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Chapter 502 The Profit Model of Flash Sales

As night fell, the meeting room of Flashbuy Company remained brightly lit.

On both sides of the long conference table, Flashbuy's top executives were all seated, and Ernst's image appeared on the screen in front of them.

"No news from Gallup yet?" Ernst's voice carried clearly through the sound system to every corner of the conference room.

Affie leaned forward slightly, his face showing obvious doubt. "The other party hasn't given a clear answer yet. Two million dollars is not a small sum that Gallup can easily dispose of. Are you sure he'll really be willing to part with that amount of money?"

If it were him, he would likely change the business strategy directly, transform the business, and develop the core business towards gas stations.

How much money did Wawa make from flash sales? How could she possibly come up with two million US dollars?

Two million US dollars can accomplish a lot for a local company like Wawa.

Ernst on the screen seemed to have anticipated this outcome. A confident smile appeared on his lips. "Since Gallup hasn't replied, let's give him a little more motivation and make him have no choice but to hand over the money."

Hearing Ernst's words, Affili's confusion deepened. His gaze fixed on Ernst's face on the screen, he asked curiously, "What are you planning to do?"

"We're announcing that the existing flash sale subsidy program will be extended for another three months." Ernst's words were concise and clear, yet they were like a bombshell, instantly causing a huge uproar in the conference room.

"Are you crazy?" Affil jumped up from his chair, his face filled with shock and disbelief. He stared wide-eyed at Ernst on the screen, his voice trembling with emotion as he retorted, "Do you know what serious consequences this will have for the company? This is simply impossible! With our current financial situation, we absolutely cannot support such an idea!"

Despite Affili's strong reaction, Ernst remained calm. He raised an eyebrow slightly and asked, "Why can't you hold on?"

Affie took a deep breath, trying to calm her agitated emotions. Her brows furrowed, and her eyes held a scrutinizing gaze as she tentatively asked, "Are you planning to restart the financing plan?"

According to Afeier, given Flashbuy's current financial situation, the only way to support an additional three months of subsidy activities seems to be through a new round of financing.

However, he quickly dismissed the idea, feeling it was somewhat unrealistic.

The $6.8 million raised by Flash Sale is simply not enough to last for three months.

Let alone three months, even two months might not be enough.

As the number of registered users increases, the daily expenses of Flash Sale are not only for subsidies, but also for increased costs of equipment, utilities, and labor.

Faced with such a money-burning entity, who would dare to invest in flash sales that burn through cash like this?

What happens if this money runs out? Who can keep it coming in?

Moreover, launching consecutive financing plans in a short period of time is likely to raise questions among investors about the company's operating conditions and increase the difficulty of financing.

However, some Wall Street giants are unlikely to support flash sales, and very few can actually afford to pay that amount.

Even if Ernst wanted to raise funds, the financing negotiations would take a long time, and the funds simply wouldn't be available.

"Financing?" Ernst shook his head slightly upon hearing this word. "I have never even considered restarting the financing plan within three months."

After saying that, Ernst's gaze, through the screen, landed precisely on Selena, who was sitting third from the right at the conference table. "Have you gotten the results for those data I asked your team to calculate?"

Selena nodded slightly and replied clearly, "We have derived a relatively accurate range, and the error between this range and the company's actual expenditures should not exceed 10%."

"Very good." Ernst gave a positive compliment with satisfaction, then turned his gaze back to Affili, who still looked puzzled, and said in a calm tone, "Then please answer for our COO where our Flash Sale gets its confidence to support this extra three months of subsidy activities."

As soon as Ernst finished speaking, everyone's eyes in the conference room instantly focused on Selena, their eyes filled with curiosity and anticipation.

Prior to this, almost everyone, like Affil, was skeptical of the company's plan to extend the subsidy program, and did not understand why Ernst would make such a decision that seemed inconsistent with the current financial situation.

Selena opened one of the documents in front of her, glanced at Affili, and then said with a smile, "According to our department's calculations, as the number of registered users of Flash Sale increases, our overall operating costs are gradually decreasing."

"How is this possible?" Upon hearing this conclusion, Afei's doubt instantly turned to shock, her eyes filled with incomprehension and confusion. She couldn't help but retort, "The subsidies for flash sales haven't decreased at all. With the increase in the number of users, the platform's order volume will naturally increase as well. So the scale of subsidies should continue to increase. How could there be a decrease in overall expenditure costs? This is completely illogical!"

Afei's question echoed the sentiments of many others present. The increase in user numbers and order volume would inevitably lead to higher costs, especially with the subsidy level remaining unchanged. Increased costs seemed inevitable, and Selena's view of cost reduction clearly contradicted everyone's expectations.

"I need to emphasize that I am referring to the overall operating costs of our flash sale company, not just the subsidy fees."

Affil seemed to understand something, and waited for the other party to continue explaining.

"Perhaps everyone here has fallen into a misconception. You only see the subsidies that our flash sale platform provides for hourly delivery and third-party merchants, but you have overlooked an important fact: a large portion of the products on our platform are able to generate revenue for the company."

"Yes, everyone suddenly realized."

Due to the large-scale subsidy activities of flash sale platforms, whether it is consumers in the market or employees within the company, the first thing that comes to mind when they hear about flash sales is subsidies. It seems that subsidies have become synonymous with flash sales, as if they are losing money to grab users.

However, the products that Flash Sale purchases on its own are all contributing to Flash Sale's revenue.

Although the prices of self-operated products are generally lower in order to attract consumers and increase sales, resulting in relatively low profit margins per item, the overall revenue generated is still quite considerable thanks to the large sales volume.

Especially in the three major categories of furniture, clothing, and pet supplies, these are the main contributors to the revenue of the self-operated business segment.

These are branded home appliances; nominally they're flash sale subsidies, but in reality, they're just the merchants' profit margins being used to subsidize consumers.

You might not make a lot of money, but you definitely won't lose money.

The truly loss-making business segments of Flash Sale are mainly concentrated in two areas: same-hour delivery and third-party merchants, rather than all product categories on the platform.

"Sales of self-operated products have increased, and subsidies for same-hour delivery and third-party merchants have also increased." Someone noticed something was wrong.

"That's right." Selena nodded. "But the increase in the number of users is helping us to share other fixed costs, thereby reducing the overall cost."

"For example, the platform's relatively fixed costs, such as technology research and development, servers, customer service and management, are spread across more orders as order volume increases, and the average cost per order is decreasing."

"Another benefit is the scale advantage of riders and delivery networks. With increased order density, the system can plan better routes and increase the number of orders a rider can deliver per trip, significantly reducing the average delivery cost per order."

"When riders' income increases significantly, we can collect a commission, even if it's only five percent, which is a very considerable income."

"Another factor is the number of merchants joining the platform. User growth will attract more merchants to join. The more users there are, the stronger the merchants' willingness to join will be, and the more services the platform can provide and collect service fees."

"As long as our platform is big enough, even if we don't subsidize these third-party merchants, they will still rush to join, even at a loss. No brand can give up this huge user market."

"Even for regular users, we can reduce their subsidies. Don't forget, our current subsidies are all randomly generated coupons every day."

"Once we cultivate user loyalty, if we reduce the subsidy by 10% or even 20%, not many people will care."

At this point, Selena took out a stack of documents and handed them out.

"This is a summary of data I collected from various departments over the past two days. It shows that the exposure of our flash sale homepage is comparable to that of the three major public television networks every day."

"GG." Ak Meier's eyes lit up instantly.

Selena smiled and nodded. "Do you think those brands might spend more money for this 'GG' slot than they would on the three major public television networks?"

"Definitely," Ak Meier said confidently. "Because we have a greater advantage than television stations, which is that we are directly facing consumers. Every customer who sees GG has a strong desire to buy; otherwise, they wouldn't log onto our website."

Selena continued, "Actually, there are many other sources of increased revenue, but the final conclusion is that as our user base grows, our operating costs are decreasing."

"According to our finance department's calculations, when the number of users exceeds 20 million, our daily operating costs will likely drop to below $5 million, or even lower."

"If we take into account other revenue-generating measures, it's very likely that we will all achieve profitability."

The executives in the conference room were all delighted; they hadn't expected that such a large-scale subsidy would actually turn a profit.

Affie immediately looked at Ernst and said, "I think we should separate the GG department ahead of schedule."

Of these revenues, GG revenue undoubtedly accounts for a large portion, highlighting the importance of this department.

Ernst did not object, saying, "You can decide for me, but what I must say is that flash sales cannot be profitable yet; we must spend all the money."

"I understand." Affili nodded. "Increasing the number of users is the top priority."