I started a side hustle for $3,000 and built it into a 9 million a year with a 26% profit margin. This is the story of Pete & Pedro, my men’s grooming company. I have built Pete & Pedro to be a lifestyle business, so I’m not trying to sell this business. I’m not saying I wouldn’t sell Pete and Pedro, but that’s not the goal. In other words, I know how I will operate this business, how I will spend money, and how I will grow it.
How Pete & Pedro got its start
The most critical aspect for Pete & Pedro is top-line growth and profitability. Pete & Pedro operates around a 26% profit margin which is good. I like to take the snail’s approach to growth and don’t want to sacrifice growth or the top line for the bottom line. I don’t care what the top line is, that big sexy number. I like to talk about that bottom line — what am I sticking in my pocket.
For my opening Pete & Pedro inventory, I spent $3,000 on five products, 96 units each. I shipped out of my spare bedroom after Debbie designed the website. Next, the company that markets the best wins. You can have the most fantastic product in the world, but if nobody hears about you, you’ll go broke.
Private label vs. Custom vs. Alibaba
Private label was an easy way to start this, but now I do larger quantities and custom formulas. Do your due diligence to determine what private label company you like. But remember that all the products have been tested, taking away many risks.
If you find a manufacturer you like that makes products you want, you can have them send you samples and then customize them to your desire. You can ask the lab to send you samples of other companies’ products, test them, and then give the lab feedback regarding what you would like for your product. This creates a custom formula. The downside is the order quantity. With the new deodorant I developed, the minimum amount was 20,000 units. This quantity is the same for the new bar of soap I created. Many products sit on the shelf, tying up dollars until you sell them.
Suppose you have something extremely custom, like a pen with six points and three erasers. In that case, you’ll have to find a manufacturer or somebody to create renderings and molds. A prototype would have to be made, which will take much longer and be much more expensive.
Alternatively, you could go the Alibaba route. Many fake gurus make it sound effortless to get products from Alibaba and then sell them on Amazon. Amazon is hard. Anyway, a lot of times with Alibaba, the minimum order quantity may be higher. Still, you can put your label or name on the products and get them imported.
By the way, I’m sick and tired of people saying China’s products are cheap. It’s only cheap if you’re using cheap products or components in the products you’re making. It’s only cheap if you choose to use cheap. China is really great at helping to scale.
Inventory and Shipping
The trick with inventory is to shrink it as low as possible without running out. Every month we are very focused on inventory at Pete & Pedro. We analyze a monthly report to see what is selling and the churn. We base ours reorders on lead times which can become tricky at times.
Shipping also has become crazy expensive, which I’ll cover in another video. Regarding shipping, no matter how you shake it, you want to make it as light as possible. Additionally, I only provide free shipping if somebody spends $60, giving a threshold.
Growing and scaling a business
The bottom line of this video is that if you’re looking to start a business, private labeling might be a great solution to look into. It removes much noise and nonsense, and you can place a low order quantity with less risk. You can also get it faster typically. Using private labeling prevents you from overspending on inventory, especially if it does not move. You also want a manageable inventory level as you need cash in the bank to grow your business and pay for the expenses. As you grow and scale, you can change.
I am sick and tired of people saying private labels our crap. They aren’t! They’ve been tested and tried, and these companies have made a business doing custom manufacturing and private labeling for other companies. And it doesn’t matter if your private label or not; marketing is critical.
There’s nothing wrong with slow and steady. Everybody’s talking about explosive growth on the internet, but this will likely not happen. Pete & Pedro has been a grind and has never seen a meteoric rise. But it’s been consistent.
I’m focused on return on ad spend (ROAS) of at least 3.5%. So much goes into figuring out the numbers, but I don’t increase the spend if I’m not making at least 3.5%. The current return on ad spend for Amazon is 4.6, which is really high. More on all of these topics in videos to come!