8 eCommerce Money Management Tips to Improve Your Bottom Line
Running an eCommerce website is complex. Managers and business owners have their hands full worrying about everything from product quality to customer relationships. When you combine this with the fact that everything costs money, it’s no surprise that plenty of business owners struggle with money management.
Cash flow is actually the reason that 82% of small businesses are forced to shutter their doors, making it of utmost importance for brands everywhere.
In this post, we’re going to go over 8 essential money management tips that will help you boost your bottom line by increasing your working capital, improving budgeting, and ensuring that you’re putting your money where it needs to be most to help you grow.
Why working capital is so crucial for the success of a business
What is working capital?
Working capital is the amount of money that you have available at any given point in time, and it’s essential to manage your money carefully so that your business can not only survive, but thrive.
It’s surprisingly easy for businesses to run out of capital without even realizing it. Many make the mistake of using too much of their budget to purchase inventory, and they’re then entirely reliant on waiting for sales that may take a little while to come. In the meantime, they can fall behind on bills, and once you’re behind, it is difficult to catch up.
There are plenty of businesses that could have been much more successful simply by adjusting their money management strategies, ensuring that they had funds available when needed to scale their business and cover necessary costs.
Here are 8 essential money management tips to help you boost your bottom line:
Account for recurring annual costs
Allocate enough for marketing
Take seasonal trends into consideration
Use proper inventory management strategies
Choose the right eCommerce platforms
Leave room for returns
Be aware of funding options
Reduce shipping costs
01. Account for recurring annual costs
One of the most common money management mistakes new businesses make is neglecting to set up proper budgets. Many are quickly able to put together budgets that account for standard monthly costs, but forget to account for recurring annual costs. When those annual costs pop up (which can easily be substantial), they’re in a world of hurt because they weren’t prepared.
Let’s say that you have $1,000 in working capital every month after your recurring monthly costs are taken care of. You could easily move to invest this in new product inventory, marketing, employee bonuses, or anything else. This is great… but if you use up that $1,000 and then get hit with a $1,200 annual fee for your keyword research tool, you’re now in the red.
Take a look at your business’ annual, biannual, and quarterly costs. These may include taxes, licensing fees, and once-a-year subscription costs. Make sure you account for these, putting them into your budget in advance so that they’re not forgotten about.
Accounting and expense-tracking software can help you with this, allowing you to enter in recurring annual costs so that they don’t sneak up on you. There are plenty of tools that offer this, but Freshbooks and Quickbooks are two great examples.
Important: It is critical to separate your personal finances (bank account, credit cards, etc.) from your business' finances. By keeping these separate it'll be easier to track your cash flow and business health, while also protecting your personal assets.
02. Allocate enough for marketing
If you’re on a tight budget, it’s not uncommon to resist investing any of your limited funds into marketing. This is actually a crucial mistake that you want to avoid, however, as allocating enough funding for eCommerce marketing is actually an essential money management tip.
While you don’t want to blow your entire budget on flashy campaigns and use new platforms that you are unfamiliar with or haven’t tested, the reality is that you do need marketing to keep your business in good shape.
Keep in mind that if you aren’t actively acquiring new customers, the very best you can hope for is temporary stagnation. Eventually, you’ll suffer from natural churn rates, and you’ll struggle to maintain profitability.
The average churn rate is up to 5%-7% for eCommerce businesses, though this can increase depending on your industry. You’ll ideally be gaining enough customers monthly so that you’re not only maintaining your client numbers but exceeding them. You also want to re-engage past customers to build relationships, generate leads, and drive new sales.
Marketing is crucial for connecting to new audiences and existing customers alike. And if your marketing stops, your business can dry up faster than you’d expect.
As a general rule of thumb, spending around 5% of your business’s budget monthly on marketing is a good call. This is a flexible number, though; if you’re aggressively pushing a new product line or trying to make a name for yourself with PPC campaigns early on, you can consider investing up to 10% .
03. Take seasonal trends into consideration
If you want to manage your money well, then you need to be prepared for seasonal ups and downs that are unfortunately common in eCommerce.
Your online store might be selling beachwear, for example, and knocking it out of the park in March. This doesn’t mean that you’ll maintain these sales all year, however; in March, people are planning spring break and summer vacations. In November, people are going to have their eyes on scarves and boots.
You want to have realistic expectations so that you don’t assume high peak points in business are standard. It’s best to save money from your high points to cover you during your low points.
You also want to be prepared for economic ups and downs, too. We’ve all seen how quickly the economy took a massive hit during COVID-19, and much smaller fluctuations are also normal. Having enough working capital on hand and minimizing your debt as much as possible can help you prepare for this and increases the likelihood that even if you have a few bad months, you’ll be just fine.
To predict standard seasonal ups and downs, it’s often valuable to use business and financial forecasting. You can use Wix’s analytics tool to review reports of your sales from the previous year. Analyze the "Sales Over Time" report to compare trends from different time periods. You can also break down your traffic by location to understand which regions are buying what, when.
Use the "Customers Over Time" report to see how many customers are buying each day or month. You can also use it to learn how many customers you gained over a specific period of time and understand if there are certain seasons in which the numbers peak in order to prepare your store for more business.
Pay attention to industry standards in terms of ups and downs if there are any. You may find, for example, that eCommerce businesses selling candles experience peak highs in November to January and before Mother’s Day.
04. Use proper inventory management strategies
Inventory management is an important part of money management, even if they seem like two very separate entities. Without proper inventory management strategies (which includes inventory forecasting), you can easily end up with way too much of a high-cost product that doesn’t sell, and backorders on items that do. This helps you put your money where it needs to go, getting the most out of your working capital.
Strong inventory management will help you determine how much inventory to keep on hand, and what quantities you need. It will also help ensure that nothing is getting damaged, lost, misplaced, or stolen. Both help you boost your revenue and allow you to maximize your profit.
If you built your online store with Wix, you can keep track of your inventory and manage your orders from your site’s dashboard. This includes tracking your product variants as well as your sales made on multiple channels. When a product sells out, your site will immediately update the product listing to say "Out of stock".
You can also integrate Multiorders with your store and manage all of your inventory from a single platform.
Here are some other useful tools that can help you with inventory management and forecasting:
If you’re struggling to move inventory or want to expand with new product offerings but are nervous about tying up working capital, consider dropshipping. Dropshipping can open up expansive options to incredible products, and you don’t need to physically store them. Instead, they go straight from the wholesaler to the customer, and you get a profit without any of the risk.
05. Choose the right eCommerce platforms
This may seem like a minor decision, though in reality it’s anything but. You absolutely want to choose your eCommerce platforms exceptionally carefully from the outset so you don’t have to start over later or lose too much profit. Both of these possibilities can happen when you’re using a platform that doesn’t work for you.
Keep in mind that each eCommerce platform may have some combination of their own monthly fees, commission fees, listing fees, transaction fees, and more. If you choose a platform that charges 4% credit card rates when a competitor like Wix Payments offers 2.9% credit card fees, you’re bleeding money that you could have kept in your pocket.
You want to pay close attention to this when utilizing third-party selling marketplaces like Amazon or Etsy. While these platforms are great for reach under the right circumstances, they can eat into your profit quickly. Factor these costs into your expenses, or they can derail your profit margins before you know it.
Take time to review your choices, and remember that having your own site with a great eCommerce platform is often the way to go. When you host your own site, you’re in full control of the user experience, and fees are often much lower. Platforms like Wix also offer extensive eCommerce features, including multi-channel selling, currency converters, automated sales tax calculators, and so many more.
06. Leave room for returns
You can be selling a nearly-perfect product that’s top-of-the-line and designed for optimal customer satisfaction. Doesn’t matter. You’ll still get returns.
It’s impossible to have 100% satisfied customers, and unless you have don’t allow returns (which we don’t recommend), you’ll end up with returns coming back your way. This is normal, and it’s expected, so it’s important to account for it in your budget.
It’s particularly important to account for the return of broken merchandise or items that can’t be resold, like food, socks, or personalized goods. You’ll want to account for anywhere from 10-40% of your products coming back. Factor return shipping costs into your budget, along with any restocking or repackaging costs.
To minimize returns, consider implementing the following tips:
Write a clear return policy.
Offer returns, but require that the items arrive unused and undamaged with their original packaging. Set a strict return window, too, to prevent abuse; 30 days is typically a safe bet.
Create excellent product pages with reviews.
Use multiple pictures, detailed product descriptions, exact dimensions, and care instructions. Supplying all this information from the outset can help customers make better buying decisions. And if they’re more likely to purchase the product they’re looking for, it’s less likely to come back to you.
Ship items securely and quickly.
Customers who receive their purchases quickly and in great condition are often more satisfied. A product damaged during shipping will rightfully be returned. Likewise, if customers have to wait three weeks, they might just purchase from a competitor instead.
07. Be aware of funding options
It’s normal to need a little help with funding. It’s not uncommon for our working capital to get caught up in inventory purchases and unexpected costs. And sometimes, we’re at a financial plateau; in order to get to true profitability, we need to scale more, but in order to do that, we need more funds for marketing.
While it’s a good call to minimize your debt ratio in general, it’s smart to use funding and debt as a tool when needed. For this reason, it’s a great money management strategy to know what funding is available to you.
Business lines of credit, for example, are revolving, meaning you can draw funds from them as needed for a set period of time, and you’ll only pay interest on an outstanding balance. This can provide you with funds that you need to scale and grow, and you can pay it off once things are a little more profitable.
There are also small business loans that you can use as you see fit, which are dolled out as a one-time occurrence. You can pay them off over an agreed-upon period of time.
You can apply for business financing through online lenders and your local banks and credit unions.
Remember, too, that there are often grants, relief funds, and low-interest loans available during economic hardship. Right now, there are several options available for COVID-19 relief. Check out the following:
08. Reduce shipping costs
This is a simple money management tip, but it’s an important one. If you’re spending too much on eCommerce shipping, you’re throwing cash out the window that you could have been pocketing or investing in something else.
This is something to consider when choosing an eCommerce platform. Plenty of platforms like Wix have various partners with apps that help business owners find the most cost-effective shipping options. Some may even offer discounted shipping opportunities. Shippo, ShipBob, and Shipstation all offer easy integrations that help you manage your shipping and keep your costs low.
It’s also important to make sure that you’re charging enough for shipping. Account for the weight of an item and any necessary packaging, the customer’s location, and expedited shipping costs if offered.
Money management may not be the most exciting part of running a business, but it’s an essential part of keeping your business alive. Fortunately, having the right tools and some basic money management strategies can go a long way in simplifying the process so that your business can truly thrive.
Managing Editor, Wix eCommerce
Daniel is the Managing Editor at Wix eCommerce, where he uses his experience as a merchant, journalist and marketer to create content that helps online businesses grow.