Why do “Bosses Take Losses”?
“Bosses” are the people who risk their resources for a potential future gain. Perhaps you have heard of the expression “bosses take losses”. Or said another way, “pay the cost to be the boss”. The goal is to successful investing is to buy low and sell high. The way to be profitable in spite of inevitable losses on some investments, is to make more when you’re right than you lose when you’re wrong. Nobody is profitable every time they invest in something and the more often they invest, the higher chance there is to be wrong. But the chances of being right also go up. The best stock day traders are right about 50% of the time, but they learn to cut losses fast and let the winners ride.
Most of our blog content has to do with starting businesses or selling physical products on the Internet. Investors are concerned about the volatility in the stock market in recent months and how that might affect consumer spending, specifically in the e-commerce space, since so many people are invested in that space now. When you have money in the stock market, and the stocks are going up and down, it’s easy to see the volatility involved with investing in them. But volatility in the e-commerce industry can be more challenging to spot.
How To Invest Your Money
When the stock market goes sideways, nobody makes money. Stability in the stock market is bad for most investors. Investors want to see volatility because highs and lows make it possible to buy low and sell high. Buying inventory is no different. Buy low and sell high. A business owner or a sophisticated investor has a steel stomach where volatility is concerned. Temporary losses or downward volatility do not necessarily worry them because experience will show that, with volatility comes profitability. In an upward-moving market, brief low periods precede higher highs.
Business Always Goes Up And Down
It is simply not possible for a business to go up in a straight line. Similarly, the stock market does not go up in a straight line. There are periods of growth and periods of retraction. For people who work hard and save up money over time, it is difficult to watch their money go down after spending so long building it up. If you are going to invest your money, you must be prepared for downward volatility. Spending money on inventory with no guarantee of getting your money back is a part of investing—the same thing with the stock market. You may put in money and see the money go down 6-8%. More significant upward moves almost invariably accompany those downward moves.
E-commerce Profits
When you buy inventory for $20 or $25, selling it for even a dollar more could make you a good bit of money. So it isn’t easy to lose money on inventory unless you buy it for too high of a price. The same is true in the stock market. When you see a stock go down, you must buy it while it’s down. When it is high again, you can sell it. Many retail investors love buying stocks when they’re up and looking good. It’s counterintuitive for many investors to buy something that is having a bad day, week, or month. But that is the nature of investing.
Remember that when you’re ordering your inventory. It’s just like investing in the stock market. Your purchase price determines how much money you make when you sell. You must buy at the lowest price and sell at a competitive price. On Amazon, price competition is fierce.
Risk management
Risk management on the stock market is done using stop losses (Or stop orders). That means, if the stock price goes down to a certain point or goes down by a certain percentage, the stock will sell automatically. The investor then has the opportunity to watch the stock go down and buy it when it’s on its way back up, which ensures maximum profitability and helps manage risk on the downside. With inventory, data is used for risk management. Knowing the amount of risk you’re taking on a batch of merchandise depends on how many sales you’re likely to get and at what price you can buy and sell based on recent data.
Suppose you believe the breakeven price of your merchandise will be $25/piece. In that case, you must verify that it will be fast to sell your inventory at $25/piece to get your original investment back quickly if you cannot sell at a profitable price. Risk management dictates that you look at the data for a specific product and know how much it sells for on a bad day, weekday or weekend.
Look around the Internet and make sure the product’s price isn’t substantially lower on a different website. Perhaps it sells pretty well on Amazon for a high price, but it is essential to know if eBay sells the same product for half the price. Eventually, the costs will meet in the middle or near the bottom. It’s important that you can predict that ahead of time, so search for your product across the Internet and make sure that the price on Amazon is the actual price of the product. Finding that the price is much lower on a different website is an excellent way to predict that the price will soon come down on Amazon.
Diversify
When we’re talking about risk management regarding an e-commerce business, it’s important to consider diversification. If you have $20,000 to invest in inventory, don’t invest the entire $20,000 in one product. It’s easy to spend $20,000 on merchandise especially considering shipping and advertising costs. So if you only have $20,000 to spend on inventory, it’s essential to limit your investment to maybe 20-25% in one order. That will give you capital to invest in more of that product as your original batch begins to sell, or you will still be able to invest in another product if the first product flops.
Diversifying In the stock market means you will end up with the average return for the market (6 to 8% annually). Diversifying your e-commerce business yields a higher profit. If you buy a product you have done your research on and it doesn’t do well right away, you can move on to another product and hold onto the first inventory. You may find that the first product sells fast several months later after your competition runs out of inventory. But the second product you bought may take off right away. It’s important to leave money for diversification in physical products when starting e-commerce.
Maximizing profits
Most people want to make the most amount of money possible. It’s almost a sickness. Don’t get stuck in a “maximize profits” paradigm. Fast profits often are better than big profits occasionally. Be prepared to sacrifice some percentage of your gains to get a quick return on your investment. Do not think of this as losing money. Losing money is very different from making less money.
To calculate your maximum profit, decide on a timeline for your return. You may be able to get the maximum profit by selling your product at a high price over a year. But how many times could you sell it at a lower price if your time limit was a couple of months? What if you sold the same amount of inventory five times per year at a lower price? Would you have made more money? I bet the answer is yes.
Maximizing profit is a formula. It’s not only about making the most amount of money in return for your investment. It has to do with making the most amount of money over a certain period and repeating the process over and over again. The formula for maximizing profit is percentage return divided by time frame. If your goal is a 20% return on a $10,000 investment, do you see how that is an open-ended investment strategy? Let’s say you wanted to get 100% annually. If you invest your original $10,000, you only need to make about 8 1/2% per month return on investment to reach your goal of 100% annual profit. You will make much more than 20% if you sacrifice 11 1/2% of your profit but sell the same amount in a month; then you could sell in a couple of months at your target price. Volume often works that way. You will make more money with a high sales volume than you will with a high price.
I’m not suggesting that you start competing on price. Your price should reflect the quality and service you are offering. But you need to adjust your price to match the timeframe set out at the beginning of your investment journey. This concept will be evident for some, but this is an eye-opening concept for others. So many people get stuck in the “maximize profit” paradigm and don’t consider the timeframe that they’re working with.
How to set profitability goals and time frames
Setting a profitability goal is not an arbitrary process. You must first choose a business or product. When you’ve selected a business or product, follow the data. If the data dictates you will make a 5% monthly return, that should be your goal. 5% monthly is 60% annually! That’s a huge goal! Enough to get your money out of the stock market? I hope so! The returns for e-commerce are much higher than the returns in the stock market. Not only are they higher, but they’re also more consistent.
To set profitability and time frame goals, look at the data for your product. Jungle Scout offers a tool that will help you determine your goals for a specific product in terms of profitability and timeframe. You should have a rough idea of what you’re looking for before getting into Jungle Scout. So you’ll know if you’re looking at a product that will not help you reach your goals. Most of the data and education available supports a starting goal of 10 products per day. A goal of $10 per product is reasonable. So your goal then would be $3000 monthly profit. If you’re investing $10,000 in inventory per month, that’s a 30% return monthly which is huge! If you annualize that, it’s a 360% annual return! Sounds unrealistic, I know.
Let’s say you set a goal of 30% monthly return on investment in e-commerce, and you only reach 10%. You have beat most of your stock market friends by 2 to 4% without riding the highs and lows of market volatility. You will have good months and bad months, good days and bad days. But at the end of the year, when you annualize your profit, you will find you have made much more return on investment annually than you would have if you put the money in the stock market. Look at the data and set your goals accordingly.
I am using 30% as a goal because that is a reasonable goal and easy to reach. If you spend $10,000 a month on inventory and make $3000 net profit each month, that is a small growth in the e-commerce field. That last sentence should encourage anyone who is getting started in e-commerce right now. Don’t be afraid to pull your money out of other investments and put it into e-commerce products. It may take two or three months to get started, but at the end of the year, you will make much more money with your e-commerce business at the end of the year than you would have if you had just left your money in the stock market.
Stockbroker for e-commerce?
When you have a lot of money to invest in the stock market, hiring a broker is often advisable. The same is true in e-commerce. If you are not a professional e-commerce seller, hiring someone to start and run your e-commerce business may be wise. Trying to do it alone will cost you more in the long run than the services we have in the first place. Use our service because our scientific process works every time.
People lose money on e-commerce because they choose products or sales outlets that are not effective. Using a professional service to start your e-commerce business is a safer bet than going it alone at the beginning. FBA business in a box LLC offers such a service. If you consider getting into the e-commerce business right now, it would be wise to call us. We are the lowest-priced service of this type. Follow us for a moment while we do some math. Let’s say we can negotiate a one-dollar discount for you from your supplier. You will earn $3000 back on our service after ordering only 3000 units. That’s approximately three months if you’re selling 1000 units per month and about ten months if you’re selling 300 units per month.
We are professional e-commerce business people. We present the data, and we talk to the suppliers. The supplier will not know when they have stopped talking to us and started talking to you. Therefore you will appear professional even the first time you do it. Not only that, but if you wanted to do it again yourself, you would be able to copy and paste some of the messages we used in the beginning while negotiating a price to get yourself a lower price for inventory in the future. On average, we can save our customers three dollars per item on the purchase price of the merchandise itself when ordering, 1000 units of an item that is $3000 per order in savings. That means each time you order 1000 units, and you will recover the money you spent on our service to get set up. Annualize that, and our service pays for itself over and over each year.
Head over to FBA Business In A Box and sign up today. Let us select a product, negotiate with a supplier, build your business, register your trademark, create your Amazon ad, and more without you having to lift a finger. You will have direct involvement every step of the way, and you will be fully prepared to take the business over after it is set up. After the company is set up, Amazon FBA is mainly passive income.
We hope you will become our customer. For questions, comments, or concerns, click or call. We always answer our phone and answer emails within one business day. Talk to you soon! Good luck on your journey.