Financing Growth for your Amazon Business: Equity vs. Revenue-Based Financing

At one point or another, you’ve probably had a few ideas on ways you can scale your Amazon business. They could range from investing in advertising, expanding into new categories to launching a new product. Typically, to get any of these ideas off the ground, you’ll need to rely on some incremental capital or financing to move ahead.

And as many options as you may have to fuel these new growth opportunities, you probably have an equal number of options in terms of financing that growth.

One of the biggest decisions you may need to make, particularly as it relates to an early-stage company, is whether you’re willing to give up equity, or ownership. Equity financing involves taking on additional investors who will own a portion of your business, in exchange for financing you need to pursue new opportunities.

Here are some things to consider when weighing equity financing:

  • For early-stage companies, equity financing might be a good option to get to scale quicker, not only through the financing that the investor(s) can offer, but also through the expertise and experience they may offer from operating a business already at scale.
  • Equity financing also can help align your company’s interests with your shareholder’s interests. Your shareholders will only see a return on their investment should your business scale and become profitable.
  • On the other hand, a potential downside to this type of financing is the fact that you’ll need to give up ownership in return. For some business owners, this may be a viable option as the future of the company – and its ability to become profitable – is not certain.For many others, however, shared ownership of the company means shared decision making across many key functions of your business. And depending on how much equity is given up, this shared decision making model could prove challenging as the company matures.

An alternative to equity financing is often called “revenueshare” or “revenuebased” financing. Companies like Yardline Capital offer this as an alternative to equity financing and refer to it as “growth capital”.

The simple way this often works is as follows: in exchange for an upfront infusion of capital to the business, the borrower will make automatic repayments based on a fixed portion of their sales. When sales are up, the company will pay back a larger amount on a dollar-for-dollar basis. When sales are down, repayment amounts will be lower.

Here is a typical scenario of how this type of financing can help your business: If you’re a profitable Amazon business and have a comfortable margin after COGS, marketing, platform fees, and other expenses like payroll, look at taking on some growth capital, without giving up a stake in your business.

With some additional funding in hand, now you’re in a position to invest incrementally in areas like inventory and marketing. And, if you assume demand for your product is virtually unlimited, you’ll now be able to order in larger quantities, becoming more efficient on a unit cost basis.

Bigger investments in inventory and marketing can result in higher monthly incremental revenues –exponentially. The faster you grow, the more velocity you have on platforms like Amazon or your website, the higher your listings become.

Remember, there is no cap on how big your business can be! There are lots of available financing options for sellers today – from the more traditional like credit cards, lines of credit or even loans from friends or family members, to the ones we’ve discussed today.

Whatever option you choose, be sure and do research on all your available options, the costs associated with each and the expected returns you wish to see from the incremental investment.

This post was provided by Yardline Capital, an AMZ Pathfinder partner and provider of growth capital to sellers across any marketplace or platform. For more information about Yardline, visit yardline.com/amzpathfinder.

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