DTC Cash Flow Formula

A breakdown of how to manage cash flow in a Direct-to-Consumer (DTC) business using credit cards, ad spend, and inventory financing.

Core Cash Flow Strategy

• Use credit card float (30 days) to fund Facebook ads
• Ads should pay back within 7 days
• Inventory financing available at 1% monthly interest
• Goal: Have everything pay for itself before bills are due

Marketing Spend Management

• Put Facebook ads on credit card
• Target ad return metrics:
  • 1.5x return = doing okay
  • 2.5x return = doing well
  • 3x return = excellent performance
• Ad spend pays itself back within 7 days
• Credit card bill due in 30 days
• No external investment needed for marketing

Inventory Management

• Work with suppliers on payment terms
  • Better terms as business grows
  • Don't need to pay everything upfront
• Use inventory financing companies:
  • Examples: Clearbank, Settle, Wayflyer
  • They front inventory costs
  • Charge 1% monthly interest
  • Replaces need for external investment
• Inventory sells before payment is due

Business Economics

• Businesses typically sell for:
  • 1x revenue
  • 4-5x EBITDA
• Can run with minimal staff
  • Option to use 3PL for fulfillment
  • Some successful brands run with very small teams
  • Example: Native Deodorant founder was sole employee until $5-10M revenue

Cash Flow Timeline

1. Use credit card for ad spend
2. Ads generate revenue within 7 days
3. Use revenue to pay for inventory
4. Pay credit card bill at 30 days
5. Use inventory financing to bridge gaps
6. Reinvest profits into growth