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How Much E-commerce Funding Do You Need
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How Much E-commerce Funding Do You Really Need?

When you've hit your stride in e-commerce, the last thing you want to do is over- or under-invest in your business. Find out how much e-commerce funding you need to continue growing.

Becoming a successful seller is a great feeling. However, if you want to become a true e-commerce pro — it’s time to invest in your business like one.

In the wider world of commerce, business funding is used every day to help entrepreneurs hit the next level. But in e-commerce, many entrepreneurs stay stuck in a scrappy startup mentality long after it’s time to start rolling big.

Nothing is better than cash on hand for strategic growth projects or for when an unexpected opportunity arises. But just how much capital do you really need?

When you’ve hit your stride in the competitive world of e-commerce, the last thing you want to do is over- or under-invest in your business.

Ready to figure out exactly how much e-commerce funding you need to hit the next growth level in your business? Read on for clear steps to running your e-commerce funding numbers. Or, head to our Working Capital page to instantly calculate your funding amount and register to prequalify for up to $5M in as little as 48 hours.

How Much E-commerce Funding Do You Need?

  • Start by analyzing your cash flow levels.
  • Define your next step for scaling.
  • Get an accurate reading of your future sales
  • Calculate your projected ROI.

Start By Analyzing Your Cash Flow Levels

The right e-commerce funding gives you the freedom to experiment. 

Whether it’s strengthening your inventory acquisition, launching in a new territory, or powering up your advertising at just the right moment — the correct amount of funding can help you make profitable moves in your business without impacting your current cash flow position.

First, you’ll need to get a clear reading of what your existing cash flow levels actually are.

The classic way to do this is by creating a cash flow statement using one of two methods:

  • Direct Method – Incoming cash from sales and outgoing cash for expenses. 
  • Indirect Method – Starting with net income, then adding or subtracting based on various operating activities such as inventory, payroll, depreciation, taxes, and more.

If you use an accounting tool like Quickbooks or Xero, the direct method can be a quick and easy way to take the temperature of your current cash flow levels. For a deeper look, you may want to connect with a professional accountant who can help you analyze your cash flow using the indirect method.

To quickly check the temperature of your operating cash flow, the following formulas can help.

Operating Cash Flow (OCF) = Net income + Non-cash expenses – Increase in working capital

Then apply the following formula to reach your operating cash flow ratio:

Operating Cash Flow Ratio (OCR) = OCF/Current Liabilities (CL)

Most experts agree that a healthy operating cash flow ratio is 1 or greater. If your OCR is below 1, you may need to take additional steps to ensure you won’t be putting your business at risk by taking on funding.

If your OCR is above 1, great! You’ve got cash on hand to help drive your business forward. 

Go ahead and rerun the numbers with your hypothetical new expenses added in to see how your cash flow may be affected.

Define Your Next Step for Scaling

Common ways to use e-commerce funding include financing your inventory, investing in marketing and advertising to drive sales, or expanding into a new geographical territory

But those are far from the only ways to use e-commerce funding.

Get specific about what you want to accomplish in the next six to 12 months in order to take the next big step in your business.

For example, if your goal is to invest in your marketing ahead of an important product launch, what specific channels and campaigns will you target?

This could be anything from:

  • Investing in better product photography and images
  • Hiring experts for SEO and social media
  • Increasing your influencer marketing

If you’re like most entrepreneurs, the list goes on. With so many options for scaling your business, it’s important to remember that each opportunity will come with a different cost and ROI.

What matters is that you’re clear on what you’re investing in and why.

Another important note here is that many e-commerce funding providers have restrictions on how you can use the funds. For example, marketplace loans like Amazon Lending restrict sellers to using borrowed funds for inventory only.

To make the best decision about how much funding you need, look for a flexible partner who understands e-commerce and can help you work through your plan.

Get an Accurate Reading of Future Sales

Now that you’ve got your current cash flow position and a clear next step for scaling, it’s time to sharpen your sales forecast.

Given the cash you have on hand today and the cost of your planned investment in the business, how much funding will you need to achieve your goals?

While this can be a relatively straightforward process, especially if you already use an e-commerce business analytics tool to track sales and inventory, there can be some important nuances you don’t want to miss.

For example, take time to make sure your sales forecast is adjusted for potential outliers like:

  • Zero sales due to past stockouts
  • Deep discounting due to overstocks
  • Sales spikes on trending products
  • Global events (like port shutdowns, lockdowns, etc.)

One of the biggest misconceptions about debt is that businesses only use it when they’re in trouble. In reality, the best time to get an offer is when sales and margins are strong. 

Unfortunately, many sellers wait until their hour of need, reaching out for funding only after realizing they don’t know how they’re going to launch their next product or secure the next PO.

With a record of healthy sales, you’re in the driver’s seat for better funding rates and terms

Regardless of your current sales situation, it’s always a good idea to keep funding offers on hand and ready to use when you need them. Come prepared with all the documentation on your past and current sales velocity so you can secure the best terms and rates possible.

When you’re ready, you can draw on that offer as needed.

Calculate Your Projected ROI

Another factor to think about is the potential ROI on your planned investment. Will you achieve a positive ROI on this line of funding?

The wonderful and terrible thing about e-commerce is that there are countless ways to win

With the recent industry-wide increase in over-stocking, over-investing, and over-building, every dollar needs to deliver a return.

You can use a straightforward ROI formula on your potential investment. Take the net profit, divide it by the cost of goods sold (CoGS), then multiply this by 100 to get a percentage amount.

(Net profit) / (CoGS) * 100 = ROI

Make sure you add the cost of interest to your CoGS to get a realistic estimate. 

Of course, this formula may not work for every growth plan.

Suppose you’re planning to use funding to launch your store on a new marketplace or expand into a new territory. If so, you may need to run estimates for projected sales based on your specific market and new-seller status.

At a certain stage, expanding to more channels is a natural path for many successful merchants and brands. At SellersFi, we’ve seen many of the fastest-growing sellers expanding into new global territories and/or multiple marketplaces.

Every growth strategy comes with its own challenges and complexities. When figuring out how much funding you really need, it’s key to work with a partner who understands your business at the human level and can help you work through the right plan for your business.

Other Things to Consider When Exploring How Much E-commerce Funding You Need

Depending on your model and goals, there may be more to consider when figuring out how much e-commerce funding you’ll need.

How much funding have your competitors received? 

This could indicate how much funding you may need in order to stay competitive in your niche.

When is a good time to seek funding? 

The short answer is — before you need it. Work with a provider who will let you prequalify and draw on the funding as needed. You can use our Eligibility and Prequalification Calculator to find out how much Working Capital you might be eligible for.

What are you going to use the funding for?

Some funding providers carry restrictions over how you spend the money. 

Whether it’s marketing, expanding your team, or launching a new product, look for a funding solution that lets you use the capital the way you want to use it.

What are the requirements to qualify for e-commerce funding from SellersFi?

To qualify for Working Capital from SellersFi, you must have at least six months of sales history and at least $20,000 of net sales per month for either your marketplace store or e-commerce website in order to be considered eligible and your company needs to be in good standing.

Your E-commerce Funding, Your Way.

The best e-commerce funding is funding that’s borrowed with purpose and for a purpose

Work with a partner that goes beyond the surface to help sellers identify and execute the right growth strategies.

At SellersFi, we provide full-stack e-commerce funding solutions for every growth scenario. From cash management solutions like our flexible Working Capital to help you hit that next level. We’ll work with you to identify the right amount of funding for your business.

You can learn more about our e-commerce funding solutions or register today to apply for funding with zero obligation.


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