E-commerce Financial Modelling

Many e-commerce companies have started their business out at home in the garages with little driveways and on the kitchen tables. They were struggling with making an e-commerce business plan and achieving positive cash flow. It takes some courage to raise a company this way.

However, if you didn’t do an appropriate e-commerce financial modelling of your profits, you may be missing the main thing of your business — E-commerce Financial Model. Starting up a business is a challenge in itself. And once your company reaches a certain point — you have to move to a more sophisticated financial strategy. When you create a set of financial tools to increase and analyze your revenue, costs, profits and cash flow in e-commerce, you start managing an e-commerce financial model.

E-Commerce Startups

Retail is an interesting sector these days — you either have to be super cheap and convenient, super niche or online. E-commerce or electronic commerce is simply buying and selling of products and services via online channels.

Online retail is a convenient approach nowadays due to its seven days per week availability, accessibility across the globe, trusted payment channels and generally effective services. As well, online sales use the same strategies as when you do offline retailing, though, the mechanisms can be different.

Mechanisms of E-Commerce Financial Modelling

An e-commerce has become a potential source of revenue generation and e-commerce financial modelling depends on such factors as ads, search engines, referrals, traffic, etc.

E-commerce entrepreneurs, startups or big companies, and online shopping cart owners align the key tactics with the mechanism and strategies on how a business can generate revenue from its products. The various monetization mechanisms go as one of the basic ways of maximizing revenue. Here is a small list to start on:

Advertising

As an example, e-commerce startups can generate income from Cost per Click (CPC) model used on websites, in which advertisers pay only when their particular text ads are clicked, not each time an ad is shown.

Sponsorship

It’s a typical deal agreement where both media sites promote each other’s content or channels helping to gather potential leads and customers.

Freemium models

It offers for users one product or service for free and then either users pay for advanced features or greater use rights or continue with the premium version, where the registered users have to pay for a subscription.

Affiliate Marketing

For example, the writer of a high-traffic personal blog display posts that spread the good word of some products. The writer’s followers start buying these products after such review. This is called the Cost Per Acquisition model.

Don’t Sugarcoat Your E-commerce Financial Model

There is a basic way to sell products online. This is about advertise products through different channels and own store at your own website.

So, when you’re competing online in a global marketplace, you have to expect to pay for:

• Sales commission, if you go to a marketplace
• Setup costs or monthly subscriptions
• Website development
• Hosting and domain registration
• Marketing team to promote a product
• Postal services, shipping, and handling
• Packaging and insurance
• Basic equipment from computer to laser printers

On the other hand, you can try free and open sources like WordPress, Magento, etc. — if you have enough skills. You can try Google’s AdWords and use the keywords that help to trigger your content to be shown. You can advertise through the social media networks for free as a start. Then, try the eBay, Amazon or Etsy services.

Developing a Financially Successful Model for E-Business

An e-commerce financial model describes the basic financial framework of a business. It is the method of doing business online by which a company can generate revenue. It also identifies how it plans to make money over the long term by selling online.

So when preparing a basic financial model, you need to consider the above e-commerce costs and mechanisms. If you create a structured financial strategy, do not forget to include a forecast of the income statement and balance sheet, build debt, schedules and a cash flow statement. As well, familiarize yourself with:

Cash flow statement

Demonstrates how your e-commerce business functions, where it’s making money and cover expenses.

The balance sheet

Is a chart that shows a company’s assets, liabilities, and equity for a specific point of time.

Profit and loss statement

Is an overview of your e-commerce income, costs, and expenses during a certain period of time Nice financial projections and e-commerce financial model specific to your e-commerce business case are better to be made by experts. It just saves time and shows the pass to significant financial know-how. And if you want to share your experience or learn more about a beneficial e-commerce financial modelling, we would be happy if you contact us today!