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Profits in ecommerce

     
11:31 am on Apr 29, 2014 (gmt 0)

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Hi All,

I am new here. I have been trying to understand how can I make profit if I receive payment from customers as fast as I can & delay suppliers payment as long as I can. Considering I am doing a marketplace model & not inventory based model.

How does it exactly work? I heard Walmart & Amazon made profit this way.

Please help.
1:30 pm on Apr 29, 2014 (gmt 0)

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Step 1 - grow your business as large as Walmart.

It works for them because they are so big that suppliers can't do without them.
2:26 pm on Apr 29, 2014 (gmt 0)

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Thanks for reply @piatkow.

But I want to understand how they make profit by holding money for a longer period of time.
3:09 pm on Apr 29, 2014 (gmt 0)

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Welcome to Webmaster World!

Please say more about what you mean by "marketplace model" vs "inventory based model".

If you're dealing with vast sums of money there might be a bit of interest to be gained from holding funds for a few extra days, but a small enterprise would be foolish to think of that as part of their business model.

Profits need to come from having adequate margins on sales and services.

Remember that your suppliers are your suppliers, not your bankers. You'll develop much healthier business relationships if you make a habit of paying your bills promptly.

Some suppliers offer a discount for quick payment, because it helps their own cash flow. There'd be a lot more to gain from that than from trying to play games with delaying payments.
3:28 pm on Apr 29, 2014 (gmt 0)

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I want to understand how they make profit by holding money for a longer period of time.

1) By having positive cash flow, they can eliminate (or at least lessen) the need for short-term borrowing. Borrowing money costs money (interest, time), so decreasing expenses -> increased profits.
2) Invest the money short-term. Sure, these days having money sit in a bank account or short-term CD won't give you as much of a return as 5+ years ago. So for most companies, it's just not worth the effort. But if you're huge and are talking about large sums of money, even a pitiful return of a large amount can give you some money for some nice lunches.
3:53 pm on Apr 29, 2014 (gmt 0)

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Welcome to WebmasterWorld psychicBOY

Cash flow is king.

I agree, make sure that you bring in sales money as early as possible.

In general terms, it's bad practice to withhold payments beyond the term that has been agreed. It can also result in late payment charges. Additionally, it isn't good for a business credit rating, and can make it difficult to buy from other suppliers because of a bad reputation for delayed, or late payment.

Businesses that are the size of Walmart have huge reserves, and can gain considerable sums by investing the money, even for a few days.

Small-to-medium-sized business can't make use of the money markets in the same way. The return just isn't worth it.

It's been mentioned about discounts for early payment. This is a technique i've used successfully. For example. Bank interest on the funds is negligible. The supplier offers 15% prompt payment. I pay early and take the additional discount. The result is that i've instantly increased my profitability on the item by paying promptly.

My advice is pay promptly and you'll gain a good reputation from suppliers. One day you may need to take a little extra time to pay, and if you have a good reputation, the likelihood is they'll accept it without too much of a problem.

It's not good practice to set up in business on the basis of making money through delaying payments, imho.
4:11 pm on Apr 29, 2014 (gmt 0)

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Great advice @engine & others .

Prompt payment sounds like a good idea to increase margin.
4:59 pm on Apr 29, 2014 (gmt 0)

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If you are not able to buy your products you do not deserve to make any profit...
5:23 pm on Apr 29, 2014 (gmt 0)

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So I guess the idea here is... as an unknown/unproven entity, you want to sell items you technically don't have possession of, then use the money you get from customers, to eventually pay back the manufacturers at a later date? Good luck with that. Walmart and the government are about the only types of orgs that can pull that off. Short of some incredibly desperate manufacturers overseas, I don't see many producers of successful products, willing to go for that. As an unproven organization with no track record, your hands would be full just trying to get a halfway decent price. I've done business with suppliers for years, and some still demand a COD on every order... and I have perfect credit. Successful manufacturers weren't born yesterday.
5:53 pm on Apr 29, 2014 (gmt 0)

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It sounds like drop shipping, perfectly legal and I know some people who have had success.

Many more that fail, because there are a fair number of unreliable suppliers, the sellers is stuck with all the Customer Service issues such as shipments lost or damaged. It isn't a simple and easy way for everyone to make money. Investigate partners very thoroughly before signing up.

You usually cannot accept credit card payments or even Paypal payments for products not in your possession. So setting up payments is more difficult.
8:59 pm on Apr 30, 2014 (gmt 0)

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Seinfeld and Kramer about write-off:
[youtube.com...]
1:37 pm on May 28, 2014 (gmt 0)

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In all the E-commerce system, the payment from the customer is online transfer, or cash on delivery,
So, it''s definitely fast from the customer if payment amount is not large and EMI option not available.
If you think about profit than it's always depends on the stock and the manufacturing.
If you are manufacturer than you must have everything in stock, But in E-commerce trend only 15-20% business manage by the manufacturer it self,
Remaining 80-85% business is manage by 3rd party company,
Best example is the Amazon, Amazon has Buyers and Sellers.So amazon don't need to invest anything on stock or any physical product. They have only virtual store online, It will display all the products uploaded by their seller,
Every seller has to maintain their stock and product, price etc.
Amazon is just a medium to represent the products, It will accept the order, than forward it to respective reseller,
Reseller send products and Amazon got some X% of the order amount as a profit.
So that is the best way to start your business with minimum investment and maximum profit.