From Cyber Week to the Christmas holiday, ecommerce activity hits a steady peak. If you have a product that is resonating with consumers, this increase in consumers flocking to online retailers like Amazon represents a critical period for driving overall business growth, capturing market share, and setting your brand up for success in the New Year.
But in order to see these benefits to your Amazon business, you need an adequate amount of capital on hand to properly advertise and manage inventory during this time.
In this webinar, we joined financing provider Payoneer to discuss when financing may be necessary to scale up over the holiday period, ways to maximize your return on this extra capital, along with key logistical details so you know what to expect.
- Understanding when added capital might be necessary to drive growth on Amazon
- Describing key market trends during the holiday season that should shape your decision making
- Highlighting successful adjustments during the holiday period to drive the most sales volumes
- Detailing the financing process, timelines, and expected fees
VP of Innovation Teikametrics
Meet the panelists
Ecommerce is like potato farming
Financing options for ecommerce sellers
Flywheel 2.0 & Preferred Financing via Payoneer
Watch The Financial Strategies Replay
Read The Full Webinar Transcript
Andrew Waber (00:00):
Everyone, welcome to today’s webinar. Really excited for this one. I think it should be a really terrific session. We’re going to be talking about financial strategies for ecommerce success this holiday season. I’m Andrew Waber. I’m the Director of Insights here at Teikametrics, and really excited, again, that all of you can join us for this one.
Andrew Waber (00:26):
Just as we’re getting warmed up here, just to get everyone on the line familiarized with GoToWebinar, if you haven’t used it before or you’ve never been on one of our webinars, you’ll see a questions icon on the right-hand side of your screen. Feel free, at any point during the presentation, to pop questions in there if you’re having any issues, obviously, with the system itself. Feel free to pop them in there. I’ll get to them as I can.
Andrew Waber (00:51):
And then, additionally, in terms of the content, as we’re going through, we’re going to have Q&A at the end. But if at any point during the conversation, you’re like, “Oh, hey, I have a burning question about maybe something you’re talking about,” pop it in, again, to that questions tab there. And either I’ll prompt it to the folks on the call as they’re talking about things, or we’ll get to them, again, at the very end.
Andrew Waber (01:12):
Again, thanks for joining us. And just to get us started, let’s talk through our Teikametrics panelists. With us today, we have Alasdair, who’s our CEO, and Chet, who’s our VP of Innovation. Thanks so much from the Teikametrics side. And then I think the stars of the show here, though, are some of these other folks on the line. First up is TJ Hyland, who’s the head of partnerships over at Payoneer. And then, TJ, if you could tell us just a little bit about yourself.
TJ Hyland (01:45):
Sure, I have been at Payoneer for almost two years now. Previous to that, I was working with another company that also helps sellers, mainly those that were selling cross-border. But at Payoneer, we have developed a working capital solution, which we’re going to touch on a little bit more. And happy to be here. Thanks for having me.
Andrew Waber (02:06):
Sure. Thanks, TJ. And next up is John Terry of Ketonia Foods. He had some camera issues, but he’s going to be an audio-only person just like me today. But John, if you could tell us just a little bit about yourself.
John Terry (02:20):
Ketonia is a ketogenic bakery. It was started in 2018 by me and my mom, who is a veteran French pastry chef.
Andrew Waber (02:33):
Awesome. And then Ryan Goldstein, who’s the founder of AirVinyl Design and I know has a bunch of other businesses on Amazon as well.
Ryan Goldstein (02:44):
As you mentioned, my name’s Ryan. I’m the founder of AirVinyl, which is an accessory brand for AirPods. In addition to AirVinyl, I also operate and manage a collection of other brands in various categories, from cookware to beauty products.
Andrew Waber (03:02):
Thanks, Ryan. And finally, Jeff Sudman, who’s the CEO and founder of Direct Premium Buys. Hey, Jeff.
Jeff Sudman (03:09):
I’m Jeff Sudman, founder and CEO. We mostly sell products on Amazon, Walmart and eBay, and I’ve been in ecommerce business for 20 years.
Andrew Waber (03:20):
Awesome. Thanks so much. This should be a great session. Thanks, everyone, for joining us here. Just a quick background on the series and really what we’re going to be talking about today, and as part of this ongoing Flywheel 2.0 series. Just for some background, in terms of what Teikametrics has gone through in terms of evolution as a company. We launched Sponsored Products Optimizer back in 2018. Again, this was really focused just on Amazon and really ad optimization only.
Andrew Waber (03:48):
And then as we moved up into Flywheel, that incorporated a wider data set, a lot more machine learning capabilities. And what this next step for us as a company is, we’re expanding. We’re taking your ad optimization and we’re tying it to other critical aspects of your online business. That’s market intelligence, inventory optimization and multichannel, and today we’re going to be talking about one aspect of that, which is preferred financing.
Andrew Waber (04:12):
The idea is that, all of these work in tandem. They can all make each other better when they work together. Again, we’ve opened this up for early access, presently, and you’ll get a link to that at the end. But again, this just gives you a general feel for what we’re building towards and what part of the subject is here.
Andrew Waber (04:30):
And the Customer Growth series is really trying to focus on the stories around each of these aspects. Not just focusing on general best practices, although that’s helpful, but when the rubber meets the road, how are businesses managing these issues? What are the challenges? And so hopefully that as you go through this as an attendee, you’re seeing yourself in one or more of the folks we have here on the line, about what they’ve gone through, how they’ve overcome challenges and then getting some good advice that you can take with you, as you move forward.
Andrew Waber (05:01):
Quick rundown of agenda, because obviously we have a lot to get to and there’s a lot of great conversations that I know are going to happen here. First, we’re going to talk through working capital, why it’s important. And on top of that, what are the best ways you can use this from a perspective of leverage within your own business? How does the rubber meet the road from that perspective?
Andrew Waber (05:24):
There’s a couple of different ways you can think about preferred financing and using it. One is obviously inventory optimization. How that relates to working capital in one way. And then we’re going to go into more of a deep dive in terms of the aspects of, okay, going through the process, what are options for your business? What do those look like from a fee perspective, et cetera? And just giving you a lay of the land there, so you can make the best decision for what your business needs.
Andrew Waber (05:51):
And then obviously, as I talked about earlier, a Q&A at the end, although if there’s a question that comes up that’s super relevant, I can chime in with that as we’re going through the discussion. Again, for those of you that maybe came in just a little late, look for that questions icon on the right-hand side of your screen. And at any point during the presentation, feel free to add a question in there and then I’ll answer them as they come in or again, post them to the panel here. With that, pass it off to Chet.
Chet Butikofer (06:17):
All right. Thanks, Andrew. Great to be here. And we just wrapped up the month of October, and October is potato harvest season in Idaho. And every year, the threat of an early winter weighs heavily on the minds of farmers in Idaho. They literally have a two-week window to collect their investment and a little bit of profit from the labors that they’ve put in through their entire season.
Chet Butikofer (06:48):
And let me give you a quick story. When I was 15, I actually worked in the potato harvest with one of the largest farmers in the area. First day on the job, I show up and I’m shown a tractor. And I’m told I’m going to be driving that tractor, and I’d never driven a tractor before in my life. And so at the end of the day, I had completely burnt out the clutch. And I felt terrible, because there was a lot of pressure to keep everything moving and keep going.
Chet Butikofer (07:16):
But what I quickly learned was that there were a lot more breakdowns than just mine, that potato harvest. And every time there was a breakdown, there was a speedy resolution. The farmer was financially prepared to keep his businesses and operations running, regardless of the unexpected. And so just like farming, many ecommerce sellers like yourselves are entering into a critical season. In fact, I would call this an unprecedented season.
Chet Butikofer (07:45):
But to contrast the examples of farming and ecommerce for just a second, I don’t think it’s so much about breaking down and the downside as it is the upside. And for ecommerce sellers, being financially ready to capitalize on the opportunities as they present themselves in the coming months. Second point I want to make is, it’s really about the law of the harvest. We only reap what we first sow. And an abundant harvest, whether it’s for farmers or ecommerce sellers, always requires the intelligent and wise allocation of capital throughout the entire year.
Chet Butikofer (08:21):
It’s not just the season. It’s about what you’re doing the entire year that really makes a difference for your harvest. That’s what we’re going to be talking with you today about. Really looking forward to this discussion with this powerhouse panel that we’ve put together. Let’s kick it off. And John, you don’t have video, but we’re going to start with you. Trick question. How is your potato harvest going so far?
John Terry (08:47):
Our potato harvest is not quite ready to be harvested yet. As a keto company, we’re actually going into a pretty big drought right now. There are not a lot of people who are interested in buying a $15 bag of premium coconut macaroons right before they sit down with a bag of Halloween candy. But it’s all the more important for us right now to be managing those cash flows and really preparing for Q1, because as a diet company, we really make a huge amount of our profits in that first quarter when everyone’s getting ready for those New Year’s resolutions.
Chet Butikofer (09:32):
Awesome. That’s a really good point. Thanks for bringing that up, John. Every business has its own season. In fact, I’ve read in The Wall Street Journal … This is an older article, but there are 13 to 20 retail seasons throughout the year. Probably more now, but every business is different and every business requires a unique financial plan for capitalizing on opportunities. Jeff, let me swing over to you for a second. Can you give us an idea of the financial planning that you went through with your business in preparation for this holiday season?
Jeff Sudman (10:08):
Yeah. This is actually our 20th holiday season, so we’ve had a few years to work out the kinks. What we found was, doing projections in August were the most beneficial to us and our suppliers. It basically provides us a roadmap of working capital that we’re going to need, for the remainder of the year. And for a growing business, it’s pretty critical to map out and make sure you know what is ahead for any working capital restraints.
Jeff Sudman (10:34):
For us, it’s even more important to get it right. We have a very tight debt strategy. We never carry debt beyond 30-day period. We exercise mostly a cash model and constantly monitor and pay off credit cards to make sure we’re running on time to our debt schedule. We strategically spread out our PO deliveries throughout the holiday season to reduce that impact on working capital all at once. However, during the scheduling, we need to make sure that our projected POs do not outweigh expected cash flows. And if they do, we need to decide now, on how we plan to fund them.
Chet Butikofer (11:09):
Great. Thanks, Jeff. It sounds like a lot of discipline going into your planning. When you think about this year, it’s a black swan year. It’s different than what we’ve experienced in the past. Jeff, how are you approaching this year differently?
Jeff Sudman (11:26):
This year, we’re definitely being more cautious. We have definitely uncertainties ahead, so we’ve set aside excess working capital to navigate us through bumpy waters ahead if they do occur.
Chet Butikofer (11:44):
All right. And Ryan, from AirVinyl, what planning went into your business for this holiday season?
Ryan Goldstein (11:54):
Especially for AirVinyl, it’s a very seasonal product so Q4 and a little bit beyond that are definitely really important. We actually have finished all of that. By this point, we actually have all the inventory that’s already in Amazon’s warehouses right now. A lot of our financial planning for that goes a few months ago and right now is really, we just finished getting everything shipped in.
Ryan Goldstein (12:23):
The biggest thing for AirVinyl, looking through, is just understanding … I think people use this term of “Q4” as being the biggest season but I think you need to, as a brand, understand, as you were saying, the seasonality of what your biggest season is. For us, that expands all the way to the end of January, since AirPods tend to be, since they’ve come out, the number one holiday gift. Accessories for AirPods tend to follow right after that.
Ryan Goldstein (12:52):
So actually, our biggest day in sales is Christmas Day after everyone’s gotten AirPods and then they go to Amazon to look for accessories. We definitely got to plan that out to look a little bit past Q4 as well.
Chet Butikofer (13:08):
Excellent. Thanks, Ryan. Andrew, if you want to move to the next slide.
Alasdair McClean-Foreman (13:14):
Chet, I’d like to just quickly step in and just, as an observation, it’s just fascinating listening to the entrepreneurs; Ryan, Jeff and John, and just hearing the diversity. I think I also want to thank them for joining us. They’re incredible entrepreneurs with different products in very, very different categories. And I think, just listening to the answers and the diversity just highlights how each business and each operator has to think about different metrics, the things that we’re about to talk about differently.
Alasdair McClean-Foreman (13:47):
And I think that’s just a really, really important point and an observation, just hearing the different cycles, the different mini markets and many seasons from each of them.
Chet Butikofer (13:58):
Absolutely. Thanks, Alasdair. Let’s talk a little bit about working capital. You’ve heard the term mentioned quite a few times already in this video. If we look at it, just a strict definition, working capital is your current assets minus your current liabilities. Let’s go to the next slide and just break it down to what it actually is. Working capital is the money available to meet short-term operating costs and debt obligations.
Chet Butikofer (14:25):
It’s critical for any business, large and small, to really have a good understanding of your working capital and to plan for the unique seasons that your business is going to be going through. Let me ask you, Jeff. You’ve mentioned working capital in your planning process. What are the biggest challenges that your business is facing with working capital, or that your business has faced in the past with working capital?
Jeff Sudman (14:57):
Right now, with COVID uncertainties, I think that it has a tremendous impact on working capital, regardless of how well you planned. For example, Amazon restrictions on restock quantities don’t currently take an account for a large amount of our SKU set. And with those high ramp up periods, it’s basically going to be too late to get a lot of our SKUs into Amazon. That could be difficult to align our projections and keep our working capital on track.
Jeff Sudman (15:29):
And that’s why I was mentioning before that we actually put aside, this year, 15% to 20% in excess to our typical working capital strategy, just to navigate us through that. Before, working capital challenges were always around growth. And I think proper planning for that is where we got through.
Chet Butikofer (15:50):
Excellent. Thanks, Jeff. TJ, your business, Payoneer, works with hundreds of thousands of ecommerce sellers. So you guys obviously have a lot of experience in this area. What are the challenges that you’re seeing these business are faced with right now when it comes to working capital?
TJ Hyland (16:07):
I think one of the situations that everyone was put into was, in the previous or the middle of the year, when the pandemic was hitting, I guess peaking, hopefully, that online sales were absolutely booming. Anybody that had forecasted … Maybe you forecast in January to get you through six months, you might’ve sold out of your inventory in April or May. And then going back to your supplier in China or wherever you might source from is already an incredible backlog, because factories weren’t working.
TJ Hyland (16:40):
Just the idea of, if you made all these sales, great, and you have this money to work with, but then you don’t have anywhere to actually spend the money or perhaps that’s a time for you to pivot. When we talk about working capital, there’s so many use cases, and it’s really unlimited. But we see it absolutely about inventory, advertising, diversification and expansion, probably the real top three or four there. And I think we’re going to talk a little bit about inventory later on and it’s absolutely crucial.
TJ Hyland (17:12):
And it’s probably where we see the most use of our working capital solution at least. Whether you can go to a supplier and say, “I will take 25% more if you can give me 30% off the inventory.” And one of the issues that we know sellers have, maybe just starting off or within the first couple of years, is you know that you have the ability to sell your product. You are an expert marketer or an expert guru on Amazon and PPC and what that looks like. But a lot of times, your growth is restricted by how much inventory you have or how much capital you have.
TJ Hyland (17:52):
So having the ability to bring on additional working capital can help fuel that growth, and that’s what we see.
Chet Butikofer (18:00):
Thanks, TJ. Hey, Ryan. How about AirVinyl working capital challenges that you’re seeing?
Ryan Goldstein (18:08):
I think the best thing that I’m sure a lot of ecommerce entrepreneurs who were early on doing this, looking at even the early days of AirVinyl, in the first year of that, I think that was the biggest time when I realized how important planning around working capital is. I started AirVinyl with $500. So there was not too much working capital that was there, and as that product continued to grow, I got to a point where I was a little bit afraid of the growth that was there.
Ryan Goldstein (18:40):
Because I had to keep spending more and more on inventory every time that the product was doing well. And that built up from going to the point where I was draining my account every single time in order to fund inventory, which for a solo entrepreneur working on something, is terrifying. And I remember getting up to my first holiday season and projecting out what I needed. And it basically drained my account where I had $2,000 left in the account, going into the holiday season.
Ryan Goldstein (19:17):
That, I think, was definitely something that was eye-opening for me, especially early on, to think, “Wow, if I was projecting higher sales, even by a little bit, I would have been in a point where I would have had to choose, ‘Do I just not take the growth that I had in there?'” Just because I didn’t have the capital to fund the inventory. That was an eye-opening thing for me, to understand how important it was to really have a handle on the amount of capital to fund inventory, which for almost every ecommerce business, that’s the big thing that’s taking a lot of your resources away. It definitely is a crucial aspect of planning.
Chet Butikofer (20:03):
Great story. And how did that work out, Ryan? I’m just curious.
Ryan Goldstein (20:07):
I did sell through all of that and I ended up having to place another order even … I think I placed the next order right before the end of the year still. It was great. Sales did really well that Q4, but there’s something … Just again, I’m starting from the $500 that was there to then sending a hundred thousand dollars to a manufacturer. It’s a big difference. It’s definitely a little bit of fear from the early stages of something like that.
Chet Butikofer (20:48):
Absolutely. That’s a great story. Thanks. Hey, John, how about Ketonia? Working capital challenges that you’ve faced?
John Terry (20:57):
Well, obviously there are these similar challenges that everybody’s faced, but really, I like to think of it as working capital has given us the opportunity to still be around. Because our products, especially being in grocery, there’s a lot that … Your margins walk away from you. And being able to utilize working capital to negotiate for cheaper cost of goods really is the difference between making 50 cents on a bag of macaroons and making $5 on a bag of macaroons. It’s been pretty instrumental in making sure that we’ve been able to be profitable.
Chet Butikofer (21:38):
Can you talk a little bit about that negotiating comment that you made? What negotiating have you been able to do?
John Terry (21:50):
The biggest one, the one that comes right to the top of my head is almond flour. It is our most used ingredient, and it’s fairly expensive. When you’re buying it retail, you’re going to spend between $6 and $7. When you buy it wholesale and you get it by the pallet worth, you can get that all the way down to $3. And when you’re doing keto baking, you’re going to use quite a bit of almond flour, so it really makes a big difference for us.
Chet Butikofer (22:25):
Excellent. And so, John, I’m curious, does it make sense to utilize a little bit of leverage in those cases where you’re saving so much money on your cost of goods sold?
John Terry (22:40):
Absolutely. I wouldn’t get crazy about it. It’s always good to make sure that you know, first and foremost, what’s the shelf life on this ingredient? Because you don’t want to go and buy a pallet worth of an ingredient that’s going to go bad next month. But once you’ve done your due diligence and you know that this is an ingredient that you’re going to end up using, I think it’s stupid not to use a little bit of leverage to make sure that you’re getting the best price.
Chet Butikofer (23:11):
All right, perfect. And Jeff, I’m going to circle back to you really quick. Benefits that you guys have experienced in understanding and really utilizing the leverage of working capital in your business?
Jeff Sudman (23:22):
I think it comes down to understanding working capital is just as important as understanding the products you sell. Without this, you can’t have the synergy that is needed for maximum growth. That’s what we’ve seen. This has allowed us to run a very sharp business model that prevents us from being overextended, but doesn’t limit ability to grow at the same time and provides a very financially sound company overall.
Chet Butikofer (23:52):
Great. Thanks, Jeff. Let’s go to the next slide, Andrew. And I want to introduce a concept here with this Dilbert comic strip that I ran across. You’ve got the pointy-haired boss in the middle making a statement, “It takes money to make money.” And Dilbert comes out with a philosophical statement or question of his own, “Where did the first money come from?” After which, Wally responds, “I’m pretty sure it takes money to waste money too.” And this is obviously not where the pointy-haired boss wants things to go.
Chet Butikofer (24:23):
But the point is that it’s true. Actually, both of these concepts introduced here are absolutely true. It does take money to make money, and it takes money to waste money as well. And so there’s a balance and there’s a really … It’s critical that ecommerce sellers understand that and know how to balance this, so that you’re not wasting money as you’re utilizing money to make more money. And so with that, I want to talk about leverage, if we can go on to the next slide.
Chet Butikofer (24:54):
Thanks, Andrew. So Jeff, let’s start with you. And the question I have is, how do you intelligently and responsibly use leverage in your business?
Jeff Sudman (25:07):
Well, first, we’re definitely different than most conventional businesses. We actually minimize leverage. However, I don’t want to mislead you. We definitely use leverage. We have strategic relationships with credit cards with very high limits and we actually pay them off every month, which has been critical for us. For anyone that uses leverage, you need to deeply understand your payback period, and I would recommend keeping it as short as possible.
Jeff Sudman (25:33):
And this, I feel like it forces the responsibility on planning to pay it back effectively. I think most companies overlook this and they try to get new debt to cover old debt, and that creates a spiral that’s very difficult to get out of. And I think that you should only borrow exactly what you need, not more. And by taking excess leverage without a plan will only most likely set you up for headaches in the future.
Chet Butikofer (26:01):
Thanks, Jeff. Ryan, how about you? Any thoughts on the intelligent and responsible use of leverage from your business?
Ryan Goldstein (26:09):
Yeah. With AirVinyl, I never really specifically had to go out to get additional capital externally. The bigger thing, which I think a lot of, again, people who are maybe solo entrepreneurs or founders in this have to deal with is taking from yourself and asking your question, “How much do you believe in what you’re doing?” I think, likewise, if you’re going to take money from someone else in order to continue to grow your business, you should be willing do the same and it’s just a question of the risk for it.
Ryan Goldstein (26:46):
So I do think that, that aspect is important. One of the big things that I think is useful is to understand where you can manage that and push off some of the things that you may have to pay. For us, advertising on Amazon is a big expense, next to inventory. And I know a lot of people who didn’t know that on Amazon you can put the advertising payments onto a credit card instead of having them pull from your Amazon settlements.
Ryan Goldstein (27:17):
Which that little thing helps a lot, because you’re able to now get at least the statement terms from your credit card. So at least understanding some of that to be able to understand, do you need more capital and what can you do internally to limit the amount that you have to take if needed?
Chet Butikofer (27:38):
Excellent. Thanks, Ryan. And John, we touched on leverage with your business with the almond flour example. Any other thoughts on intelligently, responsibly using leverage as you run Ketonia?
John Terry (27:53):
Well, it immediately makes me think back to the thing of a cupcake or paper cupcake holders that I have in my garage from not making good decisions. Really, don’t borrow money to buy things that you are not 100% sure that you’re going to need. Oherwise, you will regret it.
Chet Butikofer (28:16):
That’s a great example. And I’m trying to think of … I’m sure we could use a couple of those, if you want to get rid of them. Okay, let’s go to the next slide, Andrew. And I just want to illustrate just a really quick example of a large corporation. Most folks have probably heard of Costco, but this is a great example of a company that’s mastered the use of debt, in their business operations.
Chet Butikofer (28:40):
You can see the red line indicates the debt that Costco’s carrying. Quite a hefty chunk that they carry. They’ve got a great model. They actually sell inventory before they have to purchase it from their supplier. So they’re in a very good position. But I want you to notice the cash line that’s blue that runs just almost parallel with that debt line. Costco really doesn’t overextend their debt position. They keep it roughly equivalent to their cash and cash equivalents.
Chet Butikofer (29:14):
Meaning, what they can liquidate and basically create cash with, so they can pay off debt if needed. And so they use debt, they use leverage, but they use it responsibly. And I think it’s a good rule of thumb for ecommerce sellers to think about your cash and cash equivalent position. You really don’t want to get very far, over and above that, as you’re using leverage in your business.
Chet Butikofer (29:45):
I want to switch gears now to inventory. We’ve heard a lot about inventory. TJ mentioned that it’s one of the major areas that ecommerce sellers use working capital for. Ryan, you talked about a big inventory decision earlier. How did you go about forecasting inventory for this holiday season?
Ryan Goldstein (30:07):
I definitely think that it helps, for this holiday season, to be able to have a couple of years of historical information around it. I tend to look at two different aspects of it. One is comparing year over year. So, what did the sales look like during the last Q4 season and the year before that? And understanding how that relative change compared to what was going on in Q3 of that same year. Typically, in the last two years, I’ve seen about a three times increase in sales from Q3 to Q4.
Ryan Goldstein (30:48):
That definitely helps to understand the magnitude of the change that you’re going to see. Then the other aspect is the short-term part of it. Looking at, “Well, what are we doing in sales this Q3?” And looking at what that multiple will be in order to forecast that out. The other aspect that I think comes into play when you’re a brand, when you own the brand like that is, if you have planned promotions that you know that you’re going to do.
Ryan Goldstein (31:21):
A year ago, I knew that we had a new product that was coming out. And I was pushing a lot in terms of press releases for the new product. And I knew that if those got published, there would be a much bigger increase in sales. Sometimes, that’s a decision you have to make to put your best guess based on the data of how you think that’ll increase, or anything that you have this year that may be different from previous years that’ll throw off the comparisons.
Alasdair McClean-Foreman (31:54):
Quick question, Ryan. Do you think the cost … As the competition has increased with Amazon and things like advertising, do you think that from when you first started, has the cost of launching a new product gone up or how would you compare?
Ryan Goldstein (32:08):
Yeah, I definitely think that it’s gone up a lot, especially for something … I think AirPods and AirPod accessories are an interesting one. When I first came out with the product, most people would either post about it or write about it, saying, “Why does anyone need a case for a case?” And now AirPod cases and accessories are a huge category that has become very saturated in terms of the amount of competition.
Ryan Goldstein (32:40):
And so you do see a lot of the ad costs tend to go up. And that’s the aspect where then you really get into dialing in, which one of your keywords are actually profitable and performing for you, versus the spray and pray approach of just trying to rank or get sales for everything. Even looking at last holiday season, there were a lot of keywords that I turned off, because they were getting a lot of sales, but they were very, very unprofitable sales.
Ryan Goldstein (33:17):
So I think there is a balance and understanding. It’s not always just about running up the sales or unit sales that you have. A lot of that goes into, which ones are profitable sales for you?
Alasdair McClean-Foreman (33:32):
That’s really helpful. Do you think if you had only $500 bucks like you started in the beginning, in your category, you could make it to your level now or has the game changed?
Ryan Goldstein (33:45):
I think that the biggest thing really comes into just avoiding the stock-out aspect of it. I do think that you’d probably want more than … Looking at it now, you’re looking at new products that I’ve launched. I’ve put a little bit more into those and those are the ones, usually, it’s $5,000 to $10,000, depending on the unit cost. But putting that into it, so that I know that I have enough inventory to push advertising and make sure that I can catch the next reorder before I stock out.
Ryan Goldstein (34:17):
When I launched AirVinyl, I stocked out four times. I ordered 20 cases, sold out, a hundred cases, sold out, 300, sold out. Until I got to the point where I was like, “Oh, okay, I need to put a lot more into that.” But I think that it’s maybe a little bit more challenging. It’s not that it’s not doable. I think that is where it comes down to having a really unique product that you can have that really stands out as opposed to …
Ryan Goldstein (34:49):
I wouldn’t recommend that people try an AirPod accessory now that it’s such a crowded market. Now, it would probably take a lot more and the margins are a lot smaller.
Chet Butikofer (35:02):
Great insight. Thanks, Ryan. Hey, Jeff, let’s circle back with you. And how did you go about forecasting your inventory for the holiday season?
Jeff Sudman (35:15):
It’s actually pretty similar to Ryan. We start the first week of every August. We look at 30-day, 60-day, 90-day sell-through to try to determine what our average is at that given time. We look at prior years sales history on those SKUs. We analyze month-over-month growth, and then we take both data sets and we apply the estimated growth percentage against them to determine our projections. It’s pretty simple.
Jeff Sudman (35:38):
For new SKUs, it could be a little bit more challenging, especially if it’s in a whole new subset category. But we typically use our best judgment or use similar SKU data to forecast that. We do submit these POs to these suppliers early. This is actually an interesting one. We were a little loose on delivery times, prior, and what we found is that they never met any of the delivery times and ruined our planning. Our new protocol is that, if you don’t deliver by our set time, we’re going to reject it. And I think that got them to start complying a little bit better.
Jeff Sudman (36:10):
And now it allows both the supplier and us to project our efficiency throughout the holiday season. And another thing that we’ve played into account was the possible chance of FBM coming back into the Buy Box strategy. Earlier this year, we actually were fortunate enough to have adequate inventory on hand, at our warehouse. And we actually salvaged a tremendous amount of sales loss that was going to happen if we didn’t have FBM inventory on hand. I think it’s going to be an important hedge, if your working capital allows to have some extra FBM inventory in case that occurs again.
Chet Butikofer (36:48):
Thanks, Jeff. And I’m just curious, do you use any tools in inventory planning?
Jeff Sudman (36:56):
I’m sorry, could you say that one more time?
Chet Butikofer (36:58):
What tools are you using or what software are you using to plan your inventory?
Jeff Sudman (37:05):
We’re using Teikametrics for most of everything that we’re doing, and then we build the manual spreadsheets from there.
Chet Butikofer (37:12):
Okay. Thanks, Jeff.
Jeff Sudman (37:14):
Chet Butikofer (37:17):
John, let’s circle back to you. What are some of the pitfalls that ecommerce sellers may experience during the holiday season?
John Terry (37:31):
Hey, Chet, I didn’t hear. Was that directed at me?
Chet Butikofer (37:35):
That was directed at you, John. I want more cupcake holders. Now, the question is-
John Terry (37:38):
Could you repeat-
Chet Butikofer (37:42):
… from an inventory perspective, how do you plan for inventory? What are you doing right now? And maybe touch on some of the pitfalls that ecommerce sellers may experience during the holiday season and beyond.
John Terry (37:58):
We’re a pretty new company and we only have two products. So for us, it’s a pretty simple process. To echo what Ryan and Jeff said, we go back and we look at last year’s sales and we look at what the momentum is looking like this year, and where I think we’re going to be. But like I also said at the beginning, this time of year is definitely the slowest for us. I look and think, “Okay, what is the absolute …”
John Terry (38:32):
I try to plan out how much inventory I need to have very well, because like I said, our inventory goes bad pretty quick. And we have a very limited amount of sales that we get during the holiday season. So we really try to make sure that we’re getting right, exactly what we need, otherwise we’ll wind up having a bunch of inventory go bad.
Chet Butikofer (38:54):
Got it. Thanks, John. Let’s go to the next slide, I just want to touch on a quick example. I think it’s important for ecommerce sellers to internalize. If you look at this, you’ve got seller A and seller B. And there’s several aspects of their businesses that are identical; annual sales, cost of goods sold, which is the labor and the material needed to produce those sales. You’ve got their annual advertising spend, everything identical.
Chet Butikofer (39:25):
Then you get over to the right side of this chart, and look at this metric called inventory turnover ratio. This is how many times a company will actually turn their inventory over within a certain period of time. In this case, it’s a year. And if you look at the very right most column, inventory turnover period, this is the average time that a SKU will sit in inventory.
Chet Butikofer (39:50):
Seller A, their average inventory holding time for an average SKU is 60 days versus seller B, 36 and a half days. That’s a three-week advantage that seller B has over seller A. And if you run the numbers, it’s a $500,000 savings that seller B is able to realize from not spending that money on inventory. And so, I just wanted to highlight that, John’s case, he’s definitely got to be taking a hard look at this with goods that expire.
Chet Butikofer (40:30):
But in general, it’s a really smart idea to understand where you’re at and to track these numbers. The working capital that you can get out of inventory is amazing, and it can really change your business. Let’s go to the next slide, Andrew. We talked about leverage. I wanted to just put this pros and cons comparison in front of the audience, just to take a quick look at some of the maybe legacy examples that ecommerce sellers, have used to access working capital, to access leverage for their businesses.
Chet Butikofer (41:18):
We’ve got the bank, Amazon lending, credit cards and receivables advance. Now, receivables advance in that right-most column, there’s a lot of FinTech companies that are recognizing that ecommerce sellers are an important customer for them. And so, receivables advance in one form is, a FinTech company might purchase your future receivables or pay you for your future receivables in return for a fee. But there’s all kinds of different business models that are starting to really explode out there in this space. We’ll talk about that in a second.
Chet Butikofer (41:53):
Let’s just run through this list really quick. Bank, the pros is you’ve got usually a low interest rate. It’s a well-known process. The cons of this is, there’s an 80% rejection rate for business bank loans. And so, it’s probably a tough bar to get over in a lot of cases. The application process is burdensome and it’s typically slow, You’re not going to get money very fast in a traditional bank loan.
Chet Butikofer (42:24):
Amazon Lending is an option a lot of ecommerce sellers use. Easy application. There’s quick funding. I think the problem that a lot of ecommerce sellers have run into lately is eligibility and availability. For the most part, Amazon Lending has been throttled significantly since COVID broke out. So that’s been an option that’s been taken off the table for several ecommerce sellers.
Chet Butikofer (42:46):
You look at credit cards, they’re convenient. You get cash back and points and there’s net 30 terms, usually. On the cons, if you go past 30 days, you’re dealing with fairly high APRs. There’s also late fees, and there’s usually a limit on the maximum amount you can carry. Now, different businesses have found different cards that provide different options. Usually, there’s a pretty good cap on the maximum available.
Chet Butikofer (43:13):
You look at the receivables advance, and I want to touch on this for just a second. Quick funding, similar to Amazon. Simple application. There’s an auto payback. So you think about Jeff talking about, if you ever use leverage, make sure you have a plan to pay it off. There’s an auto payback feature built into a lot of these plans. The cons, I would say, is the fine print. And there’s a wide variability on annual percentage rates when you look at them, anywhere from 8% to 75% plus.
Chet Butikofer (43:49):
There’s a lot of sharks in the water, and you just got to be cautious that you don’t put your business in a bad situation by taking something that will hurt you. I think there’s excellent options in this column. You just have to be aware that there’s also some really bad options as well. Let’s go to the next slide, Andrew. One thing I actually didn’t touch on really quickly, equity. You can also take equity. You can use equity. Everybody’s probably watched Shark Tank. You’re giving up your business.
Chet Butikofer (44:22):
So that is an option, but you’ve got a permanent partner from the time that you do that. So you’d want to step into that one very cautiously. Flywheel 2.0, it’s a huge project for Teikametrics. It’s been a ton of work. We’re so excited to roll this out to our ecommerce sellers. One of the pillars in Flywheel 2.0 is preferred financing. And just like advertising optimization or inventory optimization, preferred financing is just one pillar within this wheel that is not a completely independent entity.
Chet Butikofer (44:58):
Everything that you see here is dependent on each other. And so, you can’t look at utilizing leverage and optimizing your business with financing, without also considering advertising and inventory in every other aspect. And that’s really the beauty of Flywheel 2.0, is it’s looking holistically at your business. And so many things are changing dynamically on an everyday basis, that it’s almost impossible to really make the right decisions every time, as a human, to optimize and maximize your business.
Chet Butikofer (45:32):
And so with the context of that set, of this new preferred financing aspect of Flywheel 2.0, let’s go to the next slide, where we’ve taken a look across the industry of FinTech providers, talked with several. And really, my number one priority in looking at the options was to make sure that the seller was getting the absolute best deal possible. And so luckily, we ran into Payoneer and TJ. And I can’t say enough good things about his company and the programs that they have for ecommerce sellers.
Chet Butikofer (46:11):
We’ve partnered with Payoneer. There’s an exclusive offering for Teikametrics customers, and I’m going to have TJ walk through the details, and explain the great opportunity that’s available for customers at this time.
TJ Hyland (46:27):
Thanks, Chet. Payoneer, we came out with a working capital solution that we call Capital Advance, sometime in 2019, but we’ve really been pushing it more so in 2020. People might know Payoneer for helping businesses that are selling cross-border, but what we realized was there was a huge opportunity to help US-based businesses that were just selling domestically, that we were missing the mark on.
TJ Hyland (46:56):
Through a number of customer feedbacks situations, we developed this product in-house. And what it is, as Chet mentioned, is it’s an advance on your future receivables. And what we’ve done is created this product specifically for Amazon and Walmart sellers. What it is, is we look at your payout history from either of those marketplaces and then we will offer you an advance for you to pay back gradually as your further disbursements come in.
TJ Hyland (47:26):
In the case of an example, if your average disbursement for the last six months is a $100,000 a month, you would be eligible for an advance up to $100,000. And how it would work is the fee is … Or there’s two different products. There’s the Express, which is a short one-month product really meant to be a small injection of cash, if you needed to send it to your supplier for an additional inventory. Or if you wanted to run promotions this month versus that month, a quick jolt of cash that you know you can really get a return on.
TJ Hyland (48:01):
The other one’s a little bit longer-term, but not spanning out for six or 12 months. As I said, it’s a flexible repayment model. So it usually works out to be about a hundred-day product. And why it’s flexible and why it’s not a set term and a set amount per pay period is because we know that there’s natural ebbs and flows to the online selling world. You might peak because keyword search goes up and you’re having a really good month this month, and it goes down a little bit that month.
TJ Hyland (48:33):
We would only advance you an amount that we’re comfortable that you can pay back. And I think, to Jeff’s point, is making sure that you have terms that are not going to bury you. You’re not going to be paying this off for 12 months or 18 months, a fixed amount where, in reality, someone could take over your listing or you could get shut down on Amazon, or you can get a influx of competition where you might not be making that same profit six months from now, as you did the month that you took a more traditional advance.
TJ Hyland (49:06):
And the last thing I want to talk about, and I said it in the beginning, but this product is really created for Amazon and Walmart sellers. Because I think, for a lot of you and a lot of them, it’s that there’s a scale up to being bankable. We describe how a lot of sellers would go into their bank, whether it’s a regional bank or a national bank, and them not really understand what you did. What is selling online? They could potentially see the money coming in from Amazon and still not really understand.
TJ Hyland (49:37):
And I think over the last three to four years, it’s definitely evolved a lot into them understanding more. And you’ll get at least a conversation with your bank or even your credit card company for more favorable terms or better rates. But having a company like ours, at least, where we absolutely understand the ecommerce world. We built this product specifically for sellers.
TJ Hyland (50:00):
And then the special part about what we’re doing here with Teikametrics is, usually when you come to Payoneer, because we don’t do any background checks or credit checks or anything like that, our credit check is for most sellers to have to take a Capital Events Express first, which is the one-month product. And then exclusive offer for Teikametrics users is you can bypass that and take the longer offer, which is more money and a little bit more terms, better terms, longer terms.
Chet Butikofer (50:34):
All right. Thanks, TJ. That’s a great point. We feel very fortunate, like I said, that we ran into Payoneer, that we’re able to partner with them and that they offer this exclusive opportunity to Teikametrics customers. It really is a great opportunity, a great way to use leverage. And again, every business is unique, and you got to make sure you’re making the right decisions for your business. But definitely, we wouldn’t put this in front of folks if we didn’t feel 100% confident in the solution.
Chet Butikofer (51:05):
Really excited about that. And if you want to access this opportunity through Payoneer, this is how you do it. You go to teikametrics.com. You’re going to click on the Learn More button at the top of the page. Let’s go to the next slide, and you’ll then enter your email to request early access to Flywheel 2.0. This is part of Flywheel 2.0 and all of those components that we went over. Make sure that you check preferred financing in the form that you’ll fill out, once you enter your email address.
Chet Butikofer (51:37):
And we’ll follow up with you and we’ll make sure that you have access to this really great, exclusive opportunity. That’s the process. Andrew, I’m going to kick it back to you, because that’s what we’ve got for the main part of the presentation. I think we’re going to do maybe a Q&A.
Andrew Waber (51:53):
Yeah, yeah. No, this was great. So thanks so much to everyone. I thought this was just awesome. A lot of great stories here. And I think I definitely learned a lot in terms of just some of the dynamics of starting a business and growing a business, I think, from different sides. One question we got that I think was just more logistical, which is for everyone on the line is, yes, we’re going to send along all these slides along with the recording of this presentation, roughly 24 hours from now. So you’ll get that in your email. Keep an eye out for that.
Andrew Waber (52:26):
I guess one thing that maybe we could discuss and I could open this up to the panel, because I think it’s useful, which is, in relation to financing, you guys touched on this a little bit but, was there … I think the example of the cupcake holders that you didn’t need and maybe it goes in the other direction too, but in the sense of when you perhaps … When it comes to financing, maybe either in the case of either taking too much where you’re buying something you don’t need it, but maybe in the case of not capitalizing enough.
Andrew Waber (53:00):
And I know, Ryan, you touched on this a little bit, but if you could expand on that I think a little bit, just in terms of what you maybe learned from that thought process or that difficulty, in terms of when you were just getting started and what you needed to do as you were growing a little bit and starting up new brands.
Ryan Goldstein (53:22):
Definitely, a little bit on the over-ordering aspect of it too, I think one of the things especially for AirVinyl was looking at, I had the product itself and the packaging of it, which were two different manufacturers who were doing that. I definitely, especially early on when I was doing all of this just out of my apartment, and that’s where everything was being stored. I definitely over-ordered on packaging. Put a lot into that, and then ended up changing the packaging at some point. So it’s a lot of wasted boxes that went in there.
Ryan Goldstein (54:03):
I do think that planning for either side of that is really important. You don’t want to over-commit to what maybe you’re spending on in terms of inventory. But likewise, one of the worst things that can happen to your Amazon listing, besides suspensions or anything, is stocking out. And so if you’re projecting that you have a lot of growth, if you’re projecting you’re going to sell let’s say a thousand units during Q4 and you can only afford 500, you are better off trying to figure out a way that you can get enough inventory to not stock out.
Ryan Goldstein (54:44):
Because, especially in terms of Amazon’s algorithm, it’s going to hurt you in your future sales that you get from that. It’s interesting, in that both sides of it are … You want to try and find the sweet spot, but both sides of it are bad. You don’t want to over-order and you don’t want to under-order. It’s a lot easier said than done, but that planning around that I think is really important.
Andrew Waber (55:09):
Yeah, that’s great. This is one other question here, which was around … And maybe this is a good one for Jeff and John. And Jeff, maybe we go to you first, which is around what you think about regarding demand forecast and your thought processes, I guess, at a high level, if you can talk about that a little bit.
Jeff Sudman (55:35):
From a demand forecast, we’re definitely relying on Teikametrics insight data that we have and the prior sell-through. I think the biggest difficult we have is new SKUs and how we’re going to impact those. And I know we touched upon the financial difficulty of launching new SKUs and how long that might take. From a high level, I think figuring out demand is really on us for data. And the more detailed data we have, using current rankings and sell-throughs, is where we’re going to thrive. There’s no way we’d be successful today without that.
Alasdair McClean-Foreman (56:21):
Jeff, I have a quick question for you. You’ve got such a amazing operational excellence approach to your business. I’m curious, was that learned or have you got a finance background? And for those in the audience, do you think getting to the scale that you’re at, that having a finance background or bringing in a CFO is essential?
Jeff Sudman (56:45):
It definitely can be. I learned this from hard experiences. We definitely learned a lot of things the hard way. And realizing mistakes and overcoming those to make sure they don’t happen again has molded me to where I am today. And if you don’t have that experience, then a CFO could definitely navigate you through a lot of problems that probably will occur. If it was a 15-year ago myself, I would say, “No way,” but today I would say, “Definitely.” It’s painful to go through. It’s obviously rewarding to have the experience and expertise to navigate difficult waters today, but I’d pay to play now, for sure.
Alasdair McClean-Foreman (57:28):
Andrew Waber (57:29):
Alasdair McClean-Foreman (57:30):
Andrew Waber (57:31):
I think we have time for one more question, which is more of a block and tackle one, probably one for you TJ and Chet. This was, is there a monthly minimum revenue amount for a seller to access preferred financing? Any requirements around that?
TJ Hyland (57:49):
Sure. A minimum amount that we would advance is $2,000. The amount that we advance is an average of your previous payouts. So I guess, yes, the answer would be $2000. There are just another one or two criteria too. You have to be selling on Walmart for at least six months and Amazon for nine months. But other than that, it’s pretty clear.
Andrew Waber (58:21):
Great. Well, thanks so much. Thank you to the panel, everyone. I thought this was an awesome session. Really enjoyed this. Again, everyone on the line, you’ll get a copy of the deck along with a recording of this presentation, so you can look through at your leisure, review the parts that you may want to take a look at again. And with that, we’re going to leave this one. Hope you all have a great rest of the afternoon, and hope to see you on another one soon. Bye-bye now.
TJ Hyland (58:49):