What You Need to Know Before Starting a Product Based Business: Inventory, product logistic & cash flow

Describe your business model clearly

If you are new in the world of online business, you may wonder what the term “product business” indicates. Isn’t it that every business is offering some kind of product?

Well yes! 

But this term refers to businesses that sell physical products to customers. Most e-commerce businesses for example are somehow dealing with one actual tangible product. 

The term retail is often used for businesses that sell physical consumable products on larger scale to the public: Clothing, grocery, fashion , beauty

Being familiar with this term can help you search for the right type of support for your specific business model.

Why do you need to know the difference between a product based and a service based business?

This matters when you are looking into optimizing or improving your business : maybe you want to hire an expert, transform your brand, increase your sales or profit and take your business to the next level.

The strategies that lead to all these different forms of success are totally different in the world of service based businesses. 

If you don’t pay attention to this and invest into the wrong course or coach then you endup not only wasting your money but also your time. 

Great educators and coaches are clear about this and will  tell you straight on who their solutions are for.

But unfortunately some coaches or educators may not even know that they are not qualified to give advice about some business models or industries. They may think business is business and the recipe to success is the same for everyone.

Well it’s not. 

What happens in these cases is that you end up spending hours to understand their solutions, then more hours applying everything you have learned to your unique context. 

This is almost like recreating the wheel. 

How to ask the right question?

I have talked about this in more detail in a previous blog post, But to get to the right answers you need to ask the right questions!

And to ask the right questions, you need to understand your context well. 

How do you describe your business problem to an expert or advisor? 

If you feel misunderstood or the answers you receive don’t make sense,then maybe have a look at similar businesses that have been around before you: 

What terms do they use to describe themselves?  

The terms these businesses use to describe themselves to the customers are often different from the ones they use to ask help from experts!

That  is why being part of a community of similar businesses is a great place to start understanding your context better. 

To solve a complex problem we often need to see it from a totally different perspective. By hiring a business coach or expert or simply brainstorming with someone outside your business you can find that different angle. 

Inventory, product logistic & cash flow

What makes a product based business different from other business models?

Inventory

This is my favourite topic.My whole corporate career in supply chain management was shaped around this subject!! 

Inventory or stock is either the finished product or the materials needed for creating the end product.

Inventory is almost like cash on the shelves as some retail experts say.

That is what brings the customers to a product business.

Without inventory there is no business.

But inventory also means tied up capital. A downside of inventory based business is that it needs in advance investment. The better you know your customer and their demand the better you can regulate your inventory management.

You don’t necessarily need to keep a whole year of demand on hand to keep your customers happy!

Sometimes as a small business you need to educate your customer to pre-order their favourse products and wait for them to be ready. 

The longer you run your business and the more data you have about your customers’ demand, the better you can plan purchasing or producing the products. 

Managing inventory is about understanding numbers. It’s not that much about intuition.

Your Creativity Might Cost You Money

Many creatives start their business because of their love for creation or interest in a certain style of product. They are secretly producing for themselves and not the customer! 

Managing inventory is often one of the biggest challenges of product based businesses and the number one reason for their cash flow issues!

Product Logistics

You can’t just send products to wherever or whoever you want! 

Specially if you, your manufacturing plant and your customer are not in the same country then you need to look into your distribution system carefully. 

Each country has their own rules about import and export. These rules are often dependent on the type of product, their origin and materials used.A shipment that leaves a country needs to be accompanied with the right customs declaration documents. There are often surcharges for import products depending on the value and type of products.

What transport services to use?

You often need to rely on postal services and logistics partners to ship your products around the world.These services come with their own costs.

You may choose to store the products with yourself or ask a logistic partner to store and ship them to your customers ( this is called a fulfillment center by the way).

Using a fulfillment center is often a good step towards scaling an ecommerce business but it may not be worthwhile in the early stages when you don’t have enough sales or inventory movement. 

Some manufacturers agree to take care of packaging and shipping your products to customers directly and offer a so-called “ drop shipping” service. Most print on demand platforms follow this model. 

While this model is great for saving logistics overwhelm and scaling dilemma it simply may not be suitable for makers with unique artisanal products.

Cash flow

This is a less talked about topic and one of the most serious challenges of product business owners. Cash comes into the business ecosystem when you make sales or receive a business loan.

Getting loans forever is not so sustainable ! 😉

Most online store owners invest most of the sales back in the business and use the cash to buy more inventory.

So cash comes in the system and goes out of the system. It moves in cycles. 

Website traffic and cash flow go hand in hand

To make sales you need to be connected to your potential customers : you need to know how to reach them.

It takes time (and work!) to build a stable flow of traffic to a website.

Not everyone who visits your website will buy! Only a small percentage of visitors will buy from you.

It’s important to have creative solutions in place to bring customers to your business while you are working on creating organic traffic for your website. 

You need to be creative about marketing your business. You might need to invest money into your marketing.

If you don’t make enough sales then naturally you don’t have enough cash in the system to survive. 

This is obvious!

Product pricing and cash flow for product businesses

If your products are not priced correctly ,then you can’t sell at a profitable price. You might sell lots of products but still struggle with cash flow!

Long Term cash flow problems lead to bankruptcy. That is why it’s so important to have a good understanding of all the costs involved in running a business. 

Selling your signature products at full price is not the only way of creating cash for your business. You can be creative and think of all different forms of campaigns to create around your products. Sometimes you can combine your products with extra services, packages or other solution that fit into your customers’s lives.

Does this mean you shouldn’t sell physical products?

Of course not! 

We often feel overwhelmed or confused by the unfamiliar. Once you learn more about a topic then it becomes easier to visualize a real situation around it.

Pandemic created a shift in consumer demand and ecommerce is not going to slow down anytime soon. On the other hand, consumers show more interest in small businesses and authentic brands. 

There has never been a better time to launch a product based business!

If you are excited about a product idea then I bet you are ready to educate yourself about creating an efficient system for marketing and selling that idea.

It’s possible to create thriving scalable product based businesses with ease. 

It’s possible to do this on a small budget. 

A while ago I ran a 4 month group program mentoring, coaching and training entrepreneurs to do exactly this. And now the training material is available at a fraction of that price.

Nothing like creating actual successful results in your business can boost your confidence.