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This is the question Halley, our Director of Marketing, wants to help you figure out.
If you don’t know what we mean by “cashflow runway,” we’re definitely not talking about planes, trains, or automobiles. We’re talking about creating a strategic way to fund your eCommerce brand—this is your cash flow runway.
A lot of business owners don’t look at this. They just look at their bank accounts and see their balance, and take this information at face value. What they’re overlooking is the timeline for how long that cash is going to last. This is especially important to think about when you’re thinking about ways to grow your eCommerce business.
Your cash flow runway is a crucial component of growth that a lot of founders and store owners ignore. Don’t be one of them!
In short, your cash flow is how much money you have, divided by the monthly costs of running your business (sometimes referred to as “burn rate”).
So if you have $200,000 in the bank and it costs $50,000 per month to keep your business running, you have a four-month cash flow runway.
This is a simple formula for a very important piece of information! Your cash flow calculation helps you see where (and when) you’re going to need a cash injection from an investor like Clearco. With an investment, you’re able to focus on growth without worrying about running out of critical funds.
You should check your cash flow runway frequently. Is your burn rate increasing? Do you have the funds on hand to keep your store live for 3 months? 6 months? 9 months? If you’re constantly short on cash and short on time trying to keep up with your invoices and billing, you should consider seeking opportunities to inject your business with additional cash.
This is a tough question! If you’re running out of money and your cash flow runway has become a cash flow parking lot, there are still steps you can take to keep your business afloat. First, you should look at cutting immediate expenses to save on costs. You can also look at what inventory you have existing and run a sale for a product you have a lot of inventory for to get a quick injection of cash. And, finally, if you qualify for funding from reputable eCommerce investors, like Clearco, we would encourage you to jump on the opportunity!
In short: it depends. The answer comes down to how realistic your goals are in relation to the channel fit. In other words, the less proven a channel is for a business, the more they should expect to spend on that channel before they start seeing positive returns.
There are so many digital advertising channels and, if you’re not careful, it can be easy to overspend on strategies that just aren’t working for you. There is such a thing as growing too fast, and that often comes from investing in too many channels that aren’t bringing returns
Maybe you're investing in Facebook, TikTok, Pinterest, and Snapchat, but in reality, you should only be investing in one. Usually, for our eCommerce clients, we recommend advertising on Facebook. Facebook (which also includes Instagram ads) is a powerful platform for testing and selling products. It’s a great starting point for testing a lot of messaging, position, and pricing. Ha.ving one solid platform that can give you valuable insights into how your funnel is performing gives key findings that can be used to expand to other channels. This approach also gives you early benchmarks to test against when you’re figuring out your advertising budget.
Before embarking on any new marketing initiative, you should consider what the impact would be if it:
If the result of those scenarios is that the business goes under or is irreparably damaged, don't do it. That's not experimenting or taking a risk, that's gambling.
If you’re curious about strategic ways to turn your cash flow runway into a growth runway with sustainable growth systems, book a discovery call with our team to get started!