Inflation and recession are words you hear a lot these days, and large corporations are making headlines with cost-cutting initiatives and layoffs. But are online sellers paying attention when it comes to their own businesses?
Eric Youngstrom, founder and CEO of Onramp, told EcommerceBytes that sellers are feeling inflationary pressure daily and need to focus on cutting costs and increasing prices to maintain profitability.
After working at startup firms where he raised capital and then spending years at shipping services dedicated to solutions for online merchants, Youngstrom used his experiences to found Onramp to offer a funding solution for ecommerce sellers – or as the company puts it, to democratize finance and empower sellers to scale their businesses.
Youngstrom said inflation, recession, and managing the time it takes to convert finished goods inventory into sales deposits (which he calls the cash conversion cycle) are currently the top challenges facing sellers.
“Today, merchants face advertising challenges on and off marketplaces; inflation compresses margins, and supply chain delays lead to out-of-stock inventory and lost sales opportunities,” he said.
So where can sellers cut back on expenses?
Reducing overhead is one thing merchants should be looking at, he said. “Hyper-focusing on expenses, cash flow, and receipts is wise in any economic climate – and doubly so in recessionary times.”
Another area is reducing customer costs. Customers expect free and fast shipping, Youngstrom said. Dial in fulfillment and shipping solutions for speedy delivery at the lowest cost possible. “Optimizing packaging and sizes for dimensionally weighting is but one way to delight customers while improving margins,” Youngstrom said.
“Offering discounted products to increase the basket size is another way to reward customers while increasing receipts and reducing delivery costs.”
Be on the lookout for technology solutions that can reduce expenses and improve operational efficiency. “Since ecommerce is still a young industry, new solutions are constantly emerging that offer more bang for the buck than traditional retail solutions.”
Youngstrom also recommended sellers have cash reserves in place that allow them to weather sales declines. Recessions usually last 10-15 months; you should have the reserves to survive at least half of that time (5-7 months) without new cash injections from sales or loans.
Leveraging his background at ShippingEasy and Stamps.com, he offered some suggestions on shipping, including advising sellers to be mindful of dimensional shipping – you shouldn’t pay to ship air – and consider using a fulfillment service.
“Find a 3PL partner and demand they meet SLAs for on-time fulfillment and delivery. Work with them to leverage their bulk shipping discounts across various carriers. And as soon as you reach scale, start distributing from multiple warehouses geographically positioned to minimize final mile shipping expenses.”
What other strategies should sellers consider?
If inflation continues, Youngstom said sellers will need to implement approaches to increasing retail pricing to offset increases in wholesale, supply chain, and distribution expenses.
One way to approach higher prices with customers: “Alert repeat buyers to price increases – leveraging coupons and discounts rewards loyal customers while preparing them for higher prices and eliminating some sticker shock,” he said.
What should sellers know about funding in today’s market?
Companies with access to cash are better positioned to market efficiently, pay themselves, retain staff, and take advantage of investment opportunities that can significantly improve their finances long-term, Youngstrom said.
If borrowing money, borrow what you need to support your cash flow conversion cycle, he said. “Working with on-demand ecommerce lenders like Onramp allows you to borrow what you need when you need it.”
Optimization is critical with today’s high-interest rates. “Reduce your cost of capital with shorter-term, faster-turnover financing – this reduces your costs while allowing access to additional cash to support your sales and inventory turnover cycles.”
What should online sellers expect to pay for funding through Onramp?
“Our customers pay less than 1% of GMV as a fee to borrow up to 25% of their expected monthly revenue. Unlike banks and credit cards, we do not charge APR fees or require minimum monthly payments,” Youngstom said. “Plus, we are on-demand, so you can easily access more cash.”
Onramp is an on-demand revenue-based ecommerce lender, he said. “We sync with your eCommerce store aligning directly with your sales and cash conversion cycles. Your repayments synchronize with your sales deposits, so we only get repaid when you sell products. If sales speed up, you’ll pay back faster; if they slow down, you’ll pay back more slowly. We’re fully aligned with your sales cycle.”
How have funding services for online merchants changed in the past decade or so?
Youngstrom said as ecommerce continues to mature, dedicated solutions are emerging that are fully aligned with the unique needs of the ecommerce business owner.
“Solutions built for all SMBs must meet the needs of restaurant owners, dry cleaners, plumbers, retailers, and more,” he said. “They’re made for 20th-century businesses. Onramp leverages the ecommerce ecosystem and technology to simplify, automate, streamline, and synchronize financing dedicated to ecommerce business owners – and are priced transparently for easy adoption.”
Marketplaces are notorious for holding sellers’ funds after a transaction for various reasons. With Onramp, do sellers have to pay back funds when they get a sale, or when the marketplace actually pays out the funds to them?
Onramp aligns with small and medium sized borrowers to only collect upon receipt of sales deposits, Youngstrom said. “If marketplaces or payment gateways hold funds for reserve balances or other reasons, Onramp delays payments to coincide with the eventual release of those funds.”
What trends do you see coming in 2023 that merchants should prepare for?
“If the prognosticators are correct and 2023 is a recessionary year, being prepared is essential. Control costs and expenses by truly understanding your income statement, balance sheet, and cash flow statement. Understand what drives costs and profit and run a tight ship.
“The silver lining in this, if the economy doesn’t slip into recession, being prepared positions business owners for success. Prepare for the worst, hope for the best, and focus on executing.”
Edited 1/24/2023 to add more information about Onramp.