Jul 21, 2022 3 min read

How to Prepare for an Economic Downturn

No doubt about it — it’s a scary time to have a smb eCommerce business.

With inflation at 40-year highs, central banks are tripping over themselves to raise interest rates and reduce their balance sheets to tighten the money supply in an overheated system. With prices high and credit more expensive, everyone is tightening their belts and looking for places to cut spending.

Of course, that’s not the best news for those of us who sell stuff online. We’d rather people be spending more. But recessions are a fact of life and so here are a few tips on how to prepare your eCommerce business to survive — and even thrive — in an economic downturn.

1. Aggressively audit your expenses

Any recurring expense that you don’t absolutely need should go on the chopping block. Make sure every dollar you spend is focused on generating revenue. If you’re not sure whether or not it contributes to revenue and sales, it’s expendable.

See if you can cut back on packaging. Contact vendors and creditors; see if they are willing to extend payment terms so you can preserve your cash flow.

2. Commit to data-driven decisions

Start tracking your analytics religiously. You need to know which products are your top performers — not just which ones have the highest margin, but which ones customers find the most valuable; which ones work best on upsells and cross-sells; and which marketing channels produce the best results.

SMB eCom businesses have the relative advantage of being flexible and nimble. They can change their offerings almost as quickly as customers change tastes. Reduce the capital you have tied up on low performing products and focus your money and effort on the top performers, as well as experimental products that may be your new top performers.

3. Reconsider your product offerings

Changes in the economy may necessitate a change to your product offerings. Put yourself in the customer's shoes — what would have to be the case for you to remain a customer if your budget got slashed?

Be careful about trying to reduce inventory quantities – you could end up paying more per unit for manufacturing and shipping. Instead, look for ways to bundle your products together or vary your product line, creating new price points without eating into your profit margin.

Revisit your product-page copy as well. Have you listed all the product attributes to their best advantage? This can make a big difference.

4. Solidify your inventory management strategy

You’ll quickly get in trouble if you wind up with cash tried up in a bunch of inventory in an expensive warehouse that you can’t move. Alternately, you don’t want “Out Of Stock” notices to send your customers looking for another vendor.

We recommend calculating your inventory for a 4-6 month sales cycle, alongside a cash flow solution that minimizes the time between purchasing the inventory and monetizing the inventory. This is the role that a CapEc inventory loan can play in inventory management.

5. Focus on reputation

Ultimately, people still need to buy things during a recession. Want them to pick you? Go for broke on positive reviews. This takes a recommitment to customer service and a proactive strategy to get buyers to leave reviews. Use the sales page, order confirmation, packaging, direct outreach … anything you can to get that star count up.

6. Choose the right funding solution

Most eCom funding solutions fund all at once and debt service begins immediately. The entire loan could come due before your inventory even arrives at the warehouse. In a tight economy, that’s a dance with disaster.

CapEc, on the other hand, offers a creative solution that preserves your cash flow. We fund 70% of your manufacture cost when production is complete for the manufacturer to release your order. We then fund 70% of the shipping costs. Best of all, you don’t owe us any repayment until the inventory arrives at your third-party logistics warehouse. It’s a much more realistic funding cycle perfectly tuned to the average eCom sales cycle.

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Need a funding solution that actually works with your sales cycle instead of against it? Reach out to CapEc. Our goal is to give eCom entrepreneurs the cash they need to make it through the lean times — with funding and repayment terms that make sense in the eCom world. The online qualification process only takes minutes. Click here to find out how easy it is to get funded!

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