This is the fourth in a series of five installments about types of Amazon Marketplace Sellers and the financing options available.
Amazon has become a household name for online shopping. The Amazon Marketplace, which allows third party sellers to market their wares, has motivated scores of entrepreneurs to start their own businesses and provides an additional sales outlet for existing retailers and manufacturers.
In 2014, Amazon’ two million sellers worldwide sold an estimated $37 billion – $40 billion in sales, which represents just under 40% of Amazon’s total marketplace sales. That’s a lot.
Amazon has become an important sales channel for small business and the empowerment of entrepreneurs. But Amazon is a highly competitive, efficient ecosystem that requires sellers to be focused, disciplined and, at the same time, flexible. Of course money management plays a vital role in the equation and it is a variable that can drive success – or failure.
As Amazon sellers continue to expand their existing operations by joining the Marketplace, inventory must be purchased with growing consistency. The sellers’ circumstances will determine whether they can fund this inventory on their own or whether they should seek out some form of financing. According to Jason Fleming, Director of Sales at online lender Dealstruck, there are five basic types of categories that Amazon Marketplace Sellers fit into, each with its own financing options. This post is about the fourth category; sellers who are having difficulty keeping above water.
Scenario 4: A struggling Amazon business barely able to repurchase inventory and make payroll.
When this problem occurs, the Amazon seller has one of two problems, either a “business” problem or a “financial” problem.
- Business Problem: A seller runs into a business problem when they begin selling the wrong kinds of inventory (soft demand), purchasing inventory at too high a price, or selling at too low a price (thin or negative margins) – a common issue in the competitive Amazon Marketplace. These problems often cannot be solved with a loan product. If this is your situation, you should focus on margin improvement, even if it means selling less to earn more. “It’s not what you bring in that’s important, it’s what’s left over after you pay your bills,” adds Jason.
- Financial Problem: Financing inventory with high-cost debt eats away at your margins. Not retiring debt used for inventory as that inventory converts to cash leads to high debt balances and businesses with more debt than they can afford, as well as stacking of loan products. Often the best course of action is to cut costs, retire debt, and stop financing inventory with high-cost debt if it’s going to eat away at the profit margins. Don’t take on debt to finance a transaction that will ultimately cost you money.