This Issue's TLDR...

• A close friend of mine in the commercial lending space spills the beans about all of the fintech lenders offering "growth capital" to Amazon businesses.
• What's the average profit margin of an Amazon business? I'll tell you the answer.
• The cash flow cheatsheet that you need, but not the one that you deserve.

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SPONSOR Color More Lines Yes, this is the Amazon agency that I acquired. I haven't told the full story of how I acquired it (that's for another day), but one important detail of the story is that I spent 18 months looking for the RIGHT agency. Over that period, I diligenced ~12 Amazon agencies and saw various combinations of bad and...meh. Many were founder dependent. Many lacked systems and processes. Many consisted of B and C players. In short, I kissed a lot of frogs before finding the one that had the people and processes to consistently deliver great results for clients. If, in your gut, you feel like something is lacking with your current Amazon agency (HINT: It probably is), then drop us a line. ​ Grow Faster on Amazon

BEST From Me

This week continues a three-part series on debt financing for your Amazon (or eCommerce!) business. If you don't need capital to grow your Amazon business: Congrats! You're in the minority. Everyone else, pay close attention to these three issues of B@A and save them for future reference.

​Part 1: The Different Types of Debt Financing for your Business​

​Part 2: A Side-By-Side Comparison of Debt Options (and How to Evaluate Them)​

Part 3: Insider Secrets from a Commercial Lender

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I mentioned in Part 1 of this series that finance is filled with jargon and marketing-speak, intended to distract from real costs.

I illustrated in Part 2 of this series that finance is also filled with complex math, intended to obfuscate real costs.

Today, I'm going right to the source. Last week, for purposes of this issue, I sat down with a good friend of mine that is on the inside at a widely-known non-traditional lender focused on eCommerce lending.

To protect this person's identity, I'm not revealing their gender, and I'm paraphrasing my conversation with this person, so that they can't be identified by speech patterns.

I hope you find this interview enlightening!

Part 3: Insider Secrets from a Commercial Lender

Q: I'm going to start with a question that really irks me. Why do lenders in your space call their debt products "growth capital"?

A: It's so that we can hide in plain sight. "We offer predatory loans" doesn't exactly have the same marketing appeal as "We offer growth capital for scaling businesses" but the reality is that the two aren't much different. Once borrowers start working with us, the lock-in rate is super high.

Q: You guys also like to market yourselves with the phrase "non-dilutive financing". Tell me more about that.

A: So, that's mostly true, but borrowers really need to read the fine print in their loan docs. My company doesn't do this, but some lenders in this space include clauses that convert debt into equity under certain conditions, such as defaults or restructuring. So, the promise of non-dilutive capital can sometimes be misleading.

Q: Another thing that irks me with lenders in your space is the non-obvious costs of the debt. APR is a concept that is widely understood, but isn't transparently presented when selling in borrowers. Why is that?

A: Yeah, transparency is a major issue. The headline rates are intentionally attractive, but the fees can quickly add up to super high effective APRs, which we are careful not to mention. We bury origination fees, service fees, and early repayment penalties in the fine print, which makes the actual cost of capital really hard to decipher.

Q: I'm seeing more and more of you guys also market yourselves based on "flexibility". Tell me more about that.

A: Everything has a cost. We know that flexibility is a useful sales tactics but, what we don't tell borrowers is that the flexibility they are getting is being "priced in" to their loan. Borrowers might think that they're benefitting from repayment terms that "adapt to the performance of their business" but in most cases, this works against them.

Q: Do you think the government will ever step in to clean up this space?

A: Hard to say. The regulatory environment for fintech lenders is still evolving. The larger the industry is able to grow without scrutiny, the more lobbying might it will be able to bring to the table to prevent oversight.

Q: If your Mom were running an eCommerce business, and needed capital, what would you tell her?

A: Seek out other sources of capital. People are too quick to dismiss traditional lenders as sources of capital because they go to their bank and hear "no". There are A LOT of traditional lenders and loan products that are available; people just need to know where to look.

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I hope you all enjoyed this interview. There's more that came out of this interview, but I wanted to hit the high points.

If you ever want to talk about debt for your business, my team and I offer Capital Advisory Services for brands.

Just send me an email for a free consultation: jon@colormorelines.com.

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FRIENDS OF B@A Hey You! I'm continually impressed by the caliber of readers of this newsletter. Best@Amazon readers truly are...the BEST...and I want to pay it forward by showcasing and celebrating different things that you all are doing. So, if you're working on something cool, or have something that you want to share and get feedback on, just reply to this email and I'll give you some page space in a future edition of B@A. ​

Amazon Questions? Amazon isn't easy. Everyone needs a little help from a friend. If you ever have a tough Amazon question, I'm only a phone call away. Let's Chat

BEST from Everyone Else

Best Deal That I've Seen This Week

I've shared a couple deals in recent B@A issues. I don't have a "Best" Deal this week.

Instead, I have some market metrics:

Bearded Egg FBA 🛠️ @guyfosel Net profit margins of 73 Amazon FBA businesses that are currently on the market. Revenue range of these businesses is $268k to $5.2mm. 5:19 PM • Jun 11, 2024 1 Retweets 31 Likes Read 17 replies

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I posted this in response to a statement from an Amazon thought leader that "Amazon PL businesses commonly net 20% or more."

I don't agree with that statement (times are tough, ya know), but I wanted to see what the data said.

So I pulled net profit margins for 73 deals currently on the market. As you can see, median NPM% was 20.1% and average NPM% was 22.4%.

Time for me to eat my words?

Wellll...there are two important asterisks to this dataset:

1. These are Seller Discretionary Earnings (SDE) margins, NOT net profit margins. Meaning: They are inflated by all sorts of seller "add backs" that reflect the "true" profitability of the business (i.e., these are, uh, theoretical margins).
2. These are brands that having been prepping to go to market and are actually "salable" in a loose sense of the word. Meaning: They are not representative of the "average" Amazon PL business.

Anyway, sharing in case these can serve as useful benchmarks as you all pursue your own Acquisition Entrepreneurship journeys.

Best From X

To put a bow on this 3-part series on capital and debt financing, here's a useful cheat sheet on CASH.

You don't need to memorize these formulas.

But you should understand how cash flows in and out of your business.

Because, remember: Revenue is vanity, profit is sanity, cash is KING.

Josh (Your CFO Guy) @YourCFOGuy CASH is KING 👑 but before you wear the crown, you must know everything about it Let's do a deep dive on 13 cash flow formulas 👇 6:36 AM • Sep 21, 2023 74 Retweets 265 Likes Read 1 replies

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Updates to Amazon Private Label Pathway

No updates this week.

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Back Story on the Amazon Private Label Pathway, ICYMI...

A few months back, I had a small group of coaching clients that were at the same point in their Amazon seller journeys.

I found myself answering the same questions, and pointing them to the same resources, so, in true Amazon fashion, I asked myself "What's the 1-to-Many solution here?" and built a Notion page of helpful resources, which I've called "Amazon Private Label Pathway."

You can get access to it here: https://auxo.gumroad.com/l/amazonpathway (it's free; but if you want to buy me a beer, I won't object)​

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