eCommerce Growth Is Determined By Cash Allocation

How much your company grows is based on how you spend your cash.

At each stage of your eCommerce business, you can break through to the next revenue bracket when you spend on the right things.

Early Stage Companies (0 to $1 million)

For early stage companies, we’ve seen the following cash allocation work the best:

• 40% – Product
• 40% – Positioning (Branding, Web Design & Development and Marketing)
• 20% – Operations (Fulfillment, Customer Service and Legal/Accounting)

This is a critical time when a company is beta testing their product to really ensure they have the right formula. They are experimenting with marketing channels to identify the one that can be scaled in the short term. And, they are doing all they can to ensure that every customer is treated as sacred. If a company can get these three areas right, everything else can be de-prioritized.

What the companies that don’t get out of this bracket tend to have in common is that they spend far too much money on Branding, Web Design & Development, or Legal/Accounting. This poor allocation takes money away from key growth sectors like Marketing, Customer Service, and Product.

Post-Startup Stage Companies (1 to $5 million)

For companies in this phase, we’ve seen the following allocation work the best:

• 30% – Product
• 50% – Positioning (Branding, Web Design & Development and Marketing)
• 20% – Operations (Fulfillment, Customer Service and Legal/Accounting)

In this key phase, 50% of cash allocation is placed on Positioning because the brand needs to reach more people and be shared far and wide.

What the companies that don’t get out of this bracket tend to have in common is that they spend too much money on automating operational tasks, trying to anticipate growth ups and downs, and product performance issues.

Grow Stage Companies ($5 million +)

For companies generating over $5+ million a year, we’ve seen the following allocation work the best:

• 20% – Product
• 50% – Positioning (Branding, Web Design & Development and Marketing)
• 30% – Operations (Fulfillment, Customer Service and Legal/Accounting)

Compared to startup days, the spending has almost flipped. That’s because branding and web design dictate how well you are shared and remembered. Operations and Fulfillment keep the product cost down otherwise you will have to continuously raise prices. Legal/Accounting keep the tax man and lawsuits away.

What the companies that don’t get out of this bracket tend to have in common is that they spend too much money on underperforming marketing channels, website maintenance, product diversification and full-time staffing on non-growth positions (i.e., sales, marketing).

Outside of execution, targeted cash allocation is the single biggest driving force for growth outside of execution.