September Physical Product Sales: $12,972.06

September was a decent month but I had several out of stock items which hurt my sales. I also saw increased competition on one of my newer products as well which is making it difficult for me to raise my prices at all. Here’s what September looked like:

My net margin (aka pretax earnings) are hovering around 30% which leaves me with about $3,900 before paying any taxes.

Growing with Debt

I wrote in a previous post about Amazon Lending and I got an updated offer from them again this month allowing me to increase my loan to $8,000. In addition to this loan I have roughly $9,000 on credit cards that is a similar interest rate to the Amazon Lending loan.

In personal finance debt is highly frowned upon. It’s generally accepted for people to carry student loan debt or a mortgage, but carrying credit card debt is always considered a bad idea. Making the jump to taking out $17k in total loans was a pretty big leap for me and kind of risky, but with how capital intensive physical products are I felt like this was the best way to invest my money or the money available to me as loans.

Where is the Money Going?

So I’ve posted several months with sales numbers over $10,000 but I’m still borrowing money. Why? Well I’ve stumbled upon several new product ideas that I think are great opportunities for unique products that won’t be quickly copied. Additionally, I expect to have an average selling price on product 1 of $20 and on product 2 of $50-$90. Amazon’s fees they charge for fulfillment make up about 30% of my costs. On the product that could sell for $90, the fees would be much smaller, around 10-15%.

I have an existing product that has sold very well and I had to reorder. I ordered 1,500 units and between production, shipping, receiving and prep by my forwarding company, that order cost me around $6,000.
I have a new product that I’m launching which was 1,500 units and it will cost around $8,000 total.
The final product that will have the higher price point is a smaller commitment since it’s only 250 units, but it will cost about $4,000.

So between those 3 new products I had to lay out $18,000. My pretax income is $4k per month and I net about $2,000 of that. So my choices were to either wait 9 months to save up $18,000 and risk other people moving into those categories with new products while at the same time drawing no income at all from the business.

Or, I could take out loans, launch all of these products before Christmas, and cash in on the 4th quarter sales spike Amazon sees every year. To me, it was a no brainer since I’m sure I can get these products to sell and I’m very confident that they’re differentiated enough that I don’t have to worry about a ton of competition coming in and ruining my margins.

Personal Debt vs. Business Debt

The main takeaway for loans is that when used for a business, the loans are acquiring assets which will have a positive ROI. Consumer credit card debt is usually spent on depreciating assets that will only go down in value. That’s why every personal finance expert says people shouldn’t carry credit card debt since it can lead to reckless spending on stuff that will go down in value. Using debt to accelerate cash flow and build up an asset is a completely different use of debt, although there is still some risk since you can never know what Amazon is going to do on their platform.