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Private label ecommerce brands are a popular way to start a business. They offer a number of advantages, including low start-up costs, the ability to sell products online around the world, and the potential for high profits. However, it is important to carefully evaluate the financial health of your private label ecommerce brand before you invest your time and money.
One of the most important metrics to track is your return on invested capital (ROIC). ROIC is a measure of how efficiently you are using your capital to generate profits. To calculate ROIC, divide your pretax annual profit by the current value of inventory plus all of the startup costs you had including product development, business formation and the initial marketing budget for the first 6 months.
Aim for a ROIC of at least 30%. If your ROIC is lower than this, it may be a sign that you are not using your capital efficiently. You may need to make changes to your business model to improve your profitability.
Another important metric to track is your pretax margins. Pretax margins are a measure of how much profit you are making on each dollar of revenue. To calculate pretax margins, divide your pretax annual profit by your total revenue.
Aim for pretax margins of at least 15%. If your pretax margins are lower than this, it may be a sign that you are not charging enough for your products or that your costs are too high. You may need to make changes to your pricing or your cost structure to improve your profitability.
There are a number of key variables that you need to focus on to improve the financial health of your private label ecommerce brand. These include:
Cost of goods sold (COGS): COGS is the cost of the products that you sell. You can reduce COGS by negotiating better prices with your suppliers, by increasing the volume of products that you purchase, or by using lower-cost materials.
Marketing expense: Marketing is essential for driving sales, but it can also be a major expense. You need to find a balance between spending enough money to generate sales and not spending so much money that you eat into your profits.
Pricing: You need to price your products at a level that is high enough to cover your costs and generate a profit, but not so high that you price yourself out of the market. You need to carefully consider your competition and your target market when setting prices.
Access to capital
If your brand is growing quickly, you might need to access short term loans. Try to make them business loans without personal guarantees, with rates below 15% and as long a term as possible.
High quality financial statements
Have a third party accountant prepare monthly financial statements including income statement, balance sheet and cash flow. It's important for you to understand what's going on in the business to make timely decisions about things like price and budget allocation to paid marketing.