning out with industry experts, and there’s no way I’m going to learn more about this industry if I’m not out there hustling with the other people that are hustling in this industry.
Take the course, it’s very simple, $497 will get you eight hours of online training to become an expert affiliate manager. Even if you’re an affiliate, you can use this tool as well. You’ll learn hacks on how to save time as an affiliate, management hacks that you can use in any aspect of any job that you use, at a very simple price. You can find me on PerformanceMarketingManager.com, and I’m on social media. I’m not hard to find and get a hold of, I’m very open to emailing, and I give away two minute free calls to anybody that needs help. And if I’m not the right guy for the job, I can point people in the right direction. So please come nerd out with me, sign up for a call. Sign up for the course. I’d love to talk to you.