3 Highly Effective Ways to Decrease Your Customer Acquisition Cost (CAC) with Email Marketing

Posted on by Amanda Levine

In a post iOS 14 world, ad costs are rising. The days of throwing up some Facebook ads and expecting dirt cheap conversions are over. So how can you scale your brand in the face of these rising ad costs and remain profitable while you do it?

One way is to become more skilled at Facebook ads and drive better quality traffic. The other is to increase your front-end conversion rate (percentage of visitors who become first time buyers), which will result in a lower customer acquisition cost.

Since I’m not qualified to speak on becoming a better media buyer, I’ll speak on the latter. Lucky for you, increasing your front-end conversion rate is faster and easier than becoming a master ad buyer.

 

Improve your conversion rate to decrease your acquisition costs

 

To illustrate, let’s say you have a conversion rate of 3.47% on cold paid traffic. At $1.18 per click, your cost to acquire a new customer is $33.82. If you were able to increase that conversion rate to 4% (and not change anything else), your CAC would drop to $29.39. This is just a 15.27% increase, and is easily doable with one of the below strategies.

When you think about increasing your store’s conversion rate, you might try improving your copy, getting better photographs, showcasing customer reviews, and improving the on-site UX. These are all effective ways to improve front-end conversions and I encourage doing all of them.

But aside from on-site optimizations and experiments, the other way to increase conversions is with your owned marketing channels. I’m talking primarily about email and SMS, as these 2 channels are, by a huge margin, the most effective at driving sales.

At our agency, we are constantly performing experiments to gain an edge for our clients. Many of these tests are contrary to ‘best practice’, but we have proven the result time and again, so I encourage you to test them out for yourself and always be skeptical of ‘best practices’ that are repeated without any data to back them up.

Also keep in mind that every brand is different, and while there are trends that work across multiple verticals, you should always test anything that has the potential to be a high leverage point in your business.

What follows are 3 of the most effective ways we have found to increase front-end conversion rates for our clients primarily using email and popups.

 

1. Implement and test your front-end offer

The majority of visitors will not make a purchase on their first visit, so you absolutely need to be capturing their contact details to maximise your chances of a sale. At a bare minimum, you need one entry popup collecting emails in exchange for some value. Depending on the quality of your traffic, you should expect anywhere from 2-20% opt-in rate on cold traffic.

The offer should be related to the first purchase so you are collecting leads with buying intent. In our experience, ‘10% off your first order’ usually drives the highest conversions and profit for most brands, but you should split test your offer because it’s a huge leverage point for maximising first-time conversions.

Some of the offers we routinely test:

 

– 5%  off first order

– 10% off first order

– $10 off first order

– 15% off first order

– Win a free product or month’s supply of your product

– Free item with your first order (preferably a high margin product with broad appeal)

 

The offer that wins is the one that drives the most opt-ins, converts the most first-time buyers and gives up the least margin. You might find that one offer drives more opt-ins, but less profit on each sale. In that case, you’ll need to decide which metric to optimise for.

In our tests, we’ve found that the right offer can drive as much as a 35% increase in visitor to sale conversion rate, so it’s worth repeating that this is one of the most important elements you’ll ever test.

 

2. Remarket with campaigns to drive longtail conversions

Unless you’re selling $2k office chairs, many of your customers will see your ad and buy on the first visit. However, there is always a percentage of customers who take days, weeks or even months to make their first purchase. These are your longtail conversions.

You can increase your longtail conversions with remarketing via ads and social media, and you can also do it with email campaigns.

Most brands are already regularly emailing their list. If you’re not sending regular campaigns, you should start yesterday. I recommend 5-6 campaign mailings per month as a starting point. We’ve seen as high as a 26% increase in conversions in month 1 by implementing this cadence.

If you’re already sending regular campaigns, it’s worth testing a higher frequency if you have the resources. Going from 5 campaigns to 10 campaigns per month won’t double your conversion rate, but it will likely drive an incremental lift that will increase your front-end conversions and make a difference to your acquisition cost.

 

3. Build your welcome sequence based on insights

The welcome sequence is the series of automated emails a subscriber gets when opting-in to your front-end offer, eg. 10% off first purchase. ‘Best practise’ advises 3-5 emails that welcome the subscriber to your brand, feature testimonials and show how your products solve your customers’ problems. This is better than nothing, but it’s not the best approach.

I’ve found it’s far more effective to build your welcome sequence according to an insight-led strategy. This means every single email in the sequence has already been proven to be effective at driving conversions.

This is how it works:

If you’re sending a regular cadence of campaigns and you’ve sent at least 10-20, you probably already have a feel for your benchmark numbers, ie. the average number of clicks and sales each campaign will generate.

But to gain better clarity into these numbers, you should start splitting your campaigns into 2 duplicate campaigns; one is sent to your customer list and the other is sent to your prospect list. Both campaigns are identical, but the campaign reporting will be separated out.

The advantage this gives you is being able to observe above-benchmark lifts in clicks and sales on your prospect list segment. Then, it’s doing 3 things:

First, experiment with different messaging in some emails. Secondary vs primary benefits, agitation vs benefit driven, and other messaging you might gain from existing product reviews, support requests and customer survey insights.

Second, observe which campaigns drive above-average results. Aside from the obvious lifts you’ll get from a holiday offer campaign, you’ll find that sometimes a campaign will drive above-average clicks and sales for whatever reason. Usually it’s because you’ve tapped into a type of messaging that really resonates. This is real time customer feedback and you will get amazing insights from this practice.

Third, build out your welcome sequence over time by repurposing those campaigns that drive above-average clicks and first-time customer conversions. By building out your welcome sequence this way, you’re ensuring the emails with the best historical record of converting prospects into customers are being sent to all new leads on a perpetual basis.

 

Remember, customer insights, not guessing or ‘best practises’, should lead your email automation strategy. This is what maximises your longtail conversions, and thus overall front-end conversion rate.

Conclusion

With all the privacy updates happening (and likely more to come), paid traffic is only to get harder, not easier, so you’ll need every advantage you can get. A lower customer acquisition cost means you can out-spend your competitors and/or scale more profitably because you have more profits from each sale to reinvest. And these 3 strategies, if implemented, will almost certainly give you that advantage.

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This is a guest post by Rod Lynn of 10M. He is the director of 10M, an agency that helps high growth, direct-to-consumer brands scale faster and more profitably with advanced email and SMS strategies. Follow him on LinkedIn or visit 10m.agency.

Sales Tax for CBD

Posted on by Amanda Levine

As cannabis business, you want to know, are CBD products taxable? The answer: yes.

Since the 2018 South Dakota vs Wayfair, Inc  ruling, the tax code declares that sales tax needs to be collected by the retailer if they are selling to another state, regardless of physical presence. The difficult part is determining how much.

A product that was federally illegal a few short years ago, the sale of hemp products is expected to generate $20 billion in sales by 2024.

What is the sales tax on CBD?

Each state (and even each county and city) is allowed to set their own sales tax rate on products. CBD oil products are no exception. Some states tax CBD as a controlled substance, while some states tax products with CBD are simply as retail product.

The tax rate can be as high as 15% and as low as 7.25%–only 5 states levy a 0% sales tax. States will also delineate based on THC level–the lower the level, the less tax applied.

Sign up for a free consultation with CFOshare to determine what your sales tax implications are. TaxConnex and products like Avalara are additional resources you can use to educate yourself.

How do you report taxes on CBD products?

The different regulations and reporting requirements among all 50 states convolutes the entire sales tax system. To avoid accidental pitfalls, the safest path is to work with a professional sales tax team like CFOshare for CBD business planning — however, there are steps you can take on your own.

Track your sales by state, zip code, and transaction amount

First, set up your accounting to determine whether your business has Nexus (see next step.) This is done by tracking gross sales dollar amount and count of orders by state. As you sell, be sure to track the location of the buyer by zip code, as most states use destination-based sales tax.

Determine nexus

Nexus is the states’ way of saying you legally have “business presence” and are required to file and remit sales tax. There are two main types of nexus: Physical nexus and economic nexus. Economic nexus can be established by a dollar amount of sales or order count. For example, if your retail shop is in New York, you have physical nexus in New York. If that same shop sells $100,000 or 200 orders of CBD all over the state of Michigan in one year, you have economic nexus in Michigan. As with taxability and rates, rules governing nexus, both economic and physical, vary by state.

How are you selling your product?

Even if you are selling through a marketplace like Amazon (who remits taxes for you), you might still be required to register and file a zero-dollar return. This is because some states still see you as a business presence, if your gross sales break the economic nexus threshold or you have physical presence. If you are selling via a platform like Shopify, which does not remit sales tax on vendors’ behalf, or in your retail store, you are required to charge tax for both points of sale.

 

Ensure proper reporting

There are dozens of pitfalls in sales tax and you do not want to be caught owing an unexpected amount of tax. The cost of failing to be compliant could result in a lien on assets, back-tax fees, and fines from various states. Colorado treats non-payment of sales tax as a class 5 felony and exacts a fee of up to $100,000 for any non-corporation. It is important to not put your head in the sand and reach out to professionals like CFOshare.

 

This is a guest post from Chelsie Kugler of CFOshare. Chelsie is the Vice President of Business Development at CFOshare. She helps small business owners improve their accounting and financial planning by surveying their company’s needs and aligning solutions internally or through CFOshare’s outsourced team.

10 Tips For A Successful Retail Buyers Meeting

Posted on by Amanda Levine

Your product began merely as a concept that you couldn’t get out of your head. You knew your idea could solve a problem that people were experiencing. After performing thorough research, you were certain that your product could be better than the leading competitor on the market. Then, you spent the next several months or years creating the pieces, testing mockups, proving the concept, sourcing the manufacturer and designing the packaging. You went from knowing nothing about product development to having packaged goods ready for stores.

Now, it’s time to get your fantastic products into the online marketplace, inside brick-and-mortar retail stores and, ultimately, in people’s homes. How do you go about this? Through a process called “retail buying.” In a nutshell, you’ll meet with retailers to pitch your product, and they’ll consider placing an order with you.

Whether you are meeting in person or over a video call, here are 10 retail tips to add to your professional product development toolkit. These tips can help you wrap up your buyers meeting with a purchase order and let you stand out to your buyers as a beneficial resource.

  1. Create Exceptional Product Packaging

Product packaging needs to do several things.

  • Packaging needs to contain and protect its contents from shipping damage and product tampering.
  • The packaging design needs to draw the attention of the target consumer within seconds.
  • Information on the packaging needs to clearly describe the contents and explain its purpose.
  • Packaging needs to conform to your brand identity. When customers see your packaging, they should not confuse it with other brands.
  • Packaging needs to differentiate your product from your competitors.
  • Product packaging needs to conform to the retailers’ shelving or display restrictions. Sometimes setting your product apart from competitors means having custom packaging, but if that unique packaging doesn’t physically fit on retailers’ shelves, you may not be included in the planogram.

 

  1. Be Knowledgeable About Each Retail Outlet

Do you due diligence. Sure, you might want to cast a wide net to potential buyers out of excitement for your product, enthusiasm about bringing it to the marketplace or desperation to recoup cash quickly, but it’s important to carefully review each store’s vendor website for product requirements first. Buyers want a product to be a good fit for their store.

For example, if your buyer represents a store that sells only eco-friendly items, and your product is packaged overseas in plastic clamshells, don’t expect them to buy. You can either delay your meeting until you can have your products produced and packaged to their store’s specifications or move on to another retailer.

 

  1. Be Knowledgeable About Your Competitors

This should be easy because this is something that you likely researched before going into production. The buyers will want to know how and why they should purchase your product rather than a similar product from your competition.

 

  1. Have a Thorough Website

Your website should be a one-stop shop for your buyers. Include:

  • Information about the product, how it can solve a problem, what sets it apart and how it can earn money for the store
  • Product demonstration videos
  • Your bio
  • Customer testimonial letters, photos and videos
  • Contact information
  • Links to your product’s social media accounts. One in three consumers use social media to discover new products and brands, and 90% of people buy from brands they follow on social media.)
  1. Keep Sell Sheets With You at All Times

Yes, your website is your product’s information headquarters, but sell sheets still have a place in product marketing. Make sure it is current, designed cleanly, and includes the product name, description, photos, website address and contact information.

 

  1. Set Yourself Apart

It’s not enough for your product to be different from others in the marketplace, you need to be unique and memorable, too. What can you bring to the table that other manufacturers with similar products cannot? How can you make the buyers’ lives easier?

For example, do you own a fleet of vehicles that can expedite deliveries? Can you manufacture domestically if supply chains are disrupted and time is of the essence? Do you speak a second language? Determine what makes you different and include that information in your sell sheets and on your website.

 

  1. Be Professional

Just because you have been working from your basement in sweatpants or in a warehouse in jeans doesn’t mean the whole world is dressed casually and working from home. This meeting could change your life.

  • Dress like you mean business.
  • Practice your presentation.
  • Have printed price lists on-hand.
  • Leave finished product samples with the buyer.
  1. Be Flexible, Helpful and Reliable

If your buyers are having a bad month because of supply chain delays or landlord issues, be someone they can count on. The buyer might need your product packaging to be a slightly different size to fit their planogram. They might need your delivery a day earlier than you can have it ready or a day later than you need it moved from your warehouse. Be prepared to make physical and logistical adjustments to accommodate your customers.

 

  1. Be Respectful of Their Time

To you, your product represents months and years of your life’s work; to retail buyers, your product is just one of the dozens of items they need to review today. Since their time is valuable, be concise while still being thorough. Don’t beat around the bush. If they are giving you 15 minutes of their time, don’t spend 10 of those minutes sharing the backstory of how you thought of the concept. They want to know what your product can do for them and their store’s profits.

 

  1. Be Tenacious

OK, so this morning’s retail meeting went well but didn’t result in an order. Go home, take a breath and document all the positives that came from it. You made a connection with a buyer that you didn’t have previously, so send them a thank you note. You’re a problem solver who created a product that didn’t previously exist, so decide your next strategic move. Be prepared for some rejection, but don’t take it personally — get back out there and share your product with the world.

Inventing your idea and manufacturing your merchandise are only parts of the new-product equation. If you want to get your products into the various online and retail marketplaces, you need to know how to build professional relationships with buyers. Hopefully, these 10 tips can help. Need help from the professionals? Contact Retailbound at info@retailbound.com. They have decades of experience with conducting buyers’ meetings and launching new product brands with North American retailers.

This is a guest post from our partner Retailbound. Retailbound is a retail consultant agency that works with innovative brands that want to scale in retail.

Why Is Quality Control Important in Inventory Management?

Posted on by Amanda Levine

Inventory quality control is an important department that should not be overlooked. While it may require more investment and labor to implement and maintain inventory control, in the long run it can save you money and improve efficiency. Inventory control quality assurance can help businesses achieve accurate numbers and avoid waste. Keep reading to learn more about inventory quality assurance.

What is the importance of quality inventory management?

Proper inventory management is critical for any small business. Inventory management helps a business track inventory from purchasing to the sale of goods. A good inventory management software can help the purchasing team identify which item needs to be ordered, at what time, and how many need to be ordered. Over time, good inventory management software can also help to identify trends to always order enough stock to leave no customer order unfulfilled and it can give timely warnings of when stock is low and may need to be ordered to meet an upcoming expected spike in sales. Once a purchased product becomes a sale, then it becomes revenue. Having too much stock is not good business practice. It is nice to always be able to fulfill your orders without back ordering any items, however, you do not want to tie too much of your cash up into inventory. If having a large quantity of inventory in stock at all times is inevitable, this is where inventory financing can help you, but of course, it comes at a price. Good inventory management is finding that perfect balance between always having an item in stock, but not having too much of it causing your cash reserves to be depleted. If you are curious about where your business stands on finding this sweet spot between having sufficient inventory to fill every order, but not too much that it eats up all your cash flow, you can check the inventory turnover of certain products. Inventory turnover is an indicator that lets you know how often stock is sold in any given period. 

Having quality inventory management is important to any business because it is a good indicator of a company’s health. Inventory management helps make sure there is never too much or too little stock. If you are a publicly traded company, the Securities and Exchange Commission can verify that you are properly tracking inventory and accurately reporting this data. 

Not only is good inventory management a legal issue with publicly traded companies, but it is also just good business practice for any sized business. You always want to make sure you have sufficient stock to fill orders, generate revenue, and increase profits.  Good inventory management allows this while it saves your business money and increases cash flow. 

Why is it important for small businesses to have quality control?

Having a high level of quality control is essential for any small business that is looking to deliver a superior product each and every time. It is vital, especially if your business is just starting out, that you begin to build a reputation for producing and delivering products that are at, or that surpass customers’ expectations every time. All it takes is for one customer to have one bad experience and the implications can be dire with bad reviews, lost revenue on shipping replacements, and possibly losing a customer.

However, delivering a consistent product each and every time can be hard work and it can prove difficult at times. That is why it is important for any small business to have standardized quality control best practices in place. Ideally, each product that ships from your facility or that is sold out of your retail location, should each contain the same level of superior quality. Quality control of products starts in the receiving department. Your receiving staff should be well trained to identify any quality issues upon receipt of any merchandise shipments, and if necessary, if a shipment looks damaged, they should also be authorized to refuse shipments. When inventory is being entered into the inventory management system, each item should be inspected for damages or other defects, and if there are any, the manufacturer or distributor should be notified immediately. If you are the manufacturer, then there should be a special quality control team that is responsible for inspecting products before they are prepared for shipment. 

However you choose to address quality control, the most important thing is that you do. Having a quality product that customers can always rely on is an important way to differentiate your product and your brand from competitors. Having loyal customers who have learned to associate your product and brand with quality does more for boosting sales than any marketing campaign can. Loyal customers can potentially take it upon themselves to advocate for your product to friends, family, and on social media if they are routinely impressed with the quality and superiority of your product. 

Quality control does not only apply to the products themselves, it can apply to the quality and efficiency of how your business operates. Quality control can help identify waste, frivolous spending, and it can help to ensure that you are maximizing your productivity. 

How is inventory related to quality management?

Inventory management helps to streamline processes that are part of quality management. For example, if the time between when a product is ordered and received at your facility to when it is sold is minimized, this is an example of how inventory management can minimize the time that assets are tied up in inventory. The streamlining of the inventory ordering process can make sure your cash flow is maximized at all times. 

Inventory Financing

If part of the nature of your business makes it inevitable that you have ample inventory on hand for long periods of time, you may want to utilize inventory financing to increase your cash flow and working capital. For example, you receive inventory from overseas and it is more cost efficient to receive one large bulk shipment at the beginning of the year rather than multiple shipments throughout the year, you can then leverage your inventory to acquire a business loan to give you the working capital you need to cover day-to-day expenses. There are many options for inventory financing including inventory loans and inventory lines of credit. 

An inventory loan is a basic loan that is based on the value of your inventory. You will get an upfront lump sum of cash that you can then pay off in installments until the total amount of the loan is paid in full. Or, if you do not want to make monthly payments, you can always negotiate with a lender to pay off the loan in one installment once the inventory has been sold. Once the loan is paid off, you can then take out another loan to order another bulk shipment of inventory. 

An inventory line of credit is similar to an inventory loan except that a lender will give you sort of a credit limit that you can borrow against as much as you want. You can continuously take loan withdrawals and continuously make payments. You do not have to borrow the full amount, and you can use the funds for any business related expenses you would like, not just the purchase of inventory. 

Tips to improve quality in inventory management

If you are looking to improve the quality of your inventory management, one of the best investments you can make is in an inventory management software system. A quality inventory management system will help take some of the guesswork out of purchasing, maintaining stock, and identifying trends that may affect purchasing decisions. 

Conclusion

As a small business you may be trying to grow. However, there may be obstacles in your way such as a lack of funds. If so, you may need inventory financing. The downside is that inventory financing may be hard to qualify for and costly. Securing financing for inventory may allow you to focus more on inventory quality control which can benefit your business in several ways. Kickfurther is the world’s first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules, allowing your brand to scale quickly without impeding your ability to maintain inventory or financial flexibility.

Searching for affordable inventory financing? Check out Kickfurther today!

 

Top Ways For Business Owners To Find Investors For Your Startup

Posted on by Amanda Levine

Startup investors search for entrepreneurs with prosperous ideas that need financial assistance launching their business. As an entrepreneur it can be challenging to find investors for startups. It’s critical to have a plan and find the right investors. It’s also important to set up a manageable repayment plan. Throughout this blog we will teach you about the various types of funding for startups, how to find investors for startups, and how to attract investors for your startup. Keep reading to learn more.

How to Find Investors for Your Startup

Finding investors for your startup may be one of the most important steps you must take in order to secure a prosperous future for your business. You personally cannot be expected to fund the entire startup on your own in most cases. If you are able to, that may be a good thing to maintain your independence, however, is it the best thing for you financially? 

Many startups enter into the fund seeking stage of their development unprepared and not knowing what their options are. There are plenty of options available for finding the financial backing that you need to get your business off the ground and running. As there are so many options available, let us just take a brief look at a few of these options in more detail. 

  • Ask Friends or Relatives: Asking friends and relatives for money to fund your startup can be a tricky arrangement if you are not careful. First thing first, do not be too casual with your friends and family just because you “know” them. Pay them the respect of preparing a proper business pitch explaining your business plan, planned upfront expenses, and realistic revenue forecasting based on the information you have. If you are only asking for a loan, make arrangements for when you can begin making payments, how much you expect each payment to be, how frequently the payments will be sent, when the loan will be paid in full, and how much interest they will earn on the loan. If you are looking at a friend or relative as an investor, be sure they understand how long it could take before you become profitable and when they can expect to see some sort of return on their investment. Make sure they understand the risks that both of you are taking and that there is a chance that the business will fail and no-one will make money. Again, be careful when mixing your business and personal relationships, because one wrong move, or if the outcome is not what was hoped for, then your business relationship may dramatically impact your personal relationship. 
  • Apply for an SBA loan: The Small Business Administration offers loans through various lenders that help many new startups get started. Some of the loans are guaranteed by the SBA which can help a new business secure generous repayment terms and much lower interest rates than other business loan types, like term loans and merchant cash advances. The SBA also offers some grants for new businesses if they are eligible. Grants do not need to be repaid. The SBA offers various types of loans depending on the characteristics of your business and what you need the funds for. There are SBA 7(a) loans which guarantee portions of the total amount, puts a cap on interest rates, and limits fees. Then there are 504 loans which are fixed-rate loans that can be used to purchase or renovate real estate, fix equipment, and/or fix machinery and other assets. Another option through the SBA that is worth considering is a Microloan. Microloans are capped at $50,000, but they are intended for startups who service disadvantaged communities. 
  • Crowdfunding: There is reward-based crowdfunding where individuals can unlock deep discounts and special offers that others will not have access to by making their purchase in advance to fund the manufacturing. There is donation based crowdfunding where you ask for donations from friends and family and others who believe in you and your product and are willing to help you get started for nothing in return aside from simply supporting your dreams. Then there is peer-to-peer lending where financiers are coupled with startups based on compatibility and then a loan is given to the startup in return for monthly payments plus interest. The startup pays lower interest than a typical term business loan, and the financier earns more interest than having money sitting in a savings account. The last type of crowdfunding worth exploring is equity crowdfunding. Investors can make large investments into a startup in a hope to get a return on the profits in the future. There is no agreement about returning the original investment, instead the investor is hoping that by taking a share of the profits, they can double, triple, or 10-fold their initial investment. 
  • Equity Financing: The process of raising funds through the sale of shares in a company is called equity financing. 
  • Private Investors: Private investors are a common source of funding for startups. There are two main types of private investors. There are angel investors and venture capitalists. Angel investors are people who already possess large liquid assets and have a proven track record of making businesses profitable and successful. When an angel investor comes on to a startup, they are typically bringing not only their money, but their expertise as well. They will expect to be paid handsomely for their efforts, but most often, it may be worth the cost if you are looking to ensure a stable future for your business. The other type of private investor is a venture capitalist. Venture capitalists represent funds that can be used to invest in startups on behalf of pools of investors who pay into the fund expecting a return. Venture capitalists are different from angel investors in that their service is usually called upon once a business has been established and it is looking to expand or launch a new product that could be the next big thing.  
  • Attend startup networking events: Attending conferences and industry events that are related to your startup may help you network with the right people to either invest in your business or to offer services that could help you grow or that could propel you to a new trajectory you never saw before. It never hurts to put like-minded people together in a room who share similar goals and aspirations and that may have similar products or services. 

However you decide to search for investors in your startup, you will want to make sure you explore all the options available to you to make sure you are choosing the path forward that will be the best win-win situation for your company and your investors. 

What type of things do investors look for in a startup?

When an investor is looking to invest in a new startup, they look for certain specifics that can help them make an informed decision based on their expertise and quality of idea or product you may have. They also look to see that you or your business partners have the know-how and ability to turn a product or idea into a functioning and profitable business. Here is a quick list of what an investor may look for when looking to invest in a startup.

  • What is the product, idea, or service? Is it unique? Who are your competitors? Who makes up the target market?
  • A business plan that describes how the product will be brought to market and that shows that in-depth market analysis has been conducted. 
  • Who makes up the management team? Who is handling operations? Who is the CFO? Are these people experienced enough to take on these roles and be successful? 
  • Financial data including financial projections, expenses, profit-to-date. 

Aside from these important details, investors may want to know how and when they can expect to see some return on their investment. 

How Kickfurther can help

Kickfurther is the world’s first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules, allowing your brand to scale quickly without impeding your ability to maintain inventory or financial flexibility.

Discover affordable inventory financing for your startup today!

Top Ways to Reduce the Cost of Inventory with Better Management

Posted on by Amanda Levine

It’s no secret that managing inventory is one of the most expensive aspects of running a business. More often than not, businesses that experience a sudden spike in demand also experience an increase in inventory costs. While it’s generally true that more demand means more profits, not a lot of people understand that it also drives up the cost of inventory.

From purchasing costs to carrying costs, we’re here to help you reduce your overall inventory spending to free up much-needed capital. After all, paying an exorbitant amount of money for storage isn’t a sustainable strategy regardless of the size of your business. But before anything else, what exactly is the cost of inventory?

What is the cost of inventory?

Inventory cost is an umbrella term that refers to the expenses related to ordering, holding, and storing unsold products. Having an understanding of your inventory costs enables you to optimize the amount of inventory to hold while also avoiding spoilage and obsolescence. The cost of inventory plays a vital role in the effective management of working capital and mitigates the risk of cash flow problems.

What are the types of inventory costs?

There are several costs associated with inventory management that affect a business’ overall budget. Generally, for accounting purposes, inventory costs are categorized into three main types: purchasing costs, holding costs, and shortage (or stock-out) costs. Let’s take a closer look at each of them below:

  • Purchasing costs – Purchasing costs are fixed expenses that businesses incur when replenishing inventory. These costs typically include labor, legal, taxes and duties, logistics, and other clerical costs associated with placing an order with your supplier.
  • Holding costs – Holding costs, also known as inventory carrying costs, are those associated with the storage of unsold goods. Product-based businesses should note that storage, management, insurance, and depreciation all affect the cost of holding inventory. The longer you store your inventory, the higher your holding costs will be.
  • Shortage costs – As the name suggests, shortage costs are costs incurred when businesses run out of inventory. It is a form of lost income and expense associated whenever a stockout occurs. Product shortages may be the effect of inaccurate forecasting, inefficient suppliers, and/or ineffective logistics management.

We know what you’re thinking… it can’t be that simple, can it? The true cost of inventory involves a myriad of different factors that may cause your expenses to fluctuate. However, having an understanding of the costs involved in inventory management may allow you to better predict your costs and manage your cash flow more effectively.

How can you reduce the cost of inventory?

Small to medium-sized businesses experiencing rapid growth for the first time can easily get overwhelmed by the volume of orders that they are suddenly receiving. While generally a good thing, businesses experiencing an increase in demand may find it difficult to manage surging inventory management costs. To help you facilitate the cost of your inventory more efficiently, we compiled some of the best strategies to keep costs low without compromising your inventory performance. Check them out below!

Apply the right inventory forecasting method

Inventory forecasting is more than just educated guesswork. It is a method used by businesses to accurately predict the amount of inventory needed to satisfy future customer demand. Proper inventory forecasting takes historical data, past sales trends, and expert opinion from industry experts into account when making informed decisions about future inventory orders. There are two main types of inventory forecasting: qualitative and quantitative.

  • Qualitative forecasting – Qualitative forecasting considers trends, seasonality, and the current market climate when forecasting inventory. This type of forecasting method is often characterized as subjective and is most useful in situations where data is unavailable or insufficient.
  • Quantitative forecasting – On the other hand, quantitative forecasting involves the use of concrete data and specific numerical information to calculate future demand and determine patterns that may influence a product’s future sales performance.

If done properly, inventory forecasting can help businesses secure the right amount of stock to satisfy their customers and allocate enough funding to purchase additional inventory.

Reduce supplier lead time

Supplier lead time? What’s that? In inventory management, supplier lead time refers to the amount of time that it takes for a supplier to fulfill an order from when the order was received. Essentially, reducing supplier lead time means lowering the cost of inventory as you don’t have to hold large inventory quantities for a long period of time. Speeding up supplier lead times also makes it possible for businesses to reduce the size of their storage facility, therefore saving more money.

Know your reorder point

The reorder point, or ROP, is simply the threshold that businesses set to initiate stock replenishment. Setting a precise reorder point saves businesses money and allows them to avoid stockouts. Thanks to leaps in technology, you can now automate your reordering point using inventory management software.

Implement an excellent inventory management system

Accurate inventory management saves you money in the long run and enables you to fulfill customer demand regardless if it’s during slow or busy shopping seasons. One way to ensure that your inventory management processes are running smoothly is to use inventory management software for your business.

Having an excellent inventory management software helps businesses monitor their inventory levels using real-time updates across multiple sales channels. An inventory management software can also help businesses set automatic reordering points based on past sales data.

Get rid of obsolete stock

Wouldn’t it be amazing if your storage facility is filled with your bestsellers? Unfortunately, that’s not always the case. Having a realistic view of your inventory makes it easier for you to get rid of excess and/or obsolete stock so that you can free up valuable space occupied by poor-selling products. If you’re looking to get rid of obsolete stock, you can:

  • Continue to hold on to it (and incur more storage expenses!)
  • Sell it at a discount
  • Return it to your supplier (if you still can)
  • Donate it and enjoy tax deductions

Implement the Just-in-Time method

Among inventory management strategies, one popular technique is the JIT (Just-in-Time) method. JIT focuses on improving the efficiency of a business’ inventory while also reducing the waste associated with the production of goods. When using the JIT method, materials for production are ordered only after an order confirmation has been received. However, one big downside of the JIT method is that it leaves businesses vulnerable whenever there’s a sudden surge in demand.

Use consignment inventory

Consignment inventory is a great business strategy where vendors provide businesses with goods without the need to pay upfront. The consignor (vendor) maintains ownership of the products and the consignee (buyer) is only required to pay for the goods until after they are sold. The consignment approach enables businesses to maintain healthy cash flow and shift the inventory-carrying costs to the vendor. If you think consignment inventory is right for you and your business, try Kickfurther.

What is Kickfurther?

Kickfurther is the world’s first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules, allowing your brand to scale quickly without impeding your ability to maintain inventory or financial flexibility.

Final Thoughts: What is the best way to manage inventory?

Is there really a single best way to manage your inventory? The short answer is no, there isn’t. While it’s true that there are several strategies that you can use to better manage your inventory, it usually takes a combination of methods to achieve your desired outcome. One important thing to keep in mind is that maintaining optimal inventory levels differs from one business to another. The key to managing inventory successfully is to continuously monitor your key performance indicators and identify opportunities on how you can improve your operations.