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funding for ecommerce companies

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Electronics
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Munmun S.
Jun 11, 2021

Why do e-commerce companies need funding?

1 answer

Dave B.
Jun 11, 2021

This is one of the most common e-commerce questions. Most e-commerce businesses get e-commerce funding to cover their typical expenses, which include:

  • Inventory (for online retailers)
  • Shipping and storage
  • Promotion/user acquisition
  • Staff Operations/business tools

Generally, online retailers need funding more than online service providers, as their costs are usually higher due to stock expenses. Inventory could comprise 25%-50% of an e-tailer’s revenue, depending on whether it’s a direct seller or a wholesaler. This is very burdensome on the average online retailer.

The second biggest expense is logistics costs - shipping and storage. With the exception of dropshipping companies, e-commerce sellers need somewhere to store their inventory and to provide free or low-cost shipping, a standard set by Amazon that’s difficult to compete with.

E-commerce businesses typically don’t have the cash flow to pay their expenses before generating revenue. This is where funding comes in handy. For example, if an online retailer needs new inventory to grow its business, a line of credit or an e-commerce business loan can help finance the inventory purchase.

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