How to Start a $1.2M/Year Amazon FBA Business

  • by Brandon Boushy
  • 4 weeks ago
  • Blog
  • 0
Casey with dog and product in backyard

Have you ever wondered how to start a Fulfillment by Amazon (FBA) business? If so you’ve come to the right place. The average Amazon Seller makes about $10,000 profit per year, but Amazon estimates that between 5-10% of the seller central accounts make over $100k profit each year and around 2% make over $1m profit a year!

We talked to one of the luckiest Amazon sellers in the game, Casey Walters. Puppy lover at heart, Casey started Shed Defender because friends would complain about his dog shedding all over everything. As a result, he’s been invited to Shark Tank, featured on Buzzfeed and Mashable, and made $1.2 million last year selling Onesies for dogs.

We’re going to walk you through Amazon business options, how much it costs to start an Amazon business, and the actual process of how to start an Amazon business. When you’re done reading this, you won’t wonder, “Is an Amazon business worth it?” You’ll know it is.

What Is an Amazon Business?

When wondering how to start an Amazon business, there are a variety of business models you can choose. Which business model you choose will depend on how much money you have to invest, what kind of skills you have, and how you want to operate your business. Some of the more common ways people run businesses on Amazon are:

  • Amazon Seller with Self-Fulfillment: You store the products and fulfill the orders for your shop.
  • Amazon FBA business: Amazon stores and fulfills the orders for your shop (Only one guaranteed to qualify for Prime listings.
  • Dropshipping with a third-party supplier: A third party carries inventory and ships it when you have an order. This may be combined with print-on-demand.
  • Let Amazon sell your artwork and receive a royalty for each piece sold.
  • Amazon Associate links and blogging: You write blogs and refer people to Amazon to buy products mentioned in the blog.

Let’s look at the benefits of starting an Amazon FBA business.

Why you should start your own brand as an Amazon FBA business

For those of you who want to start your own brand, an FBA business is the way to go. Amazon FBA is only available if you have a professional seller account on Amazon Seller Central. Of the Amazon business models, an FBA business offers some unique value propositions including:

  • Amazon Brand Registry works to protect your intellectual property.
  • Products are stored in Amazon fulfillment centers worldwide.
  • Products in fulfillment centers automatically qualify for Prime delivery.
  • The shipping process is handled for you, which is helpful as most sellers can’t independently get the same shipping rates because a new business doesn’t have the sales volume and proven demand that Amazon does.
  • Inventory management solutions are provided from the largest eCommerce website.
  • Returns are handled for you.
  • New sellers receive discounts on sponsored product ads, shipping to the fulfillment center, and a monthly storage fee.
  • FBA fees are charged based on a per-sale basis plus a storage fee.
  • Send product samples of new products to encourage Amazon reviews.

Keep reading to learn how much it costs to start an Amazon business.

How much does it cost to start an Amazon business?

Hardcover notebook on table with electronic gadgets

If you’re looking to start your own brand, you can expect to spend $100K-200K during the first year on inventory, software, and marketing. If you go with dropshipping or print-on-demand, the costs can be reduced to the cost of the software you use, but your profit margins may be narrower.

How to start an Amazon FBA business with little money

Fortunately,  you can start an Amazon business for free if you use Amazon Associate and a free blog site like Medium, but you’ll want to master how to use relevant keywords. At UpFlip we use SurferSEO to help us rank our blogs well.

Dropshipping is another answer to how to be an Amazon seller without a lot of startup funds. You’ll just need enough money to cover the first few days of orders and software costs.

Amazon Sellers can also start an Amazon FBA business with one low-cost product that sells like wildfire. For instance, you might buy 500 lightning cables for iPhones for $830 and ship them to an Amazon fulfillment center and sell them for $4 each. That makes it easy to sell on Amazon.

Let’s look at what you’ll want to know about starting an Amazon business.

How to Start an Amazon Business

Starting an Amazon business has never been easier. There are so many ways Amazon sellers can sell on Amazon so you just have to find the business model that works for you. You don’t even need a business license before starting an Amazon business if you plan to have less than 40 sales per month because they have an individual plan that starts at $.99/item sold.

If you want to take the more business-minded route, I suggest reading Hub articles about starting a business because this blog is focused on teaching you how to sell on Amazon in 7 easy steps:

  1. Decide what you are going to sell
  2. Create account
  3. Add products
  4. Market products
  5. Handle customer service
  6. Manage the shipping costs
  7. Get customer reviews

Keep reading to learn about product research when starting an Amazon business.

Step 1: Decide what you are going to sell

Before you can start selling on Amazon you have to decide what you are going to sell. There are several matters to be considered if you want to make money on Amazon including:

  • What are you passionate about?
  • What is the demand for the product?
  • What are the price points of comparable products?
  • What is your Cost of Goods Sold (COGS)?
  • Are you going to be a reseller, print-on-demand merchant, or private label with inventory?

Let’s look at how each of these impacts how to start an Amazon FBA business.

What are you passionate about?

Passion impacts what you sell because many of us find it tedious to spend all day doing something we don’t care about. You’ll be spending a good chunk of time creating a successful Amazon store, so it needs to be focused on products you believe in. In Casey’s case it was:

I really love my Saint Bernard, but people would complain that she used to shed everywhere we went so I created a product that would prevent her from shedding all over the place.

It makes it easier to push through the challenges when you really believe in something. Make sure you consider what you love as you start your Amazon FBA business. Keep reading for more considerations.

Check out the rest of his interview below:

What is the demand for the product?

Demand can be used in two ways to help you choose products, either by identifying gaps in the market or by identifying trending products. Each has a different strategy and both can be used to help an Amazon Store capture more of the market. Let’s look at each.

Identifying gaps in the market

When you are looking for gaps in the Amazon market, you are looking for issues that aren’t already solved or at least aren’t solved well. Tools like Opportunity Finder help professional Amazon sellers identify product ideas that can increase their profitability.

You can search the product database for high selling product ideas based on the Amazon seller product category and find create your own business

Identifying Trending Products

Man writing a business plan with coffee on a table

Review the Amazon Best Seller page to establish what types of products are selling best in the industry you are considering. The Amazon Best Seller Rank is based on the sales in the category compared to other products, and it is updated hourly.

The ranking is weighted between recent sales and long-term sales so you can get an idea of what is trending, but some products are consistently best sellers. For instance, diapers are always going to be a best seller for babies, but the brand and style might change.

If you review Amazon’s trending products, you’ll notice seasonal and holiday trends. For example, during November and December, women’s winter seasonal wear is usually trending.  Next, you might want to prepare for the next trends which will be spring wear and Valentine’s Day.

While you are looking at them, make sure you can see what the best price available is, which we’ll discuss next.

What are the price points of comparable products?

You have to be competitive to be able to sell in a market where there are millions of products. If dog leashes are going for $6-$30 and you would have to sell your leash for $100, there has to be a legitimate reason why customers would want to pay the difference.

For example, the only leash I saw that justified a substantially higher price is the bike leash so a person riding a bike can have their dog run with them. It was $70, which would be reasonable for a niche that is an avid bike rider that wants to get exercise with their dog.

You’ll need to know the price of comparable products to help you establish whether the estimated cost of selling the product can be recouped in sales.

What is your Cost of Goods Sold (COGS)?

Your cost of selling the product on Amazon is the full price your FBA business spends to provide the product to the customer. The costs that Amazon includes in its Margin Per Sale are:

  • COGS: The total costs of the materials, packaging, assembly, and shipping to the Amazon warehouse converted into a per-item price.
  • Amazon referral fee: Typically 15% of the sales price OR $.30, whichever is higher. Find more detailed answers about Amazon referral fees on their site.
  • Shipping to the customer OR the FBA fee:
    • If you are handling shipping yourself, add your cost of shipping minus the FBA Fees vary based on the item but start at around $3. For more detailed pricing, review the link with the referral fees above.

If the cost of selling the product does not provide a reasonable margin, typically 20-50% then you probably don’t want to sell that product. Casey told us:

My margin’s typically run 40-70% because Amazon takes out 15% off the top for the FBA services… They are higher on my own site and Chewy, but 65% of my revenue is on Amazon.

Let’s look at the final consideration when deciding what to sell: how you plan to get the products.

How will you source the products?

Sourcing products is accomplished in three main ways:

1. Resell other manufacturers products
2. Print on demand sellers
3. Private labels with inventory

Each of these strategies has different benefits and risks associated with selling on Amazon. Keep reading to help you decide which works for you.

Resell other manufacturers products

When reselling products, you’ll find a supplier, purchase them, and resell them for a higher price. Common places to buy products to sell include:

  • Wholesalers: Wholesale Central has a list of wholesalers grouped by category. They may require minimum purchases but offer lower prices based on quantity. These may offer to dropship as well.
  • Distributors: Like a wholesaler, but focused on selling a specific company’s products
  • Going out of business sales: sometimes you can find killer deals when a company is closing. Just make sure the prices are less than what you can sell them for.
  • Clearance at big box stores: Sometimes clearance sales have pricing that is ridiculously low at stores like Walmart, Target, and Best Buy. I’ve found a $2,500 computer for $1,100 in the past.

These options will typically require more of an upfront cost, but the payoff is in lower shipping times, which customers love. People use Amazon because of Prime, which requires FBA  to qualify. You can do it through other methods, but this is the easiest way to meet the Prime requirements.

Keep reading for information about print-on-demand sellers.

Print-on-demand sellers

Man printing a tshirt with heatpress machine

Print-on-demand allows creative folks to sell their art with low upfront costs by only printing the product after it is ordered. This is also called dropshipping and is great from an inventory standpoint, but is slower than when you carry inventory. From order to customer’s door can be up to 14 days, but it can also be less in inventory costs.

Printful is the option I use for print-on-demand, but Amazon also offers Merch that does something similar and qualifies for shipping under Prime Membership. Merch does not charge sellers the cost of manufacturing, but Printful does. Merch pays the seller a royalty.

Private labels with inventory

If you are designing your own clothes or products, this is the strategy for you. You’ll have to source your materials, find a manufacturer, and have your own storage facility (or use Amazon’s). This type of Amazon seller is the most labor-intensive but is also the only one that can truly take advantage of gaps in the market.

Casey told us about one of the upcoming products that he could not create without using this approach. He is working on releasing a leash that can wrap around the dog and connect to itself with a magnet, making it easy for his dog to move when it is alone. And then when the dog needs to be on a leash, Casey just grabs it and it’s ready to go.

Normally this category requires the most funds to get started. You’ll have design costs which will vary based on complexity, then manufacturing and shipping costs, plus you may need to patent unique aspects of a design to protect the intellectual property. Casey told us:

Mom sewed the prototype then I went to a seamstress who could sew maybe one per day. When we went from 5/ month to 100 in a night and then over 1,000 orders in 3 months, we had to find a manufacturer to mass-produce. The first loan was $30,000 from my mom and the first year was a total of $140,000 in manufacturing and fabric.

Keep reading to learn how to create an Amazon FBA account.

Step 2: Create an account

Before you can start selling on Amazon, you need to create a seller account. You may already have one if you have an eCommerce store that is already connected to Amazon or you shop on Amazon. Follow the directions to create an account and you will come to a page that looks like the one below.

Amazon fba starting an account screenshot

This page will request the name of the country your business is located in, the type of company, the name of the company, and to certify that the information is correct. Make sure your business is already registered with the proper government agencies before you input this information. It’s important to note that in the US, there are five business types to choose from:

  • State-owned business: Most likely won’t apply to you unless you are opening an account for a government agency.
  • Publicly listed business: Most likely won’t apply for you. These are for companies that sell stock on an exchange.
  • Privately owned business: This is for you if you are registered as an LLC, corporation, or operate under a sole proprietorship/ partnership with a DBA.
  • Charity: If you are a nonprofit that raises money by selling goods, this is what you’ll choose.
  • None, I am an individual: Choose this if you do not have a company that you are operating under.

For the rest of this article, we are going to assume you are a privately owned business. If you are another form of business, the process may be slightly different but only for the next few steps.

The next screen will request your business registration number, address, phone number, and contact information. Put this information in and confirm it with a one-time SMS password. They may send you a postcard you need to respond to as well.

Amazon fba business information screenshot

Then it will ask for information about the contact person including country of citizenship, country of birth, birthday (in DD/MM/YYYY format), proof of identity, residential address, phone number, whether they are a beneficial owner or legal rep, and whether you have included each of the beneficial owners. Beneficial owners are those that own 25% or more of the company.

Amazon fba personal information screenshot

The next step will tell you that you need a bank account and credit card. Make sure to read the page as I’d expect it to be different depending on the type of company. Once you accept, it asks for your bank information. Once you have included that, the system will verify it. If your bank is not on their default list select “Others,” input the information, and it will require a bank statement later.

Then it will ask you for a credit card and inform you that you’ll be charged $39.99/month if you have active listings, so don’t create active listings until you are ready to pay it.

On the next screen, you’ll need to add the name of the store, any Universal Product Codes (UPCs), any diversity certifications, if you are the manufacturer or brand owner, and whether or not you have any trademarks for the products you plan to sell.

Amazon fba store product information screenshot

The final sign-up step for an Amazon seller account is to provide proof of ID (both front and back) and any other documentation requested (a bank statement was requested from me).

Amazon may request a video call. If so, the options are immediate (greyed out when I attempted) or scheduled. Schedule the call if requested and attend it. You’ll need to go back to the verification page to attend the call and input the code on the postcard before you can access the account.

I scheduled the call and received the postcard after 7-10 days. Once I input the code from the postcard in the link provided, it allows you to start working in the account.

Are you still thinking about starting an Amazon business? Keep reading to learn how to add products to your Amazon Seller account.

Step 3: Add products

Now that you have an Amazon seller central account, it is time to add products to your Amazon Business. Regardless of whether you start selling private label products, dropshipping, or participating as an Amazon reseller, you’ll need to add your products before you can start selling. You’ll need to include the following information:

  • Product Identifiers such as GTIN, UPC, ISBN, or EAN. Alternatively, you can request an exemption.
  • An SKU, for your internal inventory tracking
  • Visible product page elements

Keep reading to understand each of these requirements.

Product Identifier

When preparing to sell on Amazon, you’ll need to be aware of the requirements of a product identifier. They accept the following types of product identifiers:

  • Global Trader Identifiers: issued by GS1 for $30 per product with a one-time fee.
    • You need one of these for each size, color, style, and type of package they come in. This is expensive if you are running a clothing company. GS1 suggests these for companies needing 10 or fewer barcodes.
    • According to GS1, these cannot be used for medical devices, pharmaceutical products, variable measure products, or mixed cases, or to create coupons.
  • Universal Product Codes (UPCs): issued by GS1 along with a company prefix, but have both initial fees and annual fees. These come with the bar codes you are used to seeing on products sold in stores.
    • Savings of up to 99.65% compared to buying individual GTINs
    • Available in batches of 10, 100, 1K, 10k, 100k
    • Eligible for Medical devices at $2,100/year
    • Can buy extra to plan for growth or buy new company prefixes as you need more
  • International Standard Book Numbers (ISBNs): These are for books. Go to selfpublishingadvice.org for more information if publishing a book.
  • European Article Numbers (EANs): Also available from GS1 and only required in Europe for physical items.
  • Japanese Article Numbers (JANs): Also available from GS1 and only required in Japan using 45 or 49 for the first two numbers of the 13 number barcode.

Now that you know about those, unless you have fewer than 10 items, go with the company prefix. If you have global sales, make sure to multiply the number you need by the number of countries or regions you need codes for. They are referred to as Global Location Numbers on the GS1 site.

Stock Keeping Unit (SKU)

You can create your own system if you want, but honestly, it might be best to just use the UPCs as your SKU numbers to keep track of your inventory. They already come with barcodes and everything you need to make inventory management easier. Why recreate it?

Keep reading for information on creating a product page so you can become an Amazon seller.

Product Page

The Amazon product page is the key to capitalizing on Amazon’s business opportunities. It is where the user will find the majority of the information about the private label product. Here is an example from Shed Defender.

Dog clothing product info

It includes the title, pictures and videos, seller name, reviews, any promotions, price, sizes, and colors, followed by the product description. Let’s look at each of these to see the impact they have as you sell on Amazon.

Title

The title should give the prospective customer an idea of exactly what the product is. The title on Amazon should include the brand name, the color, and the product name. You may also want to include differentiating factors between your product and other products. For example, you might include, “Seen on Shark Tank.”

Shed Defender uses the following title:

Shed Defender Original Dog Onesie – Seen On Shark Tank, Contains Shedding of Dog Hair for Home, Car, Travel, Anxiety Calming Shirt, Surgery Recovery Body Jumpsuit, E Collar Alternative

I don’t really love what they’ve done because I consider it keyword stuffing, but they include the company name, the product name, and some of the great selling points. They don’t include the color because it is available in a variety of colors, which makes sense because they can include the color in other areas.

I would probably have left it as”Shed Defender Original Dog Onesie – Seen On Shark Tank” because it is sweet and to the point. Keep reading to learn about the photos and videos that an Amazon seller should include.

Amazon product photography requirements

Photos of the product have specific requirements that Amazon sellers must be aware of if they wish to be able to sell their products. Some types of products have additional requirements, but the main requirements are:

The first photo must:

  • Have a pure white background (255,255,255 is the color code if you do your own editing)
  • Show the whole product
  • Fill 85% of the picture
  • be named with the Product Identifier for books and some other products
  • Have a long side that is between 1,000 and 10,000 pixels on the long side
  • Be the following file types: JPEG (.jpg or .jpeg), TIFF (.tif), PNG(.png), or GIF (.gif) file formats

The other photos should follow the same technical requirements but do not have to be on a white background or use the product identifier as the title. They can include videos, infographics, and models except for babies. Make sure to review the information for specific product category photo requirements.

Seller Name

This is the business name or the title of the seller account you add when creating the Amazon seller account. It will be a hyperlink that will take you to a page similar to the one below. You don’t really need to do anything with this step. I just want you to be aware of it.

Amazon fba store name screenshot

Price

Be sure to come up with a price for each product listing during your research phase. You’ll want to add it to the price box. With different sizes and colors, you can price each one differently based on the cost of doing business or you can price them all the same. 

Shed Defender prices the sizes differently because dogs range from a couple of pounds to as big as an adult so they probably wouldn’t sell many if they charged as much for a Chihuahua as they do for a Saint Bernard.

But if you sell t-shirts, is it really worth offending someone by charging $3 more for a 2XL than you do for an XL? Probably not, so just find the highest cost of that t-shirt and make them all the same price unless there is a really good reason to charge different prices. I prefer that method cause it’s not discriminatory to larger people.

Any promotions you are offering

Every successful business has sales from time to time. If a business is running any offers they will show under the price of the product listing. Once you start selling products, you’ll probably want to do so as well. You can offer promotions on your product listing by following the directions on the deals page in Amazon Sellers Central. 

Unfortunately, Amazon password blocks the link without a sellers account, but for those who have already created a sellers account, use the following link to learn how Amazon suggests increasing sales: https://sellercentral.amazon.com/help/hub/reference

Amazon suggest increase sales screenshot

Reviews

Under the Amazon seller, there are reviews. It’s a great place to look when learning how to start an Amazon business:

  • They impact search results because search results take into account the likelihood to buy
  • The likelihood to buy is based on reviews or prior experience
  • The more good product reviews the better

We’ll discuss how to get reviews in a future section but read the customer product reviews section carefully to understand the requirements and make sure your seller account follows the Amazon seller best practices to make sure you get higher product reviews.

Sizes and Colors

Sizes and colors are important because each size and color is actually a different page. It won’t actually be noticeable that the page is changing, but it does slightly change the link in the address bar. The main photo can also be different based on the color desired.

The following pages have slight variations that occur based on the sizes and colors that sellers should be aware of. Play with how this works on your product listings when you are setting up your store so you can comfortably work with your listings. 

Shed defender dog suit size and color

In the back end of the store, you’ll be able to input the number of each size and color so that it won’t offer products that are unavailable. Make sure to input this information into your product listings so that they stay up to date.

Product Details and Description

The product details and description are key aspects of selling products. Third-party sellers may be limited in what you can include in the product listing, but if you sell your own products on Amazon, you can get fairly creative as long as you are honest about what’s in your product.

You’ll want to make sure to include:

  • Commonly searched keywords
  • Materials included in the product
  • Brand name
  • Unique selling points
  • Sizing chart if available

Casey recommends using JungleScout for finding good search terms, and if you are uncomfortable with writing product descriptions, try an AI writer like rytr.me. On rare occasions, I’ll use it when I have writer’s block, but I prefer to write by hand to keep my mind sharp.

You can review Amazon’s Quick Start Guide for more information or review seller central for specific product listing requirements.

Step 4: Market your product and Amazon Business

Team of people brainstorming

No guide on how to start an Amazon business is complete without discussing the marketing of the business. There are a variety of ways to start marketing your Amazon FBA business both on and off Amazon. Choose what strategies to use based on whether you are selling your own brand or another company’s product.

We asked Casey about his normal marketing costs and he told us:

I spend about $6,000 each month on sponsored ads through Amazon… In addition, I run Google Paid Search, and social media for awareness and remarketing.

In addition, he gave advice about launching new products:

I use Vine for new product releases to start getting reviews…Plus I’ll use Email, SMS, paid, and free social media strategies.

During the conversation, he talked about luck playing a major role in his success. He’s been featured on Shark Tank and had the following to say about those:

We’d been thinking about applying to Shark Tank, but Shark Tank actually invited us to apply. We did lots of prep and worked with a professional media consultant. We made a deal on the show, but then mutually backed out because we wanted more of a hands-on partner than they wanted to do. We got private equity about a year later though.

BuzzFeed and Mashable also reached out and he attributes it to:

I’ve got products that people think are a joke so they reach out.

So basically his marketing strategy is:

  1. Create funny products with meaningful uses
  2. Drive awareness through social media, Vine, and companies that reach out wanting to feature his product
  3. Run Google paid advertising and Amazon sponsored ads to sell products to people who are searching for pet products
  4. Collect emails and phone numbers when people buy their products
  5. Run remarketing campaigns when people abandon carts
  6. Watch trends in the industry to create new products
  7. Use customer email and social surveys to get input when creating new products.
  8. Expand your product line and sell bundles to increase Lifetime Customer Value
  9. Run remarketing campaign when launching a new product
  10. Keep building on top of these

Between everything, his marketing budget is between $16k-$18k per month. He pays an agency to handle Amazon ads and another to handle the paid social media and Google ads. For most people that sounds like a ton of money, but it’s only 12% of revenue on the high end.

If you don’t like handing the money over to others to manage, you can do it yourself. I’d recommend learning how to do it yourself by familiarizing yourself with many of the marketing tools available from the platforms you’ll be marketing on. Here are some of the references for marketing from major platforms:

In addition, many marketing tools that you pay for such as JungleScout and Helium10 offer training to learn how to make the most out of your Amazon business. Assuming you are selling great products and using the best practices, you should start getting sales

Keep reading to learn how to manage the shipping costs when you start an Amazon business.

Step 5: Provide Customer Service

If you’re using FBA all the sales and customer service is handled by Amazon. If you are using self-fulfillment, you’ll need to handle shipping, refunds, customer complaints, and inquiries. You can hire someone to help you with this, but you’ll want to try to be the fastest and the best customer service in your product category.

The easiest way to beat other sellers is to have the fastest shipping times, easiest customer experience, and best products. That means using Amazon FBA. Casey told us:

Reviews make or break a seller’s rank. Make sure to get your product on Amazon Fulfillment.

While the margin may be lower than selling on your own online business, new sellers will find it much easier than managing their own sales. An online business that doesn’t use FBA would have to store their products in their house, retail stores, or warehouse. You’ll spend more time and money dealing with the operations than with growing the business.

Step 6: Manage the shipping costs and inventory

One of the biggest challenges an Amazon small business will face is the shipping costs. Depending on your products, shipping costs can be expensive.

Keep reading to learn how to become an amazon seller and get reviews for your new business.

Step 7: Get Product Reviews

Star block on blue background

When wondering how to start an eCommerce business on Amazon, one of the biggest challenges any small business owner faces is how to get customer orders and get quality reviews. 

Fortunately, Amazon offers some ways for sellers to get reviews for their own products. The most common are:

  • Vine: For a $200 fee, brand owners can enroll a product in the Vine program and provide product samples to people who are highly likely to give quality reviews. I suggest you start with their Vine FAQs to understand more.
  • Send a request for the customer to review the product from Amazon within the first 30 days or use an automated tool to activate this feature in JungleScout.
  • Request buyers of your product in other places to go on Amazon and review it.
  • Include a reminder to review the product on Amazon in the packaging, but don’t incentivize reviews.

Closing

We’ve provided everything new sellers need to create and manage an Amazon store. Remember the Amazon key for business is to have great pictures, great copy, and get great reviews. If you apply those lessons, you’ll be among the people who know that an Amazon business is worth it.

What are the benefits of an Amazon business that will impact which type you start?

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