5 Financial Tips For Expanding An E-Commerce Brand
Percy Hung, a serial entrepreneur and CEO of revenue-based financing platform Choco Up, shares his top tips for managing the costs of expanding an e-commerce business.
I’ve always been driven by my fascination for how things work. It’s why I started my career in aerospace engineering. In the early stage of my career, I was tweaking and improving things as a product engineer for different multinational companies. But seeing how innovation and technology enabled different businesses, I realized I had a deep passion for entrepreneurship.
Since 2015, I've established a fashion brand, LXN Collection, and co-founded Healthy Chicken Group, a Hong Kong-based concept restaurant. Now, I'm the CEO and co-founder of Choco Up, where I strive to help e-commerce companies flourish through revenue-based financing.
During my nine years as a serial entrepreneur, I've picked up a few essential lessons on managing your money, especially when it comes to scaling and expanding businesses. Here are five things I wish I had known earlier about the costs of cross-border expansions.
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1. Understand the hidden costs of cross-border e-commerce
With cross-border e-commerce, companies have to contend with multiple payment methods and currencies across multiple markets. These have payment gateway rates attached, such as foreign exchange rates and cost-per-transaction fees, where businesses are charged for each time a customer payment is processed.
Even customer acquisition costs have risen by 60% in the last five years. A large part of this includes advertising and marketing spend.
2. Saving for the short term – don’t skimp on logistics
Logistics fulfillment is an aspect that cannot be overlooked. With so many products available on the market with similar price and quality, it's often delivery speed and condition upon delivery that makes your brand stand out.
The e-commerce delivery benchmark report by Metapack found the top priorities for consumers when considering online shopping are the cost, speed and convenience of delivery. Slow delivery also accounts for 22% of online shoppers abandoning their carts.
By spending on premium logistics services that provide faster, low-cost and more convenient deliveries, you're likely to be contributing to your bottom line too. As the saying goes, sometimes you've got to spend money to make money.
3. Spending for the long term – invest in localization
E-commerce companies looking to break into a foreign market need boots on the ground to be in sync with local habits. To stay ahead of challenges in a new market, localization is a priority that must be factored into the financial runway for cross-border expansions.
For instance, search engine Naver trumps Google if a company wants to be found in South Korea; the LINE messaging app lets a team effectively connect with potential customers in Thailand; and WeChat is the preferred messaging and social media app in China.
What's more, a research survey by CSA, conducted with consumers in 29 countries, found that 76% prefer to buy products with information in their native languages, and 40% would not make a purchase in other languages.
While you might be able to save costs by relying on generic marketing materials, your long-term success may suffer. To go global effectively, e-commerce businesses should invest in things like:
- Customer support in native languages for better service
- Tailored promotions for local markets
- Marketing content that captures the essence of the company while considering local cultural nuances
4. Plan ahead for cash flow issues
Cash flow and capital are the lifeblood of e-commerce businesses. Without them, these businesses would not be able to work on any of the approaches we covered. Founders need to carefully consider their options, and it’s essential to plan ahead. Once businesses face a shortfall of cash, with some loans needing 90 to 120 days for approval, it can be too little too late.
The earlier the company can plan for cash flow issues and the sudden need for cash injections, the better the terms they can negotiate. Some funding terms come with strings attached.
It can be a loaned amount with set repayment timelines and interest rates. Fixed repayment rates, however, may not be ideal for e-commerce businesses that experience income variations. Having to pay a fixed amount when sales are seasonal can put pressure on cash flow.
It can also result in the lender taking a percentage of equity in the company. Lenders who have equity in the e-commerce business can sometimes be entitled to a say in how the company spends their funds. And those decisions might not be aligned with the business direction.
5. Find a financial partner that doesn’t get in the way of your business goals
Access to reliable funding is just the start of what an ideal financial partner should provide to help an e-commerce business expand across borders. Understanding the challenges and opportunities in the target market and having a network of partners is vital to making the expansion successful.
The financial partner has to trust the company to make the final decisions, and offer flexibility in repayment options that align with the company’s long-term goals.
Ultimately, with cross-border expansion, many aspects can be unpredictable. The best way companies can mitigate and plan for it is to have enough capital on hand to be able to do cross-border well and weather the costs needed for it.
For more tips on expanding your small business, head to the FedEx Small Business Center now.
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CEO and Co-Founder,
Choco Up
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