I’m super happy and excited to be back online and resuming my weekly blog posts after the summer break. I had a very restful break over the last two months, so I’m now full of energy and ready to continue bringing valuable information to new and existing Amazon sellers throughout the year via my blog posts and videos.
My plan for this “season” is to revert back to my posting schedule of two blog posts a week: Monday and Thursday!
Two posts a week is A LOT, but I really hope I can do it. Last year, I was very lazy with blog posts (for various reasons), so there’s TONS of stuff that still needs to be covered. Plus, I want to update my most popular posts on the blog so that you have access to the most up-to-date information
I will also provide shorter, more unique content throughout the week via my Facebook page and Amazon Sharks Facebook group. If you haven’t done so already, make sure to follow me there and join the group. On the group, you will find hundreds of inspiring Amazon sellers helping each other out on a daily basis
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Ok, with all that information covered, we can get straight down to business!
Today’s topic is CASH FLOW—specifically from the perspective of new Amazon sellers who are just starting out or planning to start selling in the near future. Most people who are looking to start a brand-new Amazon UK FBA business will have very limited funds, so it’s CRUCIAL to understand how to properly allocate the money you do have to avoid a shortage, extended out-of-stock situations and similar problems.
Without further ado, let’s get started!
The very first thing you need to do is set aside a budget for your new Amazon FBA business. And by that, I mean you need to figure out a precise sum of money that you’re willing to invest in your business. Usually, this money will come from savings, but it’s important to know EXACTLY how much money you have to work with. You don’t have to transfer it anywhere, just write it down on paper (or the wall, LOL!) so you know exactly what it is.
This step may sound simple and obvious, but there are many sellers out there who don’t do this and later regret it. For example, an unexpected family expense comes in that they can’t cover and the whole plan goes down the drain. Make sure your personal expenses are covered and be certain you won’t have to touch the budget that you have set aside for the business.
Speaking of amounts, I can tell you from experience that £1000 is the absolute minimum you need to get started with the private label products model on Amazon. Anything less and you will struggle…. struggle a lot! In theory, you could do it with £500, but most people can’t make it work on that kind of budget.
Even £1000 is a very limited budget for this type of endeavour. You will have to be very smart about the first product you pick. It will need to be something very cheap, lightweight and simple if you’re on a tight budget, but you can do it.
Ideally, you should have £2000 to £3000+ available to invest. This amount will give you more flexibility with your product selection, and you will be able to choose bigger items, use sea freight as a shipping method, as well as get professional branding and product photography.
People who have £5000 to £10,000+ will obviously have even more advantages, especially from a cash flow point of view. You will easily be able to leave a reserve for reordering, be more aggressive with the initial advertising spend, get organic rankings faster, etc., but you will still need to be careful and calculate every step precisely. Even with a £20k budget, it’s very possible to overspend and end up in a situation where you run out of stock. So, continue reading.
People often ask me if it’s ok to take out a loan or use credit cards to start an Amazon FBA business? The answer really depends on your personality. How
In most cases, though, I advise against debt when you’re just starting out. Most people are simply not capable of dealing with that extra pressure, so they start to make bad choices at the worst possible times. If you’re employed and have a salary, my advice is to just wait it out a bit longer. Cut your expenses and save that money to get started. Even if it’s just £1k, it will be enough to get you going.
It all comes down to HOW BADLY you really want this. There are people who want it badly enough to take on an extra job or do side gigs to save up that seed money to start a business. And then there are people who spend £100+ a month on lattes and complain that they struggle with paying their bills.
You really have to set your priorities straight and decide what you want to do. Do you want to take some risks, cut your expenses and start a business OR continue your current lifestyle? Just don’t complain about it, as there are always ways to save money and always ways to make some extra cash that you can then save to start your Amazon business.
Ok, with the initial budget set aside, it’s now time to do some math and split that budget up. This will allow you to calculate exactly how much money you have for purchasing stock, paying import duty, the listing creation process and everything else.
The easiest way to do this is to look at your budget and subtract all the MANDATORY expenses you know you will have when starting out on Amazon. The remaining money is what’s left for the stock purchase.
So, what are those mandatory expenses?
The most important ones are:
- Listing creation
- Product launch/advertising
Let’s quickly go over each one in more detail.
If you have spent any time researching the whole Amazon FBA business model online, or on YouTube, etc., you will already know that there are TONS of Amazon seller tools out there. These range from market and keyword research to accounting, sourcing and product picture improvement apps. So, how do you know which tools you need as a bare minimum when you’re just starting out?
I have actually done a separate article on this topic, and you can find it here:
To sum it up, when you’re just starting out on Amazon, the only tool you truly need is one for market research. Something that allows you to analyse the competition and demand on Amazon and pick the best product to start your FBA journey.
There are many such tools out there. Some are better than others, but I have personally been using Jungle Scout for many years now. It is the market leader at the moment and has the biggest user base. I find it very easy to use, newbie-friendly, has great accuracy, as well as features that will make the product-research process very straightforward.
Additionally, Jungle Scout has a built-in keyword research tool that will help you with the listing creation and advertising process, so you won’t have to pay for a separate tool to do those jobs:
There are multiple Jungle Scout packages, but for those of you who are just starting out, I recommend going for the three-month package, which includes access to ALL of the tools Jungle Scout provides for three months.
The regular price for that package is $207, but I have arranged a special price of just $169 for my blog readers. You can take advantage of that special offer by clicking here
So, the first “fixed” expense you will have is for Jungle Scout at $169 (which is about £140).
(Note: If you choose alternative market research software/tool, the cost will be very similar. Most of these services cost $70 to $100 a month and you will need to use them for at least a few months.)
The next essential element you need to consider is branding.
This includes the registration of a domain name for your new brand, logo design creation, packaging design creation (if needed) and any other visual design materials you will need.
Now, as you can imagine, there are thousands upon thousands of designers out there who can do the job, and the prices can range from £5 to thousands of pounds. I believe that you shouldn’t go for low-quality, cheap designs here as the level of professionalism on Amazon is very high.
You will need your brand and product look nothing but the BEST! However, you also don’t need to spend thousands of pounds on getting good designs. That’s totally unnecessary.
A good place to start is to take a look at the Jungle Scout Market, which is an Amazon-based freelancer platform created by the same people behind the Jungle Scout tool:
You can find very talented designers there who will do a logo for you for $100 to $200, and you can get similar prices for packaging design if you aim for high-end quality. There are, of course, cheaper offers too. If your budget is very small (£1k altogether), every penny will count, so you will want to find the best possible quality for the least amount of money.
Alternatively, you can also check out the design services provided by my in-house designer, Jay. I have been working with him for more than ten years now. He has done all of my personal and business projects, as well as 1000+ client projects (logos, packaging, etc.). You can check out the services he offers and his prices on this page:
For example, a logo + packaging design will cost you £247 if you choose to work with Jay.
£247 converts to approx. $300, and that’s the right amount I think you need to set aside in these calculations for your branding work. Again, this is the optimal number to get GREAT quality designs done for your product. You can do it cheaper, but let’s use $300 (£250) for the purpose of this article.
Then, once your logo design is created, you can apply for a trademark. Trademark registration in the UK costs £170. It’s not mandatory, but having it does help with Amazon sales because it means you can get into Amazon’s Brand Registry, which
- Will help you protect your brand, products and listings on Amazon.
- Will give you A+ content features (so you can create visually rich product descriptions instead of plain boring text).
For the purpose of this article, I won’t put this expense towards your branding budget because it is not mandatory. You can still launch a successful product on Amazon and rank well without it, as many people have done. But if you have the extra money, I recommend you go for it.
Ok, so far, our expenses are:
- Tools: £140
- Branding: £250
Next, we need to look at the costs associated with the listing creation process.
There are two main cost elements to this:
- Product images
- Title, bullet points and description texts
If you’re totally worthless at writing, consider hiring a professional writer.
There are many places you can order such services, including the same Jungle Scout Market platform, Upwork.com and other freelance marketplaces. Fiverr.com is another great place to go as there are lots of Amazon-related services and the review system helps you quickly find the best writer in your price range.
Prices can range from $5 to $200+, but you can get a good-quality listing written for $100 if you look around and choose good freelancers. So, we’ll use $100 for the purpose of these calculations.
Next, you need product images, which is the MOST important part of your listing! It’s really crucial to get PRO-quality product images because images are EVERYTHING when it comes to online sales! This is especially true if you sell cheaper items, as most people don’t even read the description. They simply make their buying decision based on the images you have in your listing.
Now, unless you’re a professional photographer, don’t even try to take these images on your own. It’s a total waste of time. You won’t get anywhere near the quality needed to create a superb listing on Amazon. Just don’t do it!
The only viable way to do this is to pay a professional photographer. That’s it. You can use the same Jungle Scout Market platform to find good product photographers in the US, UK and other countries around the world. I have also done a review of a UK-based budget product photography service. You can learn more about it here:
This is a budget option, though, and I would only recommend you go for it if your funds are very limited. Ideally, you should pick a PRO photographer from the Jungle Scout Market platform and select a service that also provides lifestyle images, not just “white background” images.
The price range for this will be huge! You can get images done for less than £50 using a low-budget option or spend more than £1000 for the top freelancers on Jungle Scout Market! Again, finding that happy medium is the key to saving money and still getting high-quality, professional, magazine-style product images.
Depending on how complex the product is, expect to pay around £150 to £250 for a good-quality Amazon product photography service. Let’s use £200 for the purpose of this article.
So far, we have:
- Tools: £140
- Branding: £250
- Listing creation: £200
Now, I did not include the writing services here, which would set you back roughly another £80, because this is an optional service, just like the trademark registration. We’ll discuss this at the end of this article (see conclusion section on how to choose which “extras” to go for and which ones leave aside for now).
The last few expenses are related to the actual product launch phase.
Once you have designed the branding, sourced the product and created the listing, the money just starts to roll in, right? No, in most cases, that won’t be how it goes. Unless there’s very little competition in that product range, you will have to spend some money to get organic rankings and to get sales in general. And that means running Amazon ads.
This article won’t go into detail on this process, but, just so you know, you will need to set aside some of your budget for running ads in order to start the whole sales velocity process and get your first reviews, etc.
Unfortunately, it’s impossible to provide an exact number here. It will depend on many factors, like competition, click prices, conversion rates, how fast Amazon picks up organic rankings, and so on.
As this will be your first product, you have hopefully picked something with little competition. This will make the process much cheaper because the more competitive the product is, the higher the click costs and the slower the speed of rankings.
The good news is that Amazon allows you to fund your advertising costs from your seller balance, which means that as soon as sales start to come in, you will be able to pay for advertising using that money (make sure to set this up in your Advertising settings by changing your funding option from Credit Card to Seller Account Method).
Still, in most cases, you will need at least a few hundred pounds to get started. For most new sellers, you will have to run ads at a loss at the beginning, or at least until you fine-tune your keywords and campaigns.
Let’s use £200 for the purpose of this article. This is the money you are prepared to lose/spend/invest in setting up your ad campaigns until things take off.
Additionally, I highly recommend you
So, added together, that will be £260. Again, this number is approximate and will change based on your personal circumstances.
If we sum up all the mandatory costs covered so far, we get:
- Tools: £140
- Branding: £250
- Listing creation: £200
- Product launch/advertising: £260
- TOTAL: £850
Now you can see why I say that £1000 is the absolute MINIMUM you need to get started. With an overall budget of £1k, you will have to work very hard and find ways to lower these initial mandatory costs to £500 or so.
My advice would be NOT to cut corners on branding. Just try to find a lower-cost service that still provides decent quality in their designs.
Also, for people with very small budgets, I recommend that you pick a product that has very low competition, even if the overall sales per month for that product are low. It’s ok if you only make a few hundred in sales per month with your first product. That’s not bad at all compared to the amount you have invested.
Such products are perfect because your ad
So, keep it small if your budget is small. Don’t waste time dreaming about huge sales if your budget doesn’t match. Take it one step at a time and work your way up to bigger things.
For some people, this £850 will quickly become £1020 if they decide to register a trademark too. It’s £1100 if they outsource the listing writing. It goes up to £1500+ if ads are very expensive in that niche. That’s why I say it’s impossible to give any exact numbers here, but the goal of this post is to at least give you some idea of how you should be planning your budgeting for cash flow purposes.
The most important thing is that we now have a number to work with. These are the mandatory costs that you can subtract from your overall budget so you know exactly how much money you’re left with for the product sourcing process.
To continue these calculations, let’s assume that our TOTAL budget to start a new Amazon FBA business is £3000 and our mandatory costs are £1000. This leaves us with £2000 to order products. Should we spend all of that money on the first product? Let’s find out.
Your First Order
This is where things start to get complicated. You will have to be very careful to NOT overspend your budget on purchasing the first product. You have to understand that there are three cost positions you need to be aware of:
- Actual product price (including any customisations you want, custom packaging, etc.)
- Shipping costs
- VAT, import duty, customs clearance and related costs
The product cost is what you will get from the supplier. The shipping costs will also be provided by the supplier if you opt to use courier shipping. If you need to use sea or air freight, you will need to get a shipping quote separately from a freight-forwarding company.
I won’t go into detail on how VAT and import duty is calculated here, but I recommend that you keep 30% of your overall budget reserved for these costs. So, for example, if your overall budget to buy products is £2000, 30% of that, which is £600, needs to be set aside for covering these costs.
That means that your budget for the actual product purchase is £1400 (£2000 – £600), and this amount will also include shipping costs.
You won’t have to spend that much money, though, as the 30% should actually be calculated only from the product + shipping costs. So, this will leave you with a small reserve if anything goes wrong, if the supplier suddenly increases prices, etc. But, for the sake of staying safe, use that 30% figure from your overall budget to ensure you are not left in a situation where you can’t cover any unexpected costs.
If the situation is tricky and you have to make every penny work—for
You will only know the exact shipping costs when you start to communicate with your supplier, get order dimensions, etc., but let’s say that the shipping costs are £400, and the actual products cost you £1000 (500 units x £2).
You can now see that starting with an initial budget of £3k, the actual amount you have left to spend on the products themselves is just £1000, as:
- £1000 goes to mandatory costs
- £600 goes into import duty/VAT and other related costs
- £400 covers shipping
The question is: should you spend/invest all £1000 into buying products? Or should the initial order be smaller so you have a reserve
Ideally, of course, your budget would be, say, £4k or even £5k. In that case, you DON’T have to spend it all on the first order. Usually, I recommend going with the MOQ or the quantity that makes the most financial sense to ship the product from China or to get customised packaging (the more items you buy at one time, the less you pay per item in these additional costs). But for most people, it simply won’t be an option. You will have to go ALL IN!
The biggest problem with spending all of your
So, what should you do?
Ok, first off, if your product has been such a great success and is selling fast, it also means that you’re not spending that much money (or any) on advertising. If you have done your research right and have good margins, you will have that money for the order sooner than you think.
If we stick with our example of a product bought for £2. With taxes and delivery, it costs £4 landed in the UK. Imagine you sell the product for £11.99, and after all the Amazon and FBA fees, you’re left with a profit of £4. Every time a sale happens, you get £4 in your account. Or do you?
The answer is no. In fact, you will receive more because you also “get back” the actual product cost, which is £4. So, in total, you will receive £8 for every sale (minus the advertising costs, of course).
This means that you only have to sell 125 units (out of 500) to receive £1000 from Amazon. Obviously, there is a delay because Amazon pays out every two weeks, but I hope you get the point. If you’re making sales, you should have money to place a reorder way before you sell out of stock. Even if advertising costs kick in, you will get your money back somewhere around mid-way, after selling 250 units.
And it gets even better! If the supplier makes your goods specifically for you (they don’t have them in stock, ready to ship), they will usually take a 50% or even just 30% down payment at the time of placing the order. The remaining balance can be paid when the goods are ready to ship, which buys you a little more time. Obviously, shipping costs come even later, and VAT/import duty is only paid about one month later when the goods arrive in the UK.
So, in our example, as soon as you have £500 (or even £400 or £300) in the bank, you can place the second order with your supplier.
The important part here is to PLAN ahead! Don’t wait until you sell out and then start thinking about the next order. You have to monitor your sales every week, record them in a spreadsheet, and then track how they change/increase over time so you can calculate exactly how long your current stock levels will be sufficient.
There are special tools that do this, and Amazon even has one
ALWAYS try to negotiate terms with your supplier! Most legit manufacturers will have no problem accepting a 50% down payment. If they did so already on the first order, offer 40% down on the next order. If that goes through, offer a 30% down payment on the third order. This will greatly help your cash flow situation, and you will be able to reorder much quicker.
Once you have placed your seventh or eighth order with a manufacturer and have built a great relationship with them, they most likely will agree to 0% down payment option when you place an order. You would then only pay the supplier when the goods are ready for dispatch.
I have even heard that some people negotiate NET terms with Chinese suppliers where they pay, say, 30 days after the goods have been dispatched from China (roughly the same time as they arrive in the port in the UK). This will only be possible if you have an excellent relationship and
Going into Debt
Ok, so far, we have covered the ideal scenario where everything goes to plan.
But what should you do if things go wrong? Two of the most common scenarios are:
- The product is super successful and sells out faster than you can reorder, even with all the planning.
- The product turns out to be more competitive than you thought and you’re burning all your profits in advertising to improve the rankings.
We’ll cover the first scenario in a minute, but for now, let’s talk about the second. You’re selling the product and lowering your stock levels, but, unfortunately, you have to spend all the profits you’ve earned on ads. As a result, the money you get from Amazon every two weeks is minimal.
The first thing you need to do is to assess the situation. Do you make improvements every week in rankings and just need to ride out the cash-burning scenario? Or, do you see that you are going nowhere while spending all that money on ads or the product is simply too competitive?
I know that it’s not so easy to tell, especially if you’re just starting out and have sold just a few hundred items. But you will have to make the decision to either continue the fight OR drop the product and minimise your losses (which usually means turning off ads or lowering the price—or both—to get rid of the stock and recoup some of the losses). In most cases, though, you will see improvements in your rankings and will simply need more time/money to improve your financial situation.
This would be one scenario where going into debt may be the only option. I mean, if you see that you have a great product, your rankings are improving, your sales are improving, and you know that you just need that extra cash injection to finance your next order, then using a low-interest-rate credit card, taking out a small loan or even borrowing from family makes total sense.
Yes, this carries a risk, but this is how business works. You have to be ready to take those risks at the right time, if the situation asks for it. It would be totally stupid to cut a promising product after all the work you have done, after the sales velocity rate you have built up, and go out of stock. Financing a product order is a normal part of the e-commerce world. Amazon even offers loans to sellers in the US for exactly this reason—to help them with their cash flow!
You should also explore additional ways to bring some extra money in. Maybe you can sell some unwanted household items? Maybe you can take extra hours at work? Maybe you can minimise the family budget for a month or two? Maybe a friend wants to buy a piece of your business and this would be a less risky way to get access to extra funds?
There are many options available. You just have to decide what’s best for you. Just do it fast. Don’t wait until you go….
Out of Stock
It’s not a secret that Amazon’s algorithm does not like product listings that go out of stock for prolonged periods of time. You basically lose all the traction and sales velocity, and Amazon will obviously put your competitor’s products ahead of you.
Now, if we go back to the situation covered in the previous section—where your product is super successful from day one and basically sells on its own as there’s little to no competition—this actually won’t be a big problem. This means that there are no real/good alternatives on the marketplace, and as soon as you get new stock in, you will regain your rankings and sales very quickly.
If the situation is somewhere in between, you can still get rankings back relatively easily with the help of ads. All you need to do is get back that sales velocity for your target keywords and your rankings will come back within a few weeks.
Should you increase the price when you see that you will soon go out of stock?
This depends on how long it will be. If it’s less than a week, I don’t think you need to do that. Just let the item run out of stock at the current price, maintain your excellent conversion rates and don’t risk anything by lowering your ratings/reviews due to a higher price.
If, however, you see that you will be out of stock for two to three weeks, it makes sense to slightly increase the price to LOWER sales a bit and extend the period of the time you have stock.
Just don’t overdo it! If your conversion rates will drastically lower during this period, Amazon may/will actually lower your organic rankings. I’d say that for cheap products (less than £25), a price increase 10% to 25% is the max you want to implement.
If you see that you will be out of stock for four weeks or longer, there’s no point in increasing the price as you will still be out of stock for several weeks AND you will lower your conversion rate and rankings at the same time. Just let the product go out of stock at the normal price and hope that you will be able to get back to where you were when the new order comes in.
Chances are you will have to be more aggressive with the ads at the beginning, just like when you start out with a brand-new listing, except this time Amazon will have a “history” for your listing, previous rankings, reviews, etc., so it should be much easier to get back to where you were.
Ok, let’s sum it all up now! Cash flow is something that every Amazon seller has to learn and manage on a constant basis. No one is asking you to create complex sales projections, at least not at the beginning, but here are the most important rules to follow:
- Know your numbers. Write down all the costs and calculate your total budget to launch your first product on Amazon. Leave a small reserve for any unexpected expenses.
- Be frugal. If your budget is very small, be very smart about every penny you spend. Those initial “mandatory” costs can be anywhere from £500 to £1500+! If you have a small budget, play it safe. Pick a product with little to no competition, even if the monthly sales for it are low.
- Plan ahead! The whole idea behind successful cash flow management is to plan your sales ahead of time. Each week, record your sales and stock levels. This will show you how many weeks of stock you have left.
- Reorder in time! Remember, it takes 2+ months for sea freight orders to arrive, so you have to place your next order ahead of time. You will only have to pay a % of the total order value at that time, so don’t wait until you have the full amount available. There’s no need for it.
- Negotiate terms with suppliers. Ask for a 50%, 40% or even 30% down payment for your next order. This will give you at least one month to make money for the remaining balance and shipping fees.
- Don’t be afraid of going into debt if the business needs it. Try to get “free” money first by saving up extra or borrowing from family/friends. If no other options are left, a low-interest-rate credit card is your best bet to fund your next order in time.
- Minimise damage caused by an out-of-stock situation. Calculate how long you will be out of stock and choose your pricing strategy based on that. Do NOT dramatically increase the price as it can cause long-term ranking damage.
And that’s about it. I have tried to keep this super simple and not over-complicate things as there’s no need for it, especially when you’re just starting out and have only one product for sale. As your business grows and you introduce more products, it will become more difficult, BUT when that time comes, you will already have the experience and knowledge required to deal with it in a more effective way.
One last thing: from the hundreds of emails I receive every month, I have realised that the biggest mistake newbie Amazon FBA sellers make is that they don’t write all the numbers down BEFORE they place their order with a supplier. They run out of cash at the very moment it’s most needed (for example, when they need to pay for professional product images). Then they take shortcuts and the whole venture fails as a result.
That’s why I covered the “mandatory costs” at the beginning of this post. Yes, you can minimise these costs by spending more time on research and finding the best-value service providers, BUT you can’t cut these costs completely! You have to plan ahead for all of these costs because they are crucial to the success of your product on the Amazon marketplace.
The reality is that many people start their business with too little money available. It’s as simple as that. If you’re in a similar position, just TAKE YOUR TIME! Don’t rush it! Save up more money over the next few months and start when you’re ready. You can still do some work on your business at the same time. You can get a Jungle Scout subscription and spend all your free time on product research. You will still be making progress while you wait for the money to roll in.
Also, if you have a steady income (a job, whatever) and know that you’re guaranteed to get/save, say, £500 or even £300 every month, you can plan ahead. You can start the research process or even place an order with a supplier if you know for certain that you will have more money available next month and the month after (to pay for branding, import taxes, listing creation, etc.). This is totally ok to do.
Obviously, you don’t want to make this process too long because a lot of things can change. Especially if you stretch it out for six or nine months. The competition can increase, demand can decrease, new versions of the product can be released, etc. Still, with a regular income/savings, you can speed up the process as you won’t have to wait until you have ALL the money to start the market research process.
If you have any questions you would like to ask or if you want to share your own success/failure stories about cash flow issues when running an Amazon FBA business, feel free to leave them in the comments section below. I personally reply to all comments within 24 hours, Mon.-Fri.