5 Ways to Fund Your Private Label Business
This is a guest post by Amazon seller and podcast host Taz Ahsan. You can check out his podcast The Amazon Entrepreneur on iTunes and Stitcher. Listen to his episode on how to fund your private label business below:
One of the biggest or most common excuses as to why people cannot start their own business is funding. It’s a real barrier, but one that can be overcome with a bit of resourcefulness and tenacity! So here are 5 ways you can fund your own private label business. To be clear, there are many more funding options, but here are the 5 we will discuss today:
1. Retail Arbitrage – Beginner
Retail arbitrage is one of the 3 main business models that most people use when building an Amazon business, the 2 others being Wholesale and Private Label. So how does retail arbitrage help? To implement this model you simply need to go to standard retail stores and find products that you think you can sell for a profit after you pay Amazon fees. Of course there’s more to it than this, there are tools you use to scan barcodes to find the best products etc but that’s essentially the core – buy low, sell high. There are 2 key benefits to starting with RA:
- You get to learn the Amazon system, how to create shipments, Seller Central all before you make bigger investments in private label.
- But here’s the real reason – you’re getting a fairly quick turnaround on your cash and can build this into a nice little pot for you to then spend on your first private label product!
This is the exact way I started my own Amazon journey and managed to generate almost $50k revenue in 2.5 months which netted out to over $10k extra to help me start my private label business! Disclaimer, this is blue collar work at it’s finest. You’ll be driving around for hours (or taking ubers like me!) to find stores with the best products and it does get exhausting! RA is truly the definition of hustle.
2. 0% APR Credit Cards
Don’t be afraid of credit cards! They are your friend! I’ve used credit cards my whole life to earn flights, hotels and upgrades but another way you can use them is to fund your business! To get started, go to creditcards.com (one of many credit card comparison sites) click on 0% APR cards. These are the cards that you should be most interested in. These cards are pretty much interest free loans, it’s as simple as that, all you need to do is pay the minimum balance each month and then make sure you pay off the FULL balance by the time the term ends which typically ranges from between 9 and 18 months. If you can apply for a couple of these and your credit score is decent, 0% APR cards can go a long way to helping you finance and grow your business. I personally applied for a Discover credit card that had an 18 month 0% APR offer and I used it to run all of my sponsored ads campaigns as the rest of my cash was tied up in inventory. And another quick credit card tip – if you’re running sponsored ads and paying for your ads with your sales, STOP! Switch that to a cashback card, travel card or a card that pays out more points for advertising (Chase Ink Business Preferred triples points for advertising spend) and get those rewards instead of missing out! *Make sure you pay your balance off in full each month. Otherwise it will negate the benefits.
3. Crowdfunding – Indiegogo and Kickstarter
This is a method whereby you present a concept to potential “backers” who use websites such as Indiegogo and Kickstarter looking for cool products and ideas to back. By doing this, you’re not risking any of your own cash (apart from what was needed to build the prototype) but instead using the funds from the backers to pay for the full scale manufacturing of the product. The caveat here is that you will need to have something cool or unique that people are going to be willing to wait 6 months for so it’s not a given that you will get funding. But I do know of friends who have used this model to create successful products and brands. To that point, a huge benefit of using this platform is that by being successfully funded, you’ve just created a set of loyal followers who will tell their friends about your product even though it’s not even ready to ship yet!
4. Family and Friends
I know, I know, who wants to ask their family or friends for help to start a business?! But wait! This could be the most viable option out of all of the methods I have mentioned so far purely because it’s family/friends and they most likely want to help you succeed. My advice here is to be really clear on what the terms are of the loan/partnership is AND to make sure that it’s cash that family member or friend are not relying on. Of course there needs to be some kind of upside from that cash being borrowed such as an interest rate of some sort but it’s best to ensure that the money isn’t being depended upon otherwise that could lead to some very difficult conversations down the line. In summary, this could be the best and most comfortable option if you have people around you that can help – however, proceed with caution!
5. Payability
Payability is a service that enables you to receive daily cash flow from your Amazon sales – something that some of the most early Amazon sellers (think 2012) were provided by default. But, Amazon has long since moved to a bi-weekly payment scheme. So, why are daily payments such a good thing? Well, first it gives you flexibility when making payments to suppliers. For example, when you’re placing an order with a supplier, you will be placed in a production queue but you haven’t put a deposit down yet. But now, it’s time for your production run to start but you haven’t got the cash to place the deposit. Well, now you’ve lost your place in the production queue. Now this may not sound that bad because maybe you just lose a few weeks but it could be a month or even 6 weeks. Now replay this scenario in Q4 or in the run up to Prime Day and/or Cyber Monday and you’ve just lost your place for an order of 10000 units that would have taken you through Q4 or covered you for a huge influx of sales on Prime Day/Cyber Monday. In this scenario, there is potential for you to have lost thousands of dollars because you have now run out of stock. So not only will you have lost sales because you have run out of stock, you will also need to re-launch the product (depending on how long you have run out of stock for) which in itself could cost thousands of dollars! Another reason you want to be super tight on stock is because of the introduction of monthly long term storage fees – so instead of paying long term storage fees twice per year, now if you have excess stock at Amazon, after 6 months you will continue to be charged monthly till you sell through that stock or remove it.
So how does this all work with Payability? Instead of waiting 14+ days to get paid by Amazon, Payability will pay you 80% of your Amazon payout daily. The remaining 20% is released to you on the normal two week cycle minus their 2% flat fee on gross sales. Payability takes 2% of your total sales before Amazon fees (not the amount you get paid so this is an important distinction). But it’s important to balance out the cost of paying a fee to have more cash in the bank against missing out on a huge day or even part of Q4.