Want to grow your business, but not sure how to get that extra bit of funding? Check out these tips for scaling your marketing campaigns and inventory by way of outside investors.
Constant growth is the only way to become a top-tier Amazon seller. As soon as you’re comfortable with your current operations, you’ll want to make sure you start thinking about how to take your business to the next level. Of course, scaling up can be tricky. Without proper planning, even savvy sellers can run into trouble. Follow these helpful tips for effectively scaling your business and choosing the right investors.
Recent Changes to the Landscape
The number of sellers on Amazon has increased in recent years, which means you’re facing a level of competition never seen before. Still, the amount of sellers who regularly reach 1 or even 10 million in sales figures has also increased. Smaller sellers are reporting increases in revenue of nearly 15% as well. What does this mean for you? That it’s a great time to scale—so long as you do it correctly.
Funding an aggressive expansion used to be a lot simpler, though it was never easy. But with the tumultuous world events of the past few years, investors have become cagier. Worldwide, venture capitalists have decreased funding initiatives by over 10%. The funding that remains is almost always later-stage financing.
Worse still, interest rates on loans are the roof, making the traditional avenues for sellers untenable. You could sacrifice equity in exchange for funding, but for many that’s a short term strategy. There are still options, however, which we’ll discuss below. First let’s go over the basics of scaling.
Two Pillars of Effective Scaling
The two most important aspects of effectively scaling a business are marketing and inventory. You’ll need an ambitious marketing campaign to increase demand, as well as an increase in inventory to meet that demand. Both of these require considerable cash flow, which can be difficult to manage on your own.
So you run into a paradox: you need increased cash flow to scale effectively, but can’t increase cash flow without scaling first. This is why generally speaking, Amazon sellers scale by securing outside funding.
You’ll need to be shrewd in choosing investors. You don’t want your credit score to take a hit, and you also don’t want to get entangled by predatory interest rates. Not all investors are created equal! So be on the alert, and follow the guidelines below.
What to Look for in an Investor
There are a few things to look out for when it comes to choosing an investor. For one, you’ll want to prioritize any investors who don’t ask for equity in exchange for the funds. You’ll also want to avoid any investors who ask for a personal guarantee. Such guarantees tie you to a third party who’s responsible for your debt. Personal guarantees might sound like a good idea at first, but ultimately you end up indebting yourself to two parties instead of one.
Groups like Yardline are a better choice, since they require neither equity nor a personal guarantee and have relatively fast application processes. Such entities provide loans from anywhere between $5,000 and $1 million, and applying won’t impact your credit score. Sometimes they’ll even throw in a free business consultation to talk logistics and strategies for scaling.
Pitfalls After Securing Funding
Once you secure the necessary funds for your expansion, you’ll want to maximize your return on investment. One of the worst ways to use your capital is on the marketing-stockout-marketing cycle, a vicious cycle by which you spend too much on marketing and not enough on inventory. Before long you’ll suffer a stockout and have to spend a considerable chunk of change on expensive air freight shipments and the like. Your search rankings will plummet due to out-of-stock, and as a result you have to spend even more on new marketing campaigns to increase demand. Then the cycle repeats itself.
The marketing-stockout-marketing cycle is the surest way to waste the funds you’ve secured. You run the risk of exhausting your resources without having scaled up in a way that’s sustainable. Check out our other blog posts on inventory management to get in-depth advice on how to avoid this cycle. You might also want to invest a portion of your funding into an automated inventory management software SellerMobile’s. Such software eliminates human error and streamlines your restocks so you maintain product visibility and increase your profit margin.
Summary
Despite recent changes to the landscape, now’s a great time to scale your business—assuming you do so properly. You’ll need an aggressive marketing campaign as well as nimble inventory management in order to successfully make the jump up to the next level of growth. Of course, both elements require a boost in cash flow, which you’ll likely achieve by way of an outside investor.
Be wary of investors who demand equity or a personal guarantee, and instead opt for groups like Yardline, who don’t ask for collateral and have relatively speedy application processes. You can access Yardline’s application page here: Yardline + SellerMobile.
Once you’ve secured funding, you’ll want to consider using an automated inventory management software like SellerMobile to avoid falling into a vicious stockout cycle. So long as you use the best practices for inventory management outlined here, you should be able to scale your business with relative ease. Best of luck!
