fbpx

How to Understand and Manage the Cash Flow Cycle for eCommerce Business

5sMlH5pkmLaWEQ

eCommerce Cash Flow Cycle Facts & Figures

If you are like most eCommerce entrepreneurs, you probably already figured out that one of the most significant challenges is to ensure fast (and cost-efficient) shipping. This article delves deeper into the issue by sharing facts & figures about how long it takes for funds to reach your bank account after an online transaction. It also explains what factors play a role in determining when you can expect to see money deposited into your account.

Factors influencing the speed of the Cash Flow Cycle for eCommerce business

In ecommerce, cash flow is everything. You must have a constant revenue stream to keep the business going, regardless of seasonality or outside factors influencing sales. The more expenses you c, the cutout. Just the way, the better. 

When starting an ecommerce store it’s easy just think about making sales and whether people will buy from you. But if you don’t know where the money is going, you’re probably losing more than you think (and wasting precious time trying to figure it all out). So let’s go over the big things that affect your cash flow, which you should always be aware of.

1. Costs to Acquire a Customer (CAC)

One common mistake entrepreneurs make is not tracking how much it costs to acquire a customer (CAC). For example, let’s say you’re selling t-shirts for $24.95 each, and you made 100 sales in September 2015. If one customer turned into two by Occostsr, that’s good news, right? Not exactly – what if it cost $100 to acquire that first customer? That means at least half of your customers are unprofitable! But you’ll break even if the same people spend $50 monthly on their t-shirts. If these customers continue to pay $50 per month every month, you’ll turn a profit. So while it may be evident that you should focus on acquiring more customers who will spend the same amount, or more money over time – what are some of the best ways to do this?

Facebook ads are great because they allow you to target an audience by location, age, interests, etc. When setting up your ads, use gender and language targeting options so you can get specific with your ideal customer or offer. You can also run multiple ads for different products and then compare which gets the most conversions based on the budget spent.

Email marketing f reach out to past customers who abandoned their carts to give them a second chance to complete their purchase. Yo, and give discounts and exclusive offers for those who come back and share your past customers the ability to refer friends and family, thus creating a win-win situation .

Now that social media and email marketing are becoming more critical than ever for ecommerce stores, you might not even need to spend money on acquiring new customers through Google or Facebook ads. Try asking your existing customers for help spreading the word about your business-they might do it! Also, try offering them an incentive if theyThis will talk about your products and it will also vices (like a discount). Not only will this drive down your CAC , but incentivize current customers to continue buying from you.

If you’re not comfortable with CAC, consider hiring a marketing consultant.

2. Costs to Sell a Product

First, your variable costs of materials, labor, and shipping are all integrated into the price you charge to make each product or service you offer. Next, you have fixed costs to run the business, such as website hosting fees, accounting software, and customer support services; these may be monthly recurring expenses or one-time upfront costs to get started – depending on what’s best for your station. You can check out Shopify’s pricing plan here if these types of expenses sound intimidating to manage.

If we go back to our cost-per-acquisition example #1, unfortunately, we’ll have to say goodbye to half our you can they’re willing to spend the same amount again. But if you can ke, ep this same customer paying $50 per month for your products (or more), that’s great! You can use any leftover money in your company’s bank account to reinvest into advertising or marketing, purchase new inventory, pay yourself a salary, offer discounts/promotions, and so much more!

vvqRL9Kp8P KCf6xDnWtZDAJXetzt6 N7IJ rLbX8e2vv9diMD5gZbslvq1qjMh PfQ12o1MRAc38Pmvj1sz gj5tr4lqX 2qw6FQxxH PoG4dg2MA9K2WpEd XuaNhwsSb80f0=s0

When it comes time for quarterly taxes in the US, you’ll need all of your transaction records including how much was spent or earned for each reseller. Shopify stores must submit 1099 MISC forms for anyone who made at least $20k per year selling on their business platform if you don’t want to deal with the hassle of manually ng out tax forms and mailing them (which can take quite a bit of time!) then you can choose to use an accountant or let Shopify handle it.

Recurring revenue is like money in the bank for ecommerce businesses – it’s much easier to plan and manage your business finances when you know how much Cash will be coming in each month. If you offer subscriptions, selling in bulk or bundling products, consider raising prices so recurring customers won’t feel cheated by higher costs. You can compare Shopify’s pricing plans here if you’re interested in starting a subscription ecommerce store.

3. Costs to Sell a Product per Unit

Many types of retailers will add a markup t,o each item they sell. This process is called costing out your products and is a strategy used to determine the maximum price you show your costsoduct or service. In other words, after fndut what your costs are to make that Buzzfeed Tasty recipe video, multiply that number based on your ideal profit margin (which can be anywhere from 10% – 30%) .

To find this optimal profit margin, take the amount of money you want to earn,n in gross revenue during o  one month, then subtract all of your expenses including labor, materials and overhead costs . For example, say you’re starting an ecommerce store where you sell novelty coffee mugs  – when account, ting for every expense possible (overhead , taxes, shipping fees, etc.), your business will probably experience $1,000 monthly in total costs.

TsOflBdbDXYHoyyMakdne 0VbmYydoX7o7Fmy0DRtuizHAhvhc5s45oG65TXRbidBXPNST9KYAqoRnOeEOIDh nXuP rFFZje5T WgIw1JZR9on9tVsXhq f1gs2Tfj2XCv83DfR=s0

After researching similar products sold online, you’ve determined that the most money you could hope to earn would be $4,000 in gross revenue during one month (selling 100 mugs). So your new price for each cup should be at least $40 after adding up all your expenses plus a 10-20% profit margin . This means that if these coffee mugs were bought wholesale from the manufacturer and cost out at around $5.00 each with shipping, then your customer would pay about $30 per mug after all of their combined costs are totaled – this includes overhead/rent/wages/shipping/reseller costs, etc.

Remember that your target customer may be willing to pay up to $100 for that same Buzzfeed Tasty recipe coffee mug  – plus, they’re probably more likely to buy additional items from the same company too. If you find yourself selling retail products at a small price point, there’s a good chance it will cost you more overhead expenses than selling bulk orders or subscriptions with recurring revenue.

4. COSTS ASSOCIATED WITH STORES THAT SELL MULTIPLE PRODUCTS

Here’s where things get interesting – if you plan on starting an ecommerce store that offers multiple product lines or types of serv, you’llu’ll have some added labor and planning costs before hitting the “sell” button. Your business model will determine some of this, but you can also consider how many products are sold per order.

For example, if each product is offered in small/medium/large sizes or has different color options, it will require more time and attentthand to sell a single item “as is.” To keep things simple, let’s say you plan on starting an ecommerce store that offers only 1 product – so the first step would be figuring out what expenses come with selling a specific item.

SVuVrn44iM3naFA2qiq1A5dRi HfJEP7sLdxAICFKEI7 kVRk83Mlk 5Kq13 mC9GwqzPGPInnvHzzfR6peKlpryMRXA3JFuglQ3a1kgTJcLy8o9E7V3bjjwEZuv8aieBeYYPUr9=s0

Remember that most wholesale vendors charge a restocking fee when returned goods aren’t in good condition during returns. Since postage printing rates increase around January-February, most online retailers start stocking up on boxes and bubble wrap during December to mark their price-determining 1st.

So how much should you charge for each product after figuring out your costs? You can either price products with a markup or cost-plus formula. Most ecommerce stores use the markup method, which means adding up all of your expenses (rent/wages/shipping/overhead, etc.) and multiplying that amount by 2 – 15% to find the new retail price. Using this strategy, your $5 coffee mug might now cost more than $8, depending on how much it costs you in overhead.

But what if you want to offer wholesale pri ng and market yourself as “the cheapest place” in town? Then we would  suggest using the cost-plus formula instead, which involves adding up your costs (rent/wages/shipping/overhead) and adding another 10% or more to that number – this will help you reach a possible retail price point while still offering discounted wholesale prices.

So if these coffee mugs were bought wholesale from the manufacturer and cost $5.00 each with shipping, then we would add another 20% to the final price before marketing it online: $6.25 per mug becomes $7.95 + shipping. Remember that most wholesale vendors offer discounts to retailers who buy larger quantities, so we suggest reaching out directly for better pricing and special offers when possible. 

eCommerce Cash Flow Cycle Impact on your business

If you are concerned about the speed of your company’s eCommerce cash cycle, here are some things you can do to improve your bottom line:

Increase revenue per transaction – by working to increase the average order value and reduce your returns and refunds. Keep so that eye on your customers and watch for trends in how they buy from you, so you can tailor your marketing campaigns acrosome-day

09LILIH5kXd2JdKkKZ9tlZhwqgtmFv 3IA1U16N1znUR5agf4bFiei32tdDQ9Dk ieAr8zoAcaPu9agzKWkgtMCDiP3bqbh2V jPvr3KR68Y8jbgVXtNX942Cs9 p65FePWpX3tU=s0

Look at payment methods – with some card providers offering same day or even real-time ecommerce and cash cycles, look into these ions for speedy transactions to speed up the funding process. PayPal provides this service. If you bank with them, the customers take too long•. Minimise customer wait times – if it takes too long for customers to get their products, they might give up on ordering altogether. Make sure you choose a reliable merchant account provider specializing in eCommerce to reduce order processing times and speed up your business’s cash flow.

Add to your company’s success – take advantage of related services offered by merchant providers like high-risk merchant account companies that allow you to increase your revenue (and the speed at which it reaches your accounts) by providing additional products for sale through your ecommerce website. Make sure you choose a provider who has experience with online businesses and offers reliable payment solutions.

IzES5KGy4rRNWJPmJJMWaf8gKxEV8TvZ2r0A5BwpyBixk5ZWqXuW3zW63joyjGWdIR6dUAF27UKMNq6 C7gPYn R46TlFbQ4SgdZngPcQyVLn2ySqXDtiliVGUIX0uGc6og4orb2=s0

Most eCommerce startups fail to Understand the Cash Flow Cycle of their businesses. But why do you need to understand it? 

Because when you are aware of it, only you can manage the cash flow in your business more efficiently. You can also avoid unnecessary wastage of money and time during each step of the buying process for an online store. If it has to be explained, “Cash Cycle is nothing but a process which takes place between payment collection from customers and repayment of money to suppliers.” Now let’s discuss all the steps involved in Cash Flow Cycle below: 

The Cash Flow Cycle starts:

TINMdk3eVn8VE7upB3to62VK9sZJZ9mAAn0BilXb0tE5l3xISH4F

a.)  When a company receives an order from its customer through a website or office, the order is placed successfully, and will transfer the money to the company’s bank account. 

b.) After transferring money, the company will confirm the order to its suppliers through fax, email, or phone. The remaining money is sent to the supplier initially providing their products for order fulfillment. 

c.) Once the product reaches the customer’s hand, they must pay the remaining money via cheque/DD/online banking. 

d.) The cycle ends when the company receives Cash from customers and sends it to their suppliers (maybe the same person).

Note:

If any error occurs during this process, you can end up with bad reviews on your website, which cause a loss of customers and declining revenue. So take all necessary steps like selecting the right courier service provider, communicating with the client politely, etc., while ideally managing online transactions.

Can Cash Flow Cycle Management Affect eCommerce Business?

Cash flow cycle management is essential for any company, whether it is an online store or a brick-and-mortar business. You probably think that managing cash flow could help your ecommerce business. Let me explain to you. If your staff are not aware of this Cash Flow Cycle, they might face problems in keeping a track record of transactions, leading to wastage of time and money, resulting in a poor customer service experience. 

62oyJS9sH8J599RpOKif9Pt5TVqXPOvPojoUv87 p5mzYeALteyvYjeciD0GK1aVdCvBNHVVEuC15x7qoqXGsiFIt9 PpKYK9T6Da2iX4ksFZQIbf0KG8DAn8zAlv0 UEVqzO YH=s0

Furthermore, if mistakes occur because of a lack of knowledge about the Cash Flow Cycle process, it may give your ecommerce biz a lousy reputation. Unnecessary rework also occurs because of lack of awareness which causes wastage of resources like man hours & material costs etc.; not only that, if you ignore the Cash Flow Cycle, then probably you will not be able to manage financial issues like payments of salaries and other monthly expenditures on time which can even affect your business badly.

How to keep track of the CasCyceverymerce business?

There are many ways to keep track record of each and every transaction happening within your ecommerce business. But one most efficient way is through the use of POS software. 

What is POS Software? 

POS Software or Point of Sale software is an application that runs on a device known as a Point of Sale. POS is the abbreviation for Point Of Sale, and this system manages sales transactions in retail stores like supermarkets and departmental stores. The Point-of-sale (POS) software allows payment processing and other related functions to be carried out at the store counter rather than by a central office/server. Anessentialtpartn of this software is creating reports which can be used to track inventory usage. Some retail businesses use their POS software for this task alone.

How does it work? 

This enables you to easily manage all transactions happening over the website or offline mode. Using such advanced tools also help companies in the mainland ging their r exp; It’s on different departments like prodcostsdevelopment, marketing, etc.; it also helps them save manpower cost because they don’t need to hire additional staff for t s tasks. Not only that reduces manual calculation errors, which waste time and effort.

What are the Advantages of implementing a Cash Flow Cycle in an eCommerce business?

The Cash flows are the perfect solution to manage your ecommerce b. When starting an online business, knowing where to invest your money cannot be easy. This app makes cash flow cycles for ecommerce stores because cash flow management is essential for any business. Here are some benefits of using a Cash FThe cashCycle on your ecommerce business:

Accurate Profit and Loss report: Cash Flow Cycle updates all transactions so you can get precise profit and loss reports. It also enables you to track every purchase made by the customer, making it easier to calculate the revenue generated by each transaction.

AeR5uwG9LnhxPV5HBnvUxWpcvbrRrXpwFWBz24ZpWna5Nc6qZMIDld8y9oSBCr1WwrQoooscjXmRvnqmGWc 4zNdkFOPR8AbWm7 Y5mhgIR76OBv

Useful reports like, Annual Report Summary: will provide unable insights about your business, like aging receivables, outstanding  receivables, credit limit and can thus help you cash flow management is one necessary action to bring down the receivable of the essential things for any business is cash flow management. With Cash Flow Cycle, you can manage your cash flow effectively as it enables you to generate a list of bills that need to be paid, ensuring that all expenses are met on time. You can also define multiple payment gateways, meaning more customers will pay via your preferred gateway and increase sales conversions.

With Cash Flow Cycle, you can easily keep track of outstanding invoices and create invoices with just a few clicks. Moreover, you can also send customizable email notifications to remind unpaid customers about their premium payments or overdue invoices.

Manage employees’ salarisalariesu can also manage your employees’ work hours and calculate their salary with the help of this app. All you need is to enter the number of working days in a month, select the working hour per day, and then enter the hourly pay rate. It will automatically give you an idea how much money to deduct from each employee’s credit card on payday with a cash flow cycle for ecommerce store m management.

With this app, you can generate bills according to your needs, like getting bills for office electricity or manensureiness rent expenses, etc. Moreover, daylily, it will make sure that every transaction is updated on a daily basis so that you don’t miss any entry at all.

XopIAHCOKw6aWcft587vWOYLBY djXPmYSP9Akyl XpbCQsZIlQHDZSK6Pd3LCymy9zLL6YU3NFoJ xn5wsdSvsITWzyn2GH5rO mcipmO3HRrTBw8hXcgq4wCF69Jq0sW PJod=s0

Once implemented, you can also expect to gain several benefits:

  improved custoimprovesnsparency in financial activities etc., which results in improvement of the company’s overall revenue growth. 

it also helps companies make crucial business decisions, like deciding optimum stock levels for different products, because it enables them to monitor inventory closely. Furthermore, it allows companies to manage purchase orders easily. Sometimes, they waste their valuable money on sending goods back because sometimes these returned items become unsellable or break down after 1-2 uses, or clients simply clients don’t want them. 

it also reduces operational overhead costs because these advanced tools help companies keep a track record of transactions and help thmanageving internal communication. 

furthermore, it helps companies manage the expenses of various departments like product development, marketing etc., so they don’t have to hire additional staff for this task.

Other important figures to Understand in the Cash Flow Cycle for your eCommerce business are:

1.) Net profit: your total annual revenue minus all associated costs (including overhead and more, which we will discuss briefly). For example, if you had $100,000 in revenue and $70,000 of combined overhead and cost of goods sold expenses for the year, you would have a net profit of $30,000 before taxes.

a8BqUNsZOT4LlCMAO0Scxvqp13gVEJxVEGG23kLVWpOJAWlPnaBrElUwbc57bmyUwvKbkFj6zQmaHUkmdZ2ePnKJw8rn1trpI2 ocjg0leamByraQ3I3zkMnU7szYsaE1mVHeGz=s0

2.) Operating profit: this is your net profit (as mentioned above) minus interest expense on any outstanding debt or finance, ng for the business’s operations (new equipment purchases, renovations, etc.). If you had an operating loss of $10,000 during the year, no cash flow was available to service additional debt used to finance daily operations. Of course, you may be able to take on debt anyway, but continuing to do so will affect the business’s creditworthiness.

3.) Working capital: your current assets minus your current liabilities. Existing assets include Cash, and linesaccocrediteand short-term rent liabilities are typically lines of credit and short-term debt). This number reflects how much liquidity you have available in the business to make new investments, service debt, etc. A good rule is that working capital should be at least three months’ operating expenses. If it isn’t, then there probably aren’t enough liquid assets in the business currently to fund future growth, meaning more debt must be taken on. If you decide between making needed repairs or investing in new inventory, you would want to know how much working capital is available.

WKJeltBFPxHRewAqGXDUntmmVvowkO6pnxXgyTeXQOx3BnrrG3GOPCzk32gKZ34e5IfVnQagUDXRrF mtKDyRLJ6aMmj5oE8ZsKXYq5JqOW0jDJnBSej Csbcv41vaIo9ZKBubDD=s0

Additional vital figures for your eCommerce business Cash Flow Cycle

Cash Collection: The company transfers money to its bank account and gets customer payment confirmation. Money starts flowing into the company’s bank account now. This amount can be found in Company’s Bank Statement or ledger entry at this stage only. 

at9PDJ2bSio8AiP pim2Iz ne4FhFy xLsu1B4ghZZV86ubnl t91NMgtxSvdlcAV1B RVo0 5F6bnmQzae64i7oq3A97sHnSloHAIAYd2xGHWcBcHoLF Uh0U 8SAKHj2DlHqXG=s0

Cash Inflow: Amount received from customers is stored in a fixed deposit (Saving Account) for a certain period as per company policy (If any). At times, companies transfer this money straight away to the current/operating company that it can use for business expenses, etc.,

Cash Outflow: Company transfers money from its Current Account to supplier’s bank account for buying products.

Security Collection: The supplier withdraws money from the current account and attaches a security with that against a guarantee that if a particular amount of invoice is not paid by a specific date, then this security will be automatically converted into Cash and transferred to the supplier’s bank account.

JLYDP4e3AnGDMYo3kxMNcEPdY6kTsLwFlqjbv KRQLpL2ymh85

The eCommerce cash flow cycle is all about understanding the different stages of the cash flows in your business. eCommerce storefronts typically do not generate regular positive cash flow, so it’s up to you to forecast correctly during the different stages of your cash flow cycle.

Along with knowing where Cash is spent and when it will be recouped, any successful ecommerce business owner should also know how much capital they have available to reinvest in their company.

 

Free E-book for E-Commerce Entrepreneurs

9 Most Crucial eCOM Tax Deducations The IRS Doesn’t Want You to Know

Explore More

How To Not Charge Taxes On Shopify
Blog

How To Not Charge Taxes On Shopify?

  How To Not Charge Taxes On Shopify? In this article, you will learn: What Are Tax Overrides? How Not To Charge Tax On A

How To Charge VAT On Shopify
Blog

How To Charge VAT On Shopify?

  How To Charge VAT On Shopify? In this article, you will learn: What Is VAT For Shopify? How To Charge VAT On Shopify? What

How To Charge Sales Tax In Shopify
Blog

How To Charge Sales Tax In Shopify?

How To Charge Sales Tax In Shopify? In this article, you will learn: How To Charge Sales Tax In Shopify? Creating Product Tax Overrides Including

Boost Your E-Commerce Business Now

drop us a line and keep in touch
Alan Chen

Schedule Your Call with Alan!

Hate working with accountants that don’t understand your online business?

By the end of this Strategy Session, you will have a clear understanding of the next steps you can take.

 This Call Is Completely FREE.

Have Urgent Questions You Need Answered?

Book a FREE consultation call with Alan and talk to a CPA who actually understands and cares for your business.

Alan Chen