How to use crowd funding to aggressively scale your PL business
If you need to grow after initial production runs but are still too small to get banks to lend you money for more inventory, you should pay close attention to this article.
As I’m sure most of you reading this knows, a physical inventory business needs capital, especially when you’re growing.
If you have validated that sweet golden product and need to ramp up from 500 to 2000 units to sea ship, that can be financially pretty taxing, especially for people like me who have a family to support.
You also probably know that you need to expand as quickly as possible
With new sellers pouring into Amazon all the time, we don’t have time to sit back and relax. The faster you can scale and improve your per unit costs, the further you can get from your competition -it’s simple.
All things being equal, the seller with the bigger purse will win because, how are you going to beat their price on a similar PL item when you’re only doing a 500 MOQ via air courier and he is doing 1k+ and paying peanuts on sea shipping?
If money is tight, try crowd funding
Rather than getting a traditional loan or micro loan from somewhere like Kabbage (which doesn’t work for most Amazon sellers in the UK as they only, for some reason, look at Ebay sales), why not try crowd funding?
There’s a service out there called Kickfurther that will crowd fund your inventory purchases subsequent to your first production run -- unlike Kickstarter that you can use to fund the initial manufacturing of a product
How does it work for PL sellers?
On Kickfurther, businesses ask backers to fund their inventory in exchange for a consigned rate that the business gets to choose themselves. If the funding goal is met, Kickfurther provides the business with the money that must be spent on inventory.
The business then sells it, returning a promised rate of return to the backers every month depending on the inventory sold. Basically, Kickfurther purchases the inventory on behalf of the investors, and you sell it on a consignment basis.
If you have sold a first batch, you’re probably eligible
If you have a new or untested product, Kickfurther won’t be the place for you since the backers are, basically, investors and want to see some proof of concept or at least a little bit of a track record.
The way Kickfurther vets companies is mostly based on social metrics, including whether they’ve had a successful crowd funding campaign on a site like Kickstarter or Indiegogo, and whether they have had delays in fulfilling their product commitments.
But guess what? If you’re already selling on Amazon, you’ve got the proof right there already! You can just download your sales report from seller central and WHAM, take a look at my sweet garlic press sales!
Any potential backer can see exactly how much you sold and in what timeframe.
What about their fees?
Kickfurther takes a 3.5 per cent cut from the business when the initial amount is funded.
This can be a much quicker way for the smaller seller to ramp up on inventory at a decent percentage.
As an example, Company X wants to raise $100K. When that offer goes on the site it would be listed as $103.5K because the investors are paying Company X's fees on the front-end (so their fees do not cut into their needed financing). Company X then pays the fees and ROI on the back-end when they have payments due.
What happens when I sell all my inventory?
You can just fund one round if you want, or come back and do more offers - The more successful offers you do on the site, the more credibility you earn with the community of investors (which means you can raise more $$ at lower rates)
Does it work for UK/EU sellers?
You don’t have to be a US citizen to use the service, but it might be a bit harder to get approved and, non US sellers get reviewed on a case by case basis.
You must have a US bank account for this though (I’d recommend going with World First for over Payoneer for this one, you can read more on that here).
Also, you need someone that can serve as a representative with a US social security number.
Find out more
If you’re feeling the pinch on that next order, when not drop them a line and see if they’re a good fit?
You can find out more from their site and look at the pretty infographics there