Before I discuss the strategy I used to defend my business, let me first talk about growth concepts.
Lou Holtz said it best:
“In this world you’re either growing or you’re dying so get in motion and grow.”
Growth costs money. Inventory costs money. Operating a business efficiently costs money. As discussed previously, getting hit with sales spikes can lead to serious setbacks because the need to maintain business alongside growth can create cash flow issues.
Most small businesses fail because their owners develop price-based strategies. They do not factor in other costs such as:
Add a sales spike to the mix and you’ll quickly understand why they can be deadly.
I’m a member of Facebook group where 99% of the members use a complex Excel spreadsheet to identify product opportunities on Amazon (and potentially on Ebay as well). The Excel spreadsheet is really more than just a form simple form. It helps new business owners understand margins so they can be better prepared for super growth-or massive price reduction-when it hits. The spreadsheet also helps users understand the basic business mathematics and the real costs of doing business.
My business recently experienced a massive growth spurt (which you can read here). We went from a manageable 5-7 thousand in sales per day, to 15-20k thousand in sales per day! Think about it, such spikes cause a major ripple effect and the economics of an entire business can change overnight!
Below are some of the things that changed for our business after the sales spike.
After our sales spike, we had to purchase inventory ahead of when we could actually sell it. This means increased warehousing, shipping, taxes, and other costs. Even if you do Fulfillment by Amazon, you will still see these increased costs creep onto your spreadsheets.
For those who know me, I may be as paranoid as Jeff Bezos about customer perception and customer service. That costs money. More sales equals more customer questions and service requirements. There are more returns (proportionally), and more damaged shipments. The list goes on, and unlike other costs, these are not linear and predictable. In the end, service costs may actually affect your bottom line more than any other cost.
Let me shatter the dream right now, or rather, correct it. We all like to live in a bubble where our online business will grow into a multi-million dollar, self-operating machine while we sip pina coladas by the beach on the daily. This dream is definitely possible, but almost unattainable before your reach a certain level of growth. This means at some point you will need to hire help as your business grows so that you can eventually attain the dream.
Help can take on the form of virtual assistants (which I use a lot), or it can be warehouse employees, buyers, product development, marketing, customer service employees, and more. Regardless how you attain help, it will hit your bottom line. This needs to be factored into the equation of preparing for growth, and dealing with sales spikes effectively.
So what happens if you experience growth at an unpredictable and unprecedented rate?
I raised prices once I realized the spike in sales would lead to orders we could not fill. However, the price increase actually spurred faster sales and growth. I then raised the prices again and saw sales level off but not decline.
Finally, our fourth price increase began to taper off sales to a point we were comfortable with. This is where we stopped, but another “challenge” arose. As we raised the price on one SKUs, it enticed customers to purchase other SKUs. In order to stop what was sure to become an avalanche, prices were increased across the board. The monster was slowed.
Cash is a good way to hedge against unprecedented growth (the “bad” kind). If you’re strapped for cash, it becomes more difficult to deal with sales spikes. I currently have access to growth capital, but in the past, I did not. It is wise to gain access to business credit in case you need to make quick decisions.
You can also look at something called factoring, but it is expensive and can turn complex very quickly.
One thing I know after decades of being in business: things change, only the paranoid survive, and people who adapt well to change thrive.
I run a lean and extremely efficient business, I am insanely nuts about how we treat customers, and because we are a fulfillment center and we strive to beat Amazon at every turn. (We ship every package 2-3 day ground for free). All customer emails are answered within 24 hours or less. I minimize phone time, as if find it to be a time waster and can achieve better results with a well-written email.
Basically, if you start out with a solid foundation, anything can be built on top of it. Your business may be better equipped to leverage spikes.
So far, my strategic efforts have paid off. As I write this, I am looking to fill more positions at my company and I know focus on helping others grow their businesses as well.
I hope you found this useful. I try my best to help people a few days a week, so if you have questions, ask!
So, what are your ideas on how to growth, business economics, and eCommerce? Tell me in a comment below.