The Wayflyer Matrix: Balancing eCommerce Unit Economics and Working Capital

Plot yourself on our 2x2 matrix

If you've read our previous articles, the following should now be abundantly clear:

1. You need to get your unit economics in order and be laser-focused on contribution margin
2. You need to manage your working capital effectively

To build a strong business, these need to go hand-in-hand. You can't do one without the other.

Consider this matrix, with cash conversion cycle on the x-axis and profitability on the y-axis. Cash conversion cycle is exactly as we've described in a previous article, quoted in days. Profitability is a slightly looser term. It doesn't necessarily mean "first-order profitability", although that would be ideal. If you're a business that sacrifices first-order profitability to acquire a customer, but has a clear pathway to profitability over their lifetime value, that could be considered healthy too. Look closely at your numbers and the nature of your business to make an assessment here.

Check which company archetype you are

Our matrix puts businesses into one of four archetypes:

A. The Profit Printers. Profitable businesses with a negative cash conversion cycle.

These brands are operating in a dream state of being cash generative and profitable. Each sales cycle generates a profit that quickly flows through to cash in the bank.

B. The Sleeping Giants. Profitable businesses with a positive cash conversion cycle.

Many great brands sit in this quadrant. Cash flow squeezes, at least temporarily, don't mean you have a bad business. It's just the nature of running a consumer brand. Your cash gets tied up in stock, and doesn't return until your cash conversion cycle completes. You can have strong unit economics, be profitable, and be on an upward growth trajectory, but still run into cash flow challenges.

C. The Deceptively Rich. Unprofitable businesses with a negative cash conversion cycle.

If you're in this category, you need to be very wary of falling into the negative cash conversion cycle trap. Your negative cash conversion cycle means you can grow without external capital, but if sales slow, you could find yourself in an illiquid position very quickly. Get to profitability as soon as you can!

D. The Cash Burners. Unprofitable businesses with a positive cash conversion cycle.

Cash burners need to find a clear path to profitability. Many venture-backed consumer brands fall into this category. They sacrifice short-term profitability in a bid to acquire lots of customers, aiming to recoup this investment down the line. But many well-known examples have failed to make this transition, having already burned through investor money.

Manage your working capital accordingly

If you're a Profit Printer, keep doing what you're doing. If you're Deceptively Rich or a Cash Burner, work hard to improve your unit economics before your cash position deteriorates and puts you out of business. If you're a Sleeping Giant, listen closely. These are the businesses we love to work with because there's a ton of latent opportunity that can be unlocked by partnering with a capital provider like Wayflyer.

Suppose you find yourself in this scenario. You have built a profitable business, but cash gets tied up in the inherent working capital cycles that most consumer brands face. What should you do?

1. Shorten your cash conversion cycle as much as possible by improving inventory turnover and negotiating payment terms with suppliers.
2. Partner with an external capital provider to plug short-term cash flow needs

Brands should aim to do the former first, as we've outlined in our cash conversion cycle article. But for most brands, getting to a negative cash conversion cycle is unrealistic. There will still be a period of time when cash is tied up in the operating cycle. That's where a financing partner like Wayflyer can step in to provide working capital upfront, so you can capitalize on growth opportunities without exhausting your bank balance.