|While most of the world is focused on vacations and keeping the kids occupied during the (long! long!) summer months, retailers are gearing up feverishly for Christmas. The question is…are you? Early bird shoppers and budget planners start shopping for Christmas in September. My sales start their steady upward climb in August and conclude with their highest sales in November and December. If this is your first holiday season selling Amazon FBA, here’s what you can expect starting in August:|
- August – increased sales for birthdays (toys, party supplies) and back-to-school (I finally will sell off the rest of my Tinkerbell erasers), college dorm organizers, textbooks and school calendars (18-month)
- September – continued sales of textbooks, back-to-school, Halloween, fall foods and décor, Christmasbegins
- October – Halloween, party supplies, Thanksgiving, gourmet food galore, candy and other meltables, Christmas
- November – Thanksgiving & Christmas
- December – Christmas
- January – Returns and gift card purchases for first two weeks. Valentine’s Day gifts, candy and party supplies.
If you are sighing right now because sales are slower than you like, change is around the corner. August is only six weeks away. The big retailers are getting ready for Christmas now by first clearing out the old stuff and then stocking the new. This gives us two great shopping opportunities. Even though August is the biggest month of the year for birthday parties, stores routinely dump last year’s toys in July, so keep a look out.
Stores that don’t normally sell toys or not as many toys (think about Fry’s, Home Depot, grocery stores, etc.) will start stocking them in August and September and/or giving them expanded shelf space. Every store will bring out their special holiday items early. Even if you don’t sell toys, there will be holiday opportunities in your categories. Last year I sold doggie costumes (so cute!) at Halloween, mincemeat from September onwards and special beauty supplies during the holidays. Items that sell year-round like bedding will jump in sales around Christmas as kids get new Avenger comforter sets and Hello Kitty décor for their rooms. Expensive appliances sell like hotcakes. New and Like-New books jump in sales, collectible games and toys…you name it just about everything sells more over the holidays.
We are half-way through June which is an excellent time to plan for Q4. It is easy to spend time working in your business and forget to work on your business. Time to put on your CEO hat. Unless you are already a super-seller with huge lines of credit, there is far more inventory out there than you can possibly buy. The trick is to make your inventory dollars count. If you are on a budget like me, you will be replenishing during November and December from sales from September and October. To get your strategy session started, answer the following questions for yourself and your business:
- Which categories bring me the greatest returns? If you don’t know or are guessing, I strongly suggest you spend an hour or so looking over your past sales. Compare cost to the actual sale price.
- With which categories do I feel the most competent? You tend to make better decisions in categories where you have some knowledge of the brands, products and buyers.
- Where do I spend the most time in my business? Can I reduce it? The holidays are insane. You will be working harder than any other time of the year. You need to figure out where your time is best spent. I am currently sending up hundreds of books while I have helpful elves like my niece with me. Starting in July/August, I won’t be doing nearly as many books because they take a lot of time. One hundred new pet toys take a lot less time to process than 100 books. Some people take advantage of Amazon’s stickering service this time of year (20 cents/unit) so they can get boxes up to Amazon quicker. Others arrange for regular UPS pick-ups at their house (free for a year with new UPS Connect program).
- How much am I willing to invest? You’d be surprised how many people spend without a budget and then stop when the money is gone. Don’t max out your credit if you’re not sure you can make payments on the back end. Also, if you can’t pay back the credit extended in six months or less, it is probably a bad idea because you will be spending a lot on interest. When budgeting, don’t forget that you will have expenses as well. You can’t put it all into inventory.
- What products have brought me the best returns? Why? Replenishing and selling the same products over and over again may seem boring when there is an exciting world of new products out there, but repeat sales are your key to financial success.
- What items in my current inventory are turning over the fastest? What might turn over faster during the holidays? Inventory turn is the name of the game. You need to balance items with high returns but slower turn (like many appliances) with items with faster turn even if they are for a lower profit per unit. Skip McGrath talked about this in a past blog where he determined whether an item was a better Amazon or eBay item. Often he would sell on Amazon for lower margins if the turnover was higher.
- Where are my greatest failures and/or smallest margins? Doing the same thing over and over again and expecting different results is the definition of insanity and yet many sellers find their failures painful and ignore them rather than learn from them. I’ve greatly reduced my purchases of new toys simply because I found that I had to reduce my margins over and over again to compete. In addition, they required a lot of my attention. In the name of efficiency and my sanity, I dropped out of the toy frenzy. I sell a lot of collectible toys and games that I find at estate sales, thrift stores, etc. Your decision may be different from mine. During the holiday season I will be watching my sales closely every day and repricing, but food and bedding tend not to be as volatile which makes it a faster and easier process for me.
- What expenses will increase during the holidays? In every business there are two types of expenses – fixed and variable. Variable expenses rise and fall with the volume of the business. Fixed expenses stay the same regardless of your level of business. Some expenses can be both – like employees. You have fixed costs per employee like salary and benefits, but your variable costs also rise every time you have to hire a new person like buying another computer or moving into bigger office space. Fixed costs like rent/mortgage, electric, etc., must be covered and suck up all your profits if your sales are low. Shipping costs like boxes, tape, stickers, polybags, etc., are variable costs that rise with increased sales and reduce when sales shrink. When buying and pricing your new inventory, you need to make sure it will cover all these costs. One of the biggest mistakes I see new sellers make is not charge enough for their merchandise and then wonder why they aren’t making any money – their expenses are eating them alive. Summer is an excellent time to take stock of your expenses. Can you reduce your cell phone bill and other monthly bills? Often you can with just a little research and a few phone calls. Having larger shipments with more boxes will reduce your shipping costs. Check to see if there are supply sales you can take advantage of (Uline has regular sales, for example) and buy in volume for a lower cost per unit of items you know you will need. If you take stock now, you will be prepared this fall. I have been out at midnight buying boxes and tape – not fun.
- Is my inventory fresh and clean? When you are working fast and furious it can be easy to let things like listing errors, repricing and old inventory slide. You want to go in to the fall with everything priced well, all listing errors fixed and old inventory cleared out (as much as possible). If nothing else, there is a long-term storage fee assessment coming up. Take a page from the big retailers – sell your losers now and re-use the cash for fresh inventory.
- What is my diversification strategy? Don’t put all your eggs in one basket if at all possible. You want to spread your risk over categories and product lines. Sellers of Disney Frozen merchandise woke up recently to a nasty surprise that all their listings had been suspended while Amazon looked into some fraud issues. This caused quite a bit of upset among those who had thousands of dollars of Frozen merchandise in the warehouse – most of it toys. Those who had a more balanced inventory of multiple categories and product lines were calmer and more able to wait and see what happened because they were still selling stuff every day. Even if nothing dramatic like this happens, there is always the risk of a product becoming oversaturated with sellers who are busily driving the prices to the bottom. Until your sales are substantial (which is a subjective term, I realize), you probably want to diversify. I sell books, for example, because they sell every day. I don’t make a fortune off of books, but they are steady, easy to find and really cheap. I usually only have 1 or 2 of a particular book at any given time so there is no great loss if I have a loser on my hands. I also sell brand new products from retail stores in beauty, grocery, pets, toys, baby, kitchen and home. When you are out scouting, be sure to look in all your categories and think about where you want to put your money ahead of time so that you won’t accidentally spend all your money in one place. Obviously, if you have a small budget, then you will be buying fewer items. In that case, you need to be very selective and find items that are both high margin, low rank with few other FBA sellers (if any). This will take a LOT longer to find and you must be patient because every dollar needs to work hard for you. When you have a bigger business, you can afford more long-tail sales and/or items that are lower margin but fast turnover.
- Am I ready to be really successful? Most businesses aren’t. (What the..?) As a former turnaround consultant, I can tell you that as many businesses fail from success as do from failure. They are not prepared for the volume, they make new hires before they can be covered by the business and without understanding all the costs each employee brings to the business, they over-extend themselves on inventory, buy new equipment prematurely…and on and on. They don’t ramp up properly and it destroys them. Now that I’ve scared you half to death, I’ll tell you that growth can be managed with some planning. In addition to examining your successes, failures and expenses, you need to look closely at your current profit and loss and plan for the future. Think carefully about the items you want to buy and how you would handle a lot more business. Would you need to hire some help? Is there equipment you want to buy? Create a plan that says “at $X cash flow per month, I will buy Y,” and consider what other expenses might be occurring at a higher cash flow. I’m an annual tax extender. I do this so I can work with my CPA in the summer when she is not overwhelmed and business is slower for me. It is when I look closely at what is working, how much I made and so on. My CPA set up my books in such a way that I can pull a report that shows my variable costs and my fixed costs separately. I can see the hills and valleys of my cash flow and my expenses – which often have some lag. In other words, my expenses will often come before the increased cash flow. Looking at this information at least once a year helps me make better decisions throughout the year. The fewer fixed costs you have in your business, the greater the chances for your long-term success. It increases your flexibility in down times. This is the same reason financial planners tell you to buy less house than you can afford. This year, my son is going to a public school which will free up quite a bit of cash for our family. I have already planned ahead how I will spend that money so it doesn’t get frittered away. Some of it will go towards inventory, some of it towards a family savings account. Because I will have more inventory dollars, I need to plan for that growth – it is a happy problem to have, but a very real one. Amazon has also offered me a large loan as well as Kabbage. I have successfully used and paid back loans from both companies before so I am trying to decide now if I’m ready for a larger loan and on what exactly I will spend it.
- How much money do I need for myself? This is another question that needs to be answered and then stick to your guns. It is easy to keep pouring money back into the business. If that is your plan, then fine. You will grow faster. There are some FBA sellers who take out a large chunk of money after December and then keep the rest of their cash flow in the business for the rest of the year to keep it building and growing. This snowball strategy works well for those who have other jobs and who see their FBA businesses either as bonus money and/or who plan to switch over once their sales reach a certain level. In my case, I needed money right away and I needed it every month. I started with $200 and had very little time to spend. I don’t have credit cards, which keeps me out of a lot of potential trouble but also means I have to stop spending long before I run out of deals. These factors mean my business grew slowly, BUT I have a stable business that produces for me. If I wasn’t able to take out money every month, it would not be worth the effort to me. I’m at the point where I want to be able to take out more money from my business each month so I realize I need to spend more on inventory. Taking a loan from Amazon would be great…but paying it back over 6 months not so much. If those months are slower, then I’m taking money from myself to pay back Amazon. It will take some thought and planning on my end. I’ve already decided that if I take the money, I need to do it now so my payback is during the bigger months of Aug-Dec.
I know what you are thinking: “This sounds like a lot of work!” It is and it isn’t. Amazon has some helpful reports that you can use to drill down into your data. If you use InventoryLab or ScanPower, they do a P&L by product for you automatically (see my post from March on InventoryLab). Depending on what system you use for bookkeeping, you may be able to print these reports pretty simply. I use QuickBooks Online which lets me drill down deeply into my books.
Once you do the work, you will realize the benefits immediately in your sales and future inventory purchases. You will make better decisions and realize more money from your business. You will stop wasting time on profit-sucking activities and spend your time on making money. You will head into the fall with a plan which will make it less stressful for you.
Also, you will be able to turn off the online noise and focus on your plan. What I mean by noise is all the firestorms that rip through the online FBA community on Facebook and other online hotspots on a regular basis. One bad story will blow through cyberspace at the speed of electrons distracting us from what we should be doing…selling. If you find yourself spending hours online every week reading FB posts and worrying, something is wrong. It would be better for you to spend those hours in a store scouting for the perfect deal and educating yourself, or planning on how to make your business more profitable.
What about you? Are there other questions you ask yourself to help plan for the future? Do you have an approach to 4Q that works well for you? Please share in the comments below!