#387 – Embracing Puerto Rico’s Tax Haven & Fortifying E-Commerce Strategies with Michael Kaufman
Michael Kaufman takes the mic on the AMPM podcast, inviting us on his entrepreneurial journey to Puerto Rico, where tax incentives beckon and lifestyle transformations await. As he unpacks his journey, it’s not just the fiscal perks that captivate; it’s the art of brand elevation through savvy product insert use and the roll-out of fresh, market-shifting products. Whether it’s a strategic business shift or a deep dive into the personal transformation that comes with island living, Michael’s tale is a masterclass in leveraging locale for life and profit.
The entrepreneur ecosystem within Palmis Del Mar emerges as a crucible of innovation, mingling American and European expats in a melting pot ignited by Puerto Rico’s Act 60. This chapter unfurls a tapestry of life-changing networking events and investment strategies, all while navigating the nuances of Amazon deliveries in this unique locale. Michael and Kevin explore the full spectrum of community wealth—from multimillion-dollar homes to accessible condos—showing that a tropical tax haven is not just a pipe dream for the ultra-rich.
We round off our spirited session with actionable insights into Amazon selling strategies that keep product margins robust, the ins and outs of warranty claims automation, and the underestimated might of a well-curated email list. We also sneak a peek at Register, our beta warranty service aimed at simplifying life for Amazon sellers, and drop a hint about the upcoming Billion Dollar Seller Summit in Hawaii. This episode is a great resource for those looking to build a brand so recognized it negates the need for personal pitching—where your reputation precedes you.
In episode 387 of the AM/PM Podcast, Kevin and Michael discuss:
- 02:52 – Tax Advantages of Moving To Puerto Rico
- 06:33 – Splitting Time Between Michigan and Puerto Rico
- 09:42 – Amazon Entrepreneur Community in Puerto Rico
- 11:43 – Affordable Real Estate in Entrepreneur Community
- 15:18 – Strategic Tax Benefits in Puerto Rico
- 19:13 – Managing Seasonal Inventory Challenges
- 21:01 – Strategies for Higher Product Margins
- 27:29 – Product Warranty and Marketing Strategy
- 32:02 – Streamlining Warranty Claims Process
- 35:41 – Warranty and List Building Automation System
- 37:09 – Leveraging Email Lists for Product Launches
- 41:04 – Product Accessibility and Opt-in Strategy
- 48:43 – Streamlining Warranty Registration for Amazon Sellers
- 50:20 – Brand Building and Consulting Programs
- 54:20 – Kevin’s Golden Nugget Tip
Transcript
Kevin King:
Welcome to episode 387 of the AM/PM Podcast. This week, my guest is Michael Kaufman. We’re going to be talking about moving to Puerto Rico to save on taxes and to live a better life in paradise. We’re going to be talking about product inserts and what you can and can’t do, and how he’s successfully using product inserts to launch new products to grow his brand, as well as a lot of other really cool stuff in this episode. I think you’re going to really like it. Enjoy this episode.
Kevin King:
Michael Kaufman. Welcome to the AM/PM Podcast. How are you, man?
Michael:
I’m doing well. Thanks for having me, Kevin.
Kevin King:
Now, I think the last time I saw you, in person was that in Puerto Rico at BDSS.
Michael:
I believe so, yeah, in person. I was on the virtual event, obviously, but in person was BDSS Puerto Rico.
Kevin King:
Then, since BDSS Puerto Rico, you liked Puerto Rico so much you decided to actually move your entire family there, right?
Michael:
Well, actually my kids are old enough and have made the decision that they weren’t going to move to Puerto Rico. It’s actually just my wife and I. We moved down. We’ve been here five weeks. It’s been pretty amazing. It’s funny because when we came down for BDSS it was blazing hot. Of course, in June when we were down there, I don’t really like the heat If it’s over 75, I’m sweating. So there was the panel at BDSS talking about x60 and all the tax benefits and everything. I thought, well, that sounds interesting, maybe we should. I go home, I went back to the Airbnb and I’m telling Eileen I’m like, hey, I heard this thing and there’s this tax benefits and Puerto Rico is pretty cool. I think we should move down here. She looked at me like I was standing on the surface of the sun or something. She was like are you insane? Do you feel how hot it is right now? You can’t 75 degrees, you’re sweating. You can’t move down here. But we did. We’re here, you know. So it’s been amazing.
Kevin King:
Where’d you move from?
Michael:
So we were in Michigan. I’ve been in Michigan all my life. I’ve never lived anywhere else. Even college was still in Michigan. So besides traveling a little bit, I’ve never been really outside of Michigan.
Kevin King:
So was the reason for moving? Was it just for a change of scenery and change of weather and to be in the tropics? Was it for business or tax reasons? Well, after you heard that panel, just so those listening understand back in June of 2023 at BDSS, I had a panel of three people a guy from MDS one of the guys hosted one of the big podcasts and a couple of other people that had moved to Puerto Rico. Puerto Rico has some tax advantages. I think it’s like a 4% tax rate if you meet certain criteria and do certain things. So a lot of people that exit their company or are about to exit their company end up moving to Puerto Rico, and there’s a huge Puerto Rico as part of the United States. It’s not a state. For those international that are listening, it’s actually a territory, but they have certain. It’s kind of like a half state. They have certain rights it’s US citizenship and they could vote in certain things, but they don’t get certain other things. So it’s kind of a gray area, but there’s a provision for taxes that allows you to only pay a 4% tax rate. So if you have a lot of capital gains or a big windfall of cash or something, a lot of people end up moving there. So there’s a whole community, several of them, actually several pockets of communities, where there’s all these successful entrepreneurs from Amazon, from all walks of life actually, that are based there. Then they like it. They like the tropical living and the Latin flavor of it. So what was it that drew you there? Was it just the weather, or are you planning an exit?
Michael:
A few things. One, we are planning an exit and the capital gain savings was, of course, a big draw, and actually the capital gains is 0% down here. So you pay a 4% corporate tax, although I think a business that’s under 3 million in revenue is actually 2% for the first five years. So it’s actually even better than that. But then capital gains is 0. So we decided to move the business down here, and there’s some caveats to that, because if you’ve been running the business for very long, the way that the IRS will run it is, let’s say you’ve been well. We’ll take my business, for example. So Protep products. We’ve been selling pull tools for about nine years on Amazon and we’re moving the business to Puerto Rico. But if all we did was just shift the entity to Puerto Rico, then what would happen is, let’s say we exit in a year. The IRS would actually take that and they prorate it on a time basis.
Michael:
So what they would say is let’s say we exit, for we’ll keep easy numbers. Let’s say we exit for 10 million, the US capital gains is 20%, Puerto Rico is 0%. Well, they would tax nine years or 90% of that full 10 million dollar sale. So 9 million of it at 20% and 1 million of it at 0%, which of course, is not very helpful. So what we’re actually doing is selling our entity to a Puerto Rican entity. We’re going to pay the capital gains now on the value of our business, because we actually expect a pretty significant change in valuation between now and when we exit, a year or two from now, and so we’re just going to pay the capital gains up front to the US and then we’ll get 0% on all the gain that we have after that. So a little tangent, but important. So mostly it was the capital gains and the tax benefits. But, honestly, we drove down to Palmas del Mar, which is the community that we ended up in when we were down here in June, and it’s just absolutely gorgeous. You can’t believe how beautiful it is down here, especially if you get up on like a mountain. You know kind of the, the site of a hilltop over here where you’re kind of looking down. You know on the ocean, you know the beach line. It’s just absolutely beautiful. So, you know, between the two I was like, you know, if I don’t have to be here in the really blazing hot portion of the summer and I can just be here for the majority of the year. I really, you know I can’t beat it.
Kevin King:
So first, of all, are you planning on going on going? Did you keep your house in Michigan, or you? Or did you sell that, or you plan on splitting your time, or what are you planning on doing?
Michael:
So at the moment we still have the house in Michigan and we plan for now to keep it. Number one we’ve got a couple of our kids who are still living there, but they’re renting from us. That’s one of the things is that you can’t like whatever your primary residence is, it has to be Puerto Rico like and so if you have a house back in the states that you’re not renting or something and you spend too much time there, then the US might look a little bit of scant at that. So we’re renting that to our kids and we will split our time. We’ll probably be home for maybe four you know three, four months out of the year and then spend the rest of it either here in Puerto Rico or traveling around, you know, around the world someplace.
Kevin King:
So what’s it like? You’ve been there. Now what you said about five months or so.
Michael:
Five weeks, five weeks.
Kevin King:
Five weeks, sorry. Oh okay, so you haven’t really fully gotten into the whole cycle of Latin and kind of it’s quasi third world, but it’s also first world. It’s like a mix. Puerto Rico is one of those when it reminded me of being like somewhere like in Colombia, but with a United States twist. You know it has third world elements and it’s very Latin elements, but it also had some first world stuff. How are you finding it so far in these first five weeks?
Michael:
You know, it’s interesting because you know, like you said, I mean, there definitely are some third world you know kind of elements, especially if you get outside of the communities. Because you know, with Maria, having gone through here, even though it’s been a fair amount of time since Maria, there are still a lot of homes and businesses they’re all boarded up and closed up that got destroyed in Maria and haven’t ever reopened. So I mean there’s still a lot of people who are, who are in rough shape. It’s actually one of the things that we’ve had a lot of conversations with a number of the entrepreneurs you know down here in Palmas about is you know things that we can do outside of the community to kind of help with that. It’s like we feel like you know we’re here, you know we need to make sure that we’re contributing and of course, Act 60 requires you to contribute to a degree, but not a lot. You know, like I mean, it doesn’t require a lot from you. So you know it’s really going to be those entrepreneurs who really take that initiative and say now, you know we’re here, we’re taking advantage of this, you know we should really contribute more, but Palmas Del Mar and Dorado and there’s a couple of other communities around the island are very much kind of a bubble, so we’re very self-contained.
Michael:
There’s a lot, I mean, like you literally could stay in the community and probably never leave if you didn’t want to and be okay. Like there’s restaurants, there’s, you know, a small grocery store. There’s just about everything you might really want is here in the community. But you know we’re trying to make sure that we get out. You know, head now tell UK to do some hiking and things like that and travel to some of the other cities around the island, just so that we can see. You know I mean what the what the differential is. You know it’s like if you stay in the bubble, you know you don’t really know, you don’t understand what’s going on out there. So you know I encourage people. You know I mean we’ve only been here five weeks but, but we’re really trying to make sure that we’re making the most of both being in the community and really kind of connecting to as many people here as we can, but also seeing what’s out there outside the community.
Kevin King:
Now, you said it’s a very strong community of like entrepreneurs. Are they mostly American, mainland Americans that have come there, or is it a mix of international people or all entrepreneurs at all? What’s it? What’s the community like?
Michael:
Yeah, I would say the majority certainly are entrepreneurs of some type. In Palmas Del Mar there’s a fairly large contingent of Amazon sellers, but there’s also plenty of other you know individuals in different areas. I would say that it’s an interesting mix because there are some that are just, you know, Puerto Ricans who have, you know, done kind of well for themselves here. Most of them are definitely US mainland individuals. There is, from what I gather you know, we have like a every couple of weeks there’s a meeting, you know, that a bunch of the entrepreneurs from the community get together and we just kind of chat for a couple hours but come to find out there’s actually it’s not I guess it’s not Act 60, it’s something else, but it’s similar to Act 60 for Europeans. So there are actually a larger number of Europeans down here than I actually anticipated there would be and I believe many of them are here under that you know, the European version, let’s say, of Act 60, where they get tax benefits as well. But certainly, I would have to say at least 70%, you know, are probably mainland US people.
Kevin King:
What’s the cost of living there for where you’re at? You’re in a little bit more premium like gated kind of community, like you said it’s a. Is there an entry level like you need to be, have a million dollar net worth to move in there? I know there’s some houses in there that are tens of millions of dollars. What is the? What do you need to kind of be to actually make it?
Michael:
It’s interesting because there’s quite a wide range. You know, as you said, there’s definitely houses in here that are, you know, maybe 10, 15, you know a million. There’s others that are more like, you know one or two, three million. But then there’s a whole bunch of condos in smaller places. You know that you can get for, you know, five, six, seven hundred thousand. There’s even some smaller condos. I think that’ll run you maybe a few hundred thousand. So you, you really could get into the community for a fairly low investment, as long as you don’t set your standards super high in terms of like where you’re living, in terms of the amount of space that you want, or you know how high end you know all of the amenities in your residence are.
Michael:
Some of those condos are kind of old, but if you really just want to be here and you’d like to take advantage of the tax benefits and you want to be able to connect, you know, with this kind of community of entrepreneurs, you don’t really have to be a millionaire. You know to be here like you could be a significantly less net worth and I think you could still pull it off. And I honestly do believe that the biggest benefit of being here isn’t actually the tax benefits. It’s going to be the connections that I’m making with a lot of the people here and many of the you know investment opportunities that come up, the strategies that you know, that people you know like I can’t tell you the number of things that I’ve learned just from going to this. You know, gentlemen, bosses meeting every couple of weeks. You know that I never would have known, you know, if I wasn’t here. You know, in a part of that community that I think you know are honestly gonna change our life, you know financially. So you know I highly recommend it.
Kevin King:
So what? You haven’t gone through a hurricane season, though yet, so you can’t recommend it because, just yet, because you haven’t gone through a hurricane season, so let’s, let’s give it another year to see uh, see, see uh. It’s a little different than uh some uh cold winds in uh Michigan.
Michael:
Well, you know and that’s one of the things you know where it would be like, because there’s plenty of rentals, like right now we’re just renting and probably will be for a little while. You know we’re just waiting for the right place to come along and so you can come down here and rent. It’s not I wouldn’t say it’s cheap, but at the same time, you know, rather than investing, you know a few hundred thousand or five hundred thousand or a million dollars in a place you know you can rent something for. You know a couple of grand, you know a few grand down here again, as long as you’re not setting your sights. You know super high, um, and then at least you don’t own something that’s going to get destroyed. You know, say, in a hurricane or something like that, you know like you can leave if it looks like there’s something coming this way you can get out of dodge and you know you don’t really have any ties here that you have to worry about being damaged, and you know going through insurance and all that kind of thing. So you know that’s, it’s an option so.
Kevin King:
Since you said you’re renting, did you actually you feel like you moved there or do you feel like you’re just on an extended vacation brought two or three suitcases of clothes, or did you actually bring a lot of personal effects and stuff to fill this place out, or are you starting all over?
Michael:
We pretty much only brought clothes. It’s a full, fresh start down here. I am very confident and comfortable that we plan on staying. So I would say certainly for the first two or three weeks it felt like it was just kind of an extended vacation. I mean, it’s hard not to walk out and see this view every morning and not feel like you’re on vacation. But I’m starting to settle into it, starting to feel more like this is home. But both Eileen and I are very comfortable here. We love the people and I feel pretty confident that we’re gonna stick around.
Kevin King:
Now Amazon delivery there is not next day or same day. It’s like was it like four to six days or something, right? It has to come out of Miami, right? There’s not even an Amazon warehouse in Puerto Rico. I don’t think, right?
Michael:
No, no, there isn’t, and it’s probably. I would say four to six is about right for most things. Some things it’s taken over a week, maybe 10 days to get, but most of it’s probably four to six days, which I mean when you’re used to one or two day, or even same day. That’s a tough pill to swallow, but we’re getting used to it though.
Kevin King:
So the company that you move there, so you are setting up a new entity in Puerto Rico and you got to hire a couple of Puerto Rican people to actually meet some of the tax requirements, right?
Michael:
Well, technically, actually, as long as I’m on the payroll as an employee of the company, that counts, as long as I change my residence to Puerto Rico, which. So there’s two portions of Act 60 that we’re taking advantage of. One of them is the Export Services Act, which is in relation to the business and that’s the corporate tax dropping to that 4% or 2% level. The other aspect of it is called the Individual Investor Portion and that is specific to myself and to my wife and that’s where the capital gains comes in and some other benefits. And so as long as you’re doing the Individual Investor Portion and changing your actual residence to Puerto Rico, then you technically can be that employee and you only have to have one. I mean, I would recommend maybe that you consider hiring at least one other Puerto Rican, but you don’t have to. From what I understand, you can be the actual Puerto Rican employee. So we’re shifting the business down here. It’s kind of a little bit of a complex tax setup. You definitely want to have somebody involved who knows what they’re doing with Act 60 and stuff. But that’s the setup right now as we’re shifting it and then, like I say, we’re hoping within 12 to 18 months we’ll do the exit.
Kevin King:
So the company, as you said earlier, it’s Protuff right and that company. When did you start that company?
Michael:
So yeah, it’s Protuff Products P-R-O-T-U-F-F and started that about nine years ago on Amazon.
Kevin King:
So it started as an Amazon company?
Michael:
Yeah, yeah, I did.
Kevin King:
So did you do like a one to eight amazing selling machine or one of those type of things.
Michael:
Yeah, so essentially what it was. So I’ve been in e-commerce literally almost 30 years. I mean, like I started on AOL. Dial-up was the beginnings of my e-commerce operations, but then I would say like 12 years ago. At that point I had been selling for a multi-level marketing company for quite a number of years. I was doing relatively well with it, but I was a little bit concerned with the direction the company was moving in terms of what the compensation structure might be and whatnot. So I started dabbling in some other options. I did T-Spring t-shirts and I did a number of other things, which were all marginally successful but not enough to really replace my current income. And so then, like you said, amazing selling machine came along. I watched their three or four part free webinar series and they made their pitch. You know, hey, pay us another 3,500 and we’ll teach you the rest. And I just decided I had been in e-commerce long enough. I thought they probably had given me enough information already, so I didn’t actually buy the program. Nothing against their program.
Michael:
A lot of people did purchase it and they’ve done really well with it, so I’m not saying anything negative about it. I just decided I didn’t think I needed it and so I kind of just branched out on my own, went looking for a product and in the early days I didn’t really know how successful it was gonna be, of course, so I wasn’t ready to invest a lot of time and money and effort in redeveloping a product or coming out with new features or things like that. So for me the simplest solution was I knew I needed to differentiate in some way within our category, and so the lifetime warranty was the simplest thing I could think of that I could implement immediately and see what kind of success we could have with it. So that’s where we started and it’s really actually been our bread and butter since the beginning.
Kevin King:
So what category is Protuff in?
Michael:
Yeah, we sell pool cleaning tools, so telescoping pool poles, brushes, nets, skimmers, that sort of thing, and everything has an unlimited free replacement lifetime warranty. So that’s kind of been our claim to fame.
Kevin King:
Is it a seasonal business? Or since it’s cool, so do you? Have big drop offs, like during the wintertime.
Michael:
For us it’s incredibly seasonal. Partly because we have stayed US, we haven’t moved into other markets. We considered moving into Australia and into portions of Europe this last year but because we were looking at an exit, I was a little nervous that the time horizon wasn’t long enough for us to actually start making enough profit from that move to make it worth it. So we didn’t end up going that route. And since we’re only the US when it’s winter, we’re pretty much only selling in Florida, southern Texas, southern California. Everything else is shut down. So we sell..
Kevin King:
in Puerto Rico and Puerto Rico.
Michael:
Yeah, fair enough, but we sell about half of our total sales volume in three months, and then the rest of it we sell over the remaining nine months.
Kevin King:
So how are you going to deal with this new what just went into effect on March 1st, with this new inventory scoring based on days of stock and stuff? Because I would think that, as a seasonal business, you want to minimize your amount of inventory for storage fees and for everything during the slow periods and then you’re going to want to wrap it up. But if you don’t keep a certain level of stock in there, which may be over and above what you would have normally done, it’s going to affect you and it’s gonna almost penalize you for when you actually it is your high season because it’s those numbers are going Areers and affect you going forward. So how, what, what’s your plan of dealing with? That’s a big topic right now, a lot of discussion boards and people dealing with. I’m not talking about the splitting to four different warehouses, I’m talking about the you know, the in stock, out of stock fees.
Michael:
Yeah, we’re. So there’s a few things with that. One is we have actually decided to test out skew drop and kind of work with their system, for you know, leaving a lot of it are inventory over there and then shipping it in smaller quantities toward Amazon. Part of the reason for that is that we have been struggling getting shipments into Amazon right now. But the other thing is.
Kevin King:
When you say struggling, you mean just delays, or what do you mean by yeah?
Michael:
Yeah, delays. So we actually, in fact, we just had a shipment that we had sent in almost four weeks ago and it’s been sitting with Amazon waiting to check in, you know, for two and a half, three weeks. And you know, and ordinarily I mean, yes, that can be problematic, but with the previous way that things were done, you could at least deal with it, you know. But now, because of the low end and the high-end fees, you know, in terms of storage, it becomes a really delicate balance, and so it’s very frustrating. You know that Amazon would institute that even when they know, as well as we know, that they’re struggling right now, you know, with getting inventory in and everything being timed properly, so it makes it really hard on sellers. I think the best thing that you can do honestly and it’s what we’re trying to do is just make sure that our margin is large enough that we can accommodate some fees. You know, like we, if your margins are too low, you’re just getting squeezed too hard. You know, I really do think that, especially for a seasonal business, it’s going to be nearly impossible to meet Amazon’s requirements in terms of the minimum and the maximum you know, inventory levels without getting getting nailed with those fees, and so if your margins are too low, you’re going to get squeezed so hard that that you won’t be able to come out on the other side of it. So if there’s any one message that I’ve got for people, it’s make sure that you’re selling with a pretty good margin. So you’ve got room for error there
Kevin King:
What margin, what percentage do you work on? Or what X multiple do you work on, on your, on your landed cost versus sell price margins?
Michael:
As an example, our, our landed cost on our poll is $40 and we’re selling that for well. We’re adjusting our price a little bit right now we have been selling at 175 but we’re looking to push that probably over 200 right now we’re sitting at 225 and we’re going to see how that number sits, which is way higher than anybody else in our category and we’re selling. If we’re at 225, we’re probably at 6x what most other sellers are selling out in that category. But again, we’re offering an unlimited free replacement warranties, so we have to be able to account for that. So our multiples are pretty high and I think that a lot of businesses could do that. I think that almost every product out there could offer either a really extreme warranty or a really extreme guarantee and they probably could do exceedingly well with it as long as they stood behind it. And I mean that because you’ve got durable goods and then you’ve got non durable. So obviously non durable goods like supplements and things like that, you know, warranty doesn’t really make sense. I mean, technically you could say, yeah, we offer a warranty, right, but the wording doesn’t make sense. But if you say guarantee, then that makes perfect sense. People understand guarantee with a non durable good. And so I just look at it as if you were to look at what the rest of your product vertical is doing, and you said, okay, everybody else in my category offers, let’s say, a three-month you know guarantee. Let’s say it’s a non durable good, it’s a guarantee, you know, and that wouldn’t likely be true, but let’s just say it is. Everybody else is offering three months. You could then say, okay, I’m gonna offer a year, like on everything, and I’m gonna advertise that on our listing, which is extreme compared to everybody else, but it’s believable, like it’s not limitless.
Michael:
That’s the one thing I think we screwed up is when I said unlimited, free lifetime replacement right, there’s no limit to that. So, number one, it’s not believable. Now, today it’s believable because we’ve got, you know, thousands of five-star reviews, so we’ve got credibility behind us. But if you’re a new brand or you don’t have very many reviews, you don’t have that credibility, so you can’t afford it for it to be limitless. But if you put a limit on it but it’s an extreme limit compared to everybody else, so it’s extreme, but it’s also believable Then I think you’ve got a leg to stand on there and as long as you stand behind it and you make it really easy for people to take advantage of it, you’ll get tons of really good reviews and you can sell it a considerably higher price point, I think, than most other sellers can.
Kevin King:
Have you ever considered actually having a variation where you’re selling it for your $200 or whatever? The price point is 175, $200 price point right now and then you have a second variation that’s the exact same product but you add nine, or you add 995 or 1995 to it for the actual warranty. You know you get a basic warranty with the original and then you do an upgraded warranty, which is basically the same thing, just to get that margin up. Because the reason I asked this is in my calendar business, on our order form that we send out by mail, we have an option right where you subtotal, you add you know you fill out the little form and you add up that, what, what you want, and that’s got a little subtotal column. Then right before it’s where you add in the shipping, you look at a chart and right before that is, right after that, is a box that says insurance with an asterisk and I feel I pre fill in four dollars onto the the column and you can scratch it out or you can say no and not add that four dollars in, but by pre filling that in it basically covers any damage in shipment. So if your calendars arrive damaged, they get lost or stolen, whatever, but that four dollars adds thousands, tens of thousands of dollars to our bottom line every single year, and I probably have to replace two orders. So it’s a pure, 100%, pure profit. So that’s why I was asking you if you’ve ever tested something like that.
Michael:
Well, so two things on that one, I would say. So, getting into the numbers, like you said, you know how much profit that adds and how few times you actually have to. You know, fulfill on it right. So I would say that most sellers think they’ll have to do far more replacements than they actually will have to do, so they really get scared about offering, you know, a very extreme warranty in terms of the cost. But just to give you an idea. So again, we offer unlimited free replacements. Now we try to do parts as much as we can because it’s obviously a lot cheaper. But last year so 2023 I just calculated the numbers because we did have somebody interested in a purchase of the business and they wanted to know our warranty replacements in 2023, the total expense for them accounted to 3% of profits, or 3% of revenue, rather. I’m so higher percentage of profits, but still 3% is not too bad. But next year, because we’re going to a more modular version of one of our products that actually gets the most replacements on, it will be down to 2%, actually 1.75%. So that in and of itself, you know, for me that’s just marketing expense, because we get so much word-of-mouth out of that warranty, that it’s way worth that 1.75%, for sure, the reviews that we get and all of that. But going back to the comment that you made about you know, have we considered that what we’re actually considering is the reverse of that. So with our products we we can’t, we’re already at unlimited free replacement, right, so we can’t really go bigger than that. However, what we want to do is we want to get more volume.
Michael:
So what we’re actually going to do is we’re going to keep our unlimited replacement version at the price point that we’re at, but then we’re going to sell like a two-year version at a much lower price point we might. We’re probably going to actually change the feature set just a little bit. So it’s not just the warranty that they’re getting, that’s better, it’s actually going to have a little bit different feature set, but essentially the same product at a two-year. And then what we’ll do is, hopefully because we can sell it a lower price point, which means we can get better ranking on Amazon, we can get more throughput, so we can actually use that as our volume seller. And then those people on the back end, as you suggested, we can then offer an upgraded warranty, Maybe the lifetime warranty for an extra you know X number of dollars, and I’m sure a certain percentage of them will take advantage of that. So not only do we get the higher volume at the lower price point, but then we also can get the back end sale without paying an Amazon referral fee or anything on that, you know additional cost. So we’re going to test that this year. I think it’s going to go pretty well.
Kevin King:
So on a pole, like you said, this is one of those big poles where you has a net or something on the end, where you’re fishing out the stuff, the pool, the leaves and whatever what goes wrong on a pole. I wanted to return a pole.
Michael:
Yeah, so there’s a couple of One. Sometimes the handles give out, so we’ve got a more. It’s a very comfortable foam type. It’s a TPV handle. It’s like a rubberized foam. It’s much more comfortable than most handles. But it also will wear out eventually. So we have to replace those. But that’s a part. We can send that as a part. Our locking mechanism can break down. We can send a new locking mechanism out that they can easily change out, and sometimes the pole will bend or it’ll get a dent in it. So then it won’t telescope properly and then the only other thing that happens is at the other end of the pole there’s little eyelet holes, which is how you attach your tools. At the end. Those eyelet holes can break out at the end and so in that case we oftentimes will have to replace the pole. We actually will tell customers, because there’s an option for them, that they can actually cut off the end of the pole and just drill some new eyelets and it basically becomes a brand new pole. You’d be surprised at the number of customers that are totally willing to do that, because they don’t want to just throw the pole away and they don’t want to cost. They don’t want you to have to spend the money to send them a new pole when essentially it’s fine, but they don’t want to do it until you tell them it’s okay, because then of course they’re afraid they’ll void warranty, you know, or whatever. So a lot of customers will go that route. But those are the, those are the primary problems we have.
Kevin King:
So you don’t make them send any of these parts back. They just call you up and say, hey, this is damaged, and so that you’re minimizing the hassle for them.
Michael:
We minimize the hassle for us.
Kevin King:
You send that? You yeah that too. Did you make them send pictures so that you can at least see if you got an issue of something that you need to talk to your factory about, or just no?
Michael:
Nothing. Now we do it. What we have found is a Fairly large percentage of our customers will type a note into the claim saying what happened. So we have that information for a lot of the claims that come through anyways. But we don’t require anything. We don’t require an explanation, we don’t require pictures, we don’t require a return of anything and, honestly, that does a few things for us. So we have a very. For a long time I had a customer service rep. I mean for a long time I did it. But then I hired somebody on as a customer service rep and she would process all of these warranty claims. But the thing was, what I realized early on was that if we just say yes virtually every time, we’re going to get a five-star review from virtually every claim that we process. And those five-star reviews are really valuable, not just because of the five-star but because, generally speaking, it’s a glowing review. You know three, four, five paragraphs, there’s pictures and video and the whole nine yards right. So it’s just more credibility for our product and for our brand. So when it became obvious that that was true, I basically just told the customer service rep look, unless there’s something, obviously that’s a problem here. You know, like they’ve requested five replacements in the last year, you know, or some stupid thing, just to prove every single one of them. You know, just put it through. But then, not too long after that I was like okay, so if I’m just going to rubber stamp every single warranty, why do I have a customer service rep who’s actually involved in that process? Why am I paying them an hourly fee to process all of this? It takes. It ends up taking, you know, maybe a day or two or three if it’s over a weekend or something for the customer to know that they’ve been approved. I’m just backing up the process.
Michael:
So then we went to using a chatbot flow that essentially was an automated flow. We just asked for their order number. They gave it to us, you know, what address do you want us to ship their replacement to, you know, and the whole process was automated. It would just do an MCF order, which worked out pretty well. I mean, chatbots can be a little bit clunky sometimes, but it wasn’t too bad. But now we have our own internal system that we use, which actually will be rolling out. We’re kind of we’re doing a close bait on that right now for some other Amazon sellers, but it’s an automated system that keeps all of it in a data base. You get all of the customer data and everything, but it just makes the process super simple for customers and super simple for your customer service reps. So now a claim for one of our customers literally takes about 90 seconds to process from start to finish and at the end of that 90 seconds they get an approval. This is hate claim. Approved, a couple of days your products gonna show up on your doorstep. It automatically goes into Amazon system as an MCF order. Amazon ships it out and we don’t do anything, and about 95% of our claims are processed that way.
Kevin King:
So you’re not using a 3PL to send out these, these parts. You’re storing extra parts at Amazon. Do you sell those as a, as an optional part to, or that you store there and just not for public sale and you just have Amazon ship them out as your 3PL?
Michael:
So to clarify, on parts, most of those parts are of no value for any other product out there and we don’t sell them as parts because we give them as free replacements. So if it’s a part we actually do use, generally speaking we use 3PLs for that because otherwise then we’re taking up inventory at Amazon for no reason and they don’t like it. It just kind of sits there for a while. So we do use 3PL for that. But for if it’s an entire unit, you know entire pool rake or pool pole or something like that, then most of that goes through Amazon. Now I will say that FBA fees have gotten to a point and 3PLs have gotten to a point where the price differential is really kind of closed, where there are actually some products now that we can ship less expensively through a 3PL, then we can through Amazon. So we’re actually looking at utilizing, you know, 3pls for more of that shipping than just parts. Now, since that pricing is kind of equalized, let’s say.
Kevin King:
So are you doing top line? You doing seven figures, eight figures. Where are you at top line?
Michael:
We’re mid seven figures right now. We anticipate being eight figures for 2024.
Kevin King:
And this warranty thing that you said you automate, you’ve automated the system and you’ve developed something there that you’re actually going to be allowing other sellers to use. Is that? Is it a warranty claims automation system, or exactly what is the system that you’re setting up?
Michael:
So I would say that at its core, it is a warranty registrations and claims management system. But if you’re talking about it in terms of the benefits to your brand, then I would say that it’s a list building and customer engagement system, because the idea behind it really is A make the process super easy for your customers, so they’re going to love you. But then B because you’ve made it so easy and because you’re gaining that customer data from them, now you can follow up with them. So it’s really about list building. So we get about 30% of our Amazon orders result in a registration of the warranty, so essentially 30% of our customers end up on our list. We get about a 50% open rate on our emails makes our product launches super easy. It’s been a terrific process for us. We can ask our list for anything. They’re really loyal to our brand. So it’s like when we’re having a problem with you know, like when we’re getting targeted by competitors on Amazon with negative reviews, we literally can just send out an email to our list and say hey, we’ve got a target on our back. You know, if you haven’t left us a review, would you? We don’t even have to say go, leave us a five star review because everybody who’s on the list wants to give us a five star. We can just say go leave us a review, and that’s what they do. In fact we now have because this is true all year long. We actually have one email in our automated sequence that goes out to subscribers. That literally says we have a target on our back. If you haven’t left us a review yet, would you please go leave us a review? We actually get a lot of reviews just from that automated email that goes out and we keep it. We hold it back. You know for a little while, so they’ve been on our list for a while before it goes.
Kevin King:
How many SKUs are in the product line?
Michael:
We actually have a total of 18 sellable SKUs, but many of those are variations, so essentially we have five products with a lot of different variations of those products.
Kevin King:
When you launch a new product. When you said you’re using the list to launch a new product, would that be like the sixth product or a different variation of something?
Michael:
Normally it would be a brand new product, not a variation, and actually this year we’ll be doing we’ll probably launch as many new products this year as we have launched since the beginning of the company. Mostly because we had a lot of products that have kind of been in the pipe but I’ve been the bottleneck for getting them launched and so we just haven’t been able to launch very quickly, and that’ll change this year. But the launches that we have done. The nice thing is that launches are super organic for us and they’re very profitable. So whereas most brands kind of anticipate and expect to lose money on a launch in order to get ranking, we don’t do that like we make good money on a launch. And so our process essentially is we decide on a product that we think our customers would want and then we email the list and we say, hey, this is the product that we’re thinking of launching next, is that a product that you’d be interested in? And we use that poll to determine whether we’re going to move forward or whether we’re not. Then the next email says hey, looks like everybody, or at least a good portion of you, are interested in this product if we were going to release it, and you know that we’re going to do it with an unlimited free replacement warranty, like it’s going to be a Protuff product. What are the other things that you would want to see? What features would you want to see? What do you think is the? Are the crappiest features of other products that you’d like us to improve on? What are the? What’s your wish list of features? Even things that you don’t think are even possible for this product. Like you can’t imagine how you could engineer it, but if you could, you’d want it. What would it be?
Michael:
And we send that email out, we take all that information back, we decide what the features are going to be that we’re going to add to this product, right. Then we go into our stage of you know, development, you know of figuring out okay, which ones can we, which ones can’t we. Once we’ve got what we think is a solid prototype, we contact our list who wants to beta test, who’s not going to raise their hand? Right? So we get a bunch of beta testers. We can send those out, we get the results back and again, this process just continues to iterate through that whole thing until we finally have a product that we know is ready, and then we’re going to send a message out saying, hey, products going to launch in two months. You know, be ready for that, we’ll be. You know, running a drip content. You know, whatever, once the product is ready and we’ve got it in stock, we can drip to whatever portion of our list we know we need for a launch, because we essentially know what our open rates are going to be at this point. We know essentially about what kind of response rate we’re going to get in terms of the number of orders that we’re going to get. So I know you know, like, yeah, we’ve got 35,000 people on our list but I don’t have to email all of them. You know I can email 5,000 of them and I know I’m going to get enough orders out of that. I just drip that over, like you know, 10 days and I’ll offer a 15% discount and that’s it.
Kevin King:
We’re going to actually get people when they get the product to make sure that they see they need to register for the warranty Is there? Is it a huge like sticker somewhere that they got they have to physically take off to use the product so they can’t miss it as a big flyer? Is it a little postcard or business card? What are you doing to actually get that 30% to actually opt in?
Michael:
My biggest recommendation well, I’ll tell you what we do and then I’ll tell you why we do it and what my biggest recommendation would be to other sellers. So we’re fortunate because our product is such that. Well, our products are such that essentially every single one of them is useless by itself. And what I mean by that is if I sell a pool net, it’s useless without the pole because it attaches to a pole. It doesn’t even have to attach to ours, it can attach to anybody’s, but the point is it still has to attach to a pole. The same thing as for the pole. If I sell a pole, it’s of no use unless they attach it to a brush or to a net or something right. So all of those products have holes in the end. So the pole has holes in the end because that’s how you attach it. The rake and the brush and things like that will have holes in the end of the handle. So what we decided to do originally we were just including an insert. In fact, for a while we had a little trifold brochure, which it didn’t do too bad. It was reasonably good response rates. But I decided at one point that I was afraid that there were too many people who didn’t have to interact with the insert or the brochure, and so they didn’t, like it, just stayed in the package, and so I was trying to figure out what would be the mechanism that would make sure that a customer has to interact with our insert, and the simplest solution for us was to make it a hang tag. So we’ve got a little plastic loop that goes through those holes and it attaches to the hang tag. They literally can’t use the product unless they remove that, because they can’t insert the tool in the end. So they have to remove it, they have to interact with it.
Michael:
What’s also nice about a hang tag is that it is, by default, a really good split testing opportunity, because you don’t know which side of that tag they’re going to see first and what’s going to catch their eye. It’s very random. So for us we use that as a split testing opportunity. So we have a different message on each side of the insert of the hang tag, and then we’ve got a different QR code on each side so we can track which one gets the most scans. Then, of course, obviously we can split test our landing page to see which one’s getting the best result. But I will say when we went to the hang tag versus having the brochure, and the brochure was pretty big. So the hang tag is like this big, our brochure was like this. It was pretty big. We doubled our response rate overnight when we went to the hang tag versus the brochure and in my opinion it’s simply because they have to interact with the hang tag. If I had one recommendation, it would be make sure the customer doesn’t have a choice but to interact with whatever it is that you’re putting in there that you want them to do something with. Make them interact with it.
Kevin King:
That’s a really good point, because so many people just put a little business card or they just put a little card in there. When I get packages, I just throw that stuff away, unless I’m curious to see what someone’s doing. But that stuff just I don’t even look at it. But when you have to take it off and when you have to, the stickers in the way or the hang tags in the way of using the product, it forces people. That’s really good. What do you say, though? There’s a lot of misinformation out there about using inserts or actually putting something in your package to actually get people to come to your website or to get their name and email address. There’s a ton of misinformation, including by some of the top people in the space that are respected that I believe are giving false and misleading information. When it comes to this, I’ve been doing inserts for years for 15, 20 years never had a problem. I do a free plus shipping offer. Where I think the problem is I’ve talked to some of the suspension people about this too is they say, no, you shouldn’t do it. I’m like, no, let’s back up here, let’s actually get the details. Don’t just blanketly say no, you shouldn’t do it. What are you actually doing? Obviously, most people know you can’t incentivize for a review. You can’t put your packaging or your insert card in your product photography that has a URL or QR code when it’s on Amazon, Amazon doesn’t want.
Kevin King:
When I say don’t redirect traffic off of Amazon, that is primarily what they’re referring to is don’t put that in your product imagery, whereas a URL or a QR code or something that can be visible in the imagery of the product or in your listing but in the actual package, putting something in there that incentivizes reviews is against Amazon’s terms of service, whether that be. If you like the product, leave us a review. If you have a problem with the product, please email us. That’s incentivizing reviews. That’s affecting the review. That’s a no-no. We love to hear from reviews of our customer and you put just the little five stars and that’s all you do. That’s incentivizing. That’s inferring that you should leave us five stars. Those kinds of things you can’t do. If you take them to a warranty page and it’s totally clean, and then the next thing you do and the next email, or two emails down the sequence as you try to get them to, you incentivize them somehow for a review. That you can’t do, Amazon will follow those through, doing a legitimate thing like I use it to get rid of excess inventory. It’s ten dollars free, plus shipping. It’s send me a congratulations. You want a free calendar because calendars are like selling milk and they go out. They go out of style. You know, in 2020, when it’s 20, middle 2024, no one really wants to pay full price for a 2024 calendar when half the year is gone. So I always have one of the calendars. It’s a guessing game of how many to print and so inevitably I have something. I have access stock.
Kevin King:
So I say, get a free calendar and just pay ten dollars in shipping and handling. It’s going to be totally random. You might get the one that you just ordered. If so, it makes a great gift. But I’m getting highly qualified leads because they’re paying me ten dollars, which is half price for the calendars, because we sell them for 20 bucks and I liquidate. My cost on those is a dollar 60 roughly and cost me about six bucks to send those out. So eight dollars. I actually made two dollars on a very highly qualified lead. Nothing wrong with that. And what you’re doing when you’re offering the warranty and get them to register, it’s totally okay. What do you? What do you say to those people that are that frown on you when you? You post that something, all you’re not allowed to do, that you can’t be doing that, what? What do you say to those people? What’s your, what’s your thoughts on that?
Michael:
Well, I would say that I feel like most of those individuals they mean well right, like I think they ultimately really do just want to keep people out of hot water and they really do believe that there’s the potential for a problem there, and what I would say is A I don’t believe that it’s an issue with to us. I believe that if you read it carefully, I would say that I I basically agree with the position that you just took, that redirecting off of Amazon is a no no. So if you have included it in an insert or a product package or whatever and you’ve intentionally then taken a photo of that or put that on your listing to do so, you’re going to run into a problem again. The same thing with packaging that incentivizes a review in any way, or even post response you know like, say, in your follow-up sequence incentivizes a specific type of review, is also a problem. But if that’s not what you’re doing, then you’re good. And I would also say, if you took a step back and you thought about it for just two seconds, it really doesn’t make too much sense, because all of the big players, you know like any big brand, offers a warranty on their products and they offer a registration. They want a registration for that warranty. Many of those products are sold on Amazon. How do you think they’re getting people to register those warranties? There’s something in the package that encourages them to register the warranty. How many items have you bought on Amazon from a major brand that didn’t have something in the package that encouraged you to register a warranty?
Michael:
If you really think that Amazon is going to come after you for that, I think you’re mistaken. I don’t think that’s true and I also would say if you’re really that concerned about it, then make sure that. Make sure it’s not visible. Amazon’s not in there, opening up all of your packages to see what kind of an insert is inside. Like if it’s in a clear poly bag and you put something in there, well, maybe they might scrutinize that a little bit. I still don’t think they’re likely to. But if you’re concerned about it, make sure it’s inside of a box that they can’t see through and it’s on the inside. But at the end of the day, you know I look at it as Amazon wants me to take good care of my customer. The best way that I can do that is to fulfill on the warranty promise that I’ve made and the only way that I can do that is if they can register their warranty so that I have a way to communicate with them, and they have a way to communicate with me, they can file a claim. Like that’s how that process works. Amazon is not going to make a stink about that issue as long as you’re not doing some of those other things. And again, we ask for reviews, but we never present that in such a way as to suggest that it should go one way or another. We’re not trying to just dissuade them from leaving a negative review by catching them on the front end in some way. We’re not trying to encourage the positive review. We just say, hey, if you haven’t left us a review, leave one. We know they’re going to give us a five-star review 99% of the time because we treat them so well, but we’re not asking for that.
Kevin King:
So now you’ve recently, so you’ve been, you’ve been selling. You just moved to Puerto Rico. You’re launching a warranty service for to help streamline the process for sellers. What’s the name of that? Or? You said it’s in beta right now, right?
Michael:
It’s in beta right now. The name is actually going to be registered, although we don’t really have anything out there public yet. You know people could connect with me through Linkedin or on Whatsapp or something and if they’re interested in beta testing it, we are building a list of for public beta. That should be starting soon. So if that was something that interested then they could get in touch. But again, that’s not public yet and then we do also on that same vein, along, you know, along the lines of, you know, brand building and list building and customer engagement and that sort of thing. You know myself and John Stozian and MAtt Atkins have put together a Brand Fortress HQ, which is just a new consulting program that we’re running. We’ve started a podcast in relation to that, which is just Brand Fortress HQ podcast. So if you’re interested in doing some of the things that we’ve been doing with Protuff products and really building that customer engagement and that brand loyalty, you know we’re teaching everything that we do, you know, through that podcast and through that mentoring program.
Kevin King:
So the podcast, actually be on that podcast soon. I believe we have something scheduled for me to be on there. So what do you got? What are you covering on that? Is it strictly for amazon sellers? Is it for e-commerce in general, or what are you guys? Uh, what’s what’s? What’s the focus?
Michael:
I would say is a rule, it is generally very Amazon centric. Certainly, I mean, as we all know, is amazon sellers. Many of the things that well, let’s put it this way many of the things that you should be doing in your Amazon business are very similar things to what you should be doing in any e-commerce business, and if you’re not doing many of those things that e-commerce businesses in general should be doing, you’re probably doing it wrong and you’re not really building a brand. So yes, we’re Amazon centric, but I would say definitely there’s a lot of juice there and a lot of meat for for individuals who aren’t necessarily selling. Amazon are doing mostly d to c. There’s certainly some good information there, but, but if you’re an Amazon seller, it’s definitely more specifically. You know, focus on you.
Kevin King:
So that’s called Ecom Fortress?
Michael:
Brand Fortress HQ.
Kevin King:
Oh sorry, Brand Fortress. Brand Fortress HQ. Yeah, awesome. So, uh, if people make sure you check that out, Brand Fortress HQ or if anybody wants to reach out to you, like you said on Linkedin, how can you uh tell them how to do that? How do you spell their name? Just for those that don’t know.
Michael:
Yeah, so Michael Kaufman K-A-U-F-M-A-N. You can search for my name or search for our Protuff products brand. That again is P-R-O-T-U-F-F Products with an s at the end, and you’ll find it. You’ll find it.
Kevin King:
Awesome, Michael. Appreciate you coming on the AM/PM Podcast has been fun.
Michael:
Thanks a lot, Kevin. I appreciate being here.
Kevin King:
And I guess I’ll see you uh in Hawaii, right?
Michael:
Absolutely, Eilee and I will be there, for sure.
Kevin King:
Awesome. Thanks, man. Great stuff as usual, with Michael there. Michael’s going to be joining us in Hawaii for Billion Dollar Seller summit, so I hope you’re able to join us to all the informations at billiondollarsellersummit.com. And don’t forget also have a free newsletter that comes out every Monday and Thursday with lots of actionable tips and strategies for Amazon and Ecom sellers. You can find that at billiondollarsellersummit.com. So billiondollarsellersummit.com is for coming to hawaii with us, and billiondollarsellers.com is the free newsletter. Hopefully you’ll sign up for one, if not both, of those. We’ll be back again next week with another great episode, but before we leave today, I’ve got some great words of wisdom for you. Who knows you is more important than who you know, so go out there and build a brand. Who knows you is more important than who you kno. Go out there and build a brand and we’ll see you again next week.
Enjoy this episode? Want to be able to ask questions to Kevin King live in a small group with other 7 and 8-figure Amazon sellers? Join the Helium 10 Elite Mastermind and get monthly workshops, training, and networking calls with Kevin at h10.me/elite
Make sure to subscribe to the podcast on iTunes, Spotify, or wherever you listen to our podcast!
Want to absolutely start crushing it on eCommerce and make more money? Follow these steps for helpful resources to get started:
- Get the Ultimate Resource Guide from Kevin King for tools and services that he uses every day to dominate on Amazon!
- New to Selling on Amazon? Freedom Ticket offers the best tips, tricks, and strategies for beginners just starting out! Sign up for Freedom Ticket.
- Trying to Find a New Product? Get the most powerful Amazon product research tool in Black Box, available only at Helium 10! Start researching with Black Box.
- Want to Verify Your Product Idea? Use Xray in our Chrome extension to check how lucrative your next product idea is with over a dozen metrics of data! Download the Helium 10 Chrome Extension.
- The Ultimate Software Tool Suite for Amazon Sellers! Get more Helium 10 tools that can help you optimize your listings and increase sales for a low price! Sign up today!
- Does Amazon Owe YOU Money? Find Out for FREE! If you have been selling for over a year on Amazon, you may be owed money for lost or damaged inventory and not even know it. Get a FREE refund report to see how much you’re owed!
- Check out our other Amazon FBA podcasts including the Serious Sellers Podcast, as well as our Spanish and German versions!
- You can also listen to the AM/PM Podcast on YouTube here!