There are specific formulas Amazon sellers can use to complete a proper cash flow analysis. Free up your operating cash flow using the techniques Charity DeVries shares in this finance strategy training video.
With this strategy, you will learn:
- How to compute your inventory turnover ratio.
- Important terms such as operating cash flow, inventory turnover ratio, days-in-inventory, year-end inventory, and inventory in-transit.
- Tips for quickly turning over inventory and negotiating with suppliers.
Charity also shares the success she has had—gaining “invaluable connections”—from attending SellerCon, a conference for Amazon sellers that provides up to date, relevant eCommerce strategies to help sellers grow their Amazon FBA businesses.
Operating Cash Flow
Inventory Turnover Ratio
Use Supplier Invoices to Find Inventory Turnover Rate
Tips for Quick Inventory Turnover
Supplier Negotiation Advice and Other Tips from Charity
Free Up Cashflow In Your Amazon Business Video Transcript
What is SellerCon?
Jason Katzenback (co-founder and CEO of Amazing.com, Inc.) interviews Charity DeVries (Amazon seller and Amazing Selling Machine success story) to reveal specific steps sellers can take to analyze their business inventory turnover rates and take action to utilize more operating cash flow.
Cash flow is the money that flows in and out of the business, such as inventory purchasing and sales orders. Even though an Amazon business might sell a lot of product, cash flow can still be inhibited by other factors. Managing that cash flow comes down to understanding some basic math about the business.
First, you need to understand your inventory turnover ratio (how much inventory is sold and replaced over a certain amount of time).
It is important to consider time, as well—how long it takes to complete an order, from ordering the initial inventory to getting into the customer’s hands.
There are two options for the basic math needed to begin the process of increasing cash flow. The first mathematical option involves taking the cost of goods sold and diving that by the average inventory.
The second is “Days-in-inventory,” described in the next section.
The second (and easier) option is to look at days-in-inventory.
Days-in-inventory is how many days’ worth of inventory you have on average. How many days would it take for you to completely sell out? This provides a baseline of your turnover ratio.
To find this, take your cost of goods sold, and divide that number by the year-end inventory dollar amount. Then, divide that number by 1, and multiply it by 365 (for each day of the year).
This information can also be found on financial reports, profit and loss statements, balance sheets, and are easy to find with simple accounting software. This will all help you figure out your year-end inventory, which should also include any inventory in-transit.
Next, look through all supplier invoices to determine how often you have ordered inventory in the number of days that you have been in business. That gives you a good idea of how fast you’re turning your inventory.
Amazon sellers, unlike most other businesses, have to order product (often from overseas), and then wait for that product to be made and shipped. This extra time means that you need to turnover inventory as quickly as possible.
To do this, choose products that ship and sell quickly. She also recommends that you offer sales (such as BOGO) in order to get more sales, and look into selling to wholesale retailers.
- Work with suppliers and remind them that you are a large-volume repeat-buyer. You can use this to try to negotiate batch payments and shipments, as well as pricing tier structures (where units cost less depending on how many you purchase).
- Always negotiate with your supplier.
- Be familiar with your sales numbers and how many units you’re selling per month. Then you will be able to anticipate when you will need more or less inventory.
- In order to free up the cash flow for your Amazon business, know the ins and outs of your business. Improved cash flow can allow you to pay yourself, invest in new products, put money into advertising, and reinvest in your business as a whole.
Jason: All right. So, I think we are live. It’s going to be going live in just a second. There we go. All right. It always takes a minute for Facebook Live to get kicked in for us. So welcome everybody. This is a really cool call. We’re going to be doing completely free training for you with someone who has been around the ASM community for a little bit, her and her husband. And in fact, I just found, I saw a picture here that I have. I don’t know if I can even share. Regardless, it was of me Charity and her husband, Ben. It looked like Las Vegas SellerCon. You were in Las Vegas at the last live event?
Charity DeVries: Yeah, it was amazing.
Jason: Awesome, awesome. So with that being said, first of all I’m going to tell you that this call is all about a cashflow solutions. So, as you know with Amazon sellers, cashflow is an issue. Cashflows can be hung up in your inventory. It can cause issues and really when you don’t have your cashflow under control what you think is going to be deposited in your bank often isn’t. And it really can be stressful, frustrating, but it’s actually not that hard to gain control. Now that doesn’t mean it doesn’t take work and it doesn’t mean that you don’t have to do some things. But there’s some tips that we’re going to share with you today, that Charity’s going to be sharing with you on helping you to free up some of that cashflow so you can have better control over your business.
So Charity, thank you for being here. I really, really appreciate you doing this.
Charity DeVries: Yeah, absolutely. Excited to be able to share some of the stuff that we’ve been able already start to implement in our business to improve our cashflow and excited to be able to share that with everybody else.
Jason: Very cool. So I apologize. I just realized I have a blinding light behind me. I’m in Scottsdale right now. We’re in an Airbnb as we’re doing treatments for my daughter. So I guess I’m new to this stage right now. I apologize for that. This is all about Charity and her training so that’s good anyway.
One thing I’m going to ask you to do. We’ve got lots of good training that’s coming your way right here. If you could do us a favor and please share and like this post. It really means a lot to us because it gives us an incentive to keep on giving this free content. Charity is taking time out of her day to do this as a form of giving back. She’s caught the bug. And what I mean about that is about training people. Often people wonder well why do you guys teach? Why don’t you just focus on your business?
It’s because by leveraging what we learn doing this business to help other people change their lives, there is nothing better. There is nothing better for a profession that I’ve found. And that’s why we do this training because we always have people come you to us and thank you. And Charity, it seems like this is something that’s really caught on with you as well.
Charity DeVries: Yeah, exactly, exactly. That’s one thing especially my husband, Ben, and I, we have helped other people get started in their Amazon businesses and that’s probably one of the funnest things is when we have a lot of people invite us over for dinner these days so we can sit and chat but also be able to help them and the little hurdles that they have, just help keep them moving forward. And that’s always just really the big thing is at the end of the day, going home from having dinner with friends, just that sense of fulfillment of hey, I think we really were able to help those guys. We were really able to help them overcome where they just felt stuck. Or they felt like how are we going to overcome this hurdle and just be able to look at things and look at some other perspectives.
Jason: And always when you go through those troubles in life, I find for myself when I’m able to share with others to help them prevent them, it helps you feel like that wasn’t a loss. That wasn’t a waste. Something beneficial came from it.
Jason: Right before we get into this training, I’ve got one thing I do want to remind everyone of. If you have not already registered, we recommend, we’ve got our Orlando event at SellerCon coming in April. SellerCon is the number one Amazon seller conference in the world. And I lay claim to that because I know it is. If you want to network with people, and I mean network with amazing people. If you want incredible training. But most of all, to me, if you want motivation and inspiration, I really recommend you check out SellerCon. You can go to it at sellercon.com and in fact, with the power of the internet here I’m just going to show my screen really quickly. Maybe not. No, I won’t and that’s okay because that’s right, because I’m live streaming.
I just wanted to bring up SellerCon because I wanted you guys to be able to check it out because there’s one important thing. We’ve only got 30% of our tickets left so that means we’re almost sold out plus in five days the price … and actually in just a little over four days … the price is going up. So whatever comes first. Make sure that you don’t miss out on this. I promise you if you’re an Amazon seller, this is an event you want to go to. As you’ll hear later, we’ll talk about this, the event itself has changed people’s businesses and live. It’s something you want to check out.
But with that being said, let’s get right into the training. So Charity, if you could please I’m going to have you get your screen sharing set up and we’re going to get right into this.
Charity DeVries: Sounds good. Get this pulled up here.
Jason: So what we’re going to be doing just before she gets into this. As she’s going through this training, we will have a Q & A at the end. We’ll be answering some questions that you put in the comments below. So feel free to comment. And if you’re loving the training, at the same time, again remember to comment that you love it and please like and share. So, go ahead, Charity.
Charity DeVries: Awesome, awesome. Well, this training is really just something that has been birthed out of my husband and I started our own Amazon business a little over two years ago. And we … Things were going well and we were supposedly making all this money. We were making lots of sales. We were selling over a million dollars a year and yet, it seems like every single time with our business, it was like I needed to reorder inventory or we wanted to do more in advertising, and our cashflow was so tight. And it was like we had to really strategically plan that next inventory order or that next big advertising effort.
And so, I really started digging into this further. And okay, this just doesn’t feel right to me and so what do we need to do? And so, this really is how this was birthed. I’m really super excited because I’m thinking this is going to really help a lot of you guys that are in similar situation. And if you’re just starting out as a seller, this is good information to have now because you’re going to be able to avoid some of the pitfalls that we fell into. So super excited.
So first, let me get my slides moving here. If you’ve ever asked yourself, I know I’m making sales and revenue but why don’t I have any money? That is the question that we asked ourselves. You might have seen on Facebook. Jason put this on Facebook. Amazon sellers want to know where’s all my money? And this is how we were feeling. Every single time we’d get a payout from Amazon, it was just the names and faces of the dollars were changed to protect the innocent because as soon as it came in it had to go back out again whether it was inventory or advertising costs or whatever.
And so, we really started diving in to say okay, why is it that we’re looking at our bottom line every month and we’re just not really taking home the amount we want to take home. We started this business to be able to leave a day job for my husband. For me to be able to do something from home, and at the end of the day, we were like, why are we not taking home more money than what we are? And if we’re going to really, truly replace my husband’s income, we need to be taking more home than what we are taking home right now.
So, we started asking these questions about we want to pay ourselves more. Where did all the money go, right? It’s like we make a million dollars in sales every year, it’s like great, where is all of this money going? So, what we started to find out is something called our inventory turnover ratio. And basically what that is is that is a ratio showing how many times a company’s inventory is sold and replaced over a period of time. As an Amazon seller, this is a little bit of an interesting proposition based on the fact that we are selling physical products but when you look at other retailers that have the ability to get products maybe faster. So, I started talking to a lot of different business owners that also sold physical products but they were not importing such as we’re importing. The majority of us Amazon sellers are importing.
When we order inventory, we have to order way in advance. We have to order usually bulk quantities. And so that means to have good cashflow, that inventory turnover, so how long does it take us to go through that order? When you’re first starting, how long does it take you to sell the first order, the second order, and so forth?
There’s actually a mathematical calculation that you can use to make the calculations and determinations to be able to determine what is your current inventory turnover ratio or how many times in a given calendar period are you making that turn to where you’re completely taking that order, turning it over, and then making your next order and turning that over?
And so, there’s a couple of mathematical calculations that can be used to do that. The first one is if you take your cost of goods sold and divide that by your average inventory or if you essentially divide your sales by your inventory. Now, if you are an Amazon seller like we are, unless you’re keeping super detailed records of your inventory level numbers on a monthly basis because we all have access to what’s at FBA, right? But if you’re storing inventory at a warehouse, if you’re storing inventory … Right now, I have a pallet in my garage, right? So, that can be a harder number to determine. So unless you’re keeping super detailed records of those inventory numbers and those levels on a monthly basis, it can be hard to make these calculations.
And so, basically what we found and what I found is the easier calculation to be able to make to be able to really get into these numbers and look at these numbers … because here’s the thing and here’s why that you want to dig into this. And I’ll get into this in a couple more of the slides. But this is going to be your key to cashflow, okay? So, right now, don’t tune out. This will pass the who cares test, I promise you even though it feels a little bit boring and you’re like, math, great. I hate math. I suck at math. No, this will pass the who cares test. Just let’s keep moving here and I’ll show you in a minute why.
This can be a difficult calculations as far as all these numbers and how do I do this and everything else, right? And especially if you have multiple SKUs because then it’s like now I have to track my inventory numbers on 20 or 30 SKUs. Great. Even more math. So the easiest way that I’ve found to be able to make this calculation is to actually look at something called days in inventory rather than your inventory turnover ratio.
And days in inventory is actually how many days worth of inventory do you have on an average to where if you took just the inventory that you have, sold completely out, how many days would it take you to do that? Which gives you a good baseline then of what that turnover ratio is depending on how many days that you’re stocked for. To do that, what you can do is to calculate this, you take what you have as far as your cost of goods sold and you divide that by your year end inventory dollar amount. And that’s going to give you a number. Right? I have it as x. I know, don’t … seriously, this will pass the who cares test. Don’t be like, great, now there’s algebra. I suck at algebra. Seriously, you just want to take that number. And I’ll give an example on the next slide that will make it easier to look at numbers wise.
You’re going to take that and divide that by one and multiply it by 365 because there’s 365 days in a year and that’s going to give you how many days of inventory that you have. Now these numbers are going to be found on a couple of your financial reports, your profit and loss statement, and your balance sheet. So again, if you’re like great, I haven’t been keeping detailed financial records. First of all, let me encourage you to start doing that today if you haven’t already. Second of all, I’m going to give you a calculation here in just a little bit that will be a little bit easier way for you to come up with these numbers as well if you haven’t been keeping detailed financial records. But if you have a profit and loss statement and if you have a balance sheet, you can come up with these numbers really, really easily.
This is the example. And these are actually data that I was able to pull because Wal-Mart is a publicly traded company. So their numbers as far as their profit and things like that are available as far as public knowledge. For the fiscal year of January 2016, Wal-Mart stores reported in annual sales of $482.13 billion, okay? So, that’s your annual sales. So for you as an Amazon seller, say your annual sales was maybe somewhere like we were doing like $1.2 million or $1.5 million or $2 million. Or even if it was only $100,000. Okay? So that’s your annual sales number. We’ll just use $100,000 for round figures.
Then, your year end inventory, again, what you can do on your year end inventory, this is going to come from your balance sheet. So you’re going to pull that dollar amount on your balance sheet. And your year end inventory also needs to include any inventory you have in transit. So like for instance, right now we are Amazon sellers, we import just like a lot of you. We have inventory that’s in transit. We have inventory that’s on a boat coming from overseas. We have inventory that’s in semi trucks moving into FBA. So all of those times when you place those orders, you keep track of your inventory dollars, what you have in inventory for your dollars, because you also need to track your cost of goods and that all figures into that.
These are all things that if you’re just using even just a simple accounting software, you can pull these reports out of that accounting software and it makes it super easy to come up with these numbers. Going back to the calculation, their annual sales were $482.13 billion. Their year end inventory was $44.47 billion. And their cost of goods sold was $360.98 billion. So, you can see in the calculation, they’re taking the cost of goods. They’re dividing that by the inventory at the end of the year which gives them a number of 8.12. That’s where you take the one and divide it by the 8.12 times 365 because there’s 365 days in a year which gives you 45 days. So this tells you that Wal-Mart sells their entire inventory in a 45 day period. That is super strong. That is why they have extremely good cashflow because they’re able to make those quick turns.
I ran this calculation on our business and I will just say this. Our inventory turnover for days in inventory and how often we turn our inventory was not 45. It wasn’t even double that or triple that, it was a lot higher than that. So I found out very, very quickly why we were low on a little bit of cashflow here, right? We are essentially not moving our inventory fast enough which creates a cashflow problem.
Now for you that are newer sellers or maybe this is a completely foreign concept. You’ve just been focused on getting selling on Amazon which is absolutely where everybody starts. It’s where we started. It’s where you need to start. And so now, it’s like okay, what if I don’t have annual sales numbers. I’ve only been selling for six months or nine months or I’ve been selling for a year but I just haven’t really kept track of my numbers that well to know and be able to pull these calculations.
You can still get a good baseline of what your inventory turn rate is even if you’re a newer seller by doing a couple of simple things. First of all, you want to know how long you’ve been selling on Amazon. This is really easy to find out. You just go to your Seller Central. You can adjust the dates right on that dashboard to pull reporting from pretty much the date you made that first sale which you’ll have in your head approximately what month, right? Everybody knows approximately what month they started selling on Amazon. You’re going to figure out how many days you’ve been selling on Amazon, right? Or how many months. Or however you want to figure that out, days or if you want to say okay, I’ve been selling 6.2 months. However that works for you.
Go through all of your supplier invoices and find out how many times you’ve ordered inventory you’ve ordered from your suppliers in the number of days that you’ve been selling. Okay? That is going to give you a good idea of how fast you’re turning your inventory. If you’ve been selling on Amazon for a year and you’ve placed three orders with your suppliers, you’re only turning your inventory about three times a year.
Based on cashflow laws, if you’re only turning your inventory threeish times a year, you’re going to be a little tight on cashflow especially in this business because you have a lot of lag time. Other businesses that maybe can order from a distribution center that’s in the United States already and have a load of more stock within two or three weeks doesn’t happen for us Amazon sellers. You have production times. You have shipping times if you’re shipping by sea. Add more time on to that. So you want to get this inventory turning as fast as possible. And this is where actually the Amazing Selling Machine course criteria really helps because if you’re doing your product selection well you’re picking products that have a fast turn so you just need to do whatever you need to do to help that turn a little bit faster.
I am totally an Austin Powers fan. Anybody else is Austin Powers and one of my favorite clips is where he says what does it all mean, Basil? You might be feeling like that right now. Okay, great. But what does it all mean? What this means to you and why you should care, again … I always talk about the who cares test when I share information with people. I really just want them to feel like it passed the who cares test, right?
What this all means is money in your pocket. Okay? This means greater cashflow. This means you’re going to be able to pay yourself what you want to pay yourself. This means you’re going to have money to put back into more products, money to put into advertising, money to really reinvest in your business, reinvest in yourself. Do what it is that you want to do because if the cash isn’t there to do it at the end of the day, it’s pretty hard to then add that second product or that third or fourth product to your product line if you are just barely keeping ahead of your … keeping in stock of what you currently have because that’s not turning very quickly.
Where is your money? Which is the question that we were asking, right? I have this money but where is my money? Each unit you have, and this is where some of our money is. This is where a lot of our money is right now. Each unit you have sitting on the shelf at FBA or warehouse, right, imagine instead of that unit, if you’re selling a spatula, that’s really not a spatula sitting there. That’s a stack of dollar bills sitting there. So that’s what you have to remember is that each time you have something there, that’s a stack of dollar bills.
And when you have a stack of dollar bills sitting on that shelf, that stack of dollar bills is costing you in storage fees. It’s costing you in opportunity cost because you don’t have that money available to go then maybe spend on advertising efforts, Facebook ads, further training for yourself which is why I love these free trainings because we’re able to come on and say hey, we’ll help you out here and you don’t have to spend anything. But if there was something you did want to purchase, you have that money tied up in those units on that shelf. And then, especially if you took out loans, then you have interest cost as well. So every time you have a unit sitting on the shelf, it’s costing you money the longer that it sits there.
Faster inventory turn means profits realized faster and less overall expenses because then you don’t have as much storage fees. If you have loans out, you’re not paying interest. You don’t have an opportunity cost that’s costing you because you’re not able to maybe then add that second or third or fourth product. The key is keeping the stuff turning and selling as quickly as possible. My joke with my husband was I found where all our money is. We’ve been asking. Here it is. It’s all sitting at FBA on pallets, on shelves. There’s the money. So, the thing is is how we going to take it from here and how are we going to put it in our pocket?
Well, what we need to do is a couple of different things. One is we can increase our sales, right? We already have on most of our products, we have some good sales. But we have some slower moving products that obviously is costing us money because it’s sitting on that shelf. So you can increase your sales, promotions, sending out emails, Facebook ads. There’s all sorts of things you can do to drive some external traffic to your Amazon listings to generate more sales than what you’re currently getting. So more sales is going to mean faster inventory turn, faster dollars in your pocket.
Another option that we’ve seen a lot of sellers go with and this is something that we’re actually in process of ourselves in our own business is to get some wholesale business. So is there a retail outlet or another outlet that would be interested in doing some bulk purchasing of your products? So think of it like it was a group buy. If when you go to order from your supplier and you order 1,000 units and you have 500 of those essentially presold, that helps you turn that inventory way faster but it also helps you with that upfront expense as well which is going to increase that cashflow to you because you’ve already made those sales to help you turn that over a lot faster.
Eliminate slow moving products. Over some BOGO deals. You can set up BOGO deals, all sorts of different things that you can do to take those products that you know are moving slower and just eliminate those because they’re costing you in cashflow. They’re costing you in opportunity. They’re costing you in storage fees. If it’s not something that you can’t get your sales up through other channels and through other avenues, you know, if you send out an email or for whatever reason you just have products that are not moving, consider liquidating that so that you can get that cashflow back into your business to put towards those things that are making you money, right? So many of us, we talk about the 80/20 rule. There’s a chance that 20% of your products are generating 80% of your profits and make sure that that’s where your focus is 100% of the time.
Creating again faster inventory turn. Another thing that you can do that we’ve started doing with our suppliers because we are a large volume repeat buyer. I want you to remember that phrase. Large volume repeat buyer. When you talk to your suppliers, make sure that you remind them of this. I am a large volume repeat buyer for you. What I would like to do is I order 10,000 units from you a year anyway, or whatever that number happens to be. Can we batch these out?
So you’re not asking for a lower MOQ, what you’re doing is you’re saying I’m still committing to buying this amount of units but instead of having to pay for it all at once or instead of having to put a deposit down for it and then get all of it in all at once and then I have inventory that’s going to last a year or more, I would like to batch this out in smaller orders of maybe say 1,000 a piece or 2,000 a piece so that you can turn that faster and then you can keep that inventory moving faster. You create better cashflow and you’re still buying the same amount of units from your supplier. You’re just batching that order out instead of doing it all in one fell swoop.
Another thing you can do which is similar concept but ask the suppliers again if maybe they would give you a lower MOQ at the same price. When we negotiate, we usually negotiate using this anyway where we ask for well what is your pricing tier structure and if it’s cheapest at 10,000 units, we say would you be willing to place an order of this MOQ for the same price as the 10,000. Again, using the phrasing large volume repeat buyer gives you a lot of leverage to negotiate these types of deals with your suppliers. And again, the faster you turn your inventory, the better position your cashflow is going to be in. So if you can negotiate these types of terms with your suppliers, you’re going to greatly increase that cashflow.
The goals is we want to take our inventory, right? Because we have dollars essentially. We don’t really have products, we have dollars that are sitting on shelves at FBA or warehouse or wherever it happens to be sitting every day and we want to turn that into money in our hand. We want to turn that into money in our account, money in our pocket. So a couple of takeaways for you guys that you can write down. Pull your sales numbers, so the units you sold, and know how many units you’re selling a month approximately. If you are selling during fourth quarter, we just came through that, that’s a good number you’re going to want to know anyway because for stock for next fourth quarter, it’s a good number to know so that when you go to restock for next fourth quarter you have a baseline. Well, this is what I sold last fourth quarter so going into fourth quarter. You need to know these numbers. You can look at how many units that you’re selling per month.
Perform your inventory turnover calculations or pull your supplier invoices and look at how often you’re ordering. But basically, you need to know where you’re at now because you need to know where you need to go, right? You look at where you’re at now. How often is my inventory turning over? How many days worth of inventory do I have on hand? How often am I ordering things like that? Right now is an overall average for us, we’re turning our inventory about four times a year as an average of all of our products across the board which we have about 30 SKUS. So our goal now is to say okay, if this is where we’re at now, where do we need to be and that gives us a baseline of where to go. So we’re setting our goals for how often to turnover our inventory based on what we’re doing now and knowing where we need to go.
And then create that action plan. So a good goal, and our goal, is six to ten times a year to turn that inventory because we’ll create a way better cashflow situation. If you can even get one more inventory turn in than what you’re currently getting, you’ll see a huge difference in your cashflow situation. Set the bar high. Shoot high but even if you just get one extra turn in per year than what you’re currently getting, you will start to see that difference in your cashflow and your bank account.
Those are what you can do now. What you can really even do tonight is go over those things and move forward from there.
Charity DeVries: And I’ll stop sharing my screen now.
Jason: Great job. So that was excellent. Thank you, thank you, thank you.
If everyone who’s live right now. We’ve got a lot of people live with us. If you enjoyed that, please give a thumbs up. It doesn’t matter if you’ve already clicked it once. Click a like again and show your love over there. You can show some hearts to let Charity know that you appreciated it. We’ve got a couple questions. Not too many questions. And that could mean that your training was just so fantastic.
Charity DeVries: Either that or I hope that I don’t have everybody’s head spinning and saying math and algebra, I’m out.
Jason: Well, you do have one person here. It looks like Gina Dillard said, “Math is hard.” She got a few reactions on that. I have to say though that math is critical. Math for business … someone who taught me early in business reminded me of this a few years ago when he said he doesn’t understand how most business people don’t know math. And it’s not the hard math, it’s just plus and minuses but it’s understanding things like your inventory. So that was really informative. And I saw in here that there’s people that are just getting started and there are people that are obviously already selling.
And yes, at the end of it what we’re saying is the more turnover … There’s something called just in time and it was back in the ’70s, I believe it started in Japan. And in the ’80s, it was really when Japan came on the market for automotive and how they were so efficient and everything. And it really got to was just in time inventory meaning that if you have inventory waiting in the warehouses, that’s cash that is tied up. And so, it’s no different than the big companies than the small companies is you want to be moving your inventory as fast as possible. But there has to be a break even point too. It’s always going to be one of those bell curves because there’s also the added expenses of shipping costs and everything. The bigger the order, you can do at one time obviously, the cheaper you’ll get it but then if that’s money that’s tied up that you could use now to buy even more products down the road for different types of products. That’s a huge investment so you’ve got to really look at that.
So if you’re just getting started, really, really important. Your first goal is to get enough inventory that you don’t even run out of inventory if you’re just getting started. But as you learned in here, you’ve got to really watch it and once you start to get some sales history, do those calculations so you understand not only so you don’t run out of inventory but you also can start to understand okay, how much inventory do I really need? And I think you mentioned this in here, Charity, but what is your philosophy on that? Do you add 10% or how … When you reorder your inventory, looking at that, how do you forecast it?
Charity DeVries: Yeah, so basically what we try to do is we try to always keep what we call a six week buffer. And the reason for that is we’ve run into so many things just over the years that we’ve been selling, right? I had a shipment that was coming actually out of Hong Kong and it got delayed at the airport a week because there was a typhoon. You know? These little things that weird stuff and stuff happens. Or they go to pick it up in the port in LA and the port is so congested that the semi truck can’t even make an appointment to get in for a week. You know? So we always try to keep a six week buffer of inventory on hand when we’re doing these types of calculations to give ourselves that buffer of the ship can’t get to the port, there’s a typhoon in Hong Kong, all of these strange things. Amazon all of a sudden lost 100 of our units. Weird stuff that can happen as a seller to try to just basically have that safety net to not run out of inventory.
But like you were saying, one of the things that I’ve been talking and doing a lot of research on this subject lately. And I talked to somebody that was saying you know, if you’re a grocery store, you always make sure that you have eggs and milk and it doesn’t matter if maybe you run out of something else, you always have eggs and milk because that’s what people are coming to you for. And I think what we’ve even done is started looking at all of our products and saying, okay, what are the eggs and milk of our products? And then let’s make sure that no matter what, we don’t run out of that because that’s our eggs and milk.
Jason: Yeah, I have a good friend that they own a fairly big grocery chain in Michigan. And that was one of the things that I was surprised at is that they have things … There’s a lot of canned goods that they always lose money on. It’s those certain … Not to say that you want to lose money on any of this stuff but there’s those staples that you have to have for one business advantage. And they don’t really lose money because people come there to buy those and always pick up other stuff and that’s the reason you get it. Very cool.
Let me just double check the questions. So I seen Hanif said, “Are the benefits of batch orders outweighed by multiple shipping costs?” And I think that’s obviously why you need to have a track record a little bit. This isn’t something right out of the gate. This is something more like once you’re an established seller. I don’t need to answer this stuff you, Charity, I guess. If you want to … Do you want to take that one?
Charity DeVries: No, it’s totally fine. And I agree with Jason. What you need to do is you need to look at what those costs are as far as those additional shipping costs to figure that out. Because the thing is that you may have especially if you’re shipping by air and it’s more of a price per pound, that price per pound isn’t really going to change much with air shipping. If you’re shipping by sea and you’re shipping a full container load versus a less than container load, then you may be able to get a better price on your shipping that way. So, it kind of depends upon the product. It depends upon how you’re shipping it. You have to sit down and run over these numbers and see what makes the most sense for you and then decide, okay, if it’s going to add to my cost. Right? What does it add to my cost? Is it a dollar a product or whatever else if I’m doing this where I’m shipping it in batch orders versus doing one huge order? And then, again, outweigh that against the other costs.
So one thing that we’ve just recently sat down and did a calculation because we have some history now is we looked at all of our expenses that are fixed expenses, variable expenses, advertising, salaries, everything, right? And we decided and went through and said, okay, if we sell a certain amount of products in a year then divide that by those expenses, our cost per product sold is x. Right? Or we’ll use round numbers so we’ll say $4, right? So if our cost per product sold is $4 including all of our other expenses, advertising, salaries, all of our monthly subscription, everything, right? So that equates into our cost per product sold on a grand scheme of things. Then we have to look at those costs and say, okay, if I can create a faster inventory turn and create better cash flow, does that then help lower other expenses that I’m paying in storage fees and things like that? Because if you’re going to pay in storage fees versus what you’re going to pay in extra shipping costs, it may be a wash but you’re going to be a better cashflow position.
Jason: Awesome. So I’m just having a little bit of laughter here with seeing your child in the background and your dog and your cat came in for a second and then it’s like no, I’m out of here.
Charity DeVries: Yes. This is our home.
Jason: You know, and I see a few questions again like Tim saying when you focus purely on cashflow, doesn’t that impact your profits? And that’s why this isn’t coming out just an instant like light switch kind of thing. You’ve got to calculate those things. And the whole idea is let me just say this myself is I’ve sold out of inventory because it was a product that I didn’t want to sell anymore. So sometimes profits isn’t really the most priority where I’d just rather take that money back. I accept … And this is more when you have a few products but I accept that this product isn’t something that I want to sell anymore so we’re going to lower the price and just move it because we don’t want that being hung up in inventory because I don’t want to pay for it from Amazon. Plus that will give us a cash injection right now where we can reinvest in other products.
Those are all business strategies though. And that’s the things. It’s not like they’re just yes or no answers. They’re at the time constantly looking how things are going. And really, if there’s any secret out of this, the biggest takeaway for me out of this is just really just have a system built into your company where you’re constantly looking at the important things like money. Like understanding profit. But cashflows so important because I could raise my price where I’m only getting the most profitable price I could get but I’m only getting four sales a day. And so that equals a hundred bucks a day I get. Well, if I want to increase my cash flow to $200 a day, I might have to take less profitability.
Hang on one second. Gale. You gotta stop.
Speaker 3: Sorry
Jason: Sorry about that.
When I take the … I don’t just look at the profitability. I need to think cashflow. So I want cash in hand but I also want to reinvest. I also want to grow the company. So it’s more than just the one topic.
Charity DeVries: Right, exactly. And I think just like with what you said with looking at it from a profitability standpoint versus a cashflow standpoint, is that if you’re turning your inventory faster for maybe a lower profit margin but you’re increasing your cashflow, that just gives you more opportunity to add other products, to do more things business wise. And the other thing is too is if you really wanted to get even more nerdy on the math side, you could start making projections out. If I keep going the current track I’m going, what is my business going to look like in two years. What is it going to look like in five years?
And so, for people that are just getting started, the biggest thing is get started, get selling, start moving some stuff. But then the next step is from a business standpoint is okay, I’ve created this business. I mean, we’ve created this awesome e-commerce business and we want to run it well. We want to be good stewards. We want to be good managers of what this business is that we’ve built so that we run it effectively and we run it efficiently so that it lasts, right? We don’t want to just then go under in two years or five years and throw our hands in the air and say, well, the market just got too competitive when no, it was really us not doing a good job of being good managers of the business.
Jason: That’s right. And that’s why being a student of the business is so powerful. So those people that are here right now, all of you, good for you because this is what is critical is you have to really understand the business and all of these nuances. And even if right now it kind of seems complicated or far off, at least it’s planting a seed for you so that when it comes to the point when you’re looking at cash and really understanding, did we make as much money as we thought? Well, if not and here’s a real good simple solution to look at. Well, maybe it’s our inventory.
I don’t really see too many questions that are new. A lot of it is just thank you, great advice. So this was excellent. I thought it was very worthwhile. I think anybody that’s watching this, you definitely got some good nuggets of experience teachings here. So thank you, Charity, for being able to do that.
Jason: And I want to remind everybody before we close off, and I’ll let Charity close the call off, about SellerCon.
In the beginning of April, we’re holding the number one Amazon seller’s conference in the world and that’s called SellerCon. So this will be our seventh, or sixth … I can’t remember which one it is now. But we’ve had them everywhere from in Austin, Texas to Las Vegas, Nevada. And now we actually had it Barcelona, Spain. And now we’re hosting it in Orlando, Florida. There is going to be … It is a fun time. And I’ll let Charity share about that too in a second because she’s been an attendee. And she’s going to be an attendee again coming guaranteed.
And I really want you to understand that no matter where you are in your journey … If you’re just getting your product up and selling or if you’re already an established seller, the value comes from first of all the networking. A lot of people say, oh networking. That’s kind of a hassle. Or I don’t like meeting people. But I promise you, the things that you can learn by creating a group of people that you work with close in hand that will help you share things, that will help you have those questions answered, that you feel you can really expose things.
Plus the inspiration from sitting beside people who are selling millions of dollars, some of them millions of dollars a month. Plus there’s other people. We’ve had people who’ve met new suppliers at the event. So much like that. Plus we have these incredibly fun networking opportunities. Plus we have world class speakers where when you leave there, our focus is to not only have you learning strategies that you can implement in your business and meeting people that can grow your business but to be inspired and motivated to really keep going with your business and take it to the next level.
I don’t want to be the one selling this because obviously I’m hosting this event. It’s called SellerCon and it’s Orlando. But maybe Charity, you can share a little bit about your opinion of this event and why people should sign up.
Charity DeVries: Yeah, absolutely. My husband and I, like you mentioned, we already have our flights booked. I mean, we’re coming because this is super important. We started making preparations as soon as the dates and location and everything were announced just because we believe in it so strongly. At the Las Vegas event, it was just totally an invaluable piece of our business because we were able to make connections with other people. Sometimes, and it was really interesting because there was a survey sent out and one of the questions was just what are you hoping to get out of this event?
And for us, it was we sometimes as Amazon sellers feel like we’re on this island. We’re on this island to ourselves. You get together with other people, they don’t understand e-commerce. They don’t understand Amazon. So you really can start to feel isolated and you start to feel like you’re running into problems and it’s just … It can be hard in that situation and so, SellerCon is a great place to connect with other Amazon sellers to then be able to meet people that have stronger skillsets in different areas. To be able to then pool all those resources together and say, oh you’re great with sponsored ads, well, I’m really good with copy. How can we talk? And how can we support each other?
And to just make those connections. And so especially for the networking, if nothing else, the networking. I mean, all of the sessions are always so good. Every day after we would go back to our hotel room, it was like we would implement something right then and there that helped move our business forward. And so, that was a great thing too was having just these nuggets of hey, we can go implement this right now. And start to move our business even further forward in these areas. So yes, come to SellerCon. Whatever you have to do to be there, make it happen. You have to go to this event.
Jason: Right on. Well, thank you very much. If you want to sign up, go to SellerCon S-E-L-L-E-R-C-O-N .com. You can learn about it there, sellercon.com. And with that said, thank you, Charity. This was a great call. I was just actually Skyping with my good friend Mike McClary who has been part of the Amazing Selling Machine. He said, what a great call. What a great topic. So excellent job. And yeah, for any established seller or beginning seller, these are real nuggets that will help you give you an advantage over the competition. And when you have better cashflow, that’s when you’re able to really start to dominate on Amazon’s marketplace too. So, awesome job. Thank you. I’ll let you close off with any closing remarks you might have. On behalf of myself and amazing.com, I’m going to say good night to everyone. And Charity, I’m going to let you close off.
Charity DeVries: Awesome, thanks. Yeah, thanks for everything, everybody. And I really hope that you’re able to get some good information whether you implement it now or whether you implement it later, it’s good information to have. It’s good things to be able to look at and know and then track moving forward if you maybe you don’t have a good financial system set up yet. If you’re not keeping very detailed records, it gives you a good place of okay, I need to start this now so as we move forward, I don’t have as much catch up to do or I don’t have to backtrack as much. Wherever you’re at in that process, you know what to do moving forward to be able to then just really effectively manage your business.
Matt Clark is the Chairman and Co-Founder of Amazing.com, a serial entrepreneur, and investor. He’s been featured on Forbes, CNBC, and Entrepreneur.com.