As an ecommerce business owner, you probably have lots of great ideas on ways you can grow your business. But it all comes back to one thing – typically the biggest factor in what you can pursue – which is capital. It’s one of the biggest challenges that most business owners face, at virtually every stage of trying to accelerate growth.
As you acquire more customers and get really savvy on ways you can streamline operations, you may face different obstacles where additional funding may be required. Or maybe you’re already at the point where everything is running smoothly, but you’re not quite leaving it all on the field. Where can you invest next to become a million-dollar-plus business and beyond?
Here are 3 common ways that sellers have leapfrogged their way to step-function and accelerate growth:
1: Stock up on inventory. We hear from sellers who are concerned about buying too much inventory, as they may be wary of becoming cash-constrained or overstocking. At the same time, if you’re not keeping an eye on inventory levels and thinking a few steps ahead, you run the risk of stocking out at critical times during the sales cycle, like the holidays. As you’re waiting for your next shipment to arrive, you could be missing out on key opportunities to accelerate growth (and possibly losing share to your competitors). If this scenario doesn’t sit well with you, it might be time to stock up on inventory. It’s best to always be in a position of strength – with your customers, knowing you will have inventory on hand, and with your suppliers, who may prioritize customers with the largest purchase orders. Over time, investments in inventory can lead to margin improvements as you become a critical part of your suppliers’ business.
2: Scale your marketing. You’ve been hyper-focused on meeting the demand of your existing customer base, that you haven’t thought too much about ways to reach new ones. When choices are seemingly endless to your target audience, it may be time to invest in ways to promote your product through marketing and advertising. According to the U.S. Small Business Administration, marketing is one area that early-stage companies tend to underinvest in. Their research found that most businesses are allocating 5% or less on their marketing while noting that early-stage retail companies allocate as much as 20%. For ecommerce sellers in a crowded marketplace, a good rule of thumb is to allocate at least 10-15% of your net revenue toward marketing. Creative video ads, better site content, and PR campaigns are all areas you can invest in to stay on the offense and ahead of your competition. Coupled with any new investments in inventory, your marketing spend at this stage can go even further to meet an increase in demand.
3: Invest in people to maximize time and effort. While running a business you have to make choices every day about the most efficient ways to use your time. Aside from capital, it’s probably the one thing you need the most and have the least. A lot of owners, especially in the beginning, take it upon themselves to be the CEO of DIY, and be a jack of all trades – often at the expense of their energy, time, and resources. Bringing on additional staff – whether temporary or permanent – can lighten the load and leave you to do the core thing you need to be focused on as an owner: running your business.
So what’s next to make any of these investments happen? Get funding! But before you do, there are some things to consider. One big decision you’ll need to make is whether you are willing to offer up some ownership of your company in return for funding. While this may benefit early-stage companies where additional shareholder investment can be helpful, this may also require some shared decision-making power you might not be ready for. Another alternative is commonly referred to as “growth capital.” This is where a company will provide capital now in exchange for a percentage of future revenues earned by the company at a fixed fee. When sales are up, the payback can be higher, and when sales are down, repayments will typically be lower.
Here’s how this often plays out:
If you’re a profitable business and have a comfortable margin after COGS, marketing, seller platform fees (i.e. fulfillment by Amazon fees), and other expenses like payroll, look at taking on some growth capital, without giving up a stake in your business. With some additional funding in hand, now you’re in a position to invest incrementally in areas like inventory and marketing. And, if you assume demand for your product is virtually unlimited, you’ll now be able to order in larger quantities, becoming more efficient on a cost-per-unit basis. Bigger investments in inventory and marketing can result in higher monthly incremental revenues – exponentially.
The faster you grow, the more velocity you have on platforms like Amazon or your website, and the higher your listings become. Remember, there is no cap on how big your business can be!