Why an Ecommerce business isn’t really a cash cow

Amazing FBA Amazon and ECommerce Podcast, for Amazon Private Label Sellers, Shopify, Magento or Woocommerce business owners, and other e-commerce sellers and digital entrepreneurs.

Hey folks. I want to discuss what is kind of a hard topic, which is why an e-commerce business isn't a cash cow. It's not what is advertised to be on the internet, but the good news is it could make you more money than you think, as long as you know what you're dealing with. The myth of the e-com cash cow So folks let's talk about the myth of an e-commerce business as a cash cow. There is a lot of misconception on the internet about the cash-generating potential of e-commerce ventures. I'm talking about things with physical products at their heart, and therefore inventory, which changes everything. And we need to examine this. Typical cash cow digital businesses Now let's talk about what we mean by cash cow. First of all, I'm talking really about things that produce money. In cash in other words without much capital investment. The examples that spring to mind: are coaching. I know all about that because I've been doing that online for years. The upsides: you don't need to pay much money, or even any to start, if you just use influencer platforms like podcasting as I did to start with, but you need to spend a little bit of money on a little bit of equipment- podcast, mics very, very cheap. You can do it with your phone these days. Downsides of course. You cannot just sell that easily, because it depends on your face and your brand. Also, you're trading time for money, unless you scale it up to be running a huge coaching practice. And then you're trying to scale up people. and hiring people is not easy to scale in the same way as digital systems or physical products. So it is not the easy option it might appear. But it doesn't require necessarily a lot of capital stuck in the business. Digital business models, also digital products like books, have the same characteristic. So I'm not discussing those; what I mean is an e-commerce business model is where you own the inventory that you sell. Challenge 1: Profit margins So let's talk about the challenges of e-commerce business models and what I think they are not. And what I think they are. First of all. It's not a profit monster. There are certain types of business models where you might spend some money on YouTube ads for example, and then you sell your coaching - time for money trade, but at least it's 70% profit. But you have quite healthy profit margins in that kind of business- digital product businesses, very healthy margins. Not so much with physical products. You have to buy the products. You have to ship them around, you have to store them, you have to fulfill them. And then you've got to pay for whichever platform helps you sell them. Amazon takes a 15% sales commission. Plus then you've got to pay for traffic in the form of ads to wherever you sell them, you've got to pay for ads. So the Operating costs are pretty high. The heart of the matter: capital intensity But here's the true meat of the matter. The heart of the matter is capital. If you want to have an inventory-based business, you need to think about the balance sheet. All assets are not created equal To put it simply, the assets are the things that the company owns. Most Amazon or Shopify-type businesses don't tend to own many things that unless you've been, you've got a very big business. They don't tend to own warehouses and offices unless they're really big, but they do own normally two major assets, which is cash and inventory. And if you want to have stock in inventory, you're swapping cash for inventory. Profit is not the same as cash (not even close) And here's the thing. If you increase the value of the equity in the business and assume there's no debt, that's the same as the assets in the business, you can have a paper profit. Let's say you have at the start of your trading a hundred thousand dollars in cash and zero inventory. And at the end of the year, you've turned the cash into inventory. You've turned the inventory twice.