In this episode Josh talks with Aleksejs Leal, who has set up several Amazon stores. They talk about the process, the positives and negatives of selling through Amazon and about some of the cash flow issues he has encountered.
Aleksejs Leal, e-commerce business owner for over 7 years now with obe $20,000,000 in revenue. Currently, he is the owner of 12 companies, 1 Fulfillment Service, 2 Distribution Companies, 3 Private Label and 6 Amazon stores that too mostly Wholesale, Arbitrash and Liquidations.
He is also part of the leading team on Wizards of Amazon which is the biggest Amazon Sellers Group in the world. Aleksejs just published his first book “How to sell on Amazon?” and also in the process of writing another book called “How to sell on Mercado Libre?”
In today’s episode you will learn:
- Why is Amazon a good place for you to do business?
- Where’s the biggest challenge in doing e-commerce business these days?
- How to manage inventory of your Amazon Store?
- How to manage your cash flow better?
- What is a private label?
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, this is Josh Patrick. You’re here at The Sustainable Business. My guest today is I’m going to blow his name because I get it wrong every time is Aleksejs Leal. He is the founder of a bunch of Amazon companies. This company is doing about $20 million a year over a seven year period of zero which is really impressive. It has about 25 employees. We’re going to talk a lot about how you build a business that’s sustainable. What you need to be doing to build a business yourself whether it be on Amazon or with a brick and mortar? Let’s bring Aleksejs. Did I say it right, finally?
Aleksejs: Aleksejs. Aleksejs. I know it’s a little hard to pronounce it.
Josh: Yeah, it’s really hard for me to pronounce because I’m a dumb American so here we are. How are you today?
Aleksejs: I’m doing great. Thank you. Thank you for having me.
Josh: Well, thanks a lot for spending some time with us. Tell me, how did you decide Amazon was a good place for you to do a business?
Aleksejs: I’m always was curious about the e-commerce and my first business was export in Miami which was a nice name and never had a chance to export anything. After that, I opened another business which was basically a consulting business and financial consulting. Helping people to open their own business and creating a business plan and so on, but I always want to have some businesses in e-commerce field. I partner up with two of my friends, one of them is a college friend, and the other one is his brother in law. We decided to basically open own website selling vitamins and supplements.
We did that for about eight months, a year. Then we decided to expand into different platforms. One of them it’s Amazon, and Amazon, eBay, Rakuten, Groupon. Right now, we’re currently on all of them, but Amazon it’s kind of main platform. We’re going to have about 10 different Amazon stores with some of them private label wholesale and we also have a fulfillment center. Basically, doing the fulfillment for all those stores.
Josh: So Amazon is not doing the fulfillment for you?
Aleksejs: Amazon does the fulfillment directly to a customer, but you still need to receive the merchandise. You need to prepare it and you need to send it to fulfillment centers. Then they did the distribution directly to the consumer. You still need to have some sort of a prep center basically to send it to Amazon. When you start moving thousands of units, it’s basically an operation and it’s all.
Josh: What do you find is the most difficult part of running your business these days? Where’s your biggest challenge these days?
Aleksejs: Currently, we have a CG show in cash flow because it’s a lot up from purchasing then you need to wait until the inventory sells. Sometimes you’re over purchase and you have huge overhead. You need to make sure that you purchase a right amount to have enough profit and basically cover your expenses and do not over purchase that you just stick with the inventory because sometimes we’ll buy on terms. It’s not sells let say in 30 days or 60 days to pay to [inaudible 00:04:05] and they can really affect your cash flow.
Josh: What do you do— I’m assuming you could go to a bank at this time in your business career and borrow money for inventory.
Aleksejs Yeah. We have done so, but you still— you have a painting role if you keep growing, you are growing I mean basically there’s a huge demand on all of the products that will sell. It’s more demand that we can fulfill. If you don’t have that perfect point where you just do not try to grow yourself, but it’s hard to get to that point. To basically maybe a growth is 20% or 30%. We need to have a space for the operational costs and the operational costs also grows.
That’s the problem and we can borrow maybe $200,000. We can buy the $200,000 for myself, but then next month we need to buy $400,000. It’s keep growing. Sometimes you buy $400,000— let’s say 200 of those there’s some problem. Let’s say in Amazon case, you cannot sell the product anymore.
The brand become exclusive to Amazon. Now you stuck with a $200,000 worth of inventory and you had to see another chances of sales. That’s what most what business was heard by the cash flow issues. Again, in the Amazon world, it’s a lot of moving parts and cash flow is the biggest one.
Josh: Well, that’s pretty much standard for almost any retail business. I mean all retail businesses have an inventory management problem was how much inventory do you bring in? How much inventory do you buy? What do you do with the inventory that doesn’t sell?
Josh: What do you do with the inventory that doesn’t sell?
Aleksejs: Well, we have other channels. We have eBay, Rakuten, Groupon. We also have some international clients so that helps. It’s not as same as speed, but we eventually sell the inventory that doesn’t sell to different channels. That’s the main reason why we diversify the different platforms to be able to have an alternative for the sale of the product.
Josh: So when you sell on Amazon, do you have enough margin on the Amazon stuff? Because I’m assuming that when you go to Rakuten or eBay, your price is cheaper than it is on Amazon.
Aleksejs: Not always, not always. I mean most of the time it’s the same price. Amazon, it’s the one who’s always have the cheapest price. The thing is the speed on those platforms. Let’s say on the same product, maybe I can sell 1000 units and the different platform is going to be I don’t know 50 years maybe. It’s a huge difference of sales speed of each platform, but the margins are again— [inaudible 00:06:57] is smaller margins than other platforms.
Josh: When you don’t sell stuff, do you ever have a time where you have to throw inventory away?
Aleksejs: Very few times. We do have some because our main category is supplements. Now, we get into different categories that do not have expiration, but some of the products have expiration date. So if we do not sell them depends on expiration, but usually is 24 months. If you do not sell them in 24 months then you have to throw away the products, but it’s a very small percentage usually it’s about I’d say 5%.
Josh: I’m not quite clear what causes your cash flow shortages. If Amazon is the cheapest, you sell at and you’re happy with the margins there—
Aleksejs: I’m not always happy with the margins there. A lot of times you compete with the different sellers and squeezing your profits. Sometimes Amazon jumped to the listing. Now, instead of having the 10 to 20% I only have 5% to 3% because Amazon always sells products very, very cheap. Amazon itself.
Josh: So you actually are competing with Amazon sometimes then?
Aleksejs: Many times.
Josh: When you find you’re in that situation, how do you get around it?
Aleksejs: Many times I just need to wait until Amazon sold its inventory. Now, lately I see that Amazon is not sharing much of their buybacks. I know your listeners understand what buybacks means is basically who is in the main page for adding product to cart because if Amazon is in the listing he’s the one who’s becoming dominant of the list.
That happens more and more so if before I was getting 5 to 10 to 15% share on buybacks now depends on the product or depends on the inventory of Amazon carries. You can go down to 2% or even zero percent. In that case you wait if Amazon just sold out or pull out the products back from the fulfillment center tried to sell them in different channels.
Josh: Okay, so what kind of lessons have you learned that would help our listeners understand how to manage their cash flow better?
Aleksejs: Do not over purchase. [Laughs] Diversify, that’s another huge key. You need to diversify into different platforms with the different products. Because if you just put everything in one basket it can hurt really bad. That happened to us a few times.
Josh: It seems to me that the key to an Amazon store is managing your inventory and managing your margins. Only to bring products in where you can get a reasonable margin or at least enough projects to overcome the stuff that you don’t get margin on. Am I going down the right road or the wrong road on that?
Aleksejs: Yes. The thing is, Amazon have a few models that you can implement which we are basically and most of them right now. There’s a wholesale model. You basically resell the products that already have demand. You have just jumped to a list or the brand that is already existing and sell the product. The margins can fruit rate by allotting yourselves can be very unstable because there’s many sellers Amazon conjunct to the listing and your margins can be squeezed.
Now there is another model which is the private label. It’s your own brand. You control the price. You control your margins. Amazon cannot just jump to a listing because it’s your product, but you have to create a demand basically for that product. Nobody knows where your product is just brand new.
The common brand name you have to spend money on marketing, but you spend less money and then outside 30% spend between the marketing. Amazon and driving traffic from different sources so you have a higher margin. You just lengthy and more work process, but that’s where you get a better margin.
Now, if you just resell the products, you have a lot of issues with the margins because again like I said I was [inaudible 00:11:14] into a listing. There’s many sellers. They can lower the price and your margins can get squeezed very fast.
Josh: The biggest problem I see with your business isn’t managing cash flow. It’s managing Amazon. Because the problem with an Amazon seller or an eBay seller or any of that sort of stuff is it’s not your platform. As a result, I mean these big companies change rules like I changed socks.
Aleksejs: Very true.
Josh: What works today may not work tomorrow and there’s not anything you can do about it.
Aleksejs: Sure, yes, but on the other hand in the e-commerce world, if you ran I want to open your website. You want to sell your product. If you don’t sell on Amazon, you’re losing 60% of e-commerce sales right now because Amazon it’s dominating the e-commerce world.
Josh: I understand, but it seems to me that if I establish a brand on Amazon and I don’t have my own website selling the same product, I’m probably missing a boat on a pretty good chunk of profit I get. Because once I build a brand and then I can find some way of moving people off Amazon to my own site, I might be better off.
Aleksejs: Yes and no because we tried that route. We had our own websites. We still have it, but the amount of money that you spend on driving people to your website is sometimes even higher than let’s say what Amazon charge you and the commission they charge and the fee they charge.
It’s much less than if you spent thousands and thousands of dollars on social media or Google ads and everybody right now are selling in Amazon. All the brands, major brands are there. If your brand is not there—Amazon became Google for products.
So anybody who want to know information about your product they just go to Amazon and do the research. [inaudible 00:13:13] I am going to [inaudible 00:13:15] become just informational page. I mean you can do research and business address and all that. But for the product purpose to purchase a product, it’s Amazon.
Josh: Cool. How are you solving your cash flow problems?
Aleksejs: Managing on a monthly basis. I mean our previous problem was we didn’t monitor much. Now, we have to monitor that in a monthly basis. Our cash flow, our balance sheet, or P&L, everything. That’s one of the ways also like I said, do not over purchase the products. Don’t buy the inventory, [inaudible 00:13:51] speculations. Try to always go save up and buy less, but diversify between different products.
Josh: Here’s something that I’m a little curious about. What I’m curious about here is, do you have a dashboard that helps you look at key numbers in your business that will predict what’s going to happen in the future? A dashboard is a report that you would get probably once a week that shows key numbers in your business.
It’ll show you whether you’re on track or not on track and that you’re likely going to stay on track or off track in the future with your business. If cash is tight and there’s always reasons that cash is tight with every business is different for every business, but there’s also drivers that drive the business and that’s different for every business also.
The thing that I’m hearing you talk about is that a lot of times you’ve learned over the years of things that you should pay attention to, but you may not necessarily measure them on a weekly or monthly basis.
Aleksejs: We do measure them right now.
Josh: What type of things are you measuring?
Aleksejs: We measure our P&L.
Josh: Yeah, that’s historic. That doesn’t tell you anything about the future.
Aleksejs: We measure accounts payable, accounts receivable.
Josh: Okay. Accounts Receivable will definitely help you know what’s going to happen in the future.
Aleksejs: We also look at our balance sheet.
Josh: Okay. Again, not much there is going to help you with the future.
Aleksejs: Our product detail item sales.
Josh: That would help you in the future because that shows you trends.
Aleksejs: Correct those how we are measuring on a monthly basis.
Josh: Now, I’m not saying ignore your profit and loss statement in your balance sheet. Do you do what’s called a cash flow statement?
Josh: That’s the thing I think you really need to monitor closely because that tells you— balance sheets are nice because it tells you where you are in a snapshot in time. And a profit and loss statement can be useful but a profit and loss statement doesn’t always tell you the whole story about what happens in your business. For example, if I go on buy a half million dollars’ worth of inventory, it will show up on my balance sheet, but it’s not going to show up on my profit and loss statement.
Aleksejs: Right. That was our beginner’s mistake. We started a lot of our calculation was done in a beginning based on the P&L which is—again, its P&L is a theory [inaudible 00:16:08]
Josh: The one statement that it would show up on is your cash flow statement. Because your cash flow shows cash coming in, cash going out and what the differences between the two. For example, accounts payable is a balance sheet item, but unless I looking at it comparatively. I don’t know if I’m creating cash or losing cash. Same thing with accounts receivable.
So one of the things that I always like to see people do is that if you’re tight on cash, you need to have a cash flow statement. Because in business there are too many moving parts that allow you to not really understand what’s going on in your business. It can come back and bite you.
I mean I almost ran out of business because I kept buying vending machines like crazy. That doesn’t show up in your profit and loss statement. So I was making lots of money I thought. I was spending more than the money I was making. I’m buying vending machines. It’s the same thing with you with inventories that you were probably think you’re making lots of money, but not as much money as you’re increasing inventory was.
Aleksejs: Right, very true. Correct.
Josh: So those are the sort of things that as you’re thinking about your business, and I think this is really important for the folks who are listening is that cash flow is a really big deal. If you run out of cash, you can’t play the game. If you think you’re going to run out of cash you ought to know that like a couple of weeks in advance, they can do something about it.
Josh: That’s sort of my thought on this. Thank you so much for sharing your information about this today because so many business owners are hesitant about talking about when they’ve had cash flow problems. Because they think it’s something is terrible. The truth is we’ve all been there. If you’ve been in business for more than 10 years, you have had a cash flow issue in your company at least once. Almost can guarantee it and you learn from that. The truth is we don’t learn by doing the right. We learn when we make a mistake.
Aleksejs: Unfortunately, yes.
Josh: Well, it is what it is. That’s kind of the thing there. Aleksejs, how do people find you if they wanted to talk with you? Would you be willing to have a conversation? If so, how would they set that up?
Aleksejs: I have an email which is the email@example.com or they can just also call me at 053060919.
Josh: Cool. I also have an offer for you, too. We’ve been talking about cash flow today. It’s an issue for every business I’ve ever run across. The thing is, depending where you are in your business, your cash flow will be at a different stage and what you should be doing about creating cash is also at a different stage. I put together this infographic that shows the success path from having no cash to having excess cash in your business. It’s really easy to get.
You just go to www.sustainablebusiness.co/cashflow. You’ll be able to get our infographic and you’ll be able to see where you are on the road to creating financial freedom for yourself from your business. This is Josh Patrick. We’re with Aleksejs Leal. You’re at the sustainable business. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.