Capital Investment and Profitability of Selling on Amazon.com: Case Study of the Launch of YumOmNom’s Tamagoyaki Pan
Co-Founder of YumOmNom, Clarence peels back the curtain to share his ROI from Selling to US on Amazon.com, and how he manages his investment into his global business.
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YumOmNom launched the Tamagoyaki Pan on Amazon.com in November 2022 and has since attained much success - #1 new release on Day 1¹ and attained strong revenue within 1 month of selling on Amazon.com. This rapid growth was largely fueled by sale spikes during Black Friday and Cyber Monday, where YumOmNom sold over 75 units of their Tamagoyaki Pan per day. However, such numbers are not one-offs as sales continued to grow during the Q4 Holiday Season as customers bought their egg pan as gifts during the holidays.
As of July 2023, despite selling only 1 single product, YumOmNom achieved:
As of July 2023, despite selling only 1 single product, YumOmNom achieved:
How does YumOmNom use Amazon’s tools for an estimate of their profits?
Step 1 – Go to Amazon’s free Revenue Calculator.
Step 2 – Continue as guest or login to Seller Central.
Step 3 – Key in the ASIN in the search, or define the product’s parameter and click search/estimate.
Step 2 – Continue as guest or login to Seller Central.
Step 3 – Key in the ASIN in the search, or define the product’s parameter and click search/estimate.
to every listing to better identify and track products.
Step 4 – Under “Amazon Fulfillment” and “Fulfillment Cost”, enter in the “Shipping to Amazon” price (i.e. cost per unit to bring the product to the US)
Step 5 – Under “Other costs”, enter in the cost of goods sold. This would be the manufacturing cost.
Step 6 – Note the net profit and net margin at the end of the calculator.
YumOmNom believes in selling products with at least 30% profit margin and 100% ROI & above, in order to account for advertising cost, Fulfillment by Amazon (FBA), storage, and other fees when selling on Amazon.com. If sellers don’t maintain a healthy margin, the business might not be sustainable.
YumOmNom believes in selling products with at least 30% profit margin and 100% ROI & above, in order to account for advertising cost, Fulfillment by Amazon (FBA), storage, and other fees when selling on Amazon.com. If sellers don’t maintain a healthy margin, the business might not be sustainable.
To calculate ROI, YumOmNom uses this simple formula:
ROI = Net profit / Cost of goods sold x 100%
For the example he gave:
ROI = $14.07 / ($4.2 + $0.7) x 100% = 287.4%
In this case, profit margin (seen in the screenshot) = 46.97% [PASS]
ROI = 287.4% [PASS]
ROI = Net profit / Cost of goods sold x 100%
For the example he gave:
ROI = $14.07 / ($4.2 + $0.7) x 100% = 287.4%
In this case, profit margin (seen in the screenshot) = 46.97% [PASS]
ROI = 287.4% [PASS]
Learn more about the cost of FBA and estimate your fulfillment fees
How does YumOmNom optimize their Fulfillment by Amazon (FBA) fees?
It is very important to understand how shipping weight works on Amazon. Please refer to this chart to see the different fee tiers.
Simply take your product’s dimensions (cm) and its outbound shipping weight (g), and compare them with FBA Fulfillment fee table. If the product’s package dimensions (any side) or shipping weight exceed any of the maximum values listed, move to the next largest tier (row).
Simply take your product’s dimensions (cm) and its outbound shipping weight (g), and compare them with FBA Fulfillment fee table. If the product’s package dimensions (any side) or shipping weight exceed any of the maximum values listed, move to the next largest tier (row).
Shipping weight (g) = Your unit’s weight + Amazon’s packaging weight
Understanding how FBA weight is measured is how sellers can differentiate from the competition. YumOmNom recommends that sellers should shrink their product packaging down so every unit sold can be more price competitive. Savings from reducing package size may then be reinvested into the business.
How does YumOmNom estimate budget requirement?
Product & market research are so important to a business’ early success. YumOmNom started by looking at the top 10 competitors’ sales volume and average their 30-day sales velocity. Do note that “sales velocity” is a measure of how quickly one makes a sale, which is not the same as “sales volume”.
Then, calculate 100-day sales velocity to find the number of units that one needs to buy from manufacturers in order to enter and sell comfortably without the risk of running out of stock. For example:
Average 30-day sales velocity of top 10 competitors = 423.2 units
100-day sales velocity = (423.2 / 30) * 100 = 1411 units
This means at least 1,411 units needs to be shipped in order to not run out of stock.
From there, use Amazon’s free Revenue Calculator to estimate budget that is needed. It is important to note that YumOmNom accounts for monthly advertising by estimating it based on the 1st Order Value.
Then, calculate 100-day sales velocity to find the number of units that one needs to buy from manufacturers in order to enter and sell comfortably without the risk of running out of stock. For example:
Average 30-day sales velocity of top 10 competitors = 423.2 units
100-day sales velocity = (423.2 / 30) * 100 = 1411 units
This means at least 1,411 units needs to be shipped in order to not run out of stock.
From there, use Amazon’s free Revenue Calculator to estimate budget that is needed. It is important to note that YumOmNom accounts for monthly advertising by estimating it based on the 1st Order Value.
YumOmNom’s sample cost estimation:
Estimated manufacturing cost = ~$3.02
Estimated shipping cost = ~$1.85
Units to order = 1411
1st Order Value = ($3.02 + $1.85) x 1411 = US$6871.57
2nd Order Value = US$6871.57
Estimated advertising cost = US$6871.57 / 100 days x 30 days = US$2061.47/month
Estimated manufacturing cost = ~$3.02
Estimated shipping cost = ~$1.85
Units to order = 1411
1st Order Value = ($3.02 + $1.85) x 1411 = US$6871.57
2nd Order Value = US$6871.57
Estimated advertising cost = US$6871.57 / 100 days x 30 days = US$2061.47/month
Why does YumOmNom use a “100-Day Sales Velocity” framework?
Never run out of stock when selling on Amazon. Running out of stock will result in a loss of organic rank, which is something you have worked so hard for. In order to maintain a healthy inventory, YumOmNom follows a “100-Day Sales Velocity” framework.
This is the entire manufacturing and supply chain, which illustrates the process of getting products from suppliers or manufacturers to Amazon’s network of Fulfilment Centers (FCs) all over the US.
For YumOmNom’s specific supply chain, they estimate that 90 days is a good period to stock and restock their products. Then, add 10 days of contingency or buffer in the event there are delays at the port, 3PL, or other unforeseen issues. Hence, the rule of thumb is - have at least 100 days’ worth of inventory in Amazon; otherwise, run the risk of going out of stock.
For YumOmNom’s specific supply chain, they estimate that 90 days is a good period to stock and restock their products. Then, add 10 days of contingency or buffer in the event there are delays at the port, 3PL, or other unforeseen issues. Hence, the rule of thumb is - have at least 100 days’ worth of inventory in Amazon; otherwise, run the risk of going out of stock.
What is the financial breakdown of YumOmNom first month of operations?
The costs can be broken down according to:
(i) One-off costs - Administrative costs that has to be incurred in order to start selling on Amazon.com.
(ii) Recurring costs - Costs that are incur every order, shipment, and sale on Amazon.com.
In order to maximize profits, sellers can consider the following:
1. At the initial stage, focus energy on the big picture – which should be on launching products and generating profit.
2. Use Amazon Vine. Amazon Vine invites the most trusted reviewers on Amazon to post opinions about your products to help fellow customers make informed purchase decisions. If you participate, you can provide free units of your products for View reviewers (also known as Vine Voices) to post customer reviews, thus building awareness and boost the sales of your slow & cold start ASINs. Once enrolled as an Amazon brand registered seller, you are eligible to enroll in the Amazon Vine program where you can receive up to 30 reviews with each review being marked with "Vine Customer Review of Free Product". Enroll in the Vine program here.
(i) One-off costs - Administrative costs that has to be incurred in order to start selling on Amazon.com.
(ii) Recurring costs - Costs that are incur every order, shipment, and sale on Amazon.com.
In order to maximize profits, sellers can consider the following:
1. At the initial stage, focus energy on the big picture – which should be on launching products and generating profit.
2. Use Amazon Vine. Amazon Vine invites the most trusted reviewers on Amazon to post opinions about your products to help fellow customers make informed purchase decisions. If you participate, you can provide free units of your products for View reviewers (also known as Vine Voices) to post customer reviews, thus building awareness and boost the sales of your slow & cold start ASINs. Once enrolled as an Amazon brand registered seller, you are eligible to enroll in the Amazon Vine program where you can receive up to 30 reviews with each review being marked with "Vine Customer Review of Free Product". Enroll in the Vine program here.
Diving deeper into the P&L statement for the 1st 6 months of launch of 1 product under YumOmNom, the highest expenses have been highlighted to show the major costs of selling on Amazon.com that sellers should try to optimize for. For them, Amazon fees which include FBA fees, referral fees, etc. is a cost that is relatively fixed. Hence, focus on reducing advertising and manufacturing costs.
YumOmNom has earned over $27,900 in gross profit by selling just 1 product, which shows the potential of selling on Amazon.com in the US when sufficient research is done and competitive margins are managed well.
When looking at time investment, Co-Founder Clarence started working more than 10 hours per week to launch his product. As time went on, he now only spends around 1 hour per week to manage his business and advertising. This means he spent around 4-5 hours per month to generate $5,000 in profit. This allows his to free up my time to focus on launching new products.
YumOmNom has earned over $27,900 in gross profit by selling just 1 product, which shows the potential of selling on Amazon.com in the US when sufficient research is done and competitive margins are managed well.
When looking at time investment, Co-Founder Clarence started working more than 10 hours per week to launch his product. As time went on, he now only spends around 1 hour per week to manage his business and advertising. This means he spent around 4-5 hours per month to generate $5,000 in profit. This allows his to free up my time to focus on launching new products.
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¹Data accurate as of Jul 2023 and accounts for sale in the US only
²Data accurate as of Oct 2023 and provided by YumOmNom
Note: The information contained in this case study does not constitute legal, tax or financial advice. If you are in doubt as to the action you should take, please consult your legal, financial, tax, or other professional adviser. In addition, the content in this article is for information only and must not be construed as a guarantee of future results. Many factors influence the demand for a seller’s products, including price fluctuations, consumer demand shifts, and sellers remain responsible for determining the products they sell and their prices.
²Data accurate as of Oct 2023 and provided by YumOmNom
Note: The information contained in this case study does not constitute legal, tax or financial advice. If you are in doubt as to the action you should take, please consult your legal, financial, tax, or other professional adviser. In addition, the content in this article is for information only and must not be construed as a guarantee of future results. Many factors influence the demand for a seller’s products, including price fluctuations, consumer demand shifts, and sellers remain responsible for determining the products they sell and their prices.
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