Treat Free Cashflow Margin As Your North Star Metric

Cashflow is the backbone of any e-commerce business.

It determines a company's ability to pay suppliers, invest in marketing, cover operational expenses, and continue funding growth.

Without proper cash flow management, even a profitable business can struggle to stay afloat.

Why Cashflow Matters More Than Revenue

A lot of us are still coming out of a period where revenue growth was the only metric that mattered. But the days of deploying deep pools of cheap capital in e-commerce are behind us, and many brands have already been feeling the squeeze. This statement shouldn't be news to anyone...

As obvious as it may sound in 2025, profitability matters — a lot. But profitability alone is not enough.

Healthy growth shows up in many places: in your ad account, in your Shopify orders report, on your income statement on the revenue line. But more ad spend, more orders, and more revenue alone don't necessarily indicate financial health.

A company can generate significant sales yet still face financial challenges if cashflow is not properly managed. Because no matter how fast you think you can grow, you still need to find the cash somewhere to fuel that growth.

Key Cashflow Challenges for E-Commerce Brands

Let's start with inventory. Maintaining inventory requires significant upfront capital. If too much cash is tied up in unsold stock, businesses may struggle to cover essential expenses. This hidden cost of too much working capital allocated to inventory can create operational drag in the business, or in more severe situations, threaten the solvency of the company to cover other operational expenses.

Next is ad spend. For most scaling e-commerce brands, ad spend will typically represent the largest variable cost to the business followed by COGS.

Let's not forget about refunds and returns. High return rates can significantly impact cash flow, as refunded sales result in lost revenue while still incurring operational costs.

And lastly, everyone's favourite: seasonality. Most of us experience the natural fluctuations in demand throughout the year, which require meticulous and perfect coordination across both marketing and finance to ensure there's enough working capital to fund operations year-round.

Strategies To Manage Your Cashflow

• Negotiate better payment terms.
• Leverage short term lending facilities to your advantage.
• Focus on driving LTV through better product and retention marketing.
• Forecast, forecast, forecast.

Forecasting is not a process of predicting the future, but rather the process of understanding the probability of outcomes and their impacts across the various scenarios that may impact your business. Without a forecast rooted in actionable insights and reliable financial data, one wrong move and you can take yourself out of the game for good.

Check out more of our posts on cashflow, or get access to our Free Cashflow Forecast in under 5 minutes!