Jun 30, 20226 min read

Keep the cash flowing: tips for managing the money in your pocket

cash flow management tips for eCommerce sellers

Managing money is an important skill in life and business.

When money's tight and the books are in the red, cash shortfalls can seem like the end of the world.

And as an eCommerce seller, you’re probably feeling the heat. From over-investing in marketing to overstocking in products—there are many things that contribute to cash flow woes.

Luckily there's a lot you can do to increase cash flow and keep your eCommerce business running smoothly. Keep reading for top cash flow management tips.

What is cash flow?

Put simply, cash flow is the amount of money moving in and out of your business. It is a financial metric that represents the liquidity of your business at any given time.

Positive cash flow means that more cash is coming into your business than it is going out. By contrast, negative cash flow means that your business is spending more money than it is bringing in.

Cash flow is not to be confused with profit. While profit represents the overall success of your business, cash flow is indicative of your financial health at the daily operational level.

You can calculate your cash flow in several ways, as well as forecast your cash flow to better budget for business activities and expenses.

Why is eCommerce cash flow management important?

Cash flow is the crucial ingredient that keeps your business running smoothly. Poor cash flow management can translate to big problems down the road, such as:

Difficulty paying bills on time
Trouble meeting payroll
Inability to take advantage of time-sensitive opportunities, like investing in new products or hiring talented employees
Relying on short-term loans or lines of credit to make ends meet

Not to mention that poor money management is one of the top reasons why 90% of eCommerce businesses fail, according to Failory. In eCommerce, cash flow management can be particularly difficult because:

Sales can be unpredictable. You might have a great month (spurred by a holiday or a viral trend, as an example) followed by a slower one, which can make it difficult to forecast how much cash you'll need on hand.
Margins are often slim. There’s a ton of pressure to keep prices low since it's easy for consumers to do price comparisons online. When margins are small, there's not a lot of room for error when it comes to expenses. Categories with the lowest margins include CPG, apparel, and electronics—three of the most popular eCommerce categories.
You may be paying hidden costs. Costs like inventory and shipping are expected, but there are also less obvious ones, such as website hosting, advertising, fulfillment or storage fees, chargebacks, and returns (which can be costly).
You may be waiting for payment. For instance, if you sell on marketplaces like Amazon or Walmart, there may be a delay between when your item sells and when payment hits your bank account. Meanwhile, you’ll still have to keep up with your regular payments to carriers, providers, and other parties involved in the behind-the-scenes logistics.
Expenses can creep up quickly, whether it's due to increased shipping costs, an unexpected repair, or a surge in demand that requires you to hire additional employees.

With all that said, proactively calculating your cash flow and planning out your expenses can help you to mitigate these issues.

6 tips for improving your eCommerce cash flow

While it's impossible to anticipate every issue, following business accounting best practices is a step in the right direction. Beyond this, there are various things you can do to keep the money flowing.

01. Make sure your website is up to snuff

A poorly designed website can hurt sales and unnecessarily cause cash flow headaches. As an easy first step, make sure that your website is designed for sales.

Check for the following items:

Your site is mobile friendly. Given how nearly 70% of U.S. consumers shop on their phones more often than they did two years ago, it’s crucial that your store is mobile friendly. Plus, a good mobile experience is a prerequisite for ranking on search engines like Google.
Product listings are high quality. This means ensuring that they include multiple, professionally shot photos and enough product details to earn your customer’s trust.
The checkout process is easy and intuitive. People are more likely to abandon their carts if checkout is inflexible, so make sure you offer a variety of payment options and clear checkout steps.
Your website can withstand influxes in traffic. Because the reality is, a website crash during peak selling periods can devastate sales.

Need a platform that sets your online business up for success? Take Wix’s eCommerce website builder for a spin.

02. Keep your inventory in check

Running an eCommerce store means regularly investing in more products—but poor inventory management can lead to issues like excess inventory that keep your cash tied up in inventory.

To manage inventory effectively, make sure you have a reliable and automated system for syncing inventory across your sales channels, warehouses, and fulfilment centers. Audit your inventory regularly. Look for holes in your forecasting. And aim to speed up inventory turnover when possible.

A higher turnover rate means you’re moving items more quickly, mitigating spoilage and freeing up more space in your warehouse for new products. Effectively managing inventory is crucial to cash flow because it ensures you have the right amount of product—and the right amount of cash—on hand.

03. Offer flexible fulfillment options

The COVID-19 pandemic helped to spur the adoption of store-based pickup options like buy online, pickup in store (BOPIS) and curbside pickup. And about 60% of consumers say they still plan to use curbside pickup and other pickup options, even as the pandemic fades into the background.

If you have a physical location, then curbside pickup can be an effective strategy for lowering costs (and improving cash flow) by avoiding unnecessary shipping expenses.

Dropshipping can further cut costs by eliminating the need to hold inventory. Under this model, your supplier ships orders directly to your customer, removing the need for you to rent your own warehouse space and manage your own fulfillment operations.

04. Improve customer lifetime value (CLV)

High retention can help to stabilize your cash flow. In other words, by increasing customer loyalty and cultivating stronger relationships, you can enjoy more repeat purchases and sustained revenue growth.

There's ample research demonstrating that a relatively small boost in customer retention can cut costs and translate to a significant boost in profit. For this reason, it’s worthwhile to track (and boost) CLV.

Seek ways to re-engage your customers and improve their experience with your brand. Experiment with loyalty programs, product subscriptions, special discounts, and email marketing that keeps your brand top of mind, plus inspires customers to repurchase from your site.

05. Prepare for seasonality

Seasonality is a major factor impacting cash flow for many online businesses. In general, retailers see a spike in sales during the holiday season followed by a lull in the first few months of the year. This, of course, can look different for every business.

But whatever type of seasonality you face, make sure you’re prepared for it. Strive to have enough stock on hand during peak periods without overcompensating (or blindly projecting demand) and tying up your money in inventory that sits idly in your warehouse.

Keep tabs on your accounts receivable (A/R) as well and ask for extended payment terms from vendors during slower periods when cash is tight. This will give you some breathing room to make it through the lean times.

06. Plan your marketing campaigns wisely

It's easy to either overspend or underspend on marketing. All too often, businesses ramp up their marketing efforts in order to jumpstart sales. But this can quickly lead to cash flow problems if your campaign is a bust.

On the other hand, skimping on marketing can also lead to problems. If you're not investing in marketing, then you may have a hard time generating brand awareness and driving traffic to your site which, in turn, revs up sales.

The key is to strike the right balance by carefully evaluating your marketing ROI and scaling your efforts up or down as needed. Evaluate your eCommerce marketing strategy often and optimize it to complement the latest trends so your marketing efforts are as efficient—and effective—as possible.