CFO Insights: 3 Ways to Improve Your E-commerce Business in 2024
SPRCHRGR presents this blog in conjunction with Cin7, a leading sales order platform.
With U.S. sales projected to hit $1.1 trillion in 2024, the e-commerce industry continues its runaway growth. And while this tremendous growth presents unparalleled opportunities, it's accompanied by significant challenges — ever-evolving customer preferences, in particular.
How can your e-commerce business grab its share of that robust growth without getting tripped up constantly trying to guess what your customers will want next?
To answer that question, we surveyed a team of seasoned CFOs who have successfully led and scaled e-commerce enterprises. They identified three crucial areas of focus:
Set goals that are specific, ambitious and realistic.
Drive growth and profitability by leveraging data and analytics.
Make the most of your working capital.
Let's take a look at each of these.
1. Set goals that are specific, ambitious and realistic.
To help make your business goals less abstract, it may help to compare them to the goals you set in other areas of life. Fitness is a good example. A New Year's resolution to save more money isn't of much value unless you outline the specifics. How much additional money do you want to stock away each month? What steps will you take to make it happen — e.g.: get a side gig, eat out less, pay off high-interest debt?
It's important to be realistic. One member of our CFO panel set fitness goals that would have had him back in peak physical shape in record time. By ignoring his physical limitations — he was no longer his younger, more athletic self — he ended up with more injuries than progress.
After enough false starts, he decided to apply lessons from his career experiences to his new athletic pursuits. He set fitness baselines along with realistic goals and began tracking progress through fundamental, sustainable training routines. The result was incremental gains toward attainable endpoints. Soon he surpassed his own personal records and was in the best shape of his life — a testament to the power of setting realistic goals and building repeatable processes.
The same principles apply to setting financial goals. At SPRCHRGR, we work with CEOs and business owners across a wide range of industries. Some fall short of their goals because they try unsuccessfully to shortcut the fundamentals. They think they can fire up their team by proclaiming overly ambitious goals and unrealistic timelines. But instead of taking off like a rocket, they barely get liftoff — and then repeat the pattern in the next planning cycle.
Successful leaders take a calculated approach to achieve proven results through repeatable processes and incremental steps. They establish a baseline, create specific and achievable goals, monitor progress and course correct as necessary.
2. Drive growth and profitability by leveraging data and analytics.
In a sea of metrics, how can you focus on the most important ones? By identifying your KPIs. (That's why they're called key performance indicators.)
As with setting goals, identifying KPIs takes focus. E-commerce companies have a dizzying array of KPIs to manage across various business functions. For example, there are KPIs specific to customer acquisition, pricing and stock availability. Other KPIs apply to sourcing, warehousing and fulfillment. You get the idea. As a business leader, you can't possibly absorb all of the data reflected in those countless KPIs to make confident, informed decisions while also handling all of your other responsibilities.
Instead, you need to define the company's overall goals and be sure that each functional area of the business maintains its own set of KPIs in support of those overall goals. Each departmental KPI must have clearly defined targets and action plans to drive informed management decisions. By focusing on a handful of KPIs that represent the most meaningful indicators, senior leadership can confidently execute macro-level strategic decision-making.
If your business isn't achieving sustainable profit targets, for example, real-time management dashboards can reveal the cause. Consider an e-commerce business that suddenly has a 5% decline in gross profit margin. A thoughtfully constructed dashboard can help your leadership team quickly pinpoint the root cause between fluctuations in price and COGS across different products and sales channels as they happen.
Unlike a backward glance at last month's financial statements, this proactive approach will put your team in the driver's seat to take action weeks sooner, saving your business meaningful gross profit dollars.
3. Make the most of your working capital.
No matter what business you're in, effective working capital management is critical for long-term success. What exactly constitutes "working capital"? Basically, it's the funds you need to cover day-to-day operations — a key indicator of a company's financial health.
One way to optimize working capital is to negotiate more favorable payment terms with vendors. Extended payment periods can provide your business with breathing room and enhance cash flow. Timing is important — it's usually easier to negotiate extended terms after a sustained period of steady or increasing order volume. That buying pattern will incentivize your supplier to sweeten the terms of your partnership to retain your growing business.
Paying invoices by credit card can also be advantageous to cash flow, especially if there's no additional convenience fee. This approach enables you to defer payment until the credit card statement is due, providing flexibility and potential rewards or cash-back incentives (as much as 2% with some cards).
However, be sure to carefully evaluate the terms and fees associated with credit card payments. While it's a convenient option that can yield marginal savings, be mindful of interest rates and fees that could negate the benefits. Plus, it takes extra labor to account for credit card spending separately from the rest of your traditional accounts payable workflow. That extra work has to be worth it.
A fundamental aspect of working capital management is to maintain cash reserves. Explore options that allow you to earn interest on your account balances. Interest-bearing business accounts with same-day liquidity and few restrictions can generate a return on your idle cash, for example. Some of our clients earn 4% or even 5% on their idle cash.
A line of credit can be a financial safety net for your business. It provides flexibility during cash flow fluctuations or to cover unexpected expenses. But keep in mind: You must establish a line of credit before you actually need it. This proactive approach ensures the funds are readily available when required, avoiding potential delays in obtaining financing during urgent situations. If your business is in desperate need of operating capital, a bank will be less likely to offer financing — and if they do choose to offer financing, the rate will be higher.
When seeking a line of credit, carefully review the terms and interest rates to ensure they align with your business needs. Additionally, explore possible lending relationships beyond your local bank. Our clients who expand their search nationally often find the most attractive financing terms. Remember: You don't pay interest on undrawn amounts on a line of credit.
Finally, think twice before taking a merchant cash advance. Annual percentage rates on this lending option often exceed stated rates. For example, the factor rate may be 10%, but the actual APR often works out to cost 30-40% and sometimes much higher! Also, a default on your merchant cash advance can be more severe than defaulting on a traditional loan. It's common for terms to heavily favor the financing company because they're not subject to the same federal regulations as banks.
You're three steps closer to success!
As you navigate the e-commerce landscape in 2024 and beyond, trust the strategic advice of our panel of experienced CFOs. That means setting realistic goals. Leveraging data intelligently to actively manage your business. And optimizing your working capital to propel your business forward. Taking those three steps is a good start toward achieving truly sustainable growth.
