How do you take your business to the next level? How do you tackle difficulties as an Amazon FBA seller? How do you obtain the financing needed to raise working capital? These are valid questions that have at one time or another crossed the mind of every Amazon vendor.
Don’t allow lack of working capital hold back your business growth. Here’s what you need to do:
- Learn the mechanics of cash flow management
- Obtain financial data to help you formulate solid investment decisions
As an FBA seller, you’re probably thinking of ways to position your Amazon store for growth. Perhaps the toughest roadblock to your success is insufficient working capital. Whether growth for you means improving your marketing strategy, diversifying your products and services, expanding your inventory, venturing into a new niche or all of the above, you are going to need money to make those things happen.
- Obtaining the financing you need
One viable strategy would be to fund your business operations yourself. This is usually done by channeling your revenue towards marketing, inventory purchase or other avenues for business growth. The only downside to this strategy is that progress can be very slow, in which case the entrepreneur is better off opting for external sources of financing to speed up the process.
Borrowing money from external sources carries some risks – primarily, you need to be sure that you can repay the lender the principal, plus accrued interests and/or fees. And just because you obtained external financing doesn’t mean you won’t encounter any more problems with cash flow.
Before you consider seeking external financing, you need to have accurate metrics for your business; these metrics support a solid financial strategy which will help you make an informed decision whether to seek external financing or not.
- Making the most of your working capital
There are two steps to making good use of your extra capital:
- Employ a sound financial strategy backed by reliable data
- Identify growth opportunities and put your money there.
As an Amazon FBA seller, you can boost your revenue by spending your extra capital on advertising, such as PPC. Aim for an ROI that will double your investment. That way you will have the best chance of realizing your goal.
If your ad campaign falls below your target, recalculate your plan before launching another campaign to ensure the best return on investment.
- Purchasing additional inventory
Buying more inventory is usually a pretty straightforward process, until the problem of insufficient cash flow gets in the way. To guard yourself against this error, compare your average daily sales versus the volume of stock left. If a month has passed and you still have plenty of stock left, either you are overstocked or sales have been slow.
Either way you need to adjust your purchase schedule and volume to bridge the sales gap. On the other hand, if your stock is running out in less than two weeks, you need to reassess your purchase volume to keep up with customer demand. Keep your inventory turnover in pace with daily sales if you want to succeed on Amazon.
- Increasing your profit margin by lowering investment costs
Another strategy to increase your working capital is to look to your production costs. The holy grail is to reduce production costs, sell them for the same price and increase your margins. As an Amazon FBA seller, the most common way of reducing the cost of acquiring inventory is to buy them in bulk. This is particularly true if you pay your supplier on a timely basis. Suppliers often give huge discounts for good customers.
Buying huge quantities of goods will often put you in this kind of advantageous situation. If cash flow isn’t a problem for you, then this strategy is a strong option for making it big on Amazon.
- Knowing how much financing you need
Take the cost of the products you sold and divide it by your sales. That is your gross margin, which is crucial in determining whether third party financing is going to make a significant impact on your profits. Also, factor in your PPC spend if that’s what you use to draw attention to the items you’re selling on Amazon. Doing so will give you a more accurate gross margin figure.
Most of the time, Amazon sellers have trouble bridging the cash flow gap, simply because there’s a considerable time gap between sales and when Amazon gets around to paying you.
Conclusion
As we’ve learned, managing cash flow is vital to the survival and success of Amazon FBA sellers. It spells the difference between running a thriving business and stagnation. When presented with any growth opportunities, having a healthy level of working capital is vital to being able to act quickly in response to the prospect.
To deal with working capital issues, you need to know how to bridge the cash flow gap, and have a reliable source of third party financing.
Oftentimes new Amazon sellers struggle with claiming reimbursements from Amazon for lost or damaged goods. If you are or have been in this situation, there’s a viable solution for you.
Seller Investigators can take care of the task of collecting or keeping track of your reimbursements for you. At FBAi, our services will free up your time so you can focus on the more important things, like running and growing your business. Have a great day!
