It’s been a little bit since I’ve had the time to sit down and write a post for the FBA Master blog.
I have been following some conversations in the Facebook group and from emails I have received and wanted to address a major area that needs to be talked about in the Amazon space:
I know you have heard the following:
Cash is King.
And if you want to make killer bucks selling on Amazon or any other online selling platform, you have to understand why that is so.
Cash – The magic piece of paper that allows us to use it to buy services and products from others. It’s the universal currency of trade and allows commerce to exist in our society.
People who have cash can use it to make money. People who don’t have it run into some issues.
That’s why cash flow is so important.
Unless you have an unlimited amount of capital from which to source, cash flow is vital to your success as a small business owner.
If you do have unlimited capital, I would be willing to give you half of a percent interest on a six figure loan, just let me know and I will send over my account number.
If you are like the rest of us, being mindful of the ins and outs of your money and expenditures can be the difference between being a long term success and being a short term “no money in this business” quitter.
The most important part of cash flow management is always being in a position to pounce on an opportunity.
In this world of abundance, deals come often and when they do, it is usually fast and furious. With proper bankroll management, you do not have to worry about whether you can afford to make a purchase, you will already know.
And knowing is half the battle.
When it comes to selling on Amazon, there are few things that managing your cash flow can help you do:
1) Keep Inventory On Hand
We all know that stockouts are costly because you’re missing out on potential sales. However, there are a few other issues when you run out of inventory. First, if you compete for the Buy Box, you can kiss that prime real estate goodbye with no inventory. Second, your organic search ranking will take a hit after a stockout. Remember Amazon only cares about the end customer, so they hate sending customers to listings that can’t turn into sales.
Our favorite service to recommend to sellers is Payability. With it, you get daily next-day payouts on your sales, so you can reinvest in inventory right away rather than waiting two weeks for Amazon to release your hard-earned cash. If Black Friday/Cyber Monday are as massive as Prime Day was this year (60% growth!) and you get cleaned out, can you afford to be out of stock for the first few weeks of December as you wait for your payout to be issued?
2) Control Your Supply Chain
September, October and November aren’t just the months when Amazon Sellers are stocking up for Q4. During the fall, retailers and wholesalers are also moving tons of unsold inventory to make room for their seasonal selections. For Amazon re-sellers, that means a massive sourcing opportunity. Will you have enough cash on hand to jump on great inventory deals?
If you aren’t sure, you might want to take a look at the company we mentioned a few minutes ago. With daily payouts, Payability customers have the flexibility to source more opportunistically, leading to higher margins. Similarly, private label sellers using Payability eliminate two weeks from their supply chain lead time, which can mean another inventory turn or two during prime shopping season.
3) Embrace Price Wars
Competition is fierce during the holiday season. During Q4, you’ll see it all on the pricing front. Algorithmic repricers are just the beginning; at least repricing robots behave rationally. You’ll see sellers slash prices just to build sales momentum hoping to win the Buy Box. Sellers will back the wrong “it toy” this season and try to rid themselves of an unpopular product without losing their shirt. Unsophisticated part-time sellers hoping to make a quick buck will make one large inventory purchase before the holiday season and try to flip it for the thinnest of profit margins. Still others will have a family vacation coming up and dump product before getting to the airport. What’s more, with Amazon’s long-term storage fee right around the corner (February 15), some sellers just want to make it out of the holiday season without any inventory on hand. All of these forces can lead to insanely low prices – which can be crippling for sellers looking to make a nice profit during the holidays.
Price wars are a reality and price wars can be terrifying. However, if you’re on top of your game, you can find solace in the fact that heated competition will hurt your competitors more than they’ll hurt you. Irrational behavior is particularly hard on sellers with short-term time horizons, rigid supply chains or single inventory runs per season.
Selling during the holidays requires a lot of tough decisions; buyers have an easier time making those tough decisions because they can wait for more information, act more quickly if necessary and know they have flexibility that their competition doesn’t. With cash in your pocket and patience on your side, you can wait out crazy pricing levels for a few days and pick your spots throughout the whole season.
Bonus: As the competitors duke it out in early December, there may be an opportunity to cash in with less competition and more pricing stability later in the season. Competition really slows down in January, so if you’re in it in for the long haul, January represents an opportunity to clean up on all those gift card stocking stuffers.
So there you have it. A brief dive into the importance of understanding cash flow and the ways it can impact your Amazon business. Once you are able to understand why cash is important, you can use it to make more money this holiday season!