From 2016 to 2019, direct-to-consumer (DTC) brands grew at three to six times the rate of all eCommerce.
Recently, 52% of DTC brands experienced surges since the onset of the global pandemic.
As more consumers turn to direct-to-consumer brands, it’s more important than ever to tighten up your operations and look for ways to grow more.
Here’s five top ways to grow any DTC brand:
Finance your Growth and Improve Cash Flow
A common roadblock to DTC brands is cash flow. How often does cash flow prevent you from buying that next round of inventory or investing in a timely marketing campaign?
Without the funds you need, you can’t do much more than wait for it to become available. All the while you’re losing sales until you have that cash in hand.
To avoid issues like these, high-growth DTC brands have a few options to better finance their everyday operations:
Most businesses turn to credit cards to pay for general expenses and some inventory purchases. Ongoing inventory payments can rack up reward points and cash back for you to be put toward other business purchases as you need.
A business credit card though might only get you so far. You can quickly outgrow your credit limit, especially with how often you need to buy inventory. This can lead to maxed out cards, which can still put a strain on purchasing along with your personal and/or business credit.
Traditional Financing (i.e. Bank Loans)
Term loans or SBA loans just to name a couple can work for some eCommerce brands. They offer low APRs and long payment terms. They also have low approval rates for SMBs and long tedious approval processes. So if you’re still scaling your DTC brand, traditional financing may not be an option. They usually require excellent credit and multiple years of business history, tax returns, and business credit history. So only the biggest, most established DTC brands really qualify. Plus, even if you don’t end up taking traditional financing such as a bank loan, your credit will still be temporarily affected by the credit checks they run.
It can take weeks or even months before you can get the money you need. So even if you do get approved, you may have missed out on that opportunity you needed the cash for in the first place. You can also get denied for things like poor personal credit that don’t reflect the true healthy nature of your operations.
Traditional financing works great for a small number of businesses, however, it’s not really designed for eCommerce businesses. While long payment terms may seem like the way to go, chances are your DTC business turns inventory fast. So it doesn’t make sense to still be paying for inventory that you flipped in three months three years later. The financing should be outstanding for as long as whatever you used it for. So if you’re buying a vehicle that’s going to last you a few years, it makes sense to pay it off over a number of years – not weeks or months. The same isn’t true for shorter term gains like flipping inventory or investing in marketing.
Secured vs. Unsecured: Traditional financing solutions such as term loans and SBA loans are normally “secured” meaning that the capital provider requires you to put up collateral (usually your house) in order to assure them that they will be getting their money back, even if your business goes south. While this will usually get you lower rates, it only takes the risk off of the capital provider and on to you. Alternative financing solutions such as Payability, offer “unsecured” funding meaning they do not require you to put up any collateral. While the rates are usually higher than what a bank would offer, it takes a lot of the risk off you. Learn more about different financing terms and what they mean in The eCommerce Seller’s Guide to SMB Funding. More on this in the FinTech Solutions section.
Venture Capital (VC)
Many DTC brands also turn to venture capital to raise the funds they need.
Globally, DTC startups have raised $8 billion to $10 billion on known venture capital across more than 600 deals since the start of 2019.
Of late though, the VC and DTC picture-perfect relationship is starting to erode. Look no further than the underwhelming exits of Casper and Outdoor Voices. VCs are realizing that sole focus on scale doesn’t turn every brand into a long-term success. In fact, VCs may cause some brands to grow at unsustainable rates, while overlooking costly customer acquisition problems.
While venture capital can be a great fit for some brands, it’s not the one size fits all magical solution that it’s often cracked up to be. Sometimes it’s not the best fit for your brand. Plus, your brand may not be the best fit for a VC either and that’s okay. There are plenty of other financing solutions out there for growing businesses that don’t require giving up equity. While VCs are often glamourized both in the startup world and in pop culture, it does involve giving up a significant part of your business that can be very expensive in the long run. Not to mention, you may also be giving up a lot of the decision-making power over your business and your brand.
The allure of scalability and the dream of making your brand a household name are two of the main components that make VC funding exciting. However, top DTC players such as Dagne Dover, Native deodorant, and Love Vera are among many big names that have scaled their DTC businesses profitably without VCs.
According to Digiday, mattress brand Tuft & Needle merged with Serta Simmons in 2018 and did $170 million in sales in 2017 without funding. They also noted that watch brand MVMT was acquired by Movado for $100 Million upfront without ever taking on VC funding. Remember, scalability isn’t the same thing as profitability and many VC-based brands spend way more than they make chasing market share over profits.
This is a must-read article analyzing DTC brand’s downfalls after excessive VC funding.
Financial technology (also known as FinTech) is transforming the way sellers transact and manage money. You might be familiar with consumer solutions like AfterPay.
There’s also FinTech solutions that can help your business manage cash flow. They recognize the unique challenges of online sellers.
You don’t have the time to go through long waiting periods or credit checks to get the funding you need. A stockout during a busy time could have serious consequences for the health of your business.
Check out how Payability offers a variety of early payout and working capital solutions exclusively for eCommerce businesses.
Payability Instant Advance: Sellers can get an Instant Advance, or capital advance, based on future online sales and account health. Future sales are based on all online sales both web stores and marketplaces. You can use this cash toward large inventory purchases, marketing expenses, or other business needs.
With no credit checks, you can get approved for up to $250,000 in as fast as one business day. Unlike traditional financing options that only offer large amounts, eCommerce businesses can get an Instant Advance for much smaller amounts too.
Best of all, Instant Advance customers receive a fee rebate for every week the advance is collected early. Instant Advance even works well alongside other offerings such as Shopify Capital and other funding including traditional financing options. Unlike traditional funding options, where you pay back a certain minimum amount each month no matter what, capital advances work differently. When you take an Instant Advance, Payability will remit a fixed percentage of your sales each week. So if your sales go down, less will be collected and if your sales go up, more will be collected. This can make it easier to manage cash flow and handle expenses, as you won’t have a fixed payment to make if your sales go down. As we mentioned above, Instant Advances are unsecured.
Payability Instant Access: Online marketplaces like Amazon can be great channels to scale your DTC brand. However, they often have delayed payouts that routinely put sellers in tight spots. To help with this, Payability’s Instant Access pays you the next-day, every day for all your marketplace sales, even on weekends and holidays. Sellers get their payouts one business day after making a sale — or the same day if using the Payability Seller Card.
With Payability, there’s no credit checks, no complicated paperwork, no origination fees, no collateral, and no hidden fees. Instead, approval is based on your account health and sales performance Apply online today and connect all the channels you sell on.
5Strands Affordable Testing, Go Buddha Meals, and HBCU Shirts are just a few examples of countless brands that have scaled their eCommerce businesses fast without giving up equity using Payability Instant Access and/or Instant Advance.
It’s common for startups to tap into their personal (or a family member’s) savings to get the cash they need. Of course, this can be a risky solution, especially if you need tens of thousands of dollars.
Think of all the entrepreneurs on Shark Tank and the jaw dropping amounts they admit are from personal savings, even causing some to take out second mortgages.
Tapping into personal savings seems like a last resort, especially when there’s FinTech solutions like Payability that leverage your own future sales.
Cash flow is a significant problem for high-growth brands. It’s important to know your finance options to ensure you’re not stuck waiting on cash to move your business forward.
Interacting with Your Community
You’ve put a lot of work into your brand experience, it’s what sets you apart from big-box retailers and other DTC competitors. But in 2020, having high-quality products and savvy social media accounts isn’t enough.
Two-thirds of consumers expect direct brand connectivity.
Leading DTC brands are finding unique ways to interact with their communities. They’re fostering authentic relationships that customers are looking for.
For example, see how DTC brand United by Blue (UBB) puts their mission of cleaning up the world’s waterways front and center.
Knowing how much clean water means to their audience, UBB hosts nationwide cleanups that allow consumers to interact with the UBB team directly. They even offer DIY cleanup kits if you can’t access a cleanup location.
UBB is a great example of a DTC brand doing more than marketing their brand and products. They’re creating real relationships and experiences that customers won’t find anywhere else.
In addition to aligning your business with a greater social good, today’s consumers also want to see how your products look on real people. So in addition to the high quality professional photos you share on your website and in social media, you should also feature photos of real customers using your products. This genuine content builds trust and adds credibility to your brand.
Automate Your Processes
You’re getting new orders faster than you can process them. You’re overselling before being notified of a stockout.
There comes a point when you can’t keep up with your current workload without automation.
Recognize these common growing pains and consider automating your core processes. It’s the best way to save your customer experience and avoid costly mistakes like delayed shipments.
You’ll want to automate the order lifecycle from the point of checkout to delivery. The goal is to reduce the number of people and steps it takes to handle an order. The more people involved, the more likely there is to be delays or mistakes like shipping to the wrong address.
The first step to automating your online business could be investing in a backend system like an Enterprise Resource Planning (ERP). This is a single system to track sales, manage inventory, and fulfills your products from a single system. Learn more about investing in ERPs here.
If you already have a few systems in place like an ERP, shipping software, and/or 3PL, you can look to system integrators to connect those systems and automate your workflows. This eliminates manual data entry and speeds up your processes. For example, automation can be key to instituting same-day shipping and displaying real-time inventory on your website.
Read our beginner’s guide to eCommerce automation.
Hand Over Fulfillment to the Pros
With the stage set by Amazon, today’s consumers want timely and accurate shipping. They usually aren’t very forgiving either if you make a mistake. A bad shipping experience can lead to a lost customer for life.
Initially, you might internally manage your entire fulfillment process and warehouses. However, you might find that operating your own warehouse isn’t worth the time and money to perfect (especially when you’re up against the likes of Amazon).
Luckily, you can outsource some parts or all your fulfillment to third-party logistics (3PL) providers. Most sellers aren’t logistics experts. Instead, you can outsource warehouse management, transportation of goods, and/or reporting to a 3PL who does. Fulfillment companies like Deliverr offer the fast 2-day or less shipping experience consumers have come to love on multiple channels including Amazon, Walmart, and Shopify.
To grow your DTC brand, you can also look beyond local markets. Global audiences respond well to unique brands that can’t be found locally and they’re willing to pay the extra shipping for it.
In the past, selling across the globe seemed quite daunting. How do you connect with consumers halfway around the globe? How do you navigate the challenges of international logistics?
Luckily, there’s new technology available that makes global selling realistic for many brands.
- Platforms like Shopify make it easy to tailor storefronts to different countries and accommodate for local languages, currencies, marketing campaigns, and product lists.
- FinTech Solution OFX handles global currency exchanges
- Shipping platforms like FlavorCloud give you access to reliable and cost-effective shipping.
The DTC business model isn’t going anywhere anytime soon. In fact, it’s only going to grow as consumers love getting high quality products at fair prices and interacting with brands directly. So chances are, you’ll have countless changes to grow your DTC brand. You just need to leverage all of your resources to get there faster.