How You Can Confidently Scale Your DTC Brand to $10,000,000 Profitably

This is NOT an easy task, but the right framework can make it doable?

Now there are a million and one tactics ecommerce brands can use to grow

But this is the high level framework I use as a Fractional CFO to scale with confidence?

Firstly, you need to have a clear vision and Unique Value Proposition?

Ideally you have a differentiated and defensible position in the marketplace with Intellectual Property or Exclusivity

Next, you need to stop looking at Profit and focus on Cash Flow

The more Free Cash Flow a company has, the more it can allocate to growth opportunities, paying down debt, and paying out dividends?

Free Cash Flow = Net Profit + Depreciation of Assets ? Change in Working Capital ? Investment in Long Term Assets

Cash Flow is the lifeblood of your business, you can be “profitable” but still run out of cash?

Next you need to get a grip on SKU level performance by looking at Contribution Margin

CM = Net Revenue - COGS - Shipping & Fulfillment - Marketplace Fees - Ad Spend

This provides a detailed look into the unit economics of your business and enables better decision making

For any KPI that compares against Revenue, swap out Revenue for Contribution Margin

This will allow you to focus on the most profitable products / channels and cut out the low performers?

Now when it comes to scaling with ads, everyone is familiar with ROAS, but there’s a much better metric

And that is POAS (Profit on Ad Spend)

Instead of comparing Ad Spend to Revenue, compare to Contribution Margin

This gives you a much more useful metric for understanding the profitability of your campaigns

Similarly, instead of looking at the LTV of your customers in terms of Revenue

Look at the LTV Contribution Margin

This shows you how much profit each customer generates?

Now you can more effectively make growth decisions by comparing Customer Acquisition Cost (CAC) to LTV Contribution Margin

This shows Dollars Spent vs Profit Generated for each Customer

Now when it comes to managing your inventory during a high growth phase, you’ll want to do everything in your power to get a negative cash conversion cycle

This means that you’ll collect cash from selling your inventory BEFORE you have to pay back your suppliers for it

The best levers to pull for reducing your CCC:

?> Dial in forecasting and inventory planning?

?> Minimize amount of inventory on hand without running out of stock

?> Negotiate longer terms with suppliers (Net 30, 60, 90+)

?> Use Melio to pay suppliers with a credit card

?> Use Parker or AmEx Plum credit card to get additional + 60 to 90 days to pay back suppliers

Now if you realize that you don’t have enough cash to fund inventory purchases, you need to figure out the optimal debt facility to bridge the gap in cash

Here’s a breakdown of the most common forms of debt financing:

?> ?? Merchant Cash Advance (Shopify Capital or Amazon Paraffin): 40-70% APR

?> ?? CC Balance (Use Plastiq or Melio): 18-25% APR

?> ?? Line of Credit (Bank, Amazon Marcus, Ampla): 10-20% APR

?> ?? SBA 7A Loan (Any bank): 11.5-15%

?> ?? Accounts Payable (Vendor Terms) 0% APR

When evaluating how much debt you can take on, you want to look at your Debt Service Coverage Ratio (DSCR)

DSCR = EBITDA / Total Debt Service

In simple terms your profit divided by debt payments?

Having the ability to understand and select the right debt facility can make or break you

To summarize, the name of the game is:

?> ?? Shorten Cash Conversion Cycle

?> ?? Decrease Customer Acquisition Cost

?> ?? Raise Lifetime Value Profit per Customer

?> ?? Increase Contribution Margin

?> ?? Maximize Free Cash Flow?

This high level framework will help guide your brand’s decision making as you scale to 8 figures and beyond

If you’re scaling your brand and need expert guidance for strategic financial decision-making, just shoot me a DM @ Colson Myers and I’ll help you grow with confidence!

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