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The Hardest Part about Scaling an eCommerce Business

Published on: December 1 2022 by Bryan Guerra

The Hardest Part about Scaling an eCommerce Business

The Hardest Part about Scaling an eCommerce Business

e-commerce is amazing right you can
start from scratch and scale it
relatively quickly there's a lot of
benefits and i tok about them all on
this channel however one of the
misconceptions that i see quite
frequently is that e-commerce is so
simple and you can take all the profits
directly out of the business now do not
get me wrong here you can make a lot of
money and a lot of profit doing
e-commerce and you can realize some of
those profits and take them out yourself
the thing here is that a lot of people
don't realize is as you're scaling right
cash flow becomes really the the main
metric that you need to focus on and the
main challenge to scale your business
over the long term assuming that you're
growing right so what do i mean by that
for example if you look up on the screen
you'll see three different months in an
example e-commerce business okay
month one right here you're pro you're
pulling twelve thousand dollars in
revenue but your cost of goods your
expenses are eight thousand dollars
which means your net profit is four
thousand dollars now what a lot of
people think is that it's pretty you
know black and white right it's linear
you made four thousand dollars that
month because your revenue was twelve
thousand your cost of goods was eight
thousand therefore you kept four grand
in profit however what a lot of people
don't realize is you don't get paid that
money like right away right tiknically
a lot of times you have to wait for the
item to be delivered and then depending
on the platform that you're selling on
wait for the payout to actually happen
and hit your bank account right so
typically it can be like a week or
sometimes even two weeks potentially
until you get paid after that
transaction so you have to float those
weeks on top of that if your business is
scaling which means you're getting more
sales and your revenue is increasing
your cost of goods and the expenses that
you're paying out also increase with
that and so you need to remember that as
a whole so for example in the month one
you pulled in twelve thousand dollars
revenue
you had eight thousand dollars cost of
goods therefore your net profit was four
thousand you tiknically mo in most
cases if your business is scaling do not
get to get to keep all of that four
thousand typically a lot of it will go
back into the business into future sales
and future cost of goods right so if
your business is scaling here in this
case it's four thousand dollar
increments so as an example we'll say
month two you made sixteen thousand
dollars in revenue your cost of goods
went up a little bit to ninety five
hundred now you're spending ninety five
hundred in that month you might not
necessarily be making that four thousand
dollars but now you're not spending
eight thousand dollars in next month
you're spending fifteen hundred dollars
more in a perfect world you'd only net
about 2500 of that dial of those of that
four thousand dollars profit because you
had to put more money back into more
orders because your business is scaling
right and that's just on a small scale
so that's something that you need to
keep in mind okay now obviously there's
different ways to approach it you can
use credit cards you can leverage debt
and that's something that you should be
very very careful with if you are going
that route so i've toked about other
cash back credit cards that i recommend
in other videos if you're drop shipping
using amazon as a supplier get the
amazon cashback card um amazon store
card it's like five percent cash back
you're spending money on those stores
anyway you might as well do that same
thing with walmart five percent cash
back typically a lot of stores will have
a five percent cash back card the
discover it card is a great one for
beginners because pretty much anyone can
get started with that you know apply and
get accepted for that card and it does
have some decent cashback privileges you
should also be using cashback portals
like rakuten and honey and stuff like
that but all things considered like just
to keep it simplistik you won't realize
a lot of the profit if your business is
scaling but that's a good thing right
there will be a time where your business
either stays relatively steady at those
numbers or maybe goes up and down for a
month or two and those are the times
you'll be able to pull money out of your
business and actually realize a lot of
the profit but if you are scaling your
business and your revenue is going up
your cost of goods is also going up with
that and you need to keep that in mind
because you need to reinvest a lot of
the profit back into future orders to
continue to make that money right
because especially in e-commerce you
need to spend money to make money you're
spending money on physical products it's
not like everything you're getting like
is is 100 profit right so for example in
this next one for month three you you
make twenty thousand dollars well now
you have to spend twelve thousand
dollars roughly so your net profit is
all the way up at eight thousand dollars
now but again you had to spend 12 grand
to actually get that right so if your
business is scaling i want to hit this
home
you're spending more money on cost of
goods yes you're netting more profit but
you might not realize that profit right
away and that's what a lot of people
won't tell you and that's what a lot of
people don't necessarily recognize okay
now the next thing the next two examples
there there are situations obviously
it's a good thing if your business is
scaling right you want to keep in
reinvesting that profit back into the
business to continue to scale it so you
can realize a lot of that profit in the
future but for example if you're doing
more like like an e-commerce business
that's staying steady or even going up
and down then it's going to be a little
bit different and you're going to be
able to actually take more of that
profit out of the business so it really
depends on your situation so for these
two examples for this first example
let's say that your your profit stays or
your revenue stays pretty steady at like
twelve thousand and then twelve thousand
then twelve right well in this case your
cost of goods is going to stay pretty
steady so you're going to be able to
pull out a lot more of the profit in the
business because your cost of goods for
those for those next months are coming
up is not increasing and therefore you
want to continuously spend more money so
you'll be able to bank more of that
profit right in this example it's going
up and down which is typical in an
e-commerce business you're not going to
be always scaling you're not going to be
like you know always going down or even
staying steady typically it's going to
be like a roller coaster even if it is
somewhat steady
so this is typically what you'll see
depending on if your your numbers are a
little bit lower or a little bit higher
uh so for example let's say month one
you make 10 000 you spend 6 500 to get
it well that's profit of 3 500
and the next month you go down a little
bit with your revenue so maybe you're
making nine thousand dollars in revenue
it only costs you 5 800 in a cost of
goods and your net profit is a little
bit down but again you're gonna be able
to realize some more of that profit
because you got you you had to spend
less in cost of goods right so if i look
at my quickbooks on a lot of my
e-commerce businesses right you'll see
what happens is like it's a roller
coaster of sales but but like one month
my my my profit might be like super sky
high because i'm able to take more money
out of the business because the business
isn't like scaling significantly and
then some months where the business gets
more orders the the net profit is is
like very very small compared to other
months because i had to spend a lot more
money to fund those orders and that
revenue right and then for example here
with month three
you know uh ten thousand eight hundred
dollars you had to spend a little bit
more here obviously this month right
here you're gonna make a lot less
because you just spend a lot more but
that will be reflected in the next month
depending on if you stayed you know it's
pretty stagnant at on your sales if you
went down or if you you know went back
up so i just wanted to touch on this
because a lot of people won't
necessarily realize this cash flow is
the number one problem in an e-commerce
business it's the number one thing that
you should have your focus on and yes
you can make great money but you might
not necessarily realize that profit if
your business is scaling and you're
getting more orders because you're
spending more on cost of goods but that
is a good thing