The quicker you can make your product, the faster you can sell it and make profit. You also need to tie up less cash in manufacture if the re-order is shorter. In this article we cover the top 7 reasons why lead time can make or break your Amazon business.
Reason 1 Production
Production lead time is vital to your business. The longer it takes for your goods to be produced and shipped into Amazon, the longer your cash is tied up in products.
Imagine your product costs $10 from the factory.
If it takes 30 days or more to make and ship your product every time you reorder, then you need to buy at least 30 days worth of product.
If you are selling five a day, that’s 150 units or $1500. But if you’re selling 20 a day you need enough cash to buy another 600 units or $6000.
So even though your product is successful you have to reinvest more money to buy more stock because the lead time is so long. Do everything possible to reduce the time from order to delivery into Amazon.
Reason 2 Freight
The size & weight of your product will affect how you ship it. Sea freight can take 40 days or more, and air freight needs around 10 days.
If you’re ordering from China you might need 60 days of stock. Why? 30 days it takes to make the product and the 30 days to ship the product.
One way to tackle this is to send 10% to 20% of your products via air and the balance by sea. The better way for new sellers is to focus on products that are light and small. That way – you won’t have to wait 1 to 2 months while the goods come by sea – you can send them via express courier.
Reason 3 Competition
Having a quick lead time let’s you make changes, fast. If one of your competitors suddenly changes his product to a two-pack and starts stealing market share and sales from you, you need to respond quickly.
If your lead time is 45 days or more, your competitor can use that time to get ahead. To be more competitive, try to find factories with rapid turnaround times. This lets you make quick changes to your product and listing if you need to.
This also reduces how much money you invest in stock and lowers your risk because you have less stock in hand.
Reason 4 Restock Time
It’s Christmas. Imagine you suddenly get a spike in sales and sell out quite quickly, a long lead time can kill your product.
If it takes you 45 days after running out of stock to replenish the product, you could lose all your BSR ranking as well as all your sales to competitors. It is impossible to 100% accurately predict how much stock you will need – but having a fast lead time let’s you re-stock if suddenly you are selling more than expected.
Reason 5 Cash Flow
Cash is tight when you are first starting out on Amazon, and even tighter if you are reinvesting to grow. The longer the lead time, the more cash that gets sucked into inventory.
Even though you are making profit your cash flow might be negative because you have to place new orders for more stock. Squeeze down lead times in any way you can. If you do have a long lead time – allow some extra buffer stock just in case.
Reason 6 Break Even and Cycles
The sooner you break even on a product, then you start making profit back that can be used for growth. If your first order takes 45 days to arrive and then 2 to 3 months to start selling, you might not breakeven for six months or more.
If your lead time is only 10 days you can get going much faster, test the product sooner and expand more rapidly. You can launch additional products faster too.
7 Return on Investment
If you invest $10,000 in stock and it takes two months to deliver and sell, your return on investment % will be much smaller than if you could buy $10,000 of stock and sell out in a month.
Shorter lead times equal higher profits and returns.
Although it is not always possible to control a manufacturer’s lead time – when you are selecting your product and supplier you can decide based on the total lead time for your item. Long lead times suck up cash and make you less able to respond to changes in your niche.