If you’re a DTC eCommerce store and want to grow fast, you need financing. One of the best options for growing an eCommerce business is revenue-based financing.
Why is financing so important for your online business?
eCommerce businesses often struggle with cash flow, since you always need more funds to grow; this problem isn’t caused by poor cash management or slow-paying customers. It’s caused by suppliers.
Let us explain.
One of the most significant costs for any online business is buying inventory. Most eCommerce companies stock up on inventory, as in the fashion sector with Fast Fashion, and the reason is obvious: prices are much lower and they get a higher gross margin.
But there’s a catch. Payment terms are almost always terrible, and those terrible terms are why eCommerce businesses need financing. Most online stores have to deal with the classic 30/70 split: 30% paid on order and 70% on shipment. It’s these terms that create the cash flow problem.
Let’s look at an example to understand why it’s a problem:
- Day 0: You decide you need to order new inventory. Let’s say it’s €100,000.
- Day 1: You contact your supplier to place the order. They demand 30% (€30,000) up front and you send the money.
- Day 28: The goods are ready to ship. Your supplier demands the remaining 70% (€70,000) before shipping.
- Day 60: After four weeks at sea, your goods arrive. Now you need to get them to your warehouse and start selling. You spend another €20,000 on marketing to make sure you sell the stock you ordered.
- Day 70: You’re now €120,000 in the red. You’ve had to pay for EVERYTHING, but you haven’t made a single sale yet.
- Day 100: Your marketing campaigns have succeeded and you’ve sold all your stock. You’ve marked up your products 4x, so you’ve made €400,000 in sales. A gross profit of €280,000.
The return on investment from buying inventory is HUGE, thanks to the high gross margins of the product you sell.
But you have to pay A LOT of money up front before you can get that return. Raising the money for these inventory orders is very, very hard.
No money means no stock, which means no growth.
If you run an eCommerce business, you know this problem all too well, and we want to help you solve it.
That’s why we’ve partnered with Wayflyer.
Wayflyer is a quick and easy way to get financing for your business. You can access large amounts of capital (from €10,000 to €20 million) without giving up ownership.
If you want to see what financing is available to grow your business, contact us and tell us about your project!
