How does Cashflow projection tie in with sales/stock prediction?

At a simple level: the sales velocity you’re managing to will deliver a revenue a month.

That is then shared between your business and Amazon, and you’re left with those cash surpluses every two weeks.

Meanwhile you either have stock on order, on the water or in Amazon.

So at any one time, you’ve got capital tied up in product or in money in the bank.

Cashflow example

Say you’re aiming to sell 500 units per month of something and trying to manage that over 3 months (placing orders every 3 months) - so you’re replenishing at a rate where you know you’ll have the cash in the bank to pay.

That only happens if you’re importing in the same amount of stock as you sell - 3 months of stock in container; 3 months’s sales. That’s where stock prediction ties in with Cashflow projection.

This does require some complex modelling.

If you import 3 months’ worth of stock and it’s not sold through yet when new stock turns up, you’ll have a cashflow bottleneck.

Think in terms of liquid cash

Think in terms of cash locked up vs. Liquid cash.

Ask yourself the question: how many times are you going to turn your stock this year? (Again, the stock prediction piece)

Ashley’s company’s target is 4 months a year (3 months’ stock plus a bit of overstock)

Buffer stock is not liquid!

Inventory Perform Index - what is it and how does it affect the discussion?

Introduced about 12 months ago (mid May 2018) in the USA by Amazon to manage the velocity of stock turnover. The main metric in the IPI turns out to one of the more important metrics, especially if you’re storing a lot of products at FBA: the sell-through rate.

This means that stock prediction is more important than ever.

Sell-through Rate (IPI)

If you sold all of your stock in 12 months, that would be a “sell-through rate of 1”.

The formula is:

Sell-through rate= stock you sell ÷ stock you have.

If you put 3 months’ stock in amazon and sold through in 3 months, that’s a sell-through-rate of 1.

That’s the lowest acceptable performance in Ashley’s case. If you can turn stock 4 times a year, you’re doing very well. If your sell through rate drops really low plus storing quite a volume of product, that can impose limitations on the amount of stock you can store at Amazon.

The magic number is “350” on the IPI. Anything over the limit is charged at 10 times the normal rate. They have a forward forecast of what IPI would be every month - this shows what you can keep at Amazon and what is externally stored.

Building an e-commerce Team

At what point do you start expanding an e-commerce team?

The simple answer is when you run out of capacity!

However Ashley felt that there was a need to start building an e-commerce team early.

The freedom to make those decisions was based around accurate cashflow and sales projections.

The questions were: Can we afford to take a team on? At what point?

What tasks will my e-commerce team need? What skill sets needed?

Ecommerce Marketing Team Structure

How do you justify that financially?

In Nov/Dec 2018 the e-commerce team structure looked like this:

Ashley - ran Amazon

Ole - marketing assistant (UK based works alongside Ashley) ...