Hope this is the right category!
I’m trying to be much smarter about my business finances. I am set up to get disbursements every two weeks. In terms of only using COGS to support restocking the shop - how could I go about calculating what that number would be? Since I don’t know specifically what sales are held in reserve, how do others go about this? Or am I completely on the wrong path to begin with?
Any assistance would be greatly appreciated.
If we understand your question correctly, you want to know what percentage to withhold from your disbursements for future COG purchases. This percentage depends on variables of your business’s goals both current and future.
Do you need any part of the disbursement to live on or put towards your monthly bills?
If you need money for living expenses, then the percentage for COGs will be limited to the percentage that is being withheld for living / monthly bill expenses.
Are you trying to build your inventory or maintain your inventory?
If you main focus is to build your inventory, then the percentage withheld from the disbursement may be larger. When we first started, we reinvested 100% of all disbursements into inventory building. 20+ years later, we now do 15% + $100 per month (or bi-weekly 15% + $50.00) of our disbursements. Because we have a track record, we have a percentage set aside for COGs, yearly licensing fees, yearly insurance, yearly supplies, etc. (any normal business expense plus one fund for the unexpected). Any expense fund that has a surplus at the end of the year gets rolled into the next year which might lower that fund’s percentage for the new current year.
The effect of volume and margin
Your volume and margin will effect the percentage you hold from the disbursement. Low volume may require a higher percentage to build an inventory. A lower margin may require a higher percentage to maintain (or build) an inventory where a higher margin may allow for a lower percentage to achieve the same inventory level.
Bottom line … there is no magic number or formula to suggest as there are variables that are unique to your business that will drive the percentage number you seek. Hopefully, the info contained in each of the items above (hint: click on the arrow to expand) will help you in finding that number that for your business.
Could not agree more with this statement.
If you sell varied random items like a bookseller or antiques dealer this method could be problematic. If you sell mostly the same inventory items, you could come up with a rough baseline based off your top sellers in your business reports -Detail Page Sales and Traffic By Child Item, and get a rough idea of your basic chunk of capital needed for inventory replenishment at each disbursement.
If you have been in business a few years and sit on actual physical inventory, you should consider a small line of credit that will allow you to purchase your core inventory items and make your fiscal management plan bigger than the disbursement window.
Without knowing your business model specifics, it is hard to say.
Sounds like you’re looking at this incorrectly.
You should be restocking what you sell based on the amount you sell and the amount you expect to sell. If you sold 10 units of something last month chances are you should plan to order 10 units of that product to replace what you sold.
The way payouts work is the money is released around a week after the customer receives the product. If you’re FBA this is around 9 days after the sale is made in most cases. If you’re FBM it’s a bit longer since you ship slower than FBA.
Well unfortunately this is what I did, but without the important stuff like proper planning and forethought. I started selling just as the pandemic started, and grew WAY too fast for my own good. I have about $40k on credit cards, even after cancelling almost $23k in pre-orders. Granted, I have about $20k in inventory and another $3-5k in digital assets for PoD, but still, I’m underwater.
Since then, I have pared things down tremendously. I am trying to get a better handle on costs and to plan ahead for expected expenses. That being said, planning for inventory maintenance is where I am now and trying to figure it out.
I looked at the report (thank you!!)
and I see inventory I sold in the last 30 days. Some was just items I was getting rid of, some are ones I need to replenish. But with the disbursement I got today, for example, I’m putting the entire thing to expense accounts and bills. Then I’m going to use the CCs again to order replens.
But let’s say I get through the debt ($40k is actually $10k less than I started, so I have paid it down some and have some targets each month moving forward) - how do you plan if I may ask?
Example:
In the report, I sold 10 units of A, 5 units of B, 7 units of C. My first disbursement following that report is about 1/3 of my total available funds (lots of recent sales vs a month ago). How do I allocate that disbursement, after taking out routine expenses? Especially if what is left over isn’t enough to full replen?
That’s the part I’;m having difficulty understanding.
BTW - thanks to EVERYONE who responded, your info has been useful!
I would strongly suggest that if you sit on any form of inventory, if possible, get a asset backed line of credit which has a far lower interest rate than a CC. We had the opposite issue with the pandemic where one outdoor item took off while everyone was social distancing but then fell about 80% when people went back to normal stuff. We now use the high 5 figures of inventory on our balance sheet as collateral against our line of credit.
Lemons lemonade kind of deal. It still hurts every time I walk into the Omaha warehouse and see 7 pallets of !*$#&! knowing it will be 2025 before the company needs more, but as long as the margins for what we do sell, exceed the interest payment it will sit.
A common asset based loan is floor planning.
I strongly advise you to read the terms and what you are pledging. I have made a great deal of money buying floor planned assets, and some that the borrower did not realize where covered by the agreement.
First, let me address an unspoken and potentially problematic situation I see. If you are using credit cards to purchase inventory and not paying off the card each month, then based on your $40K the interest expense can’t be pretty. That is money you are (figuratively) taking a match to and setting it on fire. You will never get that money back. I know because I’ve been there and I cringe at how much money I’ve lost the use of because of just that. Cash used to pay interest expense is cash that can’t be used to purchase much-needed inventory. I’m not trying to be mean or critical of how you have done things so far. Just trying to bring a different perspective on things.
Since you are unable to replenish all of the items when you receive your disbursement, I would look at my product line in two separate ways.
First, which items are producing the highest profit margins? The higher the profit margin, the more cash to pay down bills and purchase inventory.
Second, I would be which items are selling fastest and you can turn over pretty quickly to recoup your cash investment. The higher the turnover, the faster you can reinvest the cash into more inventory.
Then, I would look to see if there was any overlap between the higher-margin products which are also fast-turning. I would focus on these before replenishing lower-margin and slower-moving inventory. This was the hard part for me because I have Inventory Attachment Disorder (No, you won’t find that term in the DSM V) where I find items that I personally like but they just weren’t cutting it for me when I ran the numbers.
The whole idea behind my rambling is to focus on replenishing your high-margin and high-turnover products first. Once these have been fully replenished, then you can focus on the other products.
One question for you…have you thought about FBA? For many products, the FBA fulfillment fees are cheaper than the cost of you shipping your products to customers. Using FBA is not for everyone and there are some trade-offs, so you would need to evaluate your situation and whether it is a viable solution.
Excellent post @Uncle_Leroy. It didn’t sound “mean or critical” to me and I hope not to @SoldBySelf. It just sounds like you get it, like you’ve been there.
And I bet that most sellers have had Inventory Attachment issues, especially if we had high hopes for a product or line that just didn’t pan out.
@Uncle_Leroy’s advice was spot on, and can be simplified even further -
Put your money back into the inventory that’s going to make you the most money in the future.
As Leroy said, this usually comes down to your fastest sellers / highest profit margin items.
When you first started selling, how did you decide which products to buy? The logic is the same for replenishing. You say to yourself - I have $X money to spend, what should I buy to give myself the best chance of having more than $X in the future?
A tip -
If you have a small number of ASIN’s, or want to compare two specific items against each other, I often use the Manage Orders page instead of the Business Reports page.
Go to Manage Orders, choose ASIN in the Search box, enter the ASIN for which you want to view recent sales, and set your desired date range.
If I’m looking to replenish A and B, and want a reminder as to how well each one sold in the last year, this is how I do it. Setting the date range to 365 days and entering the ASIN will bring up all the sales for that item in the last year, and give you a total count of the number of orders.
You can also look to see how Product X sold during last July, for instance, to try and anticipate sales for this July, or to compare sales from the last 3 July’s. You can get this same sales information in Excel format through a date range transaction report, if you prefer working with Excel.
Don’t forget to consider if anything has changed on the listing. I don’t know if you private label, or have competitors for what you sell, but you’re always trying to forecast what your sales will be going forward, so if you only had 1 competitor before, but now there are 10, and they’ve knocked the price way down, using past sales data to make new purchasing decisions can lead you astray.
As you mentioned in your comment above, you’ve had lots of recent sales vs a month ago. If a particular product is getting ‘hot’, put more money into that one, until it starts to cool off. Don’t put all your money there though, because you never know when things will turn around and you don’t want sales to suddenly stop on the only product you replenished.
You are in no way being mean or rude. I know exactly what you are saying. Most of that is on 0% balance transfers that get bumped around. Still, balance transfer fees add up, but they generally are around only 2-3 months of full interest. I did a dumb and I’m absolutely paying for it. That’s why I am here, not only to improve where I am now, but prepare to be in an even better place in the future.
I am also a recovering survivor of IAD 
I use a mix. I specialize in games and hobbies. I have a couple extensions that I use in chrome to help determine which method is cheapest. Since most game books are misclassified as other-than-books, the mailing fees are generally less than doing FBA - thanks media mail (and better for me to manage packaging directly). The larger items I push to FBA, but at times new rules come down from distributors which slowly choke out my ability to sell certain products on Amazon, so I adjust accordingly.
For me its just an issue figuring out the % to use on restock/new stock out of each disbursement, but perhaps I am focusing too much on the wrong thing.
Your advice is much appreciated!
So this is another hard point for me. As I said, I sell games and hobbies. The game book du-jour this month may be the new one. My sales are going to depend a lot on Amazon’s stock and how fast it sells out. But it might sell nicely one month, and drips and drabs the next. I’m not into toys anymore because similarly, and as other seasons sellers know, you want to be first in, or last out when it comes to some of those product lines. Riding in the middle is a long wait on hope. Games are similar, where if you are the first in, high profit. Last out, high profit (mostly). In the middle - break even if you are lucky, otherwise a loss.
My biggest competitor is Amazon most of the time. But there are a number of other game sellers that I compete against. But when its just us, no Amazon, then we do pretty well by each other.
Your advice is also greatly appreciated!
Uggh… I hate that.
I’ve noticed a lot of the companies are listing directly on Amazon themselves now and cutting out the middle-man.
Is there anything specifically that you are passionate about? Things (and brands) that you can get excited about that Amazon does NOT sell and which you can be ungated for?
Not quite a useful answer but - Games and Hobbies
I have been working over the last year, since rebranding my business, to build a brand in the games and hobbies industry. I have my own website and have been working to push sales in that direction. I have been pretty active in the last year also on TikTok which has definitely had an impact on the number of visits to my site as well. Ideally, down the road, I want to open a gaming tavern (english pub themed).
What does that mean now? More social media and marketing to drive myself away from Amazon to be self-supportive. I can sell things on my website for less, provide more content to the customer, and make a larger profit per item, so that has been my focus.
The issues are having any money left to grow product offerings while trying to pay down bills. I used to carry toys, but dumped those towards the end of last year due to little to negative margins on them. Books I sell are a handful a week with a profit of generally $15-25 on each book (MFN).
I already stay away from the largest items in my niche (D&D, M:TG) though I have no choice - Wizards (and other companies) will NOT sell to online only stores, and some limit sales to places that only offer their items to website-direct sales, no 3P marketplaces, so finding new products is a time-consuming process.
I am also working on branding and outreach in my local area - last year I was a vendor at a local library’s mini-comicon type event. This year I’m doign it aging, as well as hosting gaming classes at the library (for pay!). Next year I plan on doing the same at a few other local events and cons in the area. Just trying to grow more and more apart from Amazon. I don’t think I would ever dump Amazon, but I would love for it to be the secondary sales channel if possible.