Home > Sell On Amazon > Financing Your Inventory (Part 1)

Financing Your Inventory (Part 1)

Obviously, in order to sell products to customers you have to have something to sell.  There are two main ways to go about this:

– Buy inventory from manufacturers

– Use drop shipping

How much of each of these you do determines how much capital you need to finance your inventory.  In this post we’ll talk about buying inventory from manufacturers, in the next post we’ll talk about drop shipping.

How much it will cost you to buy inventory depends directly on how much inventory you buy.  How much profit you can potentially make also depends directly on how much inventory you buy.  So your potential profit depends directly on how much you invest in inventory (assuming you run your business well – if you don’t choose good products to sell, or are inefficient, etc., you won’t make any profit no matter how much inventory you buy).

Since your potential profit depends on how much inventory you buy, it seems natural to want to buy as much inventory as possible to maximize your profits.  If you have the cash to buy a large amount of inventory that will definitely help you ramp up faster.  But most people thinking about selling online don’t have enough cash to buy a large amount of inventory, so what’s the right thing to do?

The one thing to *not* do is borrow the money, especially against credit cards.  Interest rates on credit cards are astronomical, you don’t want to carry a balance on them to finance your inventory.  Not only will borrowing money to finance your inventory cut deeply into your profits, if you don’t choose good products to sell or don’t run your business efficiently, you’ll be left with a huge debt and no good way to pay it off.

My suggestion is that you save the money for your initial inventory, no matter how hard that may be.  This doesn’t have to be a lot, since you’re going to start out only selling a few things while you’re learning.  If you’re selling on Amazon or eBay you don’t need a large selection of products to be a retailer.  A big part of success in business is managing money well, and saving the money for your initial inventory is good practice for that.  Once your business is up and running profitably you can use the profit to expand your inventory and grow.

I want to reiterate a point I’ve made previously that, if you don’t have a lot of experience selling online, you should go slowly while you learn, whether you have the cash to buy a large amount of inventory or not.  Otherwise you’ll end up buying a lot of inventory you can’t sell.  Sometimes having more money doesn’t make you more successful, it just allows you to make bigger mistakes.  This is one of those times.  Go slowly and don’t make big mistakes.

Random Observations

I ran across this very good article on Search Engine Optimization (SEO) and wanted to share it with you.  As you know, for people just starting out I recommend selling on Amazon and / or eBay, so SEO is not something you would need to worry about at this time.  But eventually you’ll probably want to start your own website, and it’s good to have this perspective.  I’ll summarize it here, but do read the article. 

It points out that if you’re selling the same merchandise as WalMart, Sears, etc., you’re competing directly against them for high search rankings.  They have far more money and time to spend on SEO than you will as a small retailer.  In order to get a good page rank from Google and other search engines, you need to sell merchandise that isn’t sold by large stores.  So your biggest SEO decision is choosing products to sell.

This article on Internet Retailer talks about some benefits and perils of selling on Amazon.  It makes good points, but is written more from the perspective of large online retailers.  For people just starting out selling online the benefits of selling on Amazon far outweigh the downside.  Just the fact that you don’t have to spend money on advertising to get people to your website makes Amazon worth it.

I’ve mentioned in previous posts that there are buyers who will only buy directly from Amazon, or from third party merchants who use Fulfillment By Amazon.  I ran across this article about a web browser extension that filters out products from third party retailers who sell on Amazon, unless they use Fulfillment by Amazon.  I.e., people using this web browser extension won’t even see offers from other merchants on Amazon.

 

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