Today I am joined by inventory management expert Chelsea Cohen. In this episode we discuss inventory management and scaling, the difference between inventory reacting and true inventory planning, and how Coronavirus has changed the way we think about inventory.
After 2 years testing tons of inventory software and crowd-sourcing the best spreadsheets and systems from top 7 and 8 figure sellers, SoStocked’s forecasting algorithm evolved into something completely unique on the market: the first fully customizable, fully understandable inventory management software for Amazon sellers.
Date: June 23, 2020
Episode: 16
Title: Norman Farrar Introduces Chelsea Cohen, a Serial Entrepreneur and Inventory Management Expert.
Subtitle: Inventory Management Software for Amazon Sellers
Final Show Link: https://lunchwithnorm.com/episodes/16-inventory-scaling-chelsea-cohen/
In this episode of Lunch With Norm…, Norman Farrar introduces Chelsea Cohen, a serial entrepreneur and inventory management expert.
Chelsea discussed inventory management and scaling, the difference between inventory reacting and true inventory planning, and how Coronavirus has changed the way we think about inventory.
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Norman Farrar 0:03
Hey everyone, it’s Norman Farrar, a.k.a The Beard Guy and welcome to another Lunch With Norm.
Norman Farrar 0:20
That’s pretty cool. My son wrote that. Anyways, we’re broadcasting to you live on Facebook and YouTube. This is the second time we’re doing this on YouTube. So this is pretty cool. Kelsey, tell everybody what people have to do.
Kelsey Farrar 0:35
All right, follow us on all the social media platforms. You can find us on Facebook, YouTube, Instagram, Pinterest, TikTok. Just go search Norman Farrar and yeah, follow us.
Norman Farrar 0:50
Very good. Yes, please. Alright, so today we’ve got a very special guest. I’ve known this lady for a couple of years now. I bumped into her every event I go to, she’s like me, if there’s an event, she’s usually there. So anyways, Chelsea and I, her name is Chelsea Cohen. Chelsea and I are going to be discussing inventory management and how to scale your business and also we’re going to focus on the difference between inventory reacting and true inventory planning. So as always, if let’s try that, again, this is live. As always, if you have any comments or questions, just post them in the comment section and we’ll answer them as fast as we can. So sit back, relax, grab that cup of coffee, and enjoy the show. So without any further ado, hello Chelsea Cohen, welcome to Lunch With Norm.
Chelsea Cohen 1:44
Hi, thanks for having me.
Norman Farrar 1:46
It’s my pleasure. How are you doing?
Chelsea Cohen 1:48
I’m good. Doing well. Hope you’re doing well as well, surviving coronavirus.
Norman Farrar 1:55
Yeah.
Norman Farrar 1:57
So, Chelsea tell everybody just a little bit about yourself.
Chelsea Cohen 2:02
Okay, so I’ve been selling on Amazon since 2014 and like you mentioned we connected up at an event, we were both speaking at, I think is the first time that we connected in 2017 at the Amazing Summit where I was speaking about copywriting and I still do a lot of work in copywriting and the copywriting space and so that’s how, most people know me in terms of copywriting. But there was another thing that kept coming up in my business. That was a problem and about two years ago, I decided a little over two years ago, I decided I need to solve the problem and it had to do with inventory management, the amount of time it was taking, and also seeing how much my business was suffering from poor inventory planning, whether it was over ordering or under ordering running out of stock and so I had to figure out, how to solve the problem, I looked at the various different solutions out there and they turned out not to be solutions for me. The algorithms didn’t make sense. They weren’t customizable to individual skews. They worked for some products, but not for others. Or were really, really expensive and started at talking to my mastermind groups, and asking them if they had solutions and they kept coming up with the same answers that I had, and that there was nothing that was really designed and worked well to be able to fully customize an inventory solution. So I decided that I had to figure out something for myself and came to the conclusion that I had to just build a solution, build a tool, an inventory management software, and two weeks, literally two weeks after deciding that I met Dan Fernandez,
Norman 3:55
Dan,
Chelsea Cohen 3:56
who’s my business partner. It’s funny because I think you’re the only person that connects the two of us, which is very interesting because I like we met at an event that Elena was a part of, and I met Elena for the first time at the same event that I met Danna, and then Dan mentioned that he worked with you off and on, which was interesting, because it seems to be the only like, hard, direct connection is you.
Norman Farrar 4:27
No, it’s great what networking and events do, you get to meet so many great people like yourself. So, it’s interesting that you said the cost, because it is very tough prior to the app that you brought out. You were either stuck with your own spreadsheets, or you were paying some big bucks for the product. Yeah. We’ll talk about that a little bit later on. But, just having an affordable app that can really cut out all the noise and help you with your inventory management. So there’s been a real swing in, especially with what’s happening right now. But what’s the mindset and what’s going on with inventory planning right now that may not have happened a year ago?
Chelsea Cohen 5:22
Yeah, I mean, right now, one of the things that we’re kind of seeing is that people are having to be more prepared, I mean, Coronavirus, it kind of changed everything and I think personally and where we’re moving our software personally is that people are going to start splitting between FBA and FBM. I personally with my next order, I’m figuring out a solution for that. But one of the things that’s occurring is that Amazon, we’ve seen Amazon hold people’s businesses hostage a little bit, within this situation, people scrambling to figure out third party warehousing and third party fulfillment solutions. So there’s kind of this split and that’s what we’re talking about with our team right now is how to be able to have a tool that accommodates both FBA and FBM. Because you’ve got people who are waiting three weeks and for Amazon to just pick up an LTL shipment or five weeks with their inventory not being checked in. So if you have sent all of your inventory into Amazon, you order it, you send it all into Amazon, your inventory is held hostage, so what we’re doing with our next shipment is we’re sending half of it and then sending another half to a fulfillment center, so that we have a backup plan because we’re seeing as Amazon is not able to handle these things, it actually starts affecting our business if we basically have no distribution center or distribution plan for ourselves. So that becomes very, very important as I think everybody should be looking at fulfillment and creating a backup distribution plan in the off chance that Amazon can’t be your distribution center, they can only be your sales channel.
Norman Farrar 7:12
So I’m finding that in different parts of the US, there’s no delays. Other parts of the US like California, we’ve got stuck with this. We had 11 products from this one brand that we’re working with that is stuck and it’s been three weeks like he said, and we cannot get them into the system. Do you know, I’m like, I’m going to throw you a curveball. Yeah. Do you know a way around that? Because if your man, our brand, the brand we are representing is out of California, they have their own warehouse. Is there a way to get out of California when Amazon assigns you the warehouses and switch it up so it can be in Arizona or somewhere else?
Chelsea Cohen 7:58
What I’ve seen from when we had a warehouse in Chicago back when we were doing some warehousing out there, a lot of our stuff was just sent straight to the Joliet warehouse, so we’re currently in California is where our warehouse is. I think it’s more expensive, but that’s a startup to think about in a shift on that planet it has to do with the address you’re sending from, so if you’re sending from a California address, they’re gonna want to send the bulk of your inventory to California. But if you’re in the middle of the country, and having a warehouse in the middle of the country does take some extra time it takes additional trucking time from the port and it takes the additional cost. But the difference between you getting your stuff checked in or not, it starts to become a smart plan to have a warehouse in the middle of the country as opposed to on the coast. Now that’s not a guarantee, but it gives you a better chance of having your stuff sent to the middle of the country as opposed to either of the coasts.
Norman Farrar 9:10
That’s something that I was talking to him about yesterday. He has his own warehouse but to move the product over to like a warehouse. Yeah, wherever outside of California, yeah, because it’s a disaster. These 11 products, and not one product has been received yet.
Chelsea Cohen 9:34
So yeah, and it’s interesting because I did a survey in our inventory management sellers group, and wanted to find out if it was just pallets because in the past, we had an inventory issue where we shipped in a bunch of pallets, and they literally got parked in a parking lot until the end of Christmas. After Christmas, they’ve lost the inventory, and then they found it after Christmas and that was just devastating to our holiday season as a separate several years back, but cartons got in just fine. So I wanted to see is it cartons? Or is it LTL shipments and it seems to be across the board LTL and carton but I think location does have something to do with it. So, some people are saying just fine. I also checked categories, categories didn’t seem to be an issue, either, we had various different delays across categories too, so it’s probably the location. So I think that the best buy, if you’re trying to test this out the best theory to test again, I haven’t tried it. This is just from past experience, warehousing in the middle of the country might be able to get you kind of around that.
Norman Farrar 10:49
Great. Hey, Kels, I think there’s a question. Can you throw that up there? All right. Hey, Andrew, how are you? Do you feel that 3PL’s along the coasts have longer check in times now too?
Chelsea Cohen 11:04
Yeah, I that’s I think what we’re seeing, everyone tends to have their stuff put into the 3PLs, and into the warehouse because they don’t want to spend that extra time and money to truck but it seems like it’ll probably end up being cheaper to truck it into a Chicago warehouse, although, Chicago might be a little bit risky right now. But into some warehouse in the middle of the country. Because that’s kind of what we were getting a lot of people were from California. I think there are a couple of people on the East Coast as well..
Norman Farrar 11:47
Right. So just before we go any further, I just wanted to give a couple shout outs here. Hey, Victor, how are you? Hayden. Hayden wrote the song by the way, Victor. Maamoun, how’s it going? Andrea, thanks for tuning in. Alright, so the second question I have is about the second product. When you have the second product, what are the processes? How do you launch a second product? When should you launch a second product? So let’s start with looking at that second product. What’s your advice on when we should do that?
Chelsea Cohen 12:22
So you’re talking about, like, if you’ve got your first successful product, and it’s doing well, I think, if you’ve got a product and it’s doing well, then you’ve probably figured out some things about how to sell well on Amazon. It’s not until you kind of get to that point. I mean, there is something to be said about the first product being a dud or the competition is too harsh or whatever. But when you’ve got a successful product, you really start to look at what is it that we did right, and identify those things that you did right so that you can repeat those things, but cash flow becomes a really important issue. So I think that it becomes important to figure out, do you have the funds to continue to sustain the product, this actually is your business right now, you’re essentially a one product business, continue to sustain that, while you get into this other new product and that becomes the first juggling act is how to control the cash flow, how to sustain the cash flow. So I think that, that becomes the question of let’s plan out and play out, that scenario makes sure that the cash will be there. But, I would say, if you can do that, do it as soon as possible and just, it’s kind of one of those rinse and repeat, you found the proper method, and you should be able to kind of translate that into your next product.
Norman Farrar 13:49
So, the reason why I asked a question is I get this question a lot. When should I stop doing it manually and focus on an app or transfer over to the app. So at what point should people do this?
Chelsea Cohen 14:05
Like you’re talking in terms of inventory?
Norman Farrar 14:07
Yeah. When it gets unruly, and most people in the past have always thought, Oh, they have to be a $100,000 a month seller because it was so expensive to use some of the apps that were out there.
Chelsea Cohen 14:19
Yeah. Yeah. So I think that comes down to a question of not necessarily just the skews. But if you’re not, you’re doing a million different things. As an entrepreneur, you’re usually holding all the hats. So if you’re overwhelmed with all the things that you’re doing, and you have to start to look at what you are spending your time on? What is the return on that? Right? If you got a software that’s a 100 bucks, and it’s gonna allow you free up time for you to focus on the things that you’re really good at, maybe it’s product sourcing, maybe it’s marketing, those things that will really make you the money. If saving the time that you’re taking to do the inventory planning will make you more money, then you should definitely put in a system, an inventory management system and also if you’re not doing it properly, and there are many places along the line that we can mess up in inventory, you get the numbers wrong, you get the timing wrong. You forget to order, you’re not following up on your suppliers and your freight forwarders, right and that’s the biggest one, that’s the secret killer because you look at I’ve got 60 days lead time. But then what about all those little days in between where you had to get your quotes, you had to get your everything connected, the 30 days is up and the supplier says, Hey, we got your inventory ready to ship and then it takes a week to get connected with your freight forwarder and then it’s another five days before the ship actually sails, so that 60 days then turns into 75 days. So it’s all of those little things that if unless you have, if those things are costing you sales, or causing you to have to do a lot of air freight, it makes a lot of sense to get into inventory management, whether you have a hundred products or a handful, or even just one, I mean, generally when it’s just one, you have a little bit more time to do some of those things. But, kind of putting those systems in place early on in your first few skews, helps to free up the amount of time that it takes and the bandwidth that it takes to remember those things.
Norman Farrar 16:42
So when we’re talking about putting together production flow, so you can manage these extra days, what should be the proper starting point for the flow and how can you manage it? Are there specific steps that somebody can take?
Chelsea Cohen 16:57
Yeah, yeah. One of the conversations that I’m trying to have or trying to bring to the forefront in the Amazon space has to do with scaling. We’re all obsessed with scaling. But no one really, people don’t really connect inventory management to that as much like you have tons of gurus and tons of masterminds and tons of people talking about marketing, but the entire focus of our industry is on marketing and then we talk about scaling and systems and things like that. But no one has really tackled the connection between marketing and inventory, and how crucial it is. So you get these scenarios where you’re running out of stock and you wonder why, and there’s tons of, I guess experiential data that backs up that a lot of that is because you didn’t build your marketing plan into your inventory plan. So when you’re setting up to create an inventory management system, the first step is marketing and it’s essentially, you got if whatever system you’re using, if you’re just using past sales to figure out your future orders, you’re kind of missing the boat, because I have a friend of mine who we were talking about inventory and he said, you know what, I realized recently that I’ve been placing the same exact order in the same exact schedule for years and that’s just a sure sign of flatlining your business. So unless you take a marketing plan, you build out a marketing plan, say for the next three, four or five months, and you actually build that into your inventory plan. You’re always gonna fall short of your goals, unless you build out your marketing plan, say the next three to six months worth of marketing as your initial step to building out an inventory plan.
Norman Farrar 18:54
So I’m kind of curious and I should have said this at the beginning, but your app is called So Stocked. Yeah, it’s very simple to use and what I love about it is that somebody from your team gets on the phone and helps you with that and it could be pretty intimidating for somebody new, and the business to kind of go through it and by having somebody hold your hand walk you through it, and not only do they all of a sudden get the real numbers and the real timing, but they get to, they get to have somebody that they can talk to and it’s tough. Like, if you go to an I’m just gonna say any of these other apps, you try to figure it out, but you don’t put in those little nuances that you need to have to get an accurate cost. So I love that and I just wanted to let that I love the app, and the personalization that I don’t think you get anywhere else unless you pay a thousand bucks a month. I love that part of it. So
Norman Farrar 20:07
So, Oh, Kelsey, what’s this question?
Kelsey Farrar 20:11
All right, it says the thoughts on launching a second product even when you don’t fully have your first product up and running smoothly. That way you’re trying a few products so I guess opinion, question.
Chelsea Cohen 20:22
I guess for me, you’d have to determine why the other product isn’t doing well because you don’t want to just jump into creating the same mistakes with a second product. So if you can determine what you’re not doing properly then and determine that it’s something having to do with the market and not with your marketing. Then I think that that is a fine way to go about it. But if you’re just one of the primary things that I see with first time sellers, is that they price too high for their value in the market, they’ve got no reviews or very little reviews, and someone’s got a bunch of reviews, and they’re pricing at the same price point. Usually lowering that price will tend to cause you to get a little bit more traction on a new product and then you can’t get reviews if you don’t have sales. So, just kind of things like that. You have to know, you have to be able to assess why you’re having trouble so you don’t make the same mistakes over and over again and spend a bunch of money on products that don’t, don’t ever fly.
Norman Farrar 21:32
So Lennar, I can tell you from experience that doing one at a time, and especially as your first product, you’re going to pay your Amazon tax, it’s not only going to be an inventory, it’s going to be in all sorts of other areas. It could be your images that are terrible. It could be something in your PPC, you could kill yourself and by doing it two or three or four times with new products, all you’re doing repeating the same errors that are gonna cause you to possibly fail and it’s just tax, it’s your Amazon tax and then once you learn it, and you went, Oh man, I did this or I did this I got suspended because of this. That’s why I like only doing one even now, I’ve been selling on Amazon for a few years. If somebody says that they want to sell, like I did what I was just saying at the beginning, there’s 11 products, it was 11 launches all at one time for this one product. Now, I know I paid the tax many, many, many dollars over and it was a nightmare to do 11, even to do three or four. I still like to do one, see how it is and then bring out two or three for a brand. That’s my recommendation, just one at a time, especially if it’s a new brand and then you can rinse and repeat or do something completely different with the second run, that’ll increase your chances not only to have optimized sales, but like Chelsea just said to optimize your price.
Chelsea Cohen 23:12
Yep. Yeah and then there’s a question there I think he meant the first product wasn’t selling yet, just wanted to launch a couple at the same time. Yeah, that’s a similar thing and I think you could be repeating the same mistakes, same products and also it pulls your attention. It distracts you from focusing on one thing and getting that one thing right. It also drains your resources. Another thing that new sellers tend to be I’ve seen to be a problem in launching a product is being too stingy, either too stingy with lowering the price or I mean, we used to do a lot of giveaways, sometimes that’s still done, and then also, just not spending enough on the ads, right, wanting to be profitable from the beginning is an issue. So if you’ve got two products, then, that you’re trying to do that with you’ll be even more stingy rather than going, heavily investing on your sponsored as to get that visibility even if your profit isn’t there. So, yes, that tends to be more of a mindset, more of an issue, if you have that mindset already, that if you’ve got it spread across two products, your resources are then depleted across two different things.
Norman Farrar 24:39
You hit a point, I wasn’t even thinking about this, but stingy, what a great word. What do you think about people that are bringing in 50,100 units at a time?
Chelsea Cohen 24:53
Unless they have less and less they have a one week turnaround, maybe they sourced from somewhere locally, if they have a one week turnaround that could be okay. But if you have a 60 day lead time, you’re going to run out of stock. If you’re successful, you’re basically betting on not being successful. If you are doing 50 to 100 units, anything that starts to go in any sort of volume, you’re gonna have to, then basically stock out, and it’ll be just this constant stock out cycle. So that tends to get you into trouble. We always started with a thousand,I think the lowest you could go would be 500. But now, especially with the lead times, lengthening, I think that the thousand is probably the best way, and that’s why you have to have some money to be able to invest into private label business.
Norman Farrar 25:52
Right. Yeah, we’ve seen that. This is actually going to lead us to the next question. So this is going to be the weirdest fourth quarter on record. We’ve got Prime Day in October, we’ve got Black Friday, and then the holiday seasons take off. So we have to deal this year with the IPI restrictions. How does somebody plan for plans or inventory this fourth quarter?
Chelsea Cohen 26:29
Yeah, you have to be more advanced than even before. Like we were personally looking at our inventory to the end of the year. But in terms of the planning, that brings up a really good point in that you actually do have to plan your marketing plan to the end of the year. The Prime Day happening in October and then your sales for Christmas. The other thing to consider though there’s a couple of different factors to maybe consider being a little bit more prepared and having additional income inventory than you had. Even last year, is a couple of different factors. One, we are still in, at least some areas still in quarantine or in reduced travel, stay at home orders. We don’t know where we’re going to be at by the end of the year. So, and people that the fear is still very real for a lot of people, we’ve seen a lot of sales come online, so can consider that potentially sales for the holiday season will be increasing, as well as the fact that your competitors may not be prepared and this is something that Afolabi talks about, on his on the webinars that we do is that you’ve got competitors that may not be prepared and if they stock out, you want to be ready to take their sales. So, you have to, and that’s where we get into talking about building out your six month plan. So figure out what your marketing plan looks like, now is the time to really sit down and look at your past sales and then look at what did you do during Prime Day? Okay, let’s plug that into October now instead and then let’s look at Christmas. We have a feature in our software, you look at your Christmas sales, but then you can increase it and say, okay, within this time period, we’re going to increase that by 30%. Say, and if you’ve got specific sales that you want to do, if you’ve got influencers that you’re working with, just really sit down and plan out what you want your Christmas and your holiday season to look like, and then build it into, into your inventory planning and we have on our software, we have a timeline, and that’s something that even if you don’t have a software, you can build out a timeline in an Excel spreadsheet for each product and essentially it shows what’s your starting balance of your inventory, right and carry that all the way down, plug in what your sales velocity is, and then start plugging in. Okay, what’s the middle of October, this is what we intend to sell during Prime Day and this is the sales increase that we’re going to have during the holiday season. So you basically build a timeline where you can see what’s going to happen with your inventory, you can see when you’re going to stock out, and you can see how much you have to make up , what, when you have to order, when, how much you have to order and we always recommend a buffer stock, also a safety stock. So your orders should be being placed before you run out of stock, whether that’s 10 days before you run out of stock, or it’s 30 days before you run out of stock, whatever you’re comfortable with, but you should never plan to get your inventory and stock the day before you run out. So building out a timeline and I think that’s the biggest kind of aha that came for us. In building out, So Stocked was the timeline and all of the additional kinds of tweaks and tools that you can utilize to allow you to visualize, you take your marketing plan, and you plug it into your inventory plan and it shows you whether or not you’re going to run out. We advise it TikTok ad managers, who their clients pay them to manage ads and I’ve talked to ad managers that aren’t extremely smart when it comes to inventory, and they’ll say, Yeah, they have plenty of times, stock their client out, because they turn on the ads without vetting out the inventory, and it stocks them out. Well, that’s actually a very, very cool thing to do. Because that’s inventory, that you could have sold at full price without paying ad spend on it and you’re now stocking out. So if you’re working on your advertising or you’re working with an ad agency, you should always vet out the ad, the advertising plan before you put it into action and so that’s what I would say in terms of planning for the end of the year, or planning for anything in general who’s planning for your inventory is to have or build out an inventory timeline. That includes things like increasing your sales and adding Lightning Deals and things like that and just have something to test out whether your inventory can afford your marketing.
Norman Farrar 31:26
I have, and I agree 100% with what you were saying, and great, great advice. But one of the things that we’ve done differently with our own products as well as our clients’ products, we’ve gone back to China, and when we’re negotiating, we’ve come up with a different plan and that is, if we have a product that’s coming over, let’s say we had a thousand units. We’ve had and this is before the old IPI, but hopefully the client is over 500 and they’re good but we’d have 500 at the warehouse, we’d have 500 in Amazon and so in case, once they move, we just moved it from a warehouse over. Here’s the difference, we’ve been able to negotiate with most of the Chinese suppliers to take another thousand units and put it in the Chinese warehouse, not pay or pay like 30% and that’s sort of an insurance that we’re not going to run out of inventory. So we could, once we start to move the stock over, we can either bring in a combo shipment, which a lot of people don’t know about, and you can do this on your software, but you can bring it over either by air, high speed vessel or just by regular ocean and get it in place. While that’s happening. The manufacturers putting another order in. So once the cycle starts the first time, you’ll never run out of inventory unless there’s some major, and yeah, what we found right now is if you go back to the Chinese manufacturers and you say, look, we’re putting our money into marketing and it’s tough over there right now, and I don’t want to take advantage. But all I’m saying to them is, look, we’ll put in a higher order. We’ll have some over there. So instead of 1000, we have 2000 units. Give us a break on these ones. A lot of people and a lot of the suppliers will let you store for free additional product. Yeah, at worst, they’ll make you pay 30%. Yep. It’s a beautiful thing.
Chelsea Cohen 33:38
Yeah. We’re and we’re doing that as well. Yeah, I do advise, especially for these guys who have a low IPI score. Because of the recent change in that, it now went from 400 to 500. We’re seeing more and more than Amazon wants us to get out of their way. Everything they’re doing with the raising of the prices and the increasing of the IPI and all of these delays are, I think signals to really get a third party system in place because you can’t be beholden to Amazon. So if you have a lower score, you most definitely should be planning for that. The software also one of the things we recently added as well is maximums, we have a maximum setting now. So if you know what the amount of inventory you’re allowed to send per skew, you can punch in that number and you will never be told by our system to send more than what you’re allowed to send into Amazon. So, those are some things. It’s just you have a warehouse, and as we were talking about earlier, looking for warehouses, maybe in the middle of the country, at least for right now. I mean, before you go and invest a ton into that you might want to attend a test out or prove out the theory with one shipment. But having a backup warehouse, I think personally needs to be everyone’s plan moving forward, it’s going to be the cheaper way to go. The next avenue that we’re going to be tackling once we find finalize, some of the things we have on our plate in terms of inventory is to move into cash flow, because that’s an extenuation of that, it’s marketing feeds into inventory feeds into cash flow, and then that closes the loop back into marketing. So cash flow then becomes an issue and that’s one of the things that we want to address is not once we have figured out and told you what you need to do with your inventory, now we should be able to, we call it modeling because we’re not, you’re able to to actually flexibly look at what marketing is going to do to inventory and that’s where we say, it’s forecast modeling not straight forecasting, we want to do that with cash flow and cash flow modeling would be, let’s look at all the different logistics and all of the different fees attached to these logistical processes, storage and shipping and airfreight and the different types of shipping, the different types of storage and even fulfillment, the fulfillment costs versus the Amazon fulfillment costs and figuring out what are the best logistically, what are the best plans for you, for your cash flow as well as your profit, because that’s something that is not out there and it’s not available. It is a tool that will actually be able to determine what the best logistics are for your business and so I see that is the next place that Amazon sellers need to go is to get really solid with the best plan for inventory connected to a marketing plan and then the best logistics plan because if there’s a lot of variables and so people don’t actually take the time to do that because it’s so complex.
Norman Farrar 36:54
Chelsea, I told you when we started the call that it’d be about 30 minutes, we’ve got a few questions have come in. Enough time to stay on for a while? Yeah. Okay, great. So, Kels, what’s the first question that’s up?
Kelsey Farrar 37:08
Alright says, what kind of process do you go through to know how much inventory to order for an initial product, especially during this crazy q4? Obviously more than 1000 units on most products?
Chelsea Cohen 37:20
Yeah, I mean, I would say you need to look at the market and see what’s possible in the market and consider what your reviews are, like, if someone’s got three, the majority of the sellers who are making decent sales have 300 reviews, and you’re just starting out, you’re gonna have a lot better chance of getting into that mix than if they have thousands of reviews, which probably is not something that you’re going to be approaching anyway. If you have your sourcing and your product selection criteria but, you look at what are most people doing? Then how quickly could you ramp up and what percentage do you think you could take? Could you take, could you do half what they’re doing, people are a lot less discriminatory during the holiday season in terms of you see a lot more orders coming in, the conversion rates go up a lot, because you’ve got a bunch of people who are ordering gifts for people, and they’re just going down a list, they can tend to be less selective than when they’re buying things for themselves. So, you look at what the market is doing and also if you can get some historical data, if you’re going into the Christmas season of what is possible, there are certain apps that give you historical, like, bestseller ratings, and I think Helium 10 gives you some seasonal data as well and then, whether you have, say it’s a Prime Day or Black Friday coming up, you have to decide what you intend to push on for that and in fact are a Black Friday and Cyber Monday and as well.
Norman Farrar 39:05
I just saw Kelsey flashed up something that Victor mentioned about his terms 20, 20, 60, that’s beautiful. If you can do that and talk about your cash flow increasing. Yeah. Nice work, Victor. Oh, by the way, sorry. Yeah, so I just wanted to give another shout out to a few new people here. Hey Leonard, thanks for getting on. Jordan, Hey, we try to deliver and also, Peter, Hey, thank you for listening in. So Kels, did Victor have another question? I saw something come in a little bit earlier on.
Norman Farrar 39:43
Okay, what’s that about?
Kelsey 39:45
Okay, it says there’s a new field when creating a shipping plan and so I’m guessing South Carolina, ship date is the date you expect to hand your inventory to the carrier. This state helps us prepare to receive inventory. This day can be changed after you have confirmed shipping. This must be answered before you can print carton labels. I wonder what effect different earlier later dates will have?
Chelsea Cohen 40:07
That’s good, that’ll be interesting to see on our end when, if and when people start sending that our way if we’re going to get that data on our end through the API, because one of the things that our software we do is, is because Amazon tells you, it’s going to be coming right away, they have no idea usually, this would change that. So, I think for anyone who’s just strictly using the Amazon system for their tracking, it might help a little bit more with the orders, Amazon’s trying to alert you to orders. One of the things to keep in mind though, when Amazon does alert you and something that I noticed is that if you stock out during that time, that’s not going to be factored in. So that’s one thing to be careful of, if you are using any of the Amazon inventory management tools, is that If you stocked out, your calculation is going to be much lower, they’re going to tell you to spend much less than you should or reorder much less than you should. If they don’t know your lead time, they’re not going to tell you to order on time. So if you have a 60 or 90 day lead time, and they’re warning you to order, you might be wanting to order in a way lower time. So just kind of being careful. I’d be interested to see how helpful those tools can be if they’re now starting to get some timelines into them.
Norman Farrar 41:35
Right. I’m seeing a couple people in the chat talk about negotiating terms, better terms ad I think it was Leonard that was asking how, you just have to ask if you are dictated off the terms that you settle on Alibaba, or if you have a sourcing agent, get them to negotiate when you contact them. Just say that you’re having a struggle. The COVID things happening over here. You’re putting your marketing dollars into helping them move their product, you’re their supplier and if they can help you just with, hey, if you can move it up to like, everybody’s saying here are a few people 20% that 30% that loosens up the cash floor 20, 20, 60 like Victor said, it’s great. It helps with cash flow.
Chelsea Cohen 42:26
Some will even do it in terms of cash flow, some will even do a partial credit card split, like we were able to use a partial credit card split where some places you have to wire cash, other places, they’ll let you pay part cash and part with a credit card. Now, they’ll usually charge you the fees, but if it frees up your cash flow, it’ll actually give you an extra month to pay down that credit card.
Norman Farrar 42:51
Yeah, that’s if they’ll take the credit.
Chelsea Cohen 42:53
If they will. But yeah, like I said, we don’t normally go for that deal because we would have to pay the merchant fees. Which when you get higher, bigger and bigger orders become very expensive.
Norman Farrar 43:05
Right. Okay, we’re talking about IPI and I just wanted to give out, there’s four ways to really increase your IPI, if you’re under that 500 level. One of the best things to do is get rid of any excess inventory and Chelsea let me know if you have any other options here but you’ve got stranded inventory, so you can just go in check it out. If you got stranded inventory. Great. Now, Amazon is allowing you free removal starting in July I think 13th, 14th. But they’re smart, you don’t get the freebies on the stranded inventory, so you have to pay to remove them, and then you’ve got the FBA sell through, which just improves your listing traffic. So try to get it moving, try to get it on, like a little bit of PPC or drive some traffic over to the listing and try to get some sales going and the other thing that you can do is, and this is so important, keep your popular products in stock. Yeah, if you let them go out too many times, it’s a struggle getting the ranking back each time. But those are the four things that Amazon says will help improve your IPI and it could be almost immediately just by doing one of the things. Any other things that you can think of?
Chelsea Cohen 44:28
I mean, that covers it it would just be a matter of how to do it and bring them having a third party warehouse yet again, being able to determine what your velocity is, and because I know that people starting out generally tend to send into direct to Amazon and not have a third party warehouse and I think that’s why this is all happening is Amazon’s really starting to suck you guys. You really need to develop a plan and that the IPI increases actually forcing the issue of people having this third party warehousing solution where they only send in as much inventory as they can turn over within say maybe 90 days or whatever. So it’s just adopting that plan of deciding that you’re only going to be that what is your maximum. I only keep 90 days with inventory in Amazon or whatever it is. But if you’ve got you sent 1000 units in the product and end up moving, you’ve got other successful products, start looking at those products that were dud products where you sent a bunch in and then it didn’t turn out and really considered, is it worth harming my IPI score across the boards for these dead products and maybe not looking at actually pulling those out. If it’s free right now, that could be a good way to go about it is to peel off a good amount of that inventory, calculate what you can sell within the next say 30, 60, 90 days, especially if they’re not gonna let you return it, if they’re not gonna let you return it, peel off the amount that you would be allowed to sell until you can return it potentially and just simply, take those out and and remove those dead products so that your stars don’t suffer.
Norman Farrar 46:19
Look at this comment, Victor, you’re incredible. He’s got an answer for everything. So, what he’s saying is you can pay Chinese suppliers indirectly with a credit card using plast. I think that’s how you say, .com. They get a wire, so check that out. I gotta check that out. I didn’t know that. Another question from Andrea. Would you negotiate on it with a new supplier? That might be a little tougher.
Norman Farrar 46:51
So Chels, I don’t know if you heard that.
Chelsea Cohen 46:54
No, I did.
Norman Farrar 46:56
Okay.
Chelsea Cohen 46:58
Would you negotiate with a new supplier?
Norman Farrar 47:01
Yeah, that might be a little tougher.
Norman Farrar 47:06
But people are like in China right now. It’s still, they might give you better terms than you were getting before.
Norman Farrar 47:16
So anyways, that’s just my, that’s my two cents. I think it might be a little bit tough,
Norman Farrar 47:24
but you probably could get away with it. Who knows? Again, the best way to negotiate is to ask and if you’re stuck with it, I think Chelsea came back with a great idea. Use your credit card. So okay, now if we don’t get to all of your questions, we’ll be able to answer them after the call ends.
Chelsea Cohen 47:49
I wanted to just say that the off lobby has some webinars talking about negotiating with suppliers. So yeah, maybe I could share him in a link or, follow up.
Norman Farrar 48:00
Yes, yes. So in case you don’t know, Afolabi is my partner in Honu Worldwide, which is a sourcing logistics company. All right, I think this is the last question for me. There might be a couple more that trickle in. But sellers at the beginning don’t know, or sometimes they set up an Amazon account, and they think they’re just going to be bringing in a little bit extra money and then all of a sudden they find out this is a real business and they can sell it. So by using proper inventory management, how does that help with your evaluation when you go and sell the business?
Chelsea Cohen 48:40
Yeah, so that’s a really important topic I’ve talked to actually we have a guy who came onto using So Stocked and he had bought, I think, 10 businesses the previous year and I mean, we talk a lot with Afolabi about the cost of goods being a big factor in the valuation of a company. But there’s only a couple of things that he uses and this guy who I was talking to, and he says he looks at cost of goods but he also looks at inventory and inventory mismanagement, saves him a lot of money. He had a guy who was keeping way too much inventory in storage. So I think that guy paid an extra $5,000 in storage fees and the result was, if you’ve got a three x multiple that was 15 grand that those guys saved on this guy having poor inventory management. He also looks at how much someone stocks out, if you stock out one year and you lose $40,000 worth of sales and you go and you sell your business the next year. That’s, at a three x multiple $120,000 that is taken off the top in terms of the sale price. So between stocking out and storage fees and overstocking, you could lose $100,000, hundreds of thousands of dollars in the valuation of your business. So it’s short term and long term, it’s extremely important to figure out inventory management for the costs that you will be saving, air freight is another one if you can think and look at how much air freight you have done versus sea freight, that’s another waste and so it’s just it’s death by papercuts for a business and then when you go to sell, those are the things that that are dug into, is how much money can we save here, when we go to buy your business, how sloppy were you with your inventory and your cost of goods in and that’s those are some things that when a person comes to look at your business, that’s those are the advantages that they have and so the idea is that you get those things in order before you go to sell, get those things in order more than a year before you go to sell because if they’re looking at a year’s worth of financials, you don’t want any of that in your financials, you don’t want stock outs, you don’t want overstocking, you don’t want any of that.
Norman Farrar 51:19
Alright, so I think we’re gonna wind down and we’ll have one more question and that is right here. This is from Jim.
Norman Farrar 51:28
Is it suggested that we delete inactive FBA listings or just close them out?
Chelsea Cohen 51:38
Actually, I don’t think that deleting is necessary. I don’t know that it affects your IPI.
Chelsea Cohen 51:49
I haven’t tried it. I haven’t looked into it. But from the chatter in our inventory management group, just closing them should work. If it doesn’t, then you can try deleting it, but I think that it should work.
Norman Farrar 52:07
Yeah, I agree with you there. I don’t think there’s any reason to delete, just make it inactive and you get the inventory back and if it is a dud, I don’t know. I don’t think you have to delete it. But okay, Chelsea, this is it. Oh, my gosh. You did great and we’re 52 minutes right now. So that’s fantastic. I’m so glad that you were able to stick it out with us.
Chelsea Cohen 52:34
Yeah. Thank you so much for having me. If anyone has any questions, they can reach out. But yeah, my hope is that the conversation in scaling starts to include inventory and cash flow in a very serious way. That’s where I see things headed and that’s where I see the scaling truly happening is when we have kind of a seamless pipeline in the direction of inventory and cash flow being part of that conversation.
Norman Farrar 53:09
So I’d like to say that if anybody’s interested in an inventory management system that’s affordable. You gotta check out So Stocked now. I don’t go and I don’t sell products on this podcast, but I can recommend that you go and check it out. It’s very affordable. Also, how do we contact you Chelsea?
Chelsea Cohen 53:32
Yeah, so you can reach me. My email is chelsea@sostocked.com and so I’m available there and then on Facebook, if you do send me a friend request, shoot me a message. I’ll usually accept friend requests from people I have a lot of people in common with. But if we don’t have a lot of people in common, just shoot me a message.
Norman Farrar 53:55
Very good. Okay, so I think that’s it. I am going to close it out for the day. So Hey, everybody, I really appreciate you sticking around and it looks like we’ve had a lot of activity. I’m so glad to see more and more activity as the podcasts are evolving. We’re trying to do things different. We’re trying to learn, I’m trying to learn and one of the things that we want to ask is, if you have interesting people in the Amazon world and e-commerce world, in social media, web design, shoot them over. One thing I don’t want to do is have the average, the person that’s on a million podcasts talking to the same group of people over and over and over again, about the same things. So trying to bring in a Pinterest person and eBay person. So if you have these connections, please email them to me so we can reach out to them and get them on to this podcast. So anyways, Kels, come on in and tell everybody what they need to do.
Kelsey Farrar 55:00
All right. So follow us on social media and it goes a very long way if you’d like and share. The stream just gets more eyes on this stream so other people can learn from it and yeah, so Facebook, Instagram, Pinterest, YouTube just everywhere, just search Norman Farrar and you’ll be able to find this.
Norman Farrar 55:23
Thank you, son.
Norman Farrar 55:26
Alright, so tune in next week for another Lunch With Norm next Thursday and once again, thank you for sharing your time with us today and have a great day.
