Revenue-based financing as a new form of financing the growth of ecommerce
Revenue-based financing, thanks to its simplicity and flexible repayment model, can be an ideal source of money for the development of online stores. The reality is brutal – those who cannot keep up with changes in ecommerce have no chance of surviving. Read about what to do to develop your brand in times of enormous competition and increasing problems with obtaining funds.
Recent months have shown that investing in ecommerce is worth the time and effort. According to the PWC analysis, the value of this market in Poland is expected to reach as much as PLN 162 billion in 2026, and almost 85% of Poles declare that they do not intend to give up frequent purchases on the Internet, even after the end of the pandemic restrictions. There is demand and there are potential customers. But they still have to find your store.
The huge and rather sudden relocation of stores to the virtual world has resulted in increased competition and an even greater (and more expensive) struggle for users’ attention.
If you’re asking yourself the question of whether you have a chance of winning with chain stores and hundreds of other stores with a similar profile, then you are on the right path to development. Self-confidence and high quality of services and products are, unfortunately, not enough any more. You need extra money, and you need it fast.
Where to look for funds for development – revenue-based financing
The revenue-based financing (RBF) model has been known around the world for years. It’s a way of raising capital for business development with a very characteristic and unique repayment model. Simply put, the amount received is repaid as a predetermined portion of the company’s future revenues. There is no interest or fixed final repayment date.
The relationship between revenue and repayment is not accidental here. It is a kind of mapping of the volatility of sales results in eCommerce. The general assumption is very simple – if you are not making money, neither will the company providing the funds.
It is easy to guess that both sides will care about the best possible results. Find out how revenue-based financing will help you achieve them.
Who can receive the funds?
The basic condition is, of course, selling online. Whether your online store is eligible for funding depends to some extent on the platform you are applying for (such as Booste).
You can definitely expect the requirements for the platform your store is built on and the use of, for example, Facebook Ads or Google Ads. It will also be important that you can present your sales history from the last few months.
Information from these sources is used to prepare the best offer for you. This applies to both the amount you can receive, its purpose (marketing or inventory), as well as determining the optimal amount (e.g. 10% of revenues) and the frequency of your repayments (e.g. every two weeks).
Examples of eCommerce platforms supported by Booste
If you are just planning to start an online store and you think revenue-based financing will be beneficial for you, check out the most popular ecommerce platforms. This way you will avoid technical problems when applying for capital.
Application for additional funds is usually very easy and takes little time. Connecting the store platform and sharing data from Facebook or Google Ads allows for full automation of the process. You don’t have to collect documents, fill out forms and write applications. You will wait a maximum of a few days for the answer.
Spend the money on marketing or inventory
The funds received can most often be used in two ways: by paying for online marketing activities (Booste will also pay invoices issued by marketing agencies you work with) or by paying for inventory.
Advertising on the Internet is no longer just a choice, but a necessity. The increase in the number of ecommerce stores has resulted in greater competition and a more difficult and expensive fight for the users’ attention.
In order to maintain, and even more so increase the visibility of your store, you need to conduct more and more intensive and better optimised online marketing activities. And it costs money.
If your marketing budget is small, there are two big advantages to using the RBF model. First, the money you receive frees up your capital. You can spend it on any other necessary activities, advertising costs are taken care of.
Secondly, the offer often includes not only the funds to be used, but also valuable support of experts. Of course, cooperation with marketing agencies is not obligatory, but it is a good option for those who do not think of themselves as Google Ads masters, but want to see quick results of their actions.
Cooperation with specialists allows ecommerce owners to use the “saved time” for further development of the business or dealing with its other aspects.
In many cases, you can use the available funds by paying not only for advertising campaigns, but also for the activities of marketing agencies in the field of, for example, SEO. Talk about it when negotiating the terms of your financing offer.
More traffic on the website means higher conversion rate and a growing number of completed purchases. To be prepared for their quick processing, you need to have more stock.
Keeping large stocks is quite a risky tactic, especially in typically seasonal industries. However, if your store’s entire development strategy is based on more orders in a short period of time, this may be the way to get it done. Especially if you want to compete with bigger brands in the high season.
Revenue-based financing gives you some security in this case – you do not “freeze” cash, and repayments are completely dependent on revenues. If for some reason your sales slow down, the debt will not increase by interest, nor will you exceed the payment deadline, because it simply is not there.
No personal guarantees
A bank loan often requires some forms of guarantees. A company’s poor credit history or, in the case of startups, no credit history at all, will not help you to get a reasonable loan offer. Also, not every entrepreneur wants to risk their personal creditworthiness for the development of their company.
Revenue-based financing does not require any kind of guarantees or shares and is not based on the creditworthiness analysis typical of banks. In fact, in the process of deciding whether or not to grant someone the funding, YOU don’t really matter. Sounds heartless? Not even a bit.
All analysis is about your store’s history and performance. If the investing company says they are promising enough, you will get your money. It is up to you to approve the offer and start cooperation.
Repayments in revenue-based financing
Let’s say Susan has an online store where she sells garden furniture. So far, she has set up campaigns in Google Ads and advertised a bit on Facebook, but has not yet managed to get into the first positions in Google search. However, advertising leads convert fairly well and she does have some sales history.
It’s getting warm outside, so spring is coming. Susan wants to use the upcoming shopping season for garden furniture and finally accelerate the growth of her store. However, she doesn’t have sufficient funds for the intensified activities.
Her company is too small for Venture Capital investors to be interested in it, and in addition, Susan wants to keep control of the company and is not interested in selling shares.
A bank loan is also unattractive, because the number of documents and waiting time are very unfavourable. Therefore, she opts for revenue-based financing.
Susan applies for € 40,000 which she wants to spend on marketing activities. She connects her store platforms as well as Google and Facebook Ads accounts. She goes through the verification process and the money is already in her advertising account. Everything takes only a few days.
One-time fee of 6% is added to the amount received, the total amount to be repaid is € 42,400.
Susan has decided that she will give away 10% of her future earnings every month until the entire amount is repaid, together with the fee. There is no fixed, final repayment date.
Some of her repayments are as follows:
In the months with lower sales, the repayments are automatically lower as well. If the revenue stopped completely, Susan wouldn’t pay anything that month. Due to the lack of rigid repayment dates and flexibility in their amounts, revenue-based financing will never disturb the company’s cash flow.
Susan can apply for another round of financing, and the new offer will meet the new needs and possibilities of the company. This is a popular activity in this capital raising model. Investors such as Booste care about building valuable, long-term relationships more than just a one-off cooperation.
Do not resign from the application if you do not know if your company is eligible for funds or what amount you can apply for. Getting an offer is completely free and non-binding and you will receive it in up to 48 hours, so it’s always worth a try.
Revenue-Based Financing – the perfect solution?
The answer is it depends. First of all, at what stage of development your company is. With multi-million marketing needs, it may not work. The fee for receiving capital is indeed a one-time thing, but with certain amounts it stops being efficient.
Revenue-based financing is an excellent financing option for the early stages of development of online stores. A huge advantage of it is the quick and simple application process, which at Booste takes a couple of minutes, without tedious “paperwork” and a flexible and safe repayment system. It is therefore worth checking the available options before you decide on a bank loan or sale of shares.