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Posts Tagged ‘financing online business’

2013 After Christmas Sales

December 27, 2013 Leave a comment

By far my strongest selling season is the fall, right before Christmas.  But my second strongest selling season is winter, from the beginning of January through about the end of February.

For items that sell well, I definitely want to have good inventory right after Christmas, and you probably do, too.  This is tricky.  The strongest selling season is just before Christmas, and popular items can easily sell out, but you need to have inventory available at the beginning of January.

The last 2 weeks of the year are also commonly taken off for vacation, so there’s a good chance you’re not in town to place or process orders.  Even if you were, there’s a good chance the manufacturers you order from are closed for much of that time.

My solution has been to stock up my most popular items throughout the summer and early fall not for expected Christmas sales, but a combination of Christmas and winter sales.  Unfortunately this is capital intensive, because you have to purchase inventory for your best six months up front.

Many manufacturers will let you defer payment for 60 or 90 days to help with exactly this kind of cash crunch.  They don’t always volunteer this information, though, so if you have an item that sells extremely well, ask the manufacturer about it.

I want to emphasize, though, that you should only do this for items that you know from personal experience are going to sell well.  The last thing you want is to buy a huge amount of inventory on credit that doesn’t sell.  So don’t take chances with this strategy, only use it for your absolute best sellers.

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I hope you had a great Christmas selling season, and that you’re now enjoying some much-deserved time off.  Let me know how it went, I’d love to hear from you!

 

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Selling on Amazon – Starting Your Online Retail Business

March 16, 2013 Leave a comment

As you probably know from my previous posts, I recommend that anyone who is just starting to sell online start on Amazon.  Of the marketplaces I’ve sold on they’re the easiest.  They let you do as much or as little as you want.  If you want to just have your listings show up on Amazon, and do all of the order fulfillment and customer support yourself, you can.  If you want to just buy products, send them to an Amazon warehouse, and have no more to do with the sales process, you can do that, too.

Your desired level of involvement will change over time as your sales grow and your objectives change.  At first, with small volumes, you may as well handle the order fulfillment yourself, it doesn’t take much time or storage space.  Eventually you’ll reach a point where it’s taking a lot of your time and holding you back from growing sales, and you’ll want a fulfillment service to take that over from you.

The two things that generally constrain your sales are time and money.  Time to find new products to sell, which should always be a big part of the time you spend on your online business, and money to buy additional inventory.  As a retailer you can only sell what you buy, so having capital to buy more inventory is essential to growing your sales.

In terms of time, always keep track of how much time you’re spending on each aspect of your business, and actively spend time every week thinking of ways to reduce it.  Reducing how much time you spend on any activity will free up more time to look for additional products to sell (to help, here is a free list I update monthly with items to sell on Amazon).  This isn’t rocket science, if you actively spend time thinking of ways to become more efficient every week you’ll find them.  Maybe not every week, but you will find them.

Money is trickier.  I recommend that you not borrow money.  Not every product you sell is going to sell well, you don’t want to borrow money to buy inventory that you can’t sell.  If you’re just starting out and don’t have much money for inventory, you can look for one-off products to sell in outlet stores and the like.  It’s a lot more time intensive to sell one-off products, and I don’t know of a way to really ramp up to large volumes doing that, but if you’re just getting started and need a way to generate profit to but more inventory it’s a path that can work.

Financing Your Inventory (Part 2)

February 3, 2012 2 comments

Last time we talked about buying and shipping your own inventory, this time we’re going to discuss drop shipping.

Some companies (and manufacturers) will ship products directly to your customers on receipt of order.  The sequence of events is:

  1. You list a drop-shippable product online
  2. A customer buys it from you
  3. You place an order with the drop shipper, giving them the customer’s shipping address
  4. You pay the drop shipper for the product and shipping service
  5. The drop shipper sends it directly to your customer

The big benefit of drop shipping is that you can list a very large number of products online without actually having to purchase the merchandise.  Inventory costs are almost certain to be your largest expense, so not having to buy merchandise before offering it for sale online is extremely attractive.

There are several downsides to this, though.

The biggest downside to me is price competition.  Price competition online is generally pretty stiff, and making a profit on drop-shipped products is difficult.  The drop shippers have to make a profit, so with the low discounted prices online there’s a good chance there won’t be any profit left for you.

The service quality of the drop shippers will be perceived by your customers as your service quality.  If the drop shipper is late in shipping, makes a mistake on the item, sends an item in less than pristine condition, etc., it will be a bad reflection on you.

You have to work with a vast number of products.  Since margins are going to be thin, and / or volumes on individual products are going to be low, you have to make up for it by working with a huge number of products (listing them, setting and updating their prices, etc.).  If you aren’t a software engineer who can automate much of this work it will be extremely time consuming.

You have to monitor when your drop shippers are out of inventory and update your listings online so they won’t be displayed, then re-enable them when the drop shippers have the inventory in stock again.  This has to be done at least once a day for all products.  When you’re working with a large number of drop shippers and a vast number of products this could be a problem.

You have to transfer orders from online to the drop shippers, and shipment status from the drop shippers back to your online store.  Imagine you’re receiving several thousand orders per day and dividing them up among several drop shippers.  For each order received you have to assign it to the right drop shipper, format the order information (items, shipping address, etc.) according to the needs of the particular drop shipper, and upload the orders to each drop shipper.  You then have to update the orders online with tracking information from the drop shippers, again each with its own format.  Just as working with a huge number of products will be a problem if you aren’t a software engineer, so will working with a large number of low profit margin orders every day.

I’m not trying to discourage you from working with drop shippers, I’m sure there’s a lot of opportunity there if you can sufficiently automate it.  And there are companies that provide services to help you with any mechanical step you want.  But each service provider you use costs money and reduces the number of products you can profitably sell.

Random Observations

If you go to the What To Sell On Amazon page you’ll see that I’ve uploaded the potential product lists for February.  The January lists were popular.  I’d like to hear your experiences with finding products to sell from this list, so if you have anything to share please post a comment or send me an email: golden.gate.trading.post AT gmail.com

Financing Your Inventory (Part 1)

January 20, 2012 Leave a comment

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.