On this segment of Own Your Future, we learn from Anna Rose, Senior Seller Success Manager at Yardline, a company that empowers the platform economy with capital solutions for sellers across any marketplace or platform.
With years of experience under her belt, Anna has extensive agency experience launching, managing, and growing brands on Amazon and Walmart.
Scaling Smart
When it comes to deciding how to use capital, there are several metrics to think about, but the most important is return on investment (ROI).
ROI should be top-of-mind as you will eventually have to pay off growth capital, and when you do, you want to ensure that it’s only a small percentage of generated revenue.
So, how do we achieve the highest ROI from growth capital?
To achieve the highest ROI, the areas you must look at your business are the following:
- Investory and logistics
- Advertising and promotion
- Staffing and partnerships
- Product and marketplace expansion
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Analysis #1: Unit Economics
Unit economics is defined as the profitability and margin of an individual stock keeping unit (SKU).
Unit economics is important because it allows you to understand your business at a granular level and can help you uncover opportunities for optimization and growth that would otherwise be missed when looking at a business in a high-level scale.
Let’s look a real-life example of how it applies in practice.
Margin Optimization
Step 1: Determine margin on a per SKU level. One SKU may have an 80% margin, and the rest of portfolio could only have a 20% margin.
Step 2: Align margin split with your goals. Are you trying to grow high performing SKUs or find opportunities to balance the portfolio?
Step 3 – Apply capital. Double down on advertising for high margin SKU or identify opportunities to increase margin on additional SKUs.
Analysis #2: COGS and Supply Chain
Areas where you are spending large amounts of time or money.
What are you looking for?
Taking a deep dive into COGS and Supply Chain is important because there is almost always room for optimization whether that be through time or cost.
What we really look for in this analysis is areas where you are spending a lot of time or money.
Let’s look at another real-life example here – component stock-ups.
Step 1 – Determine which areas of the supply chain have costly or time-consuming steps. One of the most immediate boosts to margin is buying packaging in bulk ahead of time.
Step 2 – Identify opportunities to decrease cost or time through bulk purchasing. Packaging does not typically expire and may take up relatively small amounts of warehouse space.
Step 3 – Apply capital. Purchasing boxes, sleeves, inserts, etc. in advance is one of the easiest way to achieve economies of scale.
Analysis #3: Expansion Analysis
- Product (variations, color, sizes)
- Product line/category (new product launches)
- Marketplace
- Market / Geography
Types of Expansion
Why Expansion Analysis is Important
New products or marketplaces may increase the overall profitability of your business. However, it is often hampered by the need to support the existing business.
This example of marketplace expansion is pretty straight forward.
Step 1 – Identify if your products are a fit. Find alignment in product, audience, market, and supply chain.
Step 2 – Determine the level of investment required. What is the ramp up period? Where are the economies of scale that can be applied to the new and existing marketplaces?
Step 3 – Apply capital. Launch in your new marketplace with confidence.
Analysis #4: Advertising Optimization
What to Look for in Your Advertising Mix
- Identify which marketplaces have the highest return on advertising
- Check in on key performance and engagement metrics like ACOS, ROAS, etc.
- Check in on pacing
Why is it Important?
Advertising can help with long term growth on rank, SEO, sales, reviews, etc.
Continuously testing and learning is critical to finding the media mix for your business.
Testing New Advertising Strategies
Step 1 – Identify where your target audience is and what channels they engage with. Apply what you know about your customers and their habits to find the channel that will reach them where they are.
Step 2 – Create a channel specific strategy with benchmarks for success. Before you begin, define what success looks like in this channel.
Step 3 – Apply capital. Test and learn without disrupting you normal advertising program.
Analysis #5: Partnerships and Staffing
How to Critically Assess Partnership and Staffing
- Identify back-office processes that may be inefficient and costly
- Find opportunities to increase efficiency in advertising and fulfillment
- Take an account of your business phase and needs
Why is it Important?
As your business scales, your needs change. It is important to consistently evaluate what kind of support will allow you to take your business to the next level.
Hire or partner
Step 1 – Identify the area of inefficiency.This may be a need for real-time optimization, a larger 3PL, or just more headcount to manage the business operations.
Step 2 – Gather information and weigh options. When deciding whether to bring on staff or partner for expertise make sure you understand the implications and requirements of each option.
Step 3 – Apply capital. Select the option that allows you to scale with confidence and can grow with you.
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