Amazon Seller Profit Strategies for Q4

For many Amazon sellers, fourth quarter is the busiest time of the year. I had one client tell me that he bought all new underwear in Q4 because he didn't have time to wash his clothes. If that's the state of your world, then I suspect managing cash is a challenge, too. Before things get totally out of control, take a few minutes to set up your cash flow strategies by creating a few simple rules.

If you're allocating income based on percentages into your Profit First bank accounts for inventory, profit, owner pay, taxes and operating expenses, then Q4 will set you up to allocate extra income dollars into all these accounts. Initially, you might think this is great and you'll finally have some "extra" spending money in these accounts. However, it does not set you up well for the future. Here's why.

Watch Out for Parkinson’s Law

First of all, you want to push to keep operating expenses low, and having lots of extra money in that account does not send the right signals. Parkinson's Law will creep in and cause you to spend that money. During a busy time when decision making is rushed, the spending choices are not always wise.

Also, you may require the income from Q4 to sustain you throughout the coming year. Owner pay and operating expenses may require boosts during the slower season, and if you've allocated all that money and spent it in Q4, there will be none available to help you when the income levels are lower.

Use a New Method for Allocations in Q4

During Q4, I recommend a new method for allocating your income that is a combination of percentages and fixed dollar amounts. When you get your payout, continue to set aside your usual percentages for inventory, profit, owner pay and taxes. For operating expenses, you will need to allocate a specific dollar amount. Look back over your monthly operating expenses and determine your average monthly expenses. Then compare that to what you have in your bank account today. You want to move over the amount that will bring your bank balance up to the level of your typical monthly expenses. If you maintain this balance, you should always have enough in the account to stay positive until the next payout.

Why the Switch in Q4?

The reason I recommend you manage by the dollars during Q4 is that oftentimes, the sales in Q4 can be 3 to 5 times above your normal month. The operating expenses, however, are typically at a consistent level month after month. When you think about it, your rent, insurance, office supplies, etc. won't change that much in Q4. So you want to cover the dollars needed for your operating expenses, but the remaining money you should put in another account to be used at a later time. We call this account a "drip" account.

Create a “Drip” Account for Excess Funds

The drip account is a savings account. You will move any excess dollars into this account during Q4. When the dust settles in January, then you can decide the best strategy for these funds. Here are some questions to ask yourself and generate ideas:

• Did you adequately prepare for taxes?
• Are you planning to grow your inventory?
• Are you changing business models, perhaps launching a private label product?
• Do you need to set money aside for a rainy day?
• Will things slow down later in the year and you will need funds to pay yourself or your team?

Consider all the challenges you had during the prior year; when was cash flow positive? When were you short of funds? Keep enough funds in the drip account to cover you in those scenarios.

Go Back to the Norm in Q1

Once you are into Q1, you can go back to your normal strategy of allocating a percentage of your Amazon profits to your operating expenses. But also know that you have the drip account to fund the special expenses that you plan for in the future. I hope you can also get back into washing your clothes on a regular basis!