As an eCommerce business owner, one of the biggest hurdles is maintaining a healthy and profitable financial status. There is a lot to worry about, from tracking increasing sales to controlling expenses and reducing costs.
Without proper money management and cash flow, your inventory will soon run low, landing your business into debt. In fact, cash flow problems force about 82% of small businesses to stop their operations.
In this post, we will focus on the top 10 eCommerce money management tips to help you boost your working capital and direct funds to where it is most needed.
Take into Account Recurring Annual Costs
The financial health of any business relies on a structured budget. When generating a budget, your eCommerce business must consider recurring monthly and yearly costs.
Assuming your working capital is $1500 after deducting your recurring monthly costs. You may be tempted to invest this money in other things, like marketing, employee bonuses, and new product inventory, which is great. But things will start to go south once you have spent all the money, yet you need to settle your $1400 yearly subscription for SEO tools.
To avoid later disappointments, make sure you account for your business’s quarterly, biannual, and annual costs in your budget to ensure they are remembered. This may include licensing fees, taxes, and once-a-year subscription costs. You can depend on expense-tracking or accounting software to control your recurring annual costs.
Establish Proper Inventory Management Techniques
Inventory management and money management may sound like separate entities. But lack of proper inventory management techniques, like inventory forecasting, can lead to high production costs and backorders on items.
With robust inventory management, you will know the amount and quantities of inventory to keep and put your money in the right place. It is also a perfect way to track your inventory or product variants to ensure none is stolen, misplaced, or damaged.
Considering how expensive it can be to restock inventory during a last-minute rush, it would be best to order and keep your inventory ready in good time to meet any increase in demand. The safest approach is to have at least 8 to 12 weeks of stock.
Prepare for Seasonal Trends
Seasonal fluctuations are common in the eCommerce industry. For instance, if your eCommerce store focuses on selling warm sweaters, scarves, and boots, you may experience low sales during the summer months. But when winter ushers in, sales may start to increase.
Thus, it is best to have realistic expectations and save more money during your high points to cover the low season. In addition, grace yourself for economic ups and downs by accumulating enough working capital. This will reduce the likelihood of getting into bad debt during your low months.
Work With the Right Ecommerce Platforms
While you can increase your sales and revenue by selling on multiple eCommerce platforms, some may quickly derail your profit margins. Choose those options that work best for your business.
Look at the platform’s listing fees, monthly fees, transaction fees, and commission fees and determine if it is worth it. This is most important if you are leveraging third-party online marketplaces. You can host your own eCommerce site alongside a reputable online marketplace like eBay.
Evaluate Your Funding Options
It will be best to understand the funding options available to you and use them only when needed. For instance, if you run an SME and need quick cash, the best option would be to use a business credit card.
There are other business financing options you can apply for and pay them off after a certain period of time. This includes online lenders, credit unions, and local banks. Even so, avoid relying exclusively on external funding. If you have to, let it be an expansion move rather than a sustenance move.
Lower Your Shipping Costs
This money management tip may sound simple, but a very crucial one. High eCommerce shipping costs can drain your pockets, leading to losses. It is best to consider delivery costs when looking for an eCommerce platform to maximize profitability.
Luckily, you can always find platforms with an array of partners whose apps can help you discover the most in-expensive shipping solutions. You can then use such options to lower your shipping costs and skyrocket your profit.
Avoid Unnecessary Expenses
Every eCommerce business strives to cut costs to stay afloat. Cost-cutting helps you highlight those business areas with the highest spending and lower returns and make significant changes. It also enables you to spend money when necessary.
You must continuously review your balance sheets to highlight areas with high expenditures and unsatisfactory results. Besides, avoid spending money on things or activities that do not add any value to our business. You might also want to check if you are losing money to scams and fraud and seal the loopholes.
Invest in Effective Marketing Channels
Ecommerce marketing expense takes the largest share of the overall business overheads. While investing in effective marketing will help grow your customer base and sales, you wouldn’t want to blow your budget on untested platforms or flashy campaigns.
The rule of thumb is to spend about 5% of the eCommerce business budget on marketing. But if you are operating on limited funds, it will be best to leverage cost-effective marketing channels. Use web analytics tools to analyze website activities and traffic to identify the most impactful and profitable channels.
Provide Multiple Payment Options
Digital payment methods have stood out as the most convenient and safer alternatives in the current cashless economy. As an eCommerce business owner, you need to make your payments as frictionless as possible. This will make it easy for customers to pay for products and lower the cart abandonment rate.
Focus on providing all the frequently used payment options to allow customers to use their preferred channels. While at it, avoid additional expenses and operate within your means.
Target a Steady Gross Margin
Fluctuating gross margins are a sign of mistakes in pricing or accounting. On the other hand, a steady gross margin reflects a functional and healthy business. Maintain consistent gross margins if you want to attract incremental profits over time.
Audit your books of accounts to identify mistakes and strategize pricing. Also, assess your discounts and their impact on profit margins.
Money management is essential to keeping your eCommerce business alive even in the most challenging market conditions. By tracking all your finances and cash flow, you will know where each coin goes, its yields, and how best to cut costs. It is also a perfect way to stay away from unexpected debts.