If You Work in E-Commerce, This Cash Flow Hack Could Really Help
If you are familiar with my content, you will have likely heard me espouse the importance of cash flow on more than one occasion.
Today, I want to touch on the practical application of good cash flow management by a client of mine, Cole Buxton.
Cole is the founder of Cole Buxton, a luxury clothing brand focused on providing high quality daily essentials. As an e-commerce business, therefore, Cole is well aware of the importance of cash flow.
In 2018, with ever-increasing demand for his product, Cole has moved from the more traditional process of stockpiling and selling inventory to a pre-order system, whereby consumer demand for a product is determined upfront.
Much in the same way that Apple uses a pre-order system for its initial release of iPhones every September, Cole can now gauge appetite for upcoming product releases ahead of time.
With a pre-order setup, unit sales, associated costs and therefore profit are now known upfront. This improves cash flow considerably as the purchase of stock carries certain risks — naturally, some drops may not be as successful as others.
In these situations, you will often see a brand resort to heavy discounts in order to shift inventory which can devalue the brand — when was the last time you saw a discounted Apple product?
Until you are the size of Nike where you can truly benefit from economies of scale, as well as having years and years of trading history and analytics, it is simply a much smarter, leaner approach.
It also caters to demand whilst retaining the allure of limited supply — if executed well, pre-orders can be a great marketing technique to fuel hype, speculation and anticipation prior to a release. It encourages a level of engagement between brand and consumer that might otherwise be lacking.
Whilst it primarily helps businesses who are young and not yet able to accurately predict sales, it can also guide businesses that habitually sell themselves short when it comes to a product’s performance.
A Warning —
It should be noted that Cole has in part been able to do this due to the speed with which he is able to turn around product, having built a strong working relationship with London-based manufacturers.
In a recent podcast with Jeff Staple, Samuel Ross, founder of A Cold Wall*, discussed the stress he endured early on in using a pre-order service not backed up by an efficient supply chain, so be warned — any supply issues after taking customer money could be very detrimental to your brand.