More than 260 million people will buy from eCommerce websites by 2026. The future of retail belongs to eCommerce platforms, and we’ll see more online-offline hybrid stores in the coming years. The reasons behind this phenomenon are apparent:
Despite a booming eCommerce market, many eCommerce businesses fail to succeed. The success rate in the eCommerce market is less than 20%. Most of these businesses fail because they’re poor with money management.
Among other things that eCommerce CEOs require to succeed in this space, money management is at the core, and eCommerce websites are no exception. Without cash flow and proper money management, your inventory will dry up, your business will be in debt, and you’d be forced to shut it down if no miracle happens.
To succeed, however, is no secret. Putting into play effective eCommerce marketing strategies that place money management at the forefront is the fastest path to becoming cash-rich and profitable. Here are ten money management tips that all eCommerce businesses can follow to succeed.
How will you sell products and make profits if you don’t have anything to sell in the first place?
Many businesses make the mistake of cutting expenses by not keeping enough inventory. Making money and converting customers is definitely exciting, but then maintaining an inventory is crucial to provide a great experience to the customers.
Having 12 weeks of inventory is the safest approach. If 12 weeks is too much, try to keep at least 8 weeks of inventory. Having sufficient inventory allows you to meet demand when there’s a spike. It’s the only way to maximize profits when the market presents you with the right opportunity.
Restocking inventory on short notice is expensive, if not impossible. Prevent difficult business situations by keeping your inventory ready to meet any surge in demand. If time is a concern, and you have the money to outsource, consider hiring third-party eCommerce fulfillment services.
Various governments and regulatory bodies mandate Know Your Client banking (KYC) and other identity verification measures. If your business is found breaching any of these regulations, it’ll be charged a hefty fine.
Billions of dollars go into fines and penalty payments every year. Even if your eCommerce store is fined a small percentage of its net revenue, it’ll have serious ramifications on the financial health of your business.
eCommerce stores use SaaS tools to stay compliant with regulations and rules. Alternatively, they can work with a compliance specialist. However, adding a technology layer to compliance management is necessary to keep up with the ever-evolving regulations.
Neglecting regulations and compliance is a mistake that many small businesses make. Founders and entrepreneurs should dedicate their time to understanding different regulations and what they entail.
Many eCommerce platforms raise funds with the expectation of taking the business to the next level. Raising funds isn’t all sunshine and rainbows. As long as your business is bootstrapped, you’ve absolute control over it. With diluted ownership, you’ve to take into account what every stakeholder has to say.
Understanding when to use funding as a debt tool is essential for business success. It’s advisable to have a business credit card for SMEs for times when you need quick cash. Shortage of working capital necessitates strategic and well-planned debt.
It’s important that your business doesn’t exclusively rely on external funding. It should be an expansion move, not a sustenance move. Every business can benefit from strategic funding, but mindlessly raising money won’t provide the benefits you’d expect it to.
A structured budget is the backbone of financial health in any business. While creating a budget for your eCommerce business, always remember to account for recurring costs. It includes not just recurring monthly expenses, but also recurring yearly costs.
Let’s assume that after paying your regular monthly expenses, you have $2,000 in working capital each month. This money might be readily moved to be used for marketing, staff bonuses, new product inventories, or just about anything else. However, if you spend all of that money and then have to pay a $1,200 yearly subscription for your SEO tools, you’ll be in trouble.
Keep these seasonal and/or annual expenses in mind when budgeting for expenses and savings. It demands meticulous record-keeping, but the results are worth the effort.
If your gross margins are fluctuating month on month, you’re making some mistakes either in accounting or in pricing. A steady gross margin is a sign of a healthy and functional business. Keep your gross margins consistent if you want to make steady and incremental profits over the long run.
Fluctuations in gross margin are more common when you are offering heavy discounts on your products. It’s good to offer discounts to boost sales, but keep the larger picture in mind.
Will the buyers continue to buy your products once you lift the discount?
If they don’t, what impact will it have on your gross margins?
Strategise your pricing keeping gross margins in mind. At the same time, make sure there are no accounting mistakes.
Spending too much money on shipping is equivalent to pouring money down the drain.
Shipping costs are often overinflated, and they can start draining your profit margins. All eCommerce businesses struggle with shipping, but the successful ones eventually crack the code.
When searching for an eCommerce platform, you must start considering delivery costs. Numerous platforms feature a wide range of partners with apps that assist entrepreneurs in discovering the most affordable shipping solutions. Some might even provide options for cheap shipping. Use these options to bring down shipping costs, and you’ll see your profits skyrocketing.
It can take some time to find the right shipping partner. Don’t rush through it and settle for a shipping partner who is charging you more than you can afford.
eCommerce businesses make the mistake of assuming that spending a lot of money on marketing will solve all their problems. Nothing can be farther from the truth. All your marketing spending is going to waste unless you have great products and services.
Instead, focus on cost-effective marketing channels. For example, you don’t need to run paid ads if your organic content marketing is on spot. It’ll surely take more time to show results, but in the long term, the Return on Investment (ROI) would be insane.
When it comes to marketing, focus on low-hanging fruits before aiming for the stars. Spend a reasonable amount on marketing, but never overspend. Continuously evaluate and measure the success of your marketing campaigns. If something isn’t working, discard it and look for something else.
What’s the difference between businesses that crashed during Covid-19 and those that survived? Businesses that had enough cash could take the hit and still keep going. But if a business didn’t have any cash to go through a few months of zero revenue, it’d surely sink.
The valuation of your business and its gross annual revenue are fancy metrics when you don’t have the cash to back them up. Unless you are backed by the largest investors, you won’t be able to run a cash-starving business. It will eventually reach a point of no return.
Before anything else, make sure you fill the cash reserves of your eCommerce business. Part of it is for emergencies, and part of it is for the overall sustenance of your business.
Every business has feast seasons and famine seasons. While your eventual aim should be to balance the inconsistencies, you should also focus on maximizing profits when you have the chance.
Go all out during the festive season to boost revenue. If a cultural phenomenon is driving more people toward your products, make the most of it. Seize every opportunity you get and always be ready to deliver on short notice.
Strategic planning is also necessary to do this. For example, plan your holiday sales well before the holidays arrive. Use every opportunity you get to your advantage.
Cost-cutting is necessary for every business, especially bootstrapped eCommerce ventures. The aim of cost-cutting is to identify areas where you are spending too much without the equivalent benefits. Take the time to identify all such areas in your business, and see where you can make major changes.
Cost-cutting can’t be a one-time thing. You have to continuously check your balance sheets to see where expenditures are high but corresponding results are unsatisfactory. It could include everything from sales to marketing to operations. Moreover, you could also be losing money to fraud and scams.
Remember that for every dollar you save, you can invest the same amount somewhere more fruitful. Cost-cutting doesn’t only reduce expenditure but also gives you the ability to spend money where necessary.
By following these ten tips, you can keep your business thriving even in the most difficult market conditions.
When the fundamentals are in place, money management is easy for anyone.