Hey, my name is Daniel Audunsson. And in this video, I'm going to explain how to improve cashflow in a Amazon private label business. Now, this is an awesome concept that many of my students have really got a lot of value out of, and it's really, you know, opened their eyes to how to manage this part of your business, uh, properly and like a professional business, you know, when it comes to cashflow, when it comes to supply chain management, you know, this is really, uh, like the lifeblood of your business. And if you want your business to stay alive and be alive and kicking and actually, uh, you know, enabled it to grow and flourish, then this is absolutely key. So I'm really excited to share this with you. And I'm pretty certain you haven't seen this before, so, um, yeah, let's dive in. And at the end, I'm also going to give you a free handout on this, which you can print out or save on your computer as a reference, you know, to distant, help you dial this concept in.
So I hope this is going to be really valuable for you. So let's dive in and this will be a simple, quick video as well. So, um, again, how to improve cashflow. So the first thing I'll do here is explain the concept of cashflow in a Amazon private label business, you know, really any business with inventory, this same concept of place. So the first thing you've got here is inventory, right? So whenever you purchase inventory, you know, as soon as you've got that inventory in stock, ready to be sold, this exists inventory, right? And so the way that you, you know, cash flows through your business is really, uh, you purchased inventory, right? And you've got that inventory. So your cash is tied up in this inventory and then you sell it and you get an inflow into a business of cash into your bank account, right?
So you get cash coming in, but then you will take the cash and put it into outflow and you will use at least a portion of the cash to buy more inventory, right. And then you sell it into, you get paid back into your bank account and you use at least part of that cash again, uh, to pay, uh, for more inventory. So, you know, cash basically flows into your business and back out and into inventory, and that's kind of like the bridge. Um, and you know, when that sold, you get paid. And obviously the whole idea is that each time you run the cycle, you know, with your cash, you make a profit, right. That's the whole idea. And that's how you make money. Uh, no. Um, yeah. So let me just put that in here, basically, you know, like you've got, this is obviously your objective here is profit.
So this is the whole reason you're doing this thing, you know, turning the cash around and around. Um, and really like, you've got another variable that's really important. This is, you know, we call this a cash cycle. So like the big, I guess the, the, the negative, like really negative component of when it comes to your cash cycle is just time, right? Time is really your enemy, so to speak. Um, because time is money literally in this sense, right? So you've got time here, which is like the main variable when it comes to your cash cycle, right? So you've got like a cycle time now, depending on some factors, you know, this time is going to be long or short. Uh, so basically like the shorter, it takes you to, you know, run, the cash cycle would take, let's say a dollar and put it through this thing.
So it comes back, you know, the, the time it takes you to put it through this flow, until it comes back is bad. So the longer it takes, you know, the longer it takes you to make money, right. Profit. Um, so you want this time to be as short as possible, because then you can do this faster and faster and or more times, you know, in a year, let's say, and then you'll make more profit. Um, but on the flip side of that, you know, we have obviously how much profit you make in each cycle. So you could run the cycle many times, but have a small profit margin. And so you make just a little bit of profit it's time, or you could run it slowly. Like it takes a long time, but each time you run it, you've got a lot of profit, right?
So there's, you've got to weigh the pros and cons, you know, it doesn't mean that necessarily if you've got a long cash cycle, it's not a good thing. Uh, or if you've got, you know, because the profit is really important as well, like the profitability, the profit margin. So you've got these sort of two opposite forces at play, and you're trying to balance them. You're trying to basically improve both. So I'll explain a bit more about that in a second. Um, but, um, but basically, you know, cash is, well actually, let me just explain that now. So basically the, you know, this thing you want this thing to be going, right? You want to, uh, increase the profit on each cash cycle as much as possible, right? That's one thing you want to do. The other thing you want to do is you want to really like reduce the time it takes you to put your cash, you know, cash through the cycle as much as possible as well.
So, you know, you have these two forces at play that you're always trying to optimize because you know, the more profit you make or need cycle, and the less time it takes, the more profit you will make in the business, the healthier the cashflow, the faster your business can grow. So it's really about that. Like, this is very fundamental, uh, like core principle, like a formula, like an equation in your business that you want to constantly be obsessed about and looking to improve, because the stronger you've got this, like the shorter, the time the higher, the profit, the better your business is going to perform, you know, the more money you will make, the faster it can grow. And the, you know, the more profit you have to invest reinvest. And so this is what it's all about in this business. Like, it's really just about this, uh, because this is how you make money.
Like this is the formula. Uh, so if you've got like a really long cycle time, like let's say it's 120 days just to take $1 through this cycle, like one circle, you know, like one rant. Um, and then your profit margin is like 10%. You know, you're not going to make a lot of money without business right. In a year. Can you just look at the cash you have? And you can only increase it by 10%, every 120 days. No, that's three cycles a year. So that's, you know, 10% it's time on, let's say $10,000, right? So that's, you're not going to make a lot of money, but if you've got a cycle time off, let's say 60 days and a profit margin off, uh, you know, 20%, that becomes a lot better. If it's 30%, I mean, that's sort of become really good. You know, you can really make a great ROI on the cash you've got in the business each year.
And obviously each time you have more and more cash to reinvest, so it grows and grows and grows and it becomes exponential. So, you know, this is like the most fundamental, basic thing in a private label business. And what I noticed is most sellers aren't really aware of this, but when you really become aware of this and you started really optimize or seek to optimize this equation, you can make tremendous progress. So another question is really just like, how do you actually optimize it? You know, how do you actually try dump cycle time increase? Well, uh, yeah, several things, but really there's like two main areas we're looking at and one is you're in the old floor and the other one is in inflow, right? So we've got the inventory, we call this thing, the gap, because this is just that time, you know, in an ideal situation, you know, you would sell all your inventory immediately, as soon as you got it.
Right. That would be ideal. So that gap would be like nothing, but that's not how it works. And you know, that's not actually very healthy for Amazon because you want to never run out of inventory, basically, if you can. So, uh, the trick is really optimize this bit, you know, when it comes to ordering like the right amount or you run out of inventory as soon as more is coming in. So you kind of like minimize this gap as much as possible. So you're increasing sell through your throughput. Uh, but you're also, you know, timing imagery. So you're not tying in unnecessarily. So, you know, you basically put in just enough cash to, uh, you know, to, to handle the sales volume you have, and then you in order more. So it arrives as soon as you need it. So you're trying to reduce this gap so that your cash is being utilized as well as possible in your business.
Because if you have a lot of gap, like you have a long gap time, he just ordered like way too much inventory. That cash is stuck. And it's, you know, obviously it increases the cycle time as well. So just wanted to point that out. Like, this is like bad. We want this to be as short as possible without still running out of inventory. Right. So it's kind of a balancing act, but again, how do we optimize this cash cycle? Like how do we drive down the cycle time and increased profit? Well, it's mainly in these two areas. So when it comes to outflow, like going into inventory and then inventory into inflow. So what do you got here is, um, there's several things, but I point out two, like big things. So the first thing would be our lead time, right? So we've got our, your lead time, which is really a necessary evil, you know, it's something in an ideal situation, you wouldn't have any lead time.
You know, that would be best if you just had no lead time, but that's not reality. Um, but that being said, you want your lead time to be as short as possible to accomplish your objective. So you want to really think about optimizing lead time and there's a lot you can actually do to optimize lead time. Uh, you can, you know, I won't really go into that here, but you can do a lot to optimize your lead time. Um, so that the lead time, instead of being 60 days, 90 days, you know, becomes shorter and shorter. So that's the one thing you want to optimize. You want to work on another thing here that I see a lot is simply efficiency. So let's say you've, you know, you got cash in the business and it's in your bank account. If you want this cycle time to be as short as possible, you want to run it as many times as possible.
Yeah. You want to shorten the lead time, but you also want to make sure you're efficient when it comes to you using the cash you've got, she don't want to get paid, had the cash sitting there and just be idle. It's better to either put it into more inventory as soon as possible for what you're selling to, you know, speed this thing up. Or, you know, if, if, if you have extra cash, put it into a new product to get in a more cashflowing through the cycle, because you know, the more cash you've got flowing through this it's time with the highest possible profit margin and the shortest possible time, you know, the more money you make, right? So if you got a 20% profit margin on 10,000 bucks running through this, you know, that's two grand each time in profit, but if you had a hundred thousand, a 20% profit margin, and that's 20,000 it's time in profit, if you had a million, you know, that would be 200,000 in profit it's time.
So you can see it's really, uh, it's really about, uh, the mechanics of scale to make money in this business, uh, make a lot of money. So you got that, you know, I see a lot of sellers that have like, they get paid and they're, you know, that they should be placing a new order, but it takes way too much time. You know, they're not prepared to, you know, put it back into the business. It's immediately, as soon as they have it. So it takes them like a week or two weeks just to place the order, just to get the payment through. Maybe, you know, they can pay today, but delay or procrastinate for four days or something like that. Right? So the efficiency is really poor and that's increasing your cash cycle. It's literally meaning you can make less money in your business. Like it literally causes you to make less money in the business.
So this stuff is really sensitive. Like it's very, um, important to be truly on top of this and a really good operator to really, you know, improve the cashflow in your business. You know, these things are absolute killers of success in this business, and it's this simple, basic stuff really. Uh, but most sellers just completely overlook these things. Now, the second part, like I mentioned, so outflow, there's more things here, but basically you want to optimize the outflow. So as soon as you've got cash, you want to reinvest it and you want, you know, the time from when you pay until you've got the inventory ready to sell to be as short as possible. So lead time efficiency, things like this. Um, the second thing is really about the inflow. So after we make a sale, or I should say, after you have the inventory, how long does it take for you to monetize this inventory and actually get paid into your bank account?
Because making a sale in this business, like on Amazon doesn't mean you've got the inflow yet. The inflow only comes when the cash is in your account, right? So, um, now, you know, we want to really, again, optimize for, uh, this inflow. So like when you have the inventory, it takes as little time as possible for you to have the cash back in your account, because this means you can put it back into old flow and again, get inventory back in as soon as possible. So you can make sales again, um, an optimize, you know, reduce this time. So now we have things like, you know, sales it themselves, right? So the sell through the throughput. So once you have the inventory, you know, how long does it take you to sell it? Um, so like I mentioned, you want to balance the size of inventory with how many sales you've got, like the sales volume, this is important, but at the same time, you know, you want to have healthy throughput.
So you would notice, for example, if you're selling on Amazon, that the inventory performance index will get really bad, if you have poor sell through. So if the inventory they're sitting in FBA, let's say 420 days, then this gap is really long. And the sales, you know, the throughput is poor and Amazon won't like it, and you should not like it either, cause it's not good for your business. So you want to have, you know, the sales happening pretty much as soon as possible. And it's better to have influence in that order more times than just order a lot and have a lot of inventory from this perspective. Now it might not be the best from the profitability point of view. So there's always, you know, several things going on, you have to balance, but from this perspective, it's good to sell as quickly as possible.
Um, another thing would be this payout, right? So if you're selling on Amazon, um, you know, actually getting paint is not, uh, the same as, you know, making a sale. So, uh, if you make a sale, you might not get paid, uh, right away. So, uh, you can optimize this as well. Usually it takes you two weeks to get paid after you make a sale or, you know, within two weeks, but you can get paid more frequently. There are services and things you can use, uh, companies you can work with. So you can get paid more like daily. Uh, so you make a sale and you get paid off within a few days instead of maybe two weeks. So this has a dramatic impact on your inflow, which really helps with this cash cycle and your cashflow and Thomas money you can make in the business.
So I hope this is all making sense. And you can see there's a lot of things at play, many things connected, but there's a lot you can actually do to optimize this. Now, another thing I'll point out as well as is what I call bleed, right? So you might have, um, basically holes in this cycle. So you've got your cash, you know, running through this thing and you might be wasting money basically. So let's say, and you're paying your supplier and you know, you're like overpaying, you know, you're, uh, you don't have a good fees when it comes through payments, you know, they're high, uh, your, your currency conversion rates are bad. You know, you're having to do things basically in a way that it's wasteful, you know, you could do a lot better. So then you've got basically like a hole in the cycle where there's, you know, of course there's going to be costs and things as well, which we take into account, but you can have costs that are necessary.
And I call that bleed, right? And then again, here, when it comes to, you know, getting paid, you can have the same kind of bleeds and you can have known Amazon. You can have several different things going on, like, uh, you know, you're being charged incorrectly for fees and different things like that. You're being overcharged, you're not getting reimbursed for things you should be reimbursed for. So you should have strong processes in place to detect this kind of bleed and minimize it. Cause it will harm your cash flow or your care cycle, your profitability it's time. Right. Um, and potential, you can have things that also harm the cycle time from this point of view, with a, with a bleed, you know, with the holes. So, um, so that's more or less it, um, I hope this has been really valuable and eye opening and useful.
You know, we have, again, a lot going on here, but this is really what it's all about in this business is this cash cycle. Like this is the most fundamental, formal other lifeblood off your business. This is how you make money. It's you want to optimize this formula and this cashflow cycle as much as you possibly can, which means time down profit up. And here's a couple of ways to do it again. There's a lot more you can do. This is just a simple, quick video to explain this concept to you. And hopefully you get some great value from this. If you want this as a resource, you want to download this, you want to maybe print it out as a reference, as a reminder, then I'm going to place a link below this video and you can just click it and immediately access a proper, like nicely, uh, laid out diagram that I have in Apex seller for my students, which I'll give to you for free here, because you're watching this video, which is a lot more nicer than, um, uh, my drawing it's it's clearer and everything.
Um, but anyhow, the link is below the video. If you want to access that for free right now. And if you like this, you know, if you want to learn for example, more about how to really optimize your care cycle and improve your cashflow, like if you want to receive the actual strategies and tactics and processes, we use to improve cashflow. And if you're, you know, if you, if you're in this business right now and you want to learn more about these sorts of things, like fundamental business stuff that actually works like the real business stuff, you know how to make your business actually like really healthy, profitable and things like that. Then there's a lot more, uh, from, you know, where this came from, uh, which I have in Apex seller, my, my training program. So if you're interested in that, then you can just go ahead and you can book a call with me or someone on my team right now I'll place a link below this video, and you can use that to book a 45 minute discovery call with me or someone on my team.
And we can really pinpoint and map out what things like this. You might be missing in your business, and you might be able to work on to improve and dramatically improve and help your business succeed. You know, this stuff has a dramatic, profound, deep impact on your business. And again, there's a lot more like this, uh, in Apex seller. So if you're interested that you can click the link below this video and book a call right now, uh, in no pressure, no strings attached, it's just a friendly conversation to see if we can help you. And if so, uh, if you're interested in joining Apex seller, so that's it, uh, of course, if you like this video click, like I would love to, you know, uh, hear from you that you liked it just through a simple, like, or if you want to tell me something and you want to ask a question, you can also comment below this video.
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