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when it comes to scaling, know your numbers.
Financial modeling and forecasting are critical for the success of any e-commerce business. It allows you to understand the current economic state of your company, plan for future growth, and identify potential opportunities or risks.
Financial models can provide a comprehensive picture of your revenue and profit forecasts, cohort analysis, customer lifetime value (CLV), understanding rate of scale, and more.
They can help you better understand the drivers of your brand's financial performance and make informed decisions about how best to allocate resources.
Forecasting Revenue & Profit: This is done to model future revenue and profit. It involves using historical data and trends such as cohort analysis to forecast return customer revenue and new customer revenue to project future performance. This helps you plan for future investments into growth and budget appropriately, to ensure you’re scaling sustainably and profitably.
Forecasting Ad Spend: Wondering what to spend on ads next month? The truth is, determining the appropriate ad spend depends on a multitude of macro factors such as growth goals, minimum net margin requirements, and profit expectations. Through our Financial Modeling, we take into consideration all of these and more to determine the ad spend needed to achieve the business outcomes you want.
Forecasting Inventory Requirements: Knowing the inventory requirements to maintain or increase your rate of scale is crucial. This is often a bottleneck many DTC brands face, as every ad spend decision can impact future requirements. By combining our return customer revenue, new customer revenue, and ad spend forecasts we create models to forecast the inventory requirements needed at different rates of scale.
Understanding Rate of Scale: This allows us to determine the maximum rate of scale while maintaining minimum net margin requirements. It looks at the relationship between customer cohort size and revenue/profit growth. This can be used to identify potential scaling opportunities, develop strategies for improving performance, and understand the potential rate of scale achievable based on cash conversion cycles and the terms on inventory orders.
Brand-specific scaling models: Each brand has different goals. Goals can include specific growth targets, retention goals, financial performance targets, and more. These are taken into account when creating financial models to act as the base in making actionable decisions off of the forecasts.
Cohort analysis: This is used as a tool for tracking customer behavior over time. It allows you to group customers by similar characteristics, such as when they joined or purchased a product, and analyze their behavior in order to understand the drivers of customer loyalty better. This can help you make decisions about which customers to target for marketing or other initiatives and the expected future revenues or profits of each cohort over a period of time.
the devil's in the data.
Through financial modeling, you can gain a comprehensive understanding of your revenue and profit forecasts, cohort analysis, and customer lifetime value.
These fundamental metrics are the essential building blocks for any e-commerce business looking to achieve success. By understanding the current economic state of your company and planning for future growth, you can identify potential opportunities and risks, and make informed decisions about how best to allocate resources.
Dig into the data with financial modeling and drive sustainable, lasting growth and profitability for your e-commerce business.