EA3: Amazon Category Selection, Order Quantities, Cash Flow

EA3: Amazon Category Selection, Order Quantities, Cash Flow

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As a new Amazon wholesaler, it’s difficult to get started selecting an Amazon category to sell in, deciding on order quantities, and managing cash flow. These skills primarily comes with experience and involve a lot of moving parts. When compared to finding new products to sell and showing off your products it isn’t the most exciting task on your to-do list. But if you don’t get it right, it’s going to impact your business from top to bottom. Thankfully, it is not as difficult as you might think if you know the right things to look at.

Always Keep Learning

When I myself got started, it was a kind of learning curve for me as I failed often and failed forward. But most importantly, I learned from my mistakes and made the most out of them. At first you may find it a little difficult, too. To overcome this and to know the challenges that you are going to face listen to this episode.
From my experience as a coach the primary challenges faced by beginners who are trying to explore the world of Amazon wholesale are: category selection, order quantity, and, above all, cash flow. You don’t need to be an expert on them; but having the basic ideas will help you grow without making those widespread mistakes that could hamper your growth in the first place. This episode is entirely concentrated on those basics.

Know Your Categories

For instance, having the proper knowledge of your product categories will give you the boost to deal with your suppliers or distributors. It will give you the confidence to answer relevant questions. So, knowing something about a specific category could really help making things easier for you when just getting started. Knowing the ins and outs of the categories will give you a much needed edge.

Be Sure Of Your Order Quantities

Determining the right order quantities is another tricky part of the Amazon wholesale deal. People often shy away from considering it as a crucial part of their business strategy. Before placing a bulk order on the basis of a rough estimate, it is always wiser to do some small scale orders which will save you both time and money. Instead of making big orders, you can try out some small purchases to see what works for you the best.

Cash Flow Management

A huge cash flow doesn’t necessarily mean that your business is doing well. There are many hidden costs and risk factors that might cut down your profit. This podcast pays special focus on this segment, while including factors that play a pivotal role, too. Besides ROI, inventory management is something that you can’t overlook. There are some common mistakes that all Amazon wholesalers make. The problem is when you repeat them and fail to learn from them. You may consider a 1-on-1 Video Coaching Call to overcome those obstacles impeding your success as an Amazon wholesaler.

Key Takeaways In The Podcast

  • Finding categories that may or may not work for you, based on their relevance.
  • Find the optimum order quantities that will be profitable.
  • Learn to adjust your order quantities with your investment.
  • Managing your cash flow the right way to keep your accounts in order.

Links

Transcript

Todd: 00:00 What’s up fellow entrepreneurs. Welcome to episode number three of the Entrepreneur Adventure podcast,

Todd: 00:06 Where we talk about Amazon wholesale and how you can use it to build an eCommerce empire, a side hustle, and everything in between. And in this episode we’re going to talk about what category to start selling in. It’s a popular question that I get asked in my coaching calls a lot. What order quantities should you order when you first start ordering products from a brand or a distributor? And then also how to manage your cash flow, the basics of managing your cashflow. Now I’ve been selling on Amazon since 2014 and I’ve had problems with all three of these things that we’re gonna talk about. So I talk to these from experience learning from experience and making them make mistakes myself. And one thing that’s really smart as you grow in business is to learn from others who have done similar things before you. So you don’t have to make the same mistakes yourself and you can grow your business even faster.

Todd: 01:19 So the first thing that I want to talk about is what category should you start selling it. And this is a common one that comes up a lot in the coaching calls that I do with fellow sellers who are just looking to get started selling or have been selling maybe for a little bit and are trying to add a product but are struggling to do it. And I can definitely understand why it is a question because you want to make sure that you’re not going into a category on Amazon and you’re going to have more trouble than it’s worth or just a lot of trouble starting out. And what I usually tell people is start in a category that you have an interest in. So whether it’s a hobby or maybe your job touches a lot of products and you’ve learned about them or whatever the case may be, maybe your husband or wife does something in a certain area and knows a lot about it.

Todd: 02:25 And you’ve learned some about it as well because they’re always talking to you about work or whatever the case may be. And the reason I say that, you know you’re not going to necessarily stay in that category, but the reason I say that is having knowledge of the products that are in a category is going to help you when you’re on the phone talking with suppliers and distributors about selling their products. It’s going to make you more comfortable and it’s going to be easier for you to answer questions, respond to questions and things like that. So that’s why I suggest going into a category that you know something or a little bit about and you can always drill down in those categories as well. You don’t have to just stay in kitchen and dining the top level. You can drill into kitchen and dining and select something a little further down in the category list as well.

Todd: 03:25 And start there. Categories that I would probably stay away from in the beginning are categories that have a lot of hazmat products, which are hazardous material products because you’re gonna require additional approvals to be able to sell hazmat. And it also takes additional work shipping those products. Now I do sell some hazmat and they can be very profitable because there’s less people, less competition in those items, but it’s also more work. So just starting out, you may want to stay away from those items that have a lot of hazmat. So if you’re going into like paint and things like that, you’re going to have those be hazmat and they’re going to be a little bit more difficult. Another category that I probably wouldn’t start in is electronics because electronics tend to have a lower margin, smaller ROIs, more returns. So those two things are really gonna cut into your cashflow, which we’re going to talk about later on and going to be harder to grow your business, especially in the beginning.

Todd: 04:33 If you’re selling electronics, you really want to have a large chunk of money to be dealing with so you can buy larger quantities, deal with the returns, and be okay with carrying more inventory that’s going to make you less money. So I would stay away from that in the beginning. It’s also a super popular category, so you’re going to have a lot more competition in that category as well. So that’s another good reason to stay away from it until you’re a little bit bigger. Another category that you might not want to start in is like DVDs and music. Those are two relatively heavily gated categories that you’re going to have to get on locked in and if you can get into them then there’s a lot of opportunity there but you may not want to start there because Amazon guards those categories quite a bit because there’s a lot of knockoffs and people who are selling junk products in those two categories so they’ve really had to tighten down on that and make it harder to get in them.

Todd: 05:38 So you might want to double think going into that category in the beginning and wait till further down the line. Selling higher end like perfumes and fragrances and things like that. Purses, those are heavily locked down as well, so you might not want to look into those right off the bat for the same reason as the DVD is a lot of knockoffs and things to Amazon guards that category a little bit more. And then also watches is another one that’s really heavily locked down. And so that category I probably wouldn’t go into right off the bat either until further down the line. And another category that’s a little harder than others is clothing because clothing styles are changing all the time. So one product that sells well now may not sell very well in a few months or next year. And so that’s a little bit harder category. It’s not something to necessarily deter you if that’s where you really have a passion, you can go into that open up accounts and have a lot of success there.

Todd: 06:43 But it’s something to think about. You’re going to have maybe products that come and go a little more often than other categories. And then from my own experience, a couple of categories that are a little bit more difficult to open up accounts with is so within sporting goods, if you go into like hiking and camping, a lot of those brands, especially for a little higher end products, they want you to have a retail store. It’s very much seems to be a thing in that category. And I know that from experience because I originally went into that category because that is a passion of mine. And another one is beauty supplies. Now this is a very profitable, good niche to get into, but you may not want to start out into it for the same reasons as the hiking category. They are very often are looking for you to have a beauty salon or some kind of store to be able to get those products.

Todd: 07:43 So it’s a little more difficult to get started in that category as well. So those two are from direct experience myself trying to open up accounts in those categories that they’re just a little bit harder to open up. Then other categories that you might go into. All right, so that is my thoughts on categories to go into. The main goal is just to get started. So pick a category. If you can’t come up with something, then just pick one randomly. And my suggestion, if you’re just going to go random, like that is the least sexy, the better. So if you’ll think about home and kitchen, that’s going to be a lot more popular. You’re going tohave a lot more sellers in it, then janitorial supplies or industrial or something like that, that just doesn’t have that sexiness to it. So that’s something to keep in mind as well.

Todd: 08:38 Don’t pass on a category just because it doesn’t seem cool or sexy and go towards something that is, because other people are going to do that same thing, naturally gravitate towards those sexier categories and you’re going to have naturally more there as well. So something else to keep in mind for categories. All right, so now let’s switch gears and get into order quantities because this is not necessarily something that comes up in my coaching calls, but it’s something that I always like to bring up because people tend to think that they’re going to make big orders for their first order. So if they find a product that’s selling 300 units a month, they’re thinking that they’re gonna buy 300 units of that product and send it into Amazon to sell. So all of the tools that we use out there, like jungle scout and tactical arbitrage, helium 10 unicorn smasher that give you these numbers is guesstimates of how many units of product is going to sell.

Todd: 09:47 You need to take those with a grain of salt because they are just that guesstimates and often a snapshot in time and they’re not going to be completely accurate. Just use those as a gauge to find good products to sell. And once you find those products, you open up an account with either the brand or the distributor, you’re going to order a small quantity, let’s say a dozen, maybe a couple dozen, maybe 30 or 40 of them smaller. The better expecially if you have smaller amount of money to play with because you want to get these products in there and determine your own sales velocity to see how many products you’re selling in a month or how quickly that first batch sells before you go ahead and order more of that same product. So even if you’re gonna break even on that original order by ordering that small amount because you might not get the discount that you negotiate with the supplier or the distributor, then that’s okay.

Todd: 10:56 You’re just trying to get that in there and get those numbers because in the future then you’re going to start ordering year that 30 or maybe 60 days of inventory for the products that are selling well. But you want to get that data yourself. So keep that in mind. Don’t be ordering huge quantities of your first order of a product, just order small amounts, get them in there, get your own numbers in order from there. And a side note on that, I mentioned discounts. This is something that’s really important in wholesale is discounts are almost a given. So if you get a price list from a distributor or a brand, you can almost be guaranteed that they’ll be willing to discount that price from five to 50%. Sometimes on that price that they give you, it’s completely normal to ask for discounts and they are going to be ready for that and they’re going to probably provide you discounts.

Todd: 11:57 Now those discounts might be dependent on certain things. It could be a certain order volume per quarter or per year. It could be a certain order quantity or total value for each particular order. So you’re going to have to talk with the distributor and the brand to find out what that discount is, but always ask what their discount levels are. Find out what those are because other people are guaranteed and getting those discounts and without them, most, if not all the products you look at will not end up being profitable without those discounts. So it’s completely normal to get and ask for discounts in the wholesale game. So keep that in mind. Now last thing I wanted to touch on in this episode was cashflow. And again, this is something from experience for myself. So in 2017 I thought I was doing really good. I was selling at my peak $90,000 per month in a product, but I was not managing my cashflow properly.

Todd: 13:10 I had a lot of cash wrapped up in inventory. I had taken out Amazon loans to keep paying for and buying new inventory as well as credit cards and things like that. And I also was not making sure my ROI, which stands for return on investment was high enough. So we want to make sure ideally that your ROI is 30% or higher, maybe even 40% or higher. If you’re just in this beginning starting out and you don’t have a lot of cash to work with, this completely can be different if you have millions of dollars at your fingertips to play with. But most of us are probably not going to have that. So you’re going to want to make sure for cashflow to increase your cashflow. You’re having high ROI. And so that means if you’re buying a product for $10 you’re selling it for $20 and after Amazon fees and everything, you’re making a profit of $5 your ROI on that would be 50% because five divided by 10 so $5 your profit divided by $10 what you paid for it, that is a 50% ROI.

Todd: 14:25 Now you’re also gonna want to calculate in shipping any labor costs if you’re paying someone else, prep center fees and things like that. But we’re going to keep it simple and just focus on the cost you paid for the product and their profit. So that case, that would be a really good product by 50% ROI because then you’re getting enough money back to roll back into the business to buy more of that same product, plus your profit on top of that to buy new products and continue to expand your business. If you’re working with low really small margins like 10 or 20% ROI, I should say, not margins, ROI, you’re not gonna be able to grow fast enough to meet maybe your own goals or to satisfy yourself. And it’s gonna feel like you’re just spinning your wheels, so shoot for that higher ROI to get better cashflow to increase and grow your business.

Todd: 15:27 Now in addition to ROI is going to be how fast you’re turning over your inventory. Turning over inventory means that if you buy a hundred units of a product right now today, how long is it going to take you to sell all of that product? Is it going to take you 30 days, 60 days, 90 days or longer to be able to sell those hundred units that you purchased? Now, if you have a lot of cash to play with and your cashflow is good, then doing 60 days or maybe even 90 days might be preferable to make sure that you are never running out of stock of a product and you have that wiggle room to play with. If you don’t have very much cash and you want to maximize your cash flow, then shrinking that, shrinking those number of days to sell through your product down to 30 days or even 20 days could be more beneficial because then you’re going to be getting that cash back out of the business with the profit and be able to buy more products sooner rather than later, and that can significantly help cashflow.

Todd: 16:41 Now the downside of that is that you’re more likely to have out of stock periods where you’re going to be losing money on that, but if you’re real short on cash, you’re short on cash flow. You’re going to need to shorten up that window that it takes to sell through your inventory that you’re purchasing and that is another way to help manage your cashflow upfront in your business until you have a lot more to play with. Now, in addition to that for cashflow, you’re going to want to make sure that you’re not taking money out of the business, especially in the beginning. Do not take money out to pay yourself or do other things with it other than reinvesting back into the business and buying more inventory. I made this mistake myself by leaving my full time job and trying to take my salary out of the business sooner than I should have and what I recommend is number one up front, don’t take anything out until you are at least making profit.

Todd: 17:45 Bottom line profit after all expenses are paid of. Double what your current salary is or your wage is at your job. So keep your job as long as possible to eliminate as much risk as possible and build up your business to a point where it’s making double what you’re making from your job because that way when you make the jump over to the business and you start taking money out of the business, you’re still going to have at least what you’re taking out in profits going back into the business, reinvesting back into the business. The longer you can delay that, the better. Keep rolling that back in to get that snowball bigger and bigger. As soon as you start taking snow out of the snowball, it’s going to take longer for it to get bigger, rolling down the Hill to the point where your business is making really good cash.

Todd: 18:47 So keep that in mind from a cashflow point as well. Delay taking out of the business as long as possible and reinvest all of your profits back into the business. Now the final thing on cashflow is loans and credit cards. I do recommend in the beginning using a credit card to purchase inventory. If you don’t have a lot of cash at your disposal and you’re gonna want to try to get one of those credit cards with like a 1% or 2% cash back because that’s just extra free money that you’re going to get from buying your inventory. A majority of brands and distributors are going to allow you to use a credit card to pay for products and what that does is gives you that extra 30 days on the credit card as well to pay back that inventory potentially from some of the sales.

Todd: 19:46 Now the key with this is do not, do not, do not, do not, do not ever carry that balance over to the next month. Always pay that off every single month because if you’re getting those credit card interest rates, then you’re sucking out the profit out of your business. So just utilize that credit card for that extra cash that you can inject into the business, but pay it off immediately when you’re able to and then you can pay more inventory on that. Build up those cash, those points on your credit card as well and getting that free money. As far as loans, you probably don’t want to take out any of like the Amazon loans or PayPal loans that they might start offering you if they see that you’re doing well on Amazon, unless you’re going to use them strictly to buy inventory and you already have that inventory waiting to be purchased, do not use it to past losses.

Todd: 20:48 Do not use it to cover taking out a salary for yourself and things like that. And be very cautious about taking those loans. Make sure you have a specific purpose lined up ready to go for that money. If you do decide to take any of those loans and never loan that you can look into as an SB SBA loan, which is a small business association, it’s backed by the government, makes it a little bit easier to get those loans, but ideally you’re not taking that those loans up front if you don’t have to and just roll the money back in. Keep getting bigger and bigger and bigger on its own using the profits rather than taking those loans ideally. All right, so that wraps up what category to start with order quantities that you’re going to get and how to manage your cashflow. I hope that helps you guys out there avoid some of the mistakes that I’ve made in the beginning of building my business so you can jump past that and blast off and get your business going a lot faster than it took me to get mine going.

Todd: 21:58 Now I really appreciate it out there. If you would jump over and subscribe to us on YouTube if you’re not already subscribed. Search, entrepreneur, adventure, and whatever you’re using to listen to this podcast, whether it’s Stitcher, Spotify, or iTunes or something else. Subscribe to the podcast there and leave us a review. Let me know what you think about this podcast. I’ll be reading those on future podcasts. Really appreciate it would help me grow this podcast. Get it out there to other people, and in fact, jump on social media, share it on your Facebook, Instagram, Twitter, whatever you use. Help me grow this podcast so I can continue to help you out there. Grow your eCommerce empire, side hustle or whatever the case may be. Again, this was episode number three. If you want to check out the show notes or a transcript, you can head on over to our website, entrepreneuradventure.com/3 and that will take you right there. Other than that, this is Todd Welch with entrepreneur adventure, signing off. Happy selling everybody

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