In this episode of the eCommerce Lifestyle Podcast, Anton shares his top three ways to fund high-ticket purchase orders.
Anton Kraly: Hey. What's up, everybody? Anton Kraly here from eCommerceLifestyle.com. And welcome to another episode of the eCommerce Lifestyle podcast. Today is Monday and I wanted to just get a quick episode out here to cover something that's been coming up a lot on our coaching calls.
For those of you that aren't aware, I run a company called Drop Ship Lifestyle. If you've never heard of it, or if you want to get some free training from us, go to DropShipWebinar.com, D-R-O-P-S-H-I-P-webinar.com and you can see what we do there. But I do live coaching calls every month with our members there, and something that's been coming up recently is, really, how will you get the next level?
What happens once you've been in this business for a while, once you have all of the suppliers, once your traffic is dialed in, once you're making a bunch of money and you decide, you know what, I want to take this thing and see what's actually possible? And what I advise people that aren't only looking for the lifestyle side of the things is to introduce their own brand. And what I mean is their own physical product brand.
So let's just say, for example, I'll give the example I always give, which is chandeliers. Let's say you're selling them. You've had your chandelier store up and running for a couple years. You've got 300 suppliers on there. You've got 5,000 SKUs. Your traffic is converting at 2.5% or better. You're banking a bunch of money and you're like, "You know what? I'm putting four or five hours a day. I'm going to actually make this thing full-time. I want to put in a couple years and just go hard into this and make this business as valuable as possible."
So again, what I would recommend you to do, if that's the scenario, is to make your own brand of chandeliers and sell this brand on your website amongst the hundreds of others you have.
Now, the reason this is a good idea is because you already have traffic. You already know what customers want. They're already buying from you and you can easily add a new brand to your store, add them to your featured products, email them to your list, post them all over social, and drive sales and have a higher profitability because you don't have to pay anyone in between.
You're the direct provider of these products. You also have the advantage of being able to control your own inventory, to have your competitors sell your own products, and just to really increase the value of your business if you ever wanted to sell it.
So with that being said, it's a different business than dropshipping. And one of the reasons it's different is because of the money situation. What I love and what I'm sure everybody listening to this loves about dropshipping is it doesn't take a lot of money.
So let's just say you wanted to add 100 new products to your store, I mean, you can even do that yourself in a day and have them all optimized and ready to go, and the cost was the time of your day, whatever your hours are worth. Whereas if you wanted to take this step and you wanted to introduce, let's just say, 10 new products under a new brand name that you made, well, then you need to actually pull all the data that you have for what products sell the best. You need to figure out what's going to make yours special. You need to figure out the pricing. You need to find suppliers. And even all that's not that difficult because, again, it's just you on your computer or someone on your team on the computer with you.
But where it gets tricky is when it comes time to actually pay for the stuff and what you should do with it. So the way it typically works when you're importing, and we'll just say importing from China because that's where most products come from, and we'll avoid all talks about trade wars and whatnot for the purpose of this episode, because still at this point most people that are running their own brands, again, physical product brands, are bringing products in from China.
The way it typically works is you'll contact whoever your supplier is going to be there, whoever your vendor is going to be. How you find them and source them and negotiate is a conversation for another day. But once you find them, you're going to go ahead and tell them, "Okay, I want five of product one. I want 15 of product two. I want 10 of product three," whatever it is. And if you want to have this as cost effective as possible, you're going to be filling up a container.
So if you've never done this before, you see those huge freight ships that have these big metal boxes on them. Those are containers. There's three different sizes you can order. You can get one that's 20 feet long. You can get one that's 40 feet long. You can get one that's 40 feet long and taller. And regardless of what size you get, it's going to be expensive because you're literally jamming this thing with as many products as you could possibly get. And what means is instead of, again, just clicking Upload a bunch of times on your website and doing some optimizations to product pages, you're now having to pay for this stuff.
And traditionally with, again, most brands, the way it works is let's say you tell them what products you want, they're going to send you your invoice for the total order and they're going to say, "Okay, send us a 30% deposit so that we can start production." So you'll basically, again, agree on what it is you want. You'll send them 30% via bank wire. They're going to start to manufacture these products. Then they're going to pack them up. They're going to put them on a ship and they're going to start shipping to whatever port you want them to go to.
Again, how we configure all that's a conversation for another day. But before the products arrive at wherever you're having them shipped to, you're going to have to pay the 70% balance, so everything's paid for before you get it.
Now, as you build bigger and stronger relationships, maybe by the time you're on your 10th container of products that's coming in, maybe then you'll have better payment terms and they'll be comfortable with you, meaning your supplier. You'll be comfortable with them and maybe you can pay them a little bit later, but almost always when you're starting you have to pay them 100% of the money before you actually get anything. So what I ...
Let's just choose a number so we can work with real numbers here. Let's just say that the products that you're ordering, they're high-ticket products. You're using the Drop Ship Lifestyle method.
Again, DropShipWebinar.com but you're using this method. That container is probably going to cost anywhere between $50,000 and $200,000. So let's just use $100,000. That's what your product total is. That's your wholesale cost. So 30% deposit. Before they even start making these things you're going to wire them $30,000. Again, before they arrive you're going to wire them $70,000 more.
Now, this is where it gets scary for people because with dropshipping, again, the beauty of the business model with the way we do it at Drop Ship Lifestyle is you're not laying out money. People are buying from you. You're paying your supplier. Your supplier ships. And maybe, again, you've been doing that for two years and you're saving money, you're saving money, you're saving money.
Maybe you have, let's just say, $500,000 in the bank after two years in business, $500,000 net profit, that's what you have. And then, if you have to send $100,000 of it, 20%, to a random supplier and just hope that you can sell these things, that's where people get stuck. It's scary. I get it. I've been there. And people either don't want to send that money out or they just don't think it's worth the risk.
So the purpose of this episode is to give you a few different ways that you can actually fund those high-ticket purchase orders so that you're not taking 20% of your savings, or 50% of your savings, or so you're not having to borrow money from people to fund these things, but so that you can actually pay for these products with other people's money, because this is the way you want to do it.
You want to send other people's money to pay for the products. You want to profit when you get the products in. Listen, this is true in any size business. Billionaires, when they go to start new businesses, they're not dipping into their bank accounts, traditionally, and saying, "I'm going to invest 100-million dollars from my savings account into this thing." What they're doing is raising funds.
So you could think of it that way, just on a much smaller scale. Again, you're going to do this so the profitability is still there, but so that you're having to put your cash out because money is hard to save, it's easy to blow through. So it's much better to use other people's money to fund this, and then you'll not only have a responsibility to that but, again, you'll have your money as your own and you'll have these investments coming from other people.
So the first way, and this by far is the best way to do this, this is what we always do, this is what I recommend you do, and that is to presell. So again, you shouldn't be doing this, you shouldn't be ordering containers of products until your website's already been established, meaning your dropshipping store, until it's already profitable, until you know what the best sellers are, until you're banking money. And when that happens you're going to have a few things. You're going to have a website with traffic and you're going to have an email list.
And what you should do after you do your research and pick the five to 10 different products that you want to put under your own brand, once you have them you're going to promote this like crazy to your audience. So on your website, on social, through your emails like crazy. Be emailing your list saying, "Hey, we're introducing this new brand," whatever, "Anton Chandeliers. This is what's different about them. This is what's better about them. They're going to be in stock in," however long the shipping's going to take, four weeks, eight weeks, whatever it is. "And right now we're doing a special offer before these things come in." You can call it ... It's like an official Kickstarter almost, a crowdfunding thing, but where you're selling them at discounted rates to get money coming in to fund it.
So again, this isn't something you could do if you have no track record, if you have no audience. Do this once your website has traffic, sales and email lists, a social following, and then once you're sure you have a good product idea. And the way you'll know you have a good product idea is if people are responding to this.
So let's just say you take off 15% of what the prices are going to be once you have these things in stock, but you're selling it to all of your people already, well, then there's no reason, again, if it's a good product, there's no reason why you shouldn't be able to raise 50, 75% or even 100% of what the money out to your supplier is going to be.
So again, if you're going to spend $100,000 on a container of products, you should be at least able to cover 50% of that by preselling what's going to be in that thing when it arrives. Again, it should be even higher but if you can't presell 50% of it, don't even order the thing because it's not worth it. People aren't going to buy it fast enough and you're just going to have inventory sitting in a warehouse costing you.
So number one, presell, presell, presell. That is the best solution always. Now, the second option, this is for people that maybe you do this in combination with preselling, but using Amex American Express Working Capital. This is going to be easier for you to do if you have a relationship with American Express. You might have heard me talk about this in the past, but we love them. We put so much money through American Express, not through Working Capital but just through using the card, so to pay for advertising, to pay certain suppliers, to pay business expenses. We put a lot through Amex, so we have ... They can go into our account, basically, and see who we are.
So ideally, if you're going to try to use this, you already have that relationship. Not necessary though. But the way it works with American Express Working Capital is you can apply for however much money you want. I think it starts at $50,000 and you can apply for up to a quarter-mil, so up to $750,000, and then you say how long you want that loan for. So you could say, "I want to borrow $750,000 and I want a payback period of 90 days," so that's what they give you.
They give you between 30 and 90 days as a payback period. It's based on, I think, what you ask for, how big the loan is and your business history. And then as far as what interest you're paying, it's between 6% and 12% APR, again, based on your credit, based on your risk. But if you get approved for this, they give you the money almost right away. Actually, a little different with them. They pay your invoices for you.
So let's just say you had a $75,000, no, let's $70,000 balance due for a container that's coming in, you can apply with Amex Working Capital for $70,000. You can say, "I want to pay this back in 60 days," and then if they approve you, you would actually send them the invoice from your supplier. They would pay that, and then you would have, again, between 30 and 90 days to pay it back based on the negotiation that you had with American Express when you applied.
And the way it works with them is it's a lump-sum payback, which I really like. Because if you say 90 days then ... and they pay your balance, they pay your $70,000, by the time it's due 90 days later you should have the product in stock. It should have already all sold through. It should all be at your customers. And then you just pay that back one time and you can move forward.
So again, number one way to fund high-ticket purchase orders is by preselling. Number two is American Express Working Capital. And the third one that I would recommend is a PayPal Business loan. This, same thing with American Express, you're more likely to get it if you have a relationship with PayPal. So what you'll need is a PayPal Business account.
And in there, once you log in, I know I see this every time I log into PayPal, there's a huge header, a banner image that says, "Do you want to apply for a loan," and if you wanted to you click it. And you could also just google PayPal Business loan and the links will come up. But the way their loans work is they're as small as $5,000 and they go up to $500,000. They have not much criteria. Again, it's based on credit. They also want to see that you've been in business for at least nine months, so nine months of financials you have to provide them with. Once you get approved with them, they'll put the money right in your PayPal account. So with that you can withdraw it to your bank and pay your invoices that way. You could do whatever you want with it.
And then the loan terms with them are between, I think it's 12 weeks and 52 weeks. So again, just like Amex, when you're negotiating with them, or when you're talking to your rep there, the underwriter, they'll work with you for how long you want to pay it back. So if for some reason you wanted a longer loan term, they can give you up to 52 weeks, but I don't see why anyone in this business looking for the money just to fund high-ticket purchase orders would need that.
But those are the three, guys, the three ones that I would recommend. And again, in the order that I would recommend them. Remember, the first is preselling. Have your customers actually pay for these products knowing, just like a Kickstarter campaign, that they're basically funding something that's coming in. Give them realistic expectations of when the products will ship. This will not only sell through your items, it'll pay the invoices and it will make you money, so you don't have to worry about dipping into your savings or your business checking account to cover this stuff.
Number two, American Express Working Capital, just a way to get some quick invoices paid off. And again, they have good rates and quick payback times, which I like.
And the third option is a PayPal Business loan, which they just require nine months of business financials. So show them that you've been in business, that you're making things happen and that you actually have money coming in and the ability to pay them back.
So that's it, guys. Hope you found this episode useful on this Monday. We got some exciting things coming up. I'm working on some things for Prague right now, because I'm leaving September 1st for our retreat out in Europe, so going to Italy for a bit, and then Prague. So I'm going to get into what I have to do before then, and I hope everybody has a great week. Hope you found value in this episode. As always, if you did, I really appreciate it if you took a minute, went over to iTunes and left a review, five stars if you think it's worth five stars. Helps people find out about this podcast, helps me keep doing them, so would really appreciate that.
And again, if you're brand new here and you want to figure out how to do this the easy way and not have to lay out a bunch of money to get started, go to DropShipWebinar.com, D-R-O-P-S-H-I-P-webinar.com and you can get my free training there. So thank you everybody, appreciate you and I'll see you in the next episode of the eCommerce Lifestyle podcast. See you.
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