Appstle | Managing Cash Flow in Ecommerce Membership Businesses: A Guide

Managing Cash Flow in Ecommerce Membership Businesses: A Guide

Appstle | Managing Cash Flow in Ecommerce Membership Businesses: A Guide

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Ecommerce membership business models are helping brands attract and retain customers. Additionally, membership programs help generate revenue. 

However, membership programs also require cash flow management for the smooth functioning and growth of membership-based businesses. 

Managing cash flow in eCommerce memberships is easier said than done. However, with proper planning, strategizing, and with the right membership tools, this aspect can be a walk in the park.

In this article, we dissect every aspect of cash flow optimization and management for eCommerce membership businesses. 

Let’s get started!

Understanding cash flow in eCommerce membership

Ecommerce membership is not only about offering benefits to customers and making them stay loyal. It’s a part of your business and you have to manage the money matters related to memberships, too. After all, your membership plan is a revenue model and must help generate income. There are many aspects of cash flow related to membership models.

Cash flow management in memberships refers to managing the inflow and outflow of cash. It involves activities such as monitoring, analyzing, and optimizing the movement of cash, in and out of your membership plan. 

Depending on whether your membership plan has a fee, you can generate money from membership sign ups and renewals. For instance, many brands have a one-time membership sign-up fee, after which the membership is free for life. Conversely, brands offer paid renewable membership plans that customers have to renew after a specified period.

Membership cash inflow: In membership, cash flow can increase by increasing the number of members. Another way to increase revenue via memberships is to offer deals and discounts, and encourage customers to purchase more. 

Membership cash outflow: Running an eCommerce membership program on your Shopify store also involves many expenses. For example, costs related to marketing, ads, salaries, the cost of your membership app, among other expenses. 

Cash flow and profitability: difference

Cash flow and profitability are different. Cash flow is all the money that comes into your business. Profitability is the amount left after deducting all the expenses. 

However, it’s not so simple. Even though a business is profitable, it may still not be able to pay all its bills and dues. And if your business is not profitable on paper, you must either increase your earnings or decrease your expenses. 

Importance of managing cash flow in membership

Now let’s understand why cash flow management is crucial in membership and how a balanced or positive cash flow can impact your membership and business.

1. Ensures smooth business operations

Believe it or not, but more than 80% of small businesses fail due to poor cash flow. That’s how important managing cash flow for eCommerce is. Proper cash flow management ensures that businesses have sufficient funds to manage the day-to-day activities related to membership programs. It also ensures the inflow and outflow of cash is balanced.

2. Improves growth opportunities

Having a proper cash flow ensures you can invest in and spend on activities for your membership program growth. For instance, marketing and promotions, organizing events for members, adding new features to your membership program, etc. With proper cash flow management, you can be prepared to capture growth opportunities that may arise suddenly.

3. Provides financial stability 

Cash flow management helps support many other areas of your business finances. For example, if your business has debt, you can plan debt management better. Having enough cash flow makes timely payments easy and keeps unwanted interest away. If your business is prone to risks, cash flow management can help with risk mitigation.  

Key components of cash flow management

Cash flow management has two key aspects – inflow and outflow; in other terms, income and expenditure, as described below. Let’s learn more about these aspects in relation to membership programs.

1. Income sources

Businesses can earn in multiple ways via memberships. One of the income sources is membership fees. Members pay a small fee to enjoy membership benefits. This fee could be a one-time fee, annual, or based on a predefined period. Although this amount may be small, as your membership plan scales, this amount could add up. However, while membership fee is a predictable income, it may vary based on the churn rate. 

Other income sources from membership include upselling, product recommendations, special offers and deals for members, exclusive products and services for members, etc. Members can purchase these from you, adding to your income. While these are income sources, these are also a form of marketing expenses and may have variable returns.

2. Expense management

Running a membership program also has expenditure associated with it. For example, the set up cost, membership apps that integrate with your Shopify store, marketing expenses, promotional activity, customer acquisition, operational costs, etc. Additionally, there could be expenses related to risks, sudden expenses, etc. 

However, you can manage membership expenses with certain strategies in place. For instance, monitor membership expenses, identify when there’s an increase and analyze the reasons. Then, put in place ways to reduce expenses and cash flow forecasting strategies. For instance, if the expense rises in a specific month every year, plan your cash flow accordingly.

Strategies for effective cash flow management

So far, we’ve learnt about the various elements associated with cash flow management, now let’s explore the different strategies that you can apply to leverage these elements.

1. Cash flow forecasting

Predictability and forecasting cash flow have many advantages. It helps plan your expenses better. It helps you plan strategies to overcome problems. Forecasting cash inflow and outflow can give you a better sense of your financial stability.

Here are some cash flow forecasting strategies to help you with accurate cash flow projections:

  • Forecast your membership revenue
  • Forecast your membership expenses
  • Look at past financial data to get a better picture
  • Include any sudden expenses in the projection
  • Factor in slow seasons when forecasting income
  • Look for good cash flow projection templates
  • Use tools and apps to help with projections
  • Keep updating the projection sheet
  • Hire an accounting expert for cash flow management

2. Monitoring and analysis

One of the best ways to ensure correct cash flow management and spot errors in time is regular monitoring and analysis of your cash flow. For instance, regularly check your cash flow statements, balance sheets, and financial dashboard. This will help you spot any gaps and errors and rectify them in time. Spotting problems early on can help you manage memberships better, for instance, you can put in place expense control tactics for your membership program.

3. Managing receivables and payables

Streamlining receivables and payables can ease your membership cash flow management to a great extent. For instance, some revenue management techniques are: automate reminders for invoicing and payments; automate prompts to ensure inflows and outflows are entered on a timely basis in your dashboard. For outflows, optimize your inventory levels, and make sure you negotiate and set terms and conditions with vendors and suppliers.

Cash flow challenges and solutions

Every business faces challenges. So do membership businesses. However, there are specific solutions with which you can address those issues. Let’s look at some challenges and solutions related to membership programs.

Seasonal variations

Businesses often face seasonal variations in sales, expenses, cash inflows and outflows. For instance, during the off season, there’s a dip in sales. During the sale season, there’s increased cash flow. It can get challenging to manage cash flows when there are a lot of ups and downs. 

Here are some strategies to mitigate seasonal cash flow challenges:

  • Offer annual membership plans to enhance predictability
  • Create diverse revenue streams within your business and membership program
  • Run special discounts and sales during the slow seasons 
  • Organize events for members during off season for engagement
  • Apply cash flow forecasting strategies 

Churn and retention

One of the biggest challenges of membership programs is members leaving and not engaging enough. The reasons for this could be a lack of exciting elements, lesser value, limited benefits, and an average membership experience. However, you can create strategies to retain members and reduce churn. Here’s how:

  • Create an engaging membership program that encourages members to purchase from you consistently
  • Send automated communication to inactive members
  • Offer membership fee discounts when you sense members are disengaging
  • Use membership apps that have churn and dunning management features (Explore Appstle)

Future outlook and trends in cash flow management

As your eCommerce membership program expands and scales with your Shopify business, you must ensure you keep abreast with trends and strategies to stay on top of your game. Here are some trends in cash flow management that you must tap into.

Leverage technology and tools

An increasing number of brands are investing in technology and tools to help ease cash flow management for memberships and overall business. There are many tools and apps available for cash flow management. However, you must choose the best for your brands. A large pool of Shopify and Shopify Plus merchants prefer to use Appstle Memberships app. The app offers comprehensive features under one umbrella.

Data security and privacy

84% of merchants have experienced some form of attack on their online business in the last 12 months. Subscription and membership programs have become key targets of hackers. And hence, eCommerce merchants are taking precautions. Among the first things to do is to choose a membership app that has in-built security and data privacy features. This is a trend that is not being ignored by any online business, especially when it comes to managing cash flow management for eCommerce memberships.

Real-time capabilities

As competition increases, businesses are running out of time, quite literally. Real-time monitoring and analysis of membership program activities is a must. Are members losing interest, are members trying to reach out to your customer support, are they about to make a purchase or abandon their carts? These revenue management techniques, when captured and responded to, in real-time, can give your membership program a competitive edge. Apart from these, cash inflow and outflow can 

Summing up managing cash flow for eCommerce memberships

Proactive cash flow management for eCommerce membership programs can help you streamline this critical aspect of your Shopify businesses. When managed well, this can be the differentiating factor that leads to the success and growth of your business.

Implement the strategies and best practices discussed above to gain financial stability and long-term success. To begin with, assess your current cash flow management practices. If you identify any gaps and opportunities mentioned above, it’s time to revamp.

To help you in the process of cash flow optimization, explore Appstle Memberships App for your eCommerce business.

Install Appstle Memberships App on your Shopify store today!

About the author

Appstle | Managing Cash Flow in Ecommerce Membership Businesses: A Guide

Vanhishikha Bhargava

Vanhishikha Bhargava is the Content Marketer for Appstle Solutions. You’ll always find her creating content or reading up on the industry with a cup of coffee in hand, which makes her anxious at times! But stay tuned for insightful pieces. Always.

If you are looking to understand more about Appstle Inc’s products and solutions, you can get in touch with us. Our 24x7x365 available experts will be happy to assist you further.

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