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4 key eсommerce funding challenges and how to overcome them

By Chris Allen | January 08, 2024
4 key eсommerce funding challenges and how to overcome them

ECommerce startups face special funding challenges that are crucial for their success. Understanding these challenges and knowing how to handle money wisely is key.

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But what do you do when regular banks won’t lend you money? Or how do you balance spending money to get customers while still making a profit?

Let’s dive into these important topics and help your eCommerce startup succeed.

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We’ll ask a few quick questions to better understand your specific business needs. Then, we’ll build a funding plan tailored to your business expenses and store sales.

Access to capital for growth and scaling

As an eCommerce entrepreneur, you’re likely all too familiar with the difficulty of securing capital for starting your business. Regular banks want to see physical assets and a long record of making money, which new businesses usually don’t have. This makes it hard to get the funds you need to grow your stock, expand, and market your products.

Here are some ways to solve this challenge:

  • Use eCommerce financing websites: Use platforms made for eCommerce businesses. They develop a better understanding of how your business works and offer money based on how your sales and growth are going, not just your past financial history.
  • Look for venture capital and angel investors: Go after investors who focus on eCommerce. They can give you money and also important advice and connections in the industry. Make sure your business pitch is strong, showing why your idea is unique, how it can make money, and how it will succeed.
  • Crowdfunding: Websites like Kickstarter can help you in two ways: they can help you raise money and also let you see how much people like your product. You can raise funds through pre-orders or people giving money to support you.

Think about what your business needs, where it stands in the market, and how you want it to grow to choose the best mix of these options.

Managing cash flow amidst rapid growth

When your eCommerce business grows quickly, it’s thrilling, but this can also create challenges in managing cash flow. You need money for stock and marketing before you make sales, which can lead to a cash shortage. This problem can slow you down, making it hard to meet customer demand and keep growing.

To keep your cash flow healthy, try:

  • Financial planning tools: Use tools like QuickBooks to keep an eye on your cash flow. These help you understand your financial situation as it happens, so you can plan better.
  • Revenue-based financing: Think about financing that matches your sales. This means you pay more back when you’re selling more, and less when sales are down, fitting the natural ups and downs of your business.
  • Optimize inventory management: Have just enough stock. Too much can tie up your money, but too little can mean you miss out on sales. Inventory management software can predict just how much you need.
  • Flexible payment terms with suppliers: Talk to your suppliers about payment terms that work with how you sell. This can give you more time to sell your inventory before you have to pay for it.

Use these approaches together to better handle cash flow when your business is growing fast.

High costs of customer acquisition and retention

Getting and keeping customers is expensive. Marketing costs are high, and it takes continuous effort to keep customers coming back.

To handle these costs better:

  • Embrace cost-effective digital marketing: Put your energy into digital marketing methods that give you a good return on what you spend. This includes improving your website for search engines (SEO), creating valuable content, and using social media. These can be cheaper and more effective than old-style ads.
  • Secure financing for marketing: Explore financing options for marketing expenses, such as loans or lines of credit from platforms that support marketing efforts, to invest in growth while managing cash flow.
  • Use data analytics: Analyze customer data to understand their habits. This helps you make your marketing more effective and saves money by targeting the right people with messages that will appeal to them.
  • Implement email marketing: Email marketing is a great way to build an audience and keep it engaged with your brand. It doesn’t cost much and can be very personalized, which means more customer engagement and loyalty.
  • Develop customer loyalty programs: Set up programs that reward customers for coming back. It is almost always more cost-effective to get old customers to return than to bring in new ones. The key is that they already know your brand and trust it if they were happy with their purchase. Loyalty programs give them advantages such as better deals, while growing your customer base.

With these strategies, you can manage the costs of acquiring and retaining customers while focusing on business growth.

Supply chain and inventory financing challenges

An eCommerce warehouse full of product packages.

A big part of starting up is investing in inventory. This necessary step can tie up a lot of your money, impacting other important parts of your business like operations and growth.

To manage your money better:

  • Explore inventory financing options: Look into inventory financing, a loan, or a credit line for buying inventory. This financing often depends on the value of the inventory itself, which acts as security.
  • Negotiate trade credit with suppliers: Work out trade credit terms with your suppliers. This lets you pay for inventory later, giving you more flexibility with your cash flow.
  • Use revenue-based financing for inventory: Some lenders offer revenue-based financing specifically for inventory, where payments match up with your sales cycle.
  • Try dropshipping or just-in-time inventory: Think about using dropshipping, where suppliers send products directly to customers, so you don’t need much inventory. Or use a just-in-time inventory system to keep only a small amount of stock.

These methods help you balance enough inventory for customers without stretching your finances too much.

Parting thoughts

Managing the finances of an eCommerce business is as challenging as it is rewarding. To grow while staying financially stable, you need to be strategic about funding, managing cash flow, acquiring customers, and financing inventory.

How can you get more out of your marketing budget to lower the cost of getting new customers? What kind of financing fits best with your business’s unique cash flow and sales patterns? Can you cut inventory costs without letting down your customers?

Keep these questions in mind as you deal with the financial complexities of eCommerce, and you’re on your way to making your online business strong and successful.

Chris Allen is the SVP of Marketing at Heartland, a people-centric fintech company helping over 1 Million entrepreneurs run and grow their businesses. He has 15+ years of executive Marketing leadership in B2B tech and SaaS.


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