Gymshark scaled from $9M to $176M per year in just 4 years
And they did it with minimal outside investment
How?
They used a 'negative cash conversion cycle'
Let's break down what that means and how you can apply it to your own eCommerce brand:
And they did it with minimal outside investment
How?
They used a 'negative cash conversion cycle'
Let's break down what that means and how you can apply it to your own eCommerce brand:
As a DTC operator, you know that cash is king
It allows you to:
• Pay your bills
• Pay your employees
• Reinvest in growth (employees, warehouses, new product lines)
• Handle emergencies
It allows you to:
• Pay your bills
• Pay your employees
• Reinvest in growth (employees, warehouses, new product lines)
• Handle emergencies
On top of that, strong cash management puts you in a position to keep more equity in your business
Which means more money in your pocket today & more money in your pocket if you exit the business in the future
Now, what's Gymshark's secret?
Which means more money in your pocket today & more money in your pocket if you exit the business in the future
Now, what's Gymshark's secret?
It's called a Negative Cash Conversion Cycle
The Cash Conversion Cycle (CCC) is a financial measurement that shows how quickly your DTC brand can turn inventory into cash.
This article does a great job breaking it all down: menabytes.com
The Cash Conversion Cycle (CCC) is a financial measurement that shows how quickly your DTC brand can turn inventory into cash.
This article does a great job breaking it all down: menabytes.com
Let's give you the TLDR
CCC is calculated by looking at three things:
1. How quickly you sell your inventory (inventory turnover)
2. How quickly you pay your bills (payables period)
3. How quickly you collect money from your customers (receivables period)
CCC is calculated by looking at three things:
1. How quickly you sell your inventory (inventory turnover)
2. How quickly you pay your bills (payables period)
3. How quickly you collect money from your customers (receivables period)
Here’s the exact formula:
CCC = Inventory Turnover + Receivables Period - Payables Period
CCC = Inventory Turnover + Receivables Period - Payables Period
If you have a NEGATIVE CCC, it means that your inventory is sold & cash collected BEFORE you have to pay your suppliers/bills.
In other words, your suppliers finance your operations
Meaning you don’t need to constantly inject more cash to grow.
In other words, your suppliers finance your operations
Meaning you don’t need to constantly inject more cash to grow.
Here’s what Gymshark’s CCC looked like when they were scaling:
• 108 days to sell an item
• 19 days to collect money from customers
• 163 days to pay suppliers
Meaning for every item they sold, the cash was theirs to use for 36 days before it went to suppliers.
• 108 days to sell an item
• 19 days to collect money from customers
• 163 days to pay suppliers
Meaning for every item they sold, the cash was theirs to use for 36 days before it went to suppliers.
Ok, so how can your DTC brand achieve a negative CCC?
First, find the weakness in your cycle. Is it:
• Inventory turnover?
• Receivables period?
• Payables period?
Then, work to fix it. Here are a few strategies...
First, find the weakness in your cycle. Is it:
• Inventory turnover?
• Receivables period?
• Payables period?
Then, work to fix it. Here are a few strategies...
To ⬆️ inventory turnover:
• Improve the sales process
• Improve your marketing
• Improve customer experience
• Improve the sales process
• Improve your marketing
• Improve customer experience
To ⬇️ receivables period:
• Offer more payment options
• Implement a CRM system
• Set & communicate clear payment terms
• Offer more payment options
• Implement a CRM system
• Set & communicate clear payment terms
To ⬆️ payables period:
• Negotiate longer payment terms with suppliers
• Use a credit card with net 60 payment terms, like @Parker_HQ
• Negotiate longer payment terms with suppliers
• Use a credit card with net 60 payment terms, like @Parker_HQ
If this thread was helpful, follow @Parker_HQ for more DTC finance strategy (and occasional memes)
And if you need a card with true Net 60 payment terms, you know where to find us 🤝
And if you need a card with true Net 60 payment terms, you know where to find us 🤝
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