Dealing with Marketplace Reserves: The Hardship of Cashflow for a New Business

Introduction

Starting a new business on an online marketplace like Etsy is an exciting venture, but it comes with its own set of challenges. One significant hurdle we faced was Etsy's policy of placing a reserve on new sellers. This policy, which applies to sellers meeting a certain threshold, can create serious cash flow issues for fledgling businesses. In this blog post, we’ll share our experience with this reserve policy, the options it presented us, and how we navigated through this financial strain.

The Reserve Policy: A Cashflow Conundrum

Etsy’s reserve policy required us to wait 21 days to receive money from our sales unless we added tracking numbers to our shipments. This policy aimed to protect buyers and ensure a high level of service but posed a considerable challenge for us as new sellers. We were faced with two options:

Option A: Wait 21 Days

Waiting 21 days to access our funds was simply not viable. Here’s why:

• Immediate Costs: We still had to cover the costs of postage and product supplies upfront.
• Operational Expenses: Regular expenses such as packaging materials and other overheads needed immediate attention.
• Cashflow Crunch: Without quick access to funds, managing day-to-day operations would become increasingly difficult.

Using Etsy’s postage options could potentially alleviate some of the strain, but it did not completely solve the underlying cash flow issues.

Option B: Add Tracking Numbers

Adding tracking numbers seemed like a straightforward solution, but it had its own set of drawbacks:

• Increased Postage Costs: Adding tracking to our low-profit items significantly increased our shipping expenses.
• Profit Margins: The higher postage costs meant our already slim profit margins were nearly wiped out.
• Competitive Pricing: Raising our prices to cover the additional postage would price us out of the competitive market space.

Our Decision and Strategy

After weighing both options, we decided to go with Option B and add tracking to our shipments. Here’s how we managed the situation:

1. Maintaining Prices: We chose not to raise our prices despite the increased postage costs. We believed that maintaining competitive pricing was crucial for gaining traction in the marketplace.
2. Building Reputation: By offering tracked shipping, we aimed to build our brand’s reputation through positive reviews and customer satisfaction.
3. Short-Term Sacrifice: We accepted the short-term financial hit, understanding that this strategy would help us in the long run.

The Outcome and Lessons Learned

In the end, the reserve was lifted, but our approach yielded unexpected benefits:

• Reduced Missing Items: We noticed a significant reduction in lost or missing items when using tracked shipping.
• Customer Trust: Tracked shipping improved our credibility and trustworthiness with customers.
• Long-Term Strategy: Despite the initial plan to revert to untracked mail, we continued with tracked shipping due to its benefits.

To address the increased costs, we negotiated better rates with our suppliers and couriers. This approach helped us maintain profitability while continuing to provide reliable shipping options to our customers.

Conclusion

Dealing with Etsy’s reserve policy was a challenging experience, but it taught us valuable lessons about cash flow management and customer service. By opting for tracked shipping, we not only navigated the financial strain but also enhanced our brand’s reputation. Negotiating better rates with suppliers and couriers allowed us to maintain this high level of service without compromising our profitability. For new sellers facing similar challenges, our advice is to consider the long-term benefits of building a trustworthy brand and to explore all avenues for reducing operational costs.

Next: Our First big mistake & Setback