How to use finance to grow your WooCommerce store
If you are selling through WooCommerce, and you want to grow quickly, then you need finance.
That’s why WooCommerce have created a merchant financing category on their marketplace, and added merchant finance options to their ‘Grow your business’ collection. Using these, you can now get the funding you need to accelerate your growth.
If you want to see what funding is available to grow your business, check out WooCommerce's merchant finance providers.
The main type of funding available to WooCommerce stores is called Revenue-Based Financing. Revenue-Based Financing is designed specifically for eCommerce businesses and it’s a simple, fast way to get the funds you need to grow. It's unsecured and non-dilutive, giving you access to large amounts of funding, without giving up ownership or collateral.
In this post, we’ll explain;
- Why funding is so important for your online store
- How Revenue-Based Financing works
- The benefits of using Revenue -Based Financing to grow
Why is funding so important for your online store?
eCommerce businesses have a cash flow problem. As an eCommerce business, you always need more funds than you have available. This isn’t driven by bad cash flow management, or slow paying customers, it’s driven by your suppliers!
Let me explain.
One of the biggest costs for any eCommerce business is purchasing inventory. Most eCommerce businesses source their inventory from the Far East and the reason for this is obvious - prices are much lower and sourcing products from China gives you a higher gross margin.
But there’s a catch.
You will almost always get terrible payment terms. These terrible payment terms are the reason eCommerce stores need funding. Most eCommerce stores have to stomach the classic 30/70 split - 30% payment on order and 70% payment on shipment. It is these terms that create the cash flow problem.
Let's look at an example to understand why this is a problem (or skip to the solution if you’re already familiar with the problem);
- Day 0: you decide you need to make an order for new inventory, let’s say it’s $100,000.
- Day 1: you contact your supplier to place the order. They demand payment of 30% ($30,000) immediately. You send them the money.
- Day 28: your goods are ready to be shipped. Your supplier demands you pay the remaining balance of 70% ($70,000) before they ship the goods. You send the money.
- Day 60: After 4 weeks at sea, your goods arrive. Now, you need to get them to your warehouse and start selling them. You spend another $20,000 on marketing to make sure you sell the stock you ordered.
- Day 70: You are now $120,000 in the red. You’ve had to pay for EVERYTHING, but you still haven’t made a sale.
- Day 100: Your marketing campaigns were successful and you’ve sold all your stock. You mark up your goods by 4x so you made $400,000 in sales. A gross profit of $280,000!
The return on investment of purchasing inventory is clearly HUGE. This is 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 this return. Getting the money to make these inventory orders is very, very hard.
No money, means no stock, means no growth.
If you run an eCommerce business, you are very familiar with this problem.