The success metrics of eCommerce brands are based on scaling.
Many of the most popular brands will likely prioritise growth, as opposed to initial profitability. However, the issues created here are the availability of funds, even in times of high product turnover and market demand.
Shortfalls in cash flow are a growing pain for many businesses, especially online enterprises experiencing rapid expansion. When failing to manage such issues, it’s even possible to jeopardise your eCommerce platform prematurely and before the brand has a chance to expand.
That’s why, in managing Direct to Consumer online retailers, or any eCommerce platform, cash flow issues can become an unsurpassable obstacle to future growth. Thankfully, this potentially dangerous scenario is preventable. In fact, the purpose of today’s piece is to help you ‘flip’ your fortunes. Today, our task will help facilitate cash flow in three key areas and build a sustainable fiscal regime for your brand.
How do DTC Brands Spend their Money?
Direct to consumer brands look to building the smoothest possible sales strategy and hold a decisive advantage over traditional distribution. Manoeuvring around the middleman may prove fruitful for your brand – but what are the potential disruptions and considerations? Can we avoid them, and how can we make this happen? Let’s find out.
Keeping stock levels at optimal amounts will require considerable resources, mainly when working within seasonally centric industries. Fashion is a notorious example, with two main merchandise collections applied per year. This includes the Spring/Summer and Autumn/Winter assortments.
The commitment to such a large-scale order is financially demanding, as it entails a large block of funding. Often, this also requires retailers to purchase items at least one season in advance before expecting returns on investment. But that’s an optimistic assessment. Purchase cycles can even extend by as much as one year!
Modern DTC brands have begun withdrawing from the seasonal purchasing model. Instead, they opt for a multiple product drop strategy, allowing for frequent activity periods with excellent cash flow scenarios. Another practical approach is through an agile supply chain, allowing for shorter delivery cycles and more favourable minimum order requirements.
Of course, it’s important to maintain inventory whenever possible, as understocking simply presents missed opportunities for the business. You can benefit from setting up stock replenishment alerts, when inventories become low. This would be calculated using current inventory levels, rate of demand based on sales, and manufacturer delivery times.
Marketing costs may initially appear as necessary to scale alongside the size of the eCommerce platform. In direct-to-consumer brands, advertising has been a quintessential aspect of the business, yet is a highly competitive field, with significant expenses for DTC’s operating in saturated markets. Many financial services now reward high-performing ad accounts, with discounts on credit. However it is important to note that these mechanisms must focus on improving Average Order Value, or AOV and customer retention.
Topline growth consists of three leading factors which are all centred on the consumers and their behaviour. The first, and most essential quality to note is the number of customers. This cohort should receive the lion’s share of investment and attention. The second is the AOV. The third examines the retention or repeatability of the client making their order.
Increasing ad spending for growing customer numbers is simple and effective - yet can be fine-tuned for a more effective operation. Consider managing this purchase with regards to internal planning and increasing AOV and retention.
For an even higher level of AOV, I recommend attempting a number of product marketing strategies. These can include expanding your product range, working with bundles, upselling, cross-selling, and concessions such as free shipping for minimum orders.
Customer retention requires a committed marketing approach, including intelligent and trigger-based e-mailing, which offers customers according to their time and circumstance. For instance, e-mails could take into account the time it takes to exhaust a bottle of shampoo. These messages could be sent with friendly reminders that it is time for the customer to restock their item. This is just one initiative among many others you could try.
Your variable costs will inevitably grow alongside your rapidly scaling business. The key is to keep these expenditures under control. This is especially the case when making selections for new recruits to manage the expanding workload of your e-Commerce platform. In fact, staffing will be both your number one asset and source of expenditure throughout the life of your business.
Geography and culture will undoubtedly play a role in the makeup of your entire staff and will determine when persons vacate during which calendar period. In some cases, the Q4 holiday season accounts for over 50% of yearly revenue, placing enormous pressure on workloads. Consider this, whilst understanding the likelihood of your staff requesting holidays during this time.
Expanding your team would almost certainly be your first order of business. However, this could only work as a short-term solution, as it would contribute to future costs. Instead of new staff, it would be wise to consider automation and outsourcing to more exactingly satisfy your needs and objectives throughout the year.
Consider whether specific tasks are also routine or repetitive in nature. Customer service chatbots for frequently asked questions, order approvals, invoice issuing, and even taxation are all mundane tasks that a simple programme could potentially undertake. Therefore, if you see a task that could be carried out simply and efficiently, take steps to automate it.
Of course, these efforts to automate can be experimental initiatives, in which case, it is recommended to continue hiring a full-time equivalent (FTE). That is, systematic approaches are only as practical as people deem them to be. Personnel will still remain your most integral asset and should oversee the automation programmes designed to improve your business – not the other way around!
Your Next Steps for Cash Flow
Cash flow will continue to be a growing pain for your business. But with suitable approaches and careful planning, it’s possible to ease pressure on your business.
By employing a targeted approach to your marketing and combining a range of sales initiatives – you can lessen your dependence on the ‘handful’ of critical selling periods through the calendar year. Selecting the right staffs will also prove to be a vital asset, as will automation and programmes designed to support their work.
Look for ways to segment your market and use selling strategies to gradually offload inventory to avoid mistaken forecasts and gluts in supply. This will ultimately create a sustainable growth pathway for your e-Commerce platform and built it into the successful brand it can be.
So, what are you waiting for – scale with ease, and keep the cash flowing back in your hands!