2022 is going to be more challenging than usual for new eCommerce sellers. Before you throw tens of thousands of dollars into sourcing, know the challenges to better prepare for a profitable year in 2022. Enjoy 😊
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Hello, everyone. Welcome to the Goodlife Warrior Channel. I hope you’re doing well. 2022 is going to be a pivotal year for many of you. Whether you’re thinking to start your new eCommerce business or you’re going to scale up your existing business, you’re going to have a lot more challenges and a lot more pressure in 2022. In this video, I’m going to share three things you must know today in order to build and run a profitable business in 2022.
For those of you who are first time visiting Goodlife Warrior Channel, welcome. If you are looking for professional sourcing information, this is the right place. My name’s Yuping, I’m the founder of Sourcing Warrior. I hope I get to know you more. I hope you do subscribe or join my Sourcing Facebook group so I can help you along your eCommerce journey.
The reason I’m making this video is because I personally think that 2022 is going to be a lot more challenging than usual from the standpoint of the supply chain issues you have to deal with, the inflation and the raw material pricing issues. Can you imagine if you combine all these challenges, how much pressure the small business owners have to face? And if you are new to the eCommerce business, you’re thinking to start your business in 2022, it is going to be a little more challenging. That’s why I want to share the three things you must know today in order to build and run a profitable business next year
The first thing you need to know is increased lead time equals to increased cash needs. For those of you who are in the business already, you know that the delayed shipping situation is becoming a new norm. You used to be able to get your container from China to West Coast in USA probably in 30 days, from the pickup to delivery. Now, normally the container is being delayed for 20 days or for another 30 days. On your supplier side, they’re getting a increased production lead time too, because of the material shortages or power shortages, whatever is causing their lead time increase is impacting your cash need. Because if you combine the production lead time and shipping lead time, you used to be able to get your product from the day of down payment to the day of delivery in three months through ocean shipping. Now what? Now is four months and five months. Now remember, during this five month period, while you wait for your product, your cash is trapped inside. There’s no way you can get more cash until you get your product delivered and then you start to sell the product.
For 2022, when this shipping situation is going to get better? The best prediction is Q2, that’s the best, or Q3 in 2022. I personally agree because you just look at the LA port, Los Angeles port, LA port accounts for 40% of the total US import. It is a total mess. The more ships get backed up at the LA port, the less ships going back to Asia, that means the longer of the delay. This is a whole vicious circle of shipping delay increase the cash need because all your cash are stuck while you wait for your product. For those of you who are starting in 2022, be prepared to put in more cash to get your business started. And for those of you who are trying to scale up your business, I think you should look at your balance sheet and get more cash to get more inventory in.
The second thing you need to know is the higher cost input is going to drive down your profit margin if you don’t plan ahead. What are the two major costs before you get product? One is the material cost, your product cost, two is your shipping cost. What happened to these costs? You know the supplier has pushed for price increases lately, one after another, one after another, due to their material shortage or labor work capacity were power shortages. What into the shipping cost? Now, you know the shipping has been delayed. You’re having extended shipping lead time. What happened to the cost? It has doubled and tripled the cost comparing to last year this time. If you look at Maersk, which is the world’s largest shipping line, they have 20% of the world shipping business. They are public traded company. If you look at their earnings report, their revenue is up 87%. They’re making so much money in billings. And if you look at their future earnings guidance, majority of their customers, their big customers, are locking in longterm contract at higher rate.
This means 2022 is not going to have a sharp decline, suddenly we’re going to go back to normal. When it’s going to go back to normal, the best prediction again maybe is Q3 2022. This means for you who want to start a new eCommerce business, you need to plan your margin very carefully. I would recommend you add 10% extra to your raw material cost in case the price increase again. When you launch your product or after you launch your product, you need to make sure you have enough profit margin on your product site. On the shipping side, I would encourage you to add additional 10% too, to the shipping cost. This will give you at least some buffer to know after you commit $10,000 or $20,000, you will have room for your margin to drop and you still make money.
For those of you who don’t know how to do the profit margin analysis, I really recommend you to get the Quote Master. In the Quote Master, I’ll teach you step by step how to do the landing cost analysis. You need to include all the cost variables. Once you learn how to do the cost analysis, then you can create a different scenarios at a different buying quantity. This step, doing the profit margin analysis, is so important before you throw thousands of your dollars into buying product.
The third thing you need to know is how to diversify your supply chain risk in 2022. Where else can you get a product besides China? Can you get it from Vietnam? Vietnam has been hot for several years. Many people are NZ about sourcing product from Vietnam. Is Vietnam the next China? Well, this deserves a dedicated video just for this topic, isn’t it? But in short, my opinion, Vietnam yes is up and coming. However, there are language issues, infrastructure issues, labor shortage issues. A lot of issues that can is experiencing is like 15, 20 years ago of China. A lot of Chinese companies start to investing in Vietnam too.
If you are starting out in 2022, my opinion is forget about Vietnam, forget about other sources. You need to focus on getting your product launched, get the product from China because their manufacturing practice is a lot more mature. Import and export trading practice is a lot more mature. This is going to get your business started. But if you are already having a business, you have a good brand, yes, you need to start to think about how do you diversify your supply chain to minimize your risk? Perhaps you should investigate Vietnam or Taiwan or even in US.
That’s my take for 2022. I hope you got the tip. The number one, increased shipping lead time means increased cash need. Number two, be prepared to pay more. You need to understand your input cost on both raw material and shipping could impact your margin negatively. Therefore you need to budget more margin, as much as possible so that to make your 2022 is going to be profitable. And the last one is to try to diversify your supply chain risk. But if you are new, trying to start your eCommerce business, don’t worry about that right now, just to get your product launched. I hope you enjoyed today’s video. I wish you the very best in 2022. If I can be any service to you, any help to you, feel free to reach out to me or join Sourcing Warrior’s Facebook group. I look forward to meeting you.