We closed one business

January was one of the most terrible months since I was in business personally.

We decided to close a business doing close to $3MM revenue a year when AMEX cut down our line; we could not pay vendors in time once they cut us off and didn’t agree to a restructuring plan; no more product was being shipped to customers, and we had to close.

2024 is the year of strengthening balance sheets. Our other businesses are doing well but are still fragile with too much debt for my taste. I also learned that middle market banks are done lending to e-commerce companies, and the cost of debt is now 18%+, which doesn’t make e-commerce a sustainable business model.

We are cleaning up the aggregator acquisition of November and focusing on internal team building for the next 60 days.

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Thanks!

Marc Roca
Founder & CEO of Inversal

Marc Roca Founder & CEO of Inversal - Face

Agility is paramount during turnarounds

Whew! I’m just getting settled in after a busy week and a half travelling to China and Japan. Business trips can be tiring but this one had me quite energized after having fruitful discussions with our team, friends, and new partners.

Headways Made

Japan

The Lunar New Year is just around the corner. Upcoming holidays in China do have an impact on manufacturing and logistics. We have to factor these into our supply chain planning. So, it was really crucial for us and our China team to sort things out to avoid any issues for the rest of Q1.

As I mentioned in our last update, I also had several meetings scheduled with potential Japanese partners. I’m happy to share that we made real headway into some deals that could fuel our growth this year. I’m holding off sharing more details until we’re ready to announce. Stay tuned as we progress.

Turnarounds Require Agility

Agility

It’s great that I’m really inspired by the trip since we’ll be hitting the ground running this week. We’re still in the middle of absorbing several brands from the recent acquisition.

These first weeks are usually a hectic time for the team since we have to get ourselves up to speed very quickly. Everyone has to understand the situation of the brands and quickly introduce much-needed changes operationally. Distressed brands do need immediate intervention. Restructuring is part of the process.

As such, we do assign a huge premium to agility. I’m quite proud how the team has adopted this as part of the mindset and culture. Everyone’s eager to internalize the state of the brands and we’re all comfortable wearing several hats as needed as we keep things lean. This allows us to make sure we have a very good view of things and make the impactful changes quickly.

January Figures Coming Up

Next week, we’ll be taking a look at our January figures. Historically, the first month of the new year can bring mixed results depending on the brands and products. There’s generally a post-holiday slowdown and some sales fatigue from customers. Though some brands can have quite the start for the year.

Let’s see what January brought us in next week’s entry.

Connect with me on social media:

Thanks!

Marc Roca
Founder & CEO of Inversal

Marc Roca Founder & CEO of Inversal - Face

Strengthening relationships in Japan and China

Unless you’re running a very local e-commerce business, you’d have to think global if you want to grow your venture.

Fostering cross-border partnerships have been vital to our growth. We pretty much have a worldwide operation at Inversal. The US remains our biggest market and some of our brands are focused on Europe. We deal with manufacturers and suppliers from all over the globe. Our workforce is based mainly in the Philippines and China.

This week has been another busy one for me. I’m currently travelling. I made a stop at China to talk to our team and reconnect with our suppliers. This week, I’m also in Japan to nurture potential business that we can do with some of our Japanese partners.

Strengthening Our Shenzhen Connection

After a short stop in Hong Kong

Schenzen is not only a vital hub in the e-commerce in Asia. It’s pivotal in the global e-commerce network. It’s been called as the “Silicon Valley of Hardware.” A lot of electronics manufacturers that supply factories for many popular gadgets have factories and operations in Shenzhen.

It’s very strategically located and is very close to Hong Kong. It’s near one of the world’s busiest ports, making it an ideal base of operations to anyone looking to deal with manufacturers in China. It shares the same time zone as our team in the Philippines so we can do real-time collaboration during office hours.

This is why our China team is based in Shenzhen. I recently visited them to align our goals and strategies for the year. We are looking to drive more sales for some of our top-selling brands and find better suppliers for some of our recently-acquired brands.

We’d like our COGS to be optimal, while ensuring that quality isn’t compromised. We also have to make sure that we have enough stocks available for the demand.

With the Chinese new year looming, we have to get our orders set so that production and deliveries will not be derailed. This requires our China team to coordinate with our suppliers and communicate with the rest of our teams handling sales, marketing, and support.

Japan as Perfect Capital Partners

Getting around
Getting around

Aside from China, we’re also exploring deeper partnerships with our Japanese friends. Like China, Japan is also just a four-hour flight from Manila. And the time difference is just an hour.

I have meetings lined up on Monday and Tuesday and they all look promising. We might enjoy new partnerships for our existing brands soon. And, we’re even considering creating new ventures with all the available opportunities!

Japan still enjoys a strong economy. It’s still the third largest next to China and the US. It’s a hub for technological innovation. The Japanese are sticklers for high standards of quality and they’re top-notch when it comes to ethics and reliability.

It also helps that we like other things about the Japanese culture. As you know, I’m a huge Pokemon card game fan. Many of our staff are fans of anime, JRPG, and Japanese history. And who doesn’t like sushi and Wagyu beef?

They’re the perfect capital partners for Inversal.

Hectic But Exciting

The first three weeks of January has been such a rush for the team. We really hit the ground running after the holidays. There were a few wrinkles to smooth out due to the holiday rush but our team was able to come together and pull through.

Now, with these trips, I’m getting even more excited with what the rest of the year will have in store.

Let’s go, 2024! Bring it on!

Connect with me on social media:

Thanks!

Marc Roca
Founder & CEO of Inversal

Marc Roca Founder & CEO of Inversal - Face

💰Why Product ROI Matters More than Margin in Amazon FBA

👑Cash ROI is king

Today, I will discuss the main product KPI we use at Inversal to succeed at Amazon FBA.

Most aggregators have focused on profit margin after PPC but before OPEX when acquiring businesses in the last 3 years. I will explain why the margin is less important than cash ROI.

Product is key to this. This is why the product team has to lead growth in any e-commerce business once we achieve product market fit. Not the marketing team.

Margin is a Vanity Metric

We all want a 25% net margin business. Most are happy with 15% nowadays, but this doesn’t reflect the reality of the cash we need to grow the business. E-commerce is a long game; you only get rewarded once you sell the business. Unless, of course, you have one of those unicorn brands.

ROI is King

The number one factor of success in Amazon FBA is access to capital, enabling more inventory turns. On average, a business that sources from China can do 3 turns a year:

  1. We order with a small down payment while the goods are being produced
  2. We pay the full balance, and then it takes, on average, 30 to 45 days to get to Amazon
  3. We order 3 months of inventory and will not receive full cash investment until month 4. But, we need to reorder more 60 days into this 120-day cycle if we are growing.

This means we must go from 1,000 units on the first order to 3,000 on the second order until we achieve best-seller status. Only then can we convert the product to cash cow mode.

Inversal aims to have a minimum of 100% ROI in our products after PPC. If we had access to cheaper capital, we could go lower, but that is not the case. External costs are usually not accounted for in the calculation, which gives us enough margin of error.

Now let’s see how offering the right product is vital to an e-commerce business’ success.

Discontinued Product Example

This product has made us over $200,000 in profit over the last 5 years. But, we have decided to discontinue it in January until we can lower the COGS. We have better uses of our cash than reordering.

In April 2022, the margin was 19% and the ROI was 57%. This was sourced from the USA. We had credit terms with the supplier and could hold 60 days of inventory instead of 90 days.

Discontinued Product Example

By April 2023, the main competitor decided to drop prices, and there was a new competitor. The manufacturer increased our COGS, and the numbers looked much worse.

We can’t invest $25,000 to make just $6,000 over 3 months. If something else happens, we might go into a negative margin.

The listing has over 3,000 reviews with a 4.5 average rating, but we cannot compete with a brand with $250MM+ revenue and can keep the cost low as they have more scale.

Perfect Product Example

I designed this product for one of our brands back in April. It has more quantity than its competitors, and its main image is better than its Chinese competitors.

I knew we could rank it, but we would require many units. We had 30,000 produced immediately after month 3. We are achieving full scale after hitting 100 reviews this second week of January.

This product is our north star: 30%+ margin, 300%+ ROI after one month. We can now reorder enough for the next 4 months and reinvest in new variations that increase the average order value.

Competitors on this product have 10,000+ reviews. This shows that a better product with more perceived value at the same price will always win.

BONUS: Low Margin, High ROI Product

This one is a special case of one of our turnaround brands. The product has low COGS but the Amazon fees are very high. Once we stabilize the ad cost to 10%, it will be a 200% ROI product with just a 15% margin.

Conclusion: Cost of Capital is the MAIN FACTOR of SUCCESS

We need to keep growing to get access to cheaper capital. Having loans at 6% interest will allow us to keep products under 100% ROI or buy those brands from others who do not have access to that capital at $1 for the goodwill; otherwise, they would be shut down.

This is where we believe e-commerce is going by the end of this decade. You will not be able to compete with rollups and bigger companies who have the scale to achieve $50MM+ credit lines to purchase and scale.

This is a major part of my job at Inversal: finding us the products we can scale at 100%+ ROI while looking for cheaper capital as we grow the company.

On another Sunday, I will explain more about Shopify product economics, why they are so different from Amazon FBA, and how product lines are incompatible if a brand wants to succeed in both.

Here are some links to stay connected:

Marc Roca
Founder & CEO of Inversal

Marc Roca Founder & CEO of Inversal - Face

💵 Revenue Up $295,676 (22.6%)

Hello, everyone! Happy New Year!

Q4 is over. Everyone had time to relax during the holidays and we have been back at work since the 2nd. December 2023 has been our highest month in revenue and profit since I started e-commerce back in 2017.

Let’s make 2024 even better!

Our highest month ever in revenue
Our highest month ever in revenue

Our CM3/SDE margin improved to 14.0% because we hit the jackpot in one of our product launches of the year. The two main competitors got delisted at the start of the month and we made over 40% margin on it. It is also a product that has high sales post-Christmas and going very strongly in January as well. Preparedness means opportunity.

Neither of the two aggregators bought in 2023 has been added here. We will start adding them in January. We will also be divesting 2 assets into a new business unit.

Another Aggregator Acquired

We closed the transaction on December 19th and all our executive team and directors worked over the holidays to migrate the 4 brands. We are finally transferring the day-to-day to our team and have 8 job positions currently open.

January will be a busy month in preparation for 2024 growth. We already had our Q1 meeting and have a very clear vision and rocks to beat from now until the end of March.

I am keeping short this week, there is much to do and we are excited to get it done.

Here are some links to stay connected:

Marc Roca
Founder & CEO of Inversal

Marc Roca Founder & CEO of Inversal - Face