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🏧  WHAT is YOUR CASH CONVERSION CYCLE #?

John Derkits spoke about the importance of understanding your cash conversion cycle at an event back in October, and he recently wrote about it again in his newsletter.

If you don’t understand your cash conversion cycle (CCC), you can’t manage cash. CCC shows how many days it takes to sell an item, get paid, and pay suppliers.

CCC is a metric that compares the amount of days it takes a company to sell inventory and collect receivables relative to the amount of days afforded to pay bills. It attempts to measure the time between the outflow and inflow of cash in the sales cycle.

For example, many companies buy inventory on credit as well as sell products on credit. These actions would increase the company’s Accounts Payable liability and Accounts Receivable asset, respectively.

However, cash has not yet been involved in these transactions until the company actually pays its Accounts Payables or collects its Accounts Receivables. The Cash Conversion Cycle attempts to measure the time between these cash outflows and inflows.

A negative figure suggests a company is able to receive payments for product sales before having to pay suppliers. This is good for net working capital and free cash flow.

When the CCC is negative, it means a company is generating short-term liquidity. Amazon’s CCC is a negative 23 (negative is good). For comparison, Alphabet’s is a positive 35. Netflix is 1 and Tesla is 12.

According to 512 Amazon sellers that Jon has done due diligence on, he says the average CCC for an Amazon private label business is a dismal 137 days!

If this is so important, then why don’t more business owners spend more time focusing on really understanding this?

Because it’s a bit harder than it looks and requires looking forward as much as backward, and looking forward is a lot harder. As Capforge, one of the top e-com accounting firms, says “Cash flow IS the most important thing for any business to monitor, project, understand, and respond to on a continuous basis.”

Take a look at Amazon’s cash conversion cycle:

• Amazon’s latest twelve months cash conversion cycle is -23 days

• Amazon's cash conversion cycle for fiscal years ending December 2019 to 2023 averaged -38 days.

• Looking back at the last 5 years, Amazon's cash conversion cycle peaked in March 2024 at -23 days.

• Amazon's cash conversion cycle hit its 5-year low in December 2021 of -46 days.

Ask your accounting firm to tell you your cash conversion cycle number if they have not been. It is a major metric every seller should know and work to improve.

Jon has 3 hacks for you that can help improve it:

1. HACK 1: Use ChatGPT as your negotiations coach

2. HACK 2: Fund POs with credit cards using Melio Payments

3. Hack 3: Use a credit card with better payment terms
   

Tip: With the American Express Plum Card, you can get 60-day payment terms

🚂 WHO’S ON BOARD with NORM and KEVIN?

🔎  AMAZON to LAUNCH DISCOUNT SECTION
with DIRECT SHIPPING from CHINA

Amazon plans to introduce a new discount section this Fall allowing consumers to purchase cheap items that will be shipped directly from warehouses in China.

The move is Amazon's strategic response to the increasing popularity of bargain sites like Temu and Shein.

• Product Range and Delivery: The section will feature unbranded fashion, home goods, and daily necessities. Deliveries are expected to take between 9 to 11 days.

• Merchant Participation: Amazon has begun signing up Chinese merchants, with plans to start accepting inventory by fall. Merchants will have the flexibility to determine product selection, pricing, and produce in small batches to test market demand.
  
  This initiative has the potential to reshape the e-commerce landscape by offering consumers lower prices and greater selection, while also providing Chinese sellers with new growth opportunities.

Impact

1. Competitive Positioning:

   • Direct Competition: By launching this discount section, Amazon aims to directly compete with Temu and Shein, which have successfully attracted consumers with low prices.

   • Market Share Expansion: This initiative could help Amazon capture a larger share of the budget-conscious consumer segment, particularly those who prioritize price over brand.

   • The importance of branding and differentiation will now be even more important for 3P sellers on Amazon who likely will be unable to compete unless they have better, differentiated non-commoditized products.

   • Amazon's vast logistics network might streamline the delivery process, ensuring faster and more reliable shipping compared to its competitors.

2. Chinese Seller Opportunities:

   • Market Entry: The new platform provides Chinese sellers with a significant opportunity to access international markets with relatively low entry barriers.

   • Flexibility and Testing: Chinese sellers will be allowed to experiment with product offerings and adjust strategies based on real-time market feedback, fostering innovation and responsiveness.

3. Consumer Benefits:

   • Cost Savings: Consumers can benefit from lower prices on essential items and fashion, enhancing Amazon's value proposition.

   • Increased Selection: The addition of unbranded goods broadens the range of products available, catering to diverse consumer preferences.

4. Regulatory Considerations:

   • Customs and Duties: The use of the $800 exemption for customs duties could attract scrutiny from regulators, especially if the volume of shipments increases significantly.

   • Market Fairness: There may be concerns about fair competition, especially from domestic sellers who might be disadvantaged by the duty exemptions.

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🚀 AMAZON LINKS to BUY with PRIME DTC SITES

Amazon's Buy with Prime program, introduced in 2022 and expanded to all U.S. sellers in 2023, allows Prime members to enjoy Prime benefits like free, fast delivery and free returns on websites outside of Amazon.

Despite its potential, the service has faced challenges in gaining traction. Amazon laid off over 30 employees, about 5% of the Buy with Prime team, in January.

• Prime service fee: 3% of order value, $1.00 per order minimum.

• Fulfillment fee: Starting at $5.33 per unit fulfilled and $0.78 per cubic foot stored per month.

• Payment processing fee: 2.4% of order value and $0.30 per transaction.

Several merchants have reported mixed results since adopting Buy with Prime.

For example:

• The Bean Coffee Company reports that Buy with Prime accounts for only 3% to 5% of sales but expects growth as customers become more familiar with the service.

• Tria Beauty has seen 7% to 11% of its direct-to-consumer (D2C) sales come from Buy with Prime over 18 months.

• Pattern has observed positive impacts on conversion rates, though Buy with Prime still constitutes a low percentage of overall sales.

• Ekrin Athletics found that 25% of their site's sales are through Buy with Prime since its implementation, though conversion rates remain lower than desired.

• Wyze has achieved 20% of its website orders through Buy with Prime.

Despite the slow adoption and initial challenges, Amazon remains confident in the program, as highlighted by CEO Andy Jassy. Key issues include high service fees, limited integration with merchants' existing systems, and low consumer awareness.

To boost Buy with Prime's adoption, BDS Dream 100 member Destaney Wishon recently shared that Amazon has taken a significant step by showcasing Buy with Prime products prominently on its homepage and linking directly to the brands' D2C sites from Amazon.

This move aims to leverage Amazon's vast customer base and trusted checkout system to drive traffic to merchants' own websites, enhancing brand building and D2C potential and promoting Buy with Prime.

This integration on Amazon's homepage could provide a significant boost to Buy with Prime. Early data suggests positive impacts, with companies like Wyze and Sherpani seeing significant uplifts in shopper conversions and new customer acquisitions.

My “why” has led me to visit 94 countries and all 7 continents. I create my business around my life. Not my life around my business.

I hope to inspire you in your journey of business and life with photos, a short video I filmed, and a brief description of my time there.

CREDIT CARDS FOR TRAVEL

Rather than talk about some faraway land this week, I’m gonna tell you the credit cards I use in conjunction with my business and personal expenses that enable to get major travel benefits, including free upgrades, elite status, free flights in business class, lounge access, free hotels and more.

• #1 Barclay Aviator Mastercard (American Airlines)

  With this card I qualify every year for top tier Executive Platinum status without having to fly the required miles. This status is a major benefit with free domestic upgrades, priority boarding, free checked bags, system-wide upgrades anywhere AA flies, bonus miles and a lot more. I have had AA Executive Platinum status for 11 years now.
  

  • 70,000 bonus miles at signup

  • Qualify for AA elite access with spend

  • 2X on AA purchases

  • Companion certificate for 2 guest at $99 each

  • First checked bag free

  • 0% APR for 15 months on balance transfers

  • $100 global entry fee credit

  • $50 AA wifi credit

  • No foreign transaction fees

    
    Apply for one here

#2 American Express Business Gold

This must be the business gold, not the personal gold. You get 4X points on PPC spend up to a max of $150,000 per year. I know sellers who have 10 of these cards and get 6,000,000 miles per year from Amazon PPC spend by rotating card out. They never pay for tickets and always fly business or first class.

• 70,000 bonus points with $10K spend in first 3 months

• $120 uber cash

• No foreign transaction fees

• 4X on PPC spend, software and cloud system spend

• Walmart + membership (like Amazon Prime)

Apply for one here

#3 Capital One Venture X

Earn 75,000 bonus miles once you spend $4,000 on purchases within the first 3 months from account opening.

• $300 Annual Travel Credit

• $100 Global Entry or TSA PreCheck® Credit

• Capital One Lounge access

• Global Lounge access

• No foreign transaction fee

• Miles don’t expire, no blackout dates

  
  Apply for one here

✌🏼 Holler back at you again Monday.

The answer to today’s STUMP BEZOS is
137 days