E-commerce companies routinely face funding challenges.
The seasonal patterns in the business and the high levels of competition make sourcing investment a tough task for most E-commerce company owners. There are many options, but only a few work.
Preparation is the key to securing financing for your business. Here are 4 tips that will help you prepare in advance and answer any questions an investor might have.
Understand your sales forecasts
E-commerce funding revolves around revenues and sales. Specifically, sales forecasts are an important piece of the puzzle. These forecasts help investors understand the seasonality inherent to your business and your working capital position during these times. Investors can use these forecasts to predict when you might need an emergency capital injection.
From your perspective, creating a sales forecast isn’t an easy task. While you can rely on historical sales to inform future revenues, you must account for market changes and trends prevalent amongst consumers. Data holds the key.
E-commerce funding firm 8fig‘s Karlyn McKell outlines a few ways you can leverage data to monitor market trends. “There are several things you can do to monitor the market such as follow relevant influencers, subscribe to industry publications, study your digital analytics, seek customer feedback, and monitor your competition,” she says.
Incorporate these trends into your forecasts and have them handy at all times. Your investors will appreciate it.
Know what the money is for
Many E-commerce business owners focus on getting the money into their bank accounts and neglect follow-up questions. For instance, how will you use the money an investor plans on giving you? Your business has multiple funding needs, and figuring out how to use the money after you receive it is not an option.
Investors expect you to know how you will use the money and give them detailed projections and timelines. In addition, you must have projected ROI numbers on hand to help them understand where their money is going.
Here are a few areas where you could invest your funds:
Supply chain optimization
All of these areas have different ROI potential, and you must convince your investors why allocating money to these functions is a good idea. Put yourself in your investors’ shoes as much as you can and anticipate their questions.
You know your business the best, so don’t think there is a single “best” area to direct investor funds to. For instance, investing in the supply chain isn’t always the “best” option. Direct your capital to where it’s most needed.
Use data to understand your customers
E-commerce businesses can draw from multiple data sources these days to understand their customers. Google’s Analytics suite is a popular and free tool that you can leverage to understand customer behavior. If you sell primarily on platforms such as Etsy and Amazon, you’ll have seller analytics to look at.
There is another dimension to analytics that most E-commerce business owners ignore. Before launching a product, you must test its appeal to your audience. This means launching the product to a select group of users or testing multiple landing page variations and product descriptions.
Look at your data to understand which version appeals to consumers the most and run with it. Data plays an important role throughout the process, so always rely on it. You must use data to identify cross and upsell opportunities as well. Which pages do customers visit the most after buying your products, and where do they come from?
Are there patterns in behavior amongst users arriving from a certain platform? Can you leverage their behavior to generate more sales? Data analysis will answer these questions so pay attention to it.
Map your supply chain
Most E-commerce business owners neglect to map their supply chain and inventory levels fully. The common approach business owners use is to locate a few suppliers (or one supplier) and map shipping timelines. The issue with this rudimentary map is that you’re unlikely to gain cash flow insights.
Use a growth planner to help you decipher cash flow, working capital, and procurement times. You’ll instantly figure out when to raise POs with your manufacturers and suppliers, helping you avoid costly stockouts. Tools like these also help you maintain a continuous supply of capital instead of receiving lump sum money dumps upfront that could lead to inefficient capital allocation.
For instance, if you use a fulfillment service, how well are they equipped to ship and store products during peak seasons? Can they accommodate excess inventory ahead of manufacturing shutdowns during Chinese New Year and other local events? What are these additional costs, and how will you account for them?
A growth planning tool will help you predict cash flow pitfalls caused by your supply chain ahead of time. Your investors will appreciate the effort you’ve put into mapping your cash needs and gain a clear picture of trends in your business.
The result is a continuous flow of capital that keeps your working capital levels high.
Prepare to succeed
Preparation is the key to securing long-term financing for your E-commerce business. Online selling is a highly competitive field, and to secure your business’ future, you must rethink how you present your cash position to investors. The tips in this article will help you secure the money you need and the future you want.