I’ve written before about how the cash flow cycle of inventory can be the death of e-commerce companies of all sizes. One of the things we’ve done this year with surprising success is pre-selling items before we get them in stock. As soon as we place an order with a distributor, the product goes up on our site. Most of the time the description just says “coming soon” and the picture is just something like this:
This isn’t all that intuitive of a practice. I mean, you could argue that it’s not worth the effort of even posting it until you have it in stock, have it photoed, and have a description written. Make it a one shot deal. No one will buy it without a photo or description anyway…right? This is what we did in the past, and often times weeks would go by from the time we got the product in stock to when it was on the site.
After the success of the big Meguiar’s pre-sale back in February, we realized just how big of a deal this could be. Many of those Meguiar’s products were sold out before we got them in stock. Meaning we had collected the money from our customers before we were even billed for the products! All of a sudden we’ve turned a huge cash flow disadvantage into a huge cash flow advantage. We can take that revenue to pay off the bill and order more. As opposed to starting off in the red, we’re starting off using our profits to fund growth. By the time that first bill was due, we had already sold out of the second batch of products and had a third (or maybe even a fourth) batch on order.
Of course, that was a major product launch that had a ton of hype in the detailing world. We were the first in the industry to get the products up for pre-sale. We ran a pretty big marketing campaign along with it. We could have just been capitalizing on being first to market and this could have been a non-replicable one-time fluke.
We decided to commit to continuing the practice (and by “we” I basically mean everyone else in the company – my role in getting a new product for sale is pretty minimal, sometimes I’m not involved at all). Somewhat surprisingly it continued to work well across all brands and all types of products. To varying degrees of course, but it always worked. Almost nothing we’ve put up for pre-order hasn’t sold. The craziest pre-sales were some of the brushes we recently picked up. We named them ourselves so they have no prior brand affiliation, and yet people still bought them without a picture or description! When you compound all of this across a bunch of different brands, it has allowed us to expand products faster and with more confidence.
Now, if you’re sitting at home thinking “cool, I’m just going to start an e-commerce business and do this” there are a few caveats worth mentioning…even if they should be obvious. First and foremost, this only works once you have an established customer base that trusts your product recommendations, something you can only achieve with years of good will and honesty, right down from your product descriptions to the information on your site and your customer service. You also need to have a good buyer. Greg has been essentially perfect this year. Everything he’s decided to pick up has been a hit. That only comes with years of experience and a skillset that combines some mixture of good data analysis and good industry foresight.
This experience has been one big lesson in “you’ll never know if you don’t try”. We all hold assumptions about our businesses and our customers. Sometimes we’re right and sometimes we’re wrong. As was the case with the Weekly Special last year, this is one of those times where I’m really glad to be wrong.