Revenue-based financing (RBF) offers a flexible way for direct-to-consumer (DTC) brands to access growth capital without giving up equity or facing fixed loan payments. Here's what you need to know:
- What It Is: RBF provides upfront funding, repaid as a percentage of monthly revenue. Payments adjust based on sales performance, making it ideal for businesses with fluctuating income.
- Why It Matters: DTC brands face challenges like high customer acquisition costs, inventory demands, and seasonal revenue. RBF helps manage cash flow while retaining full ownership.
- Key Benefits:
- Retain Ownership: No equity loss.
- Flexible Payments: Payments scale with revenue.
- Fast Funding: Funds can be available in as little as 24 hours.
- Eligibility: At least six months of operational history, $10,000+ in monthly revenue, and steady sales patterns.
Quick Comparison of Funding Options
| Funding Type | Time to Fund | Ownership Impact | Payment Structure | Requirements |
|---|---|---|---|---|
| Revenue-Based Financing (RBF) | 2–4 weeks | No equity loss | Percentage of monthly revenue | Proven revenue history |
| Bank Loans | 2–3 months | No equity loss | Fixed monthly payments | Personal guarantees |
| Venture Capital | 6–12 months | Significant equity loss | N/A | High growth potential |
RBF is a practical choice for DTC brands needing quick, flexible funding to scale operations, stock inventory, boost marketing, or invest in technology - all while keeping control of their business.
Scale your D2C Brands with Revenue Based Financing
Main Advantages of RBF for DTC Brands
Revenue-based financing (RBF) offers several benefits for direct-to-consumer (DTC) brands looking to grow their operations.
Maintain Full Ownership
With RBF, you don’t have to give up equity in your business. This means you retain full control over operations and decision-making, unlike traditional equity financing where investors may influence your company's direction.
Payments Adjust to Your Sales
RBF adjusts repayment amounts based on your sales, making it a great fit for DTC brands with seasonal or fluctuating revenue. Instead of fixed monthly payments, your repayment scales with your income.
| Revenue Scenario | Payment Adjustment |
|---|---|
| High Sales Month | Higher repayment amount |
| Average Month | Standard repayment amount |
| Slow Month | Lower repayment amount |
This flexible setup ensures payments remain manageable, even during slower sales periods.
Quick Access to Funds
RBF stands out for its speed. Unlike traditional bank loans that can take weeks or even months, RBF providers streamline the process with online applications, automated reviews of your business metrics, and fast pre-qualification.
"Applied, got our offer, and had cash in our bank account within 24 hours. Their Austin, TX based team was very professional and helped me deploy the cash to effectively grow our business." - Nick James, CEO Rockless Table
This speed can be a game-changer for brands needing funds to seize growth opportunities.
Is RBF Right for Your Business?
Before committing to revenue-based financing (RBF), it's important to review your business metrics and compare your funding options.
Check Your Sales History
Your sales history plays a key role in determining whether you're eligible for RBF. Lenders typically focus on specific performance indicators, such as:
| Metric | What RBF Providers Look For |
|---|---|
| Monthly Revenue | Steady and increasing income |
| Sales Stability | Consistent revenue patterns |
| Gross Margins | Sufficient margins to manage financing costs |
| Customer Base | A diverse client portfolio |
| Growth Rate | Positive monthly or yearly trends |
These metrics help verify if your business can handle RBF's repayment terms, which are tied to your revenue.
"We evaluate your sales history, cash flow needs, and debt positions to make you an offer that fits with your cash flow capability. We structure your financing to ensure you're not putting your business at risk with too much debt." - Onramp Funds
Businesses with recurring revenue models - like subscription services or stable eCommerce operations - are often the best candidates for RBF.
RBF vs. Other Funding Options
To decide if RBF is the right choice, compare it with other funding methods:
| Funding Type | Time to Fund | Ownership Impact | Payment Structure | Requirements |
|---|---|---|---|---|
| RBF | 2–4 weeks | No ownership dilution | Percentage of monthly revenue | Proven revenue history |
| Bank Loans | 2–3 months | No ownership dilution | Fixed monthly payments | Personal guarantees |
| Venture Capital | 6–12 months | Significant ownership dilution | N/A | High growth potential |
RBF is ideal for businesses needing quick access to capital without giving up equity. Unlike venture capital, which often involves giving up control, or bank loans that require personal guarantees, RBF offers repayment terms tied to your revenue, making it more adaptable to your cash flow.
The global RBF market is expected to reach $3.38 billion in 2023, indicating its growing popularity. To qualify for RBF, your business should demonstrate:
- Consistent Revenue: Reliable monthly income streams
- Growth Potential: A clear path for expansion
- Strong Financials: Healthy margins and cash flow
- Market Validation: A proven product–market fit
If your business has irregular financial performance or is pre-revenue, traditional funding options may be a better fit. Evaluate your growth goals, revenue patterns, and repayment ability to make the best decision.
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4 Ways to Use RBF for Growth
Revenue-based financing (RBF) can fuel important growth strategies for your business. Here are four practical ways to use RBF to grow your DTC brand.
Stock Up on Inventory
With RBF, you can maintain the right stock levels and avoid costly stockouts.
| Inventory Strategy | Benefits | Implementation |
|---|---|---|
| Peak Season Preparation | Prevent stockouts during high demand | Use historical sales data to forecast needs |
| Volume Discounts | Reduce cost per unit | Negotiate bulk purchase terms with suppliers |
| Supply Chain Buffer | Guard against delays | Keep a safety stock to manage uncertainties |
"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable time frame once we made sales. The process was quick, easy, and the support was great." – Jeremy, Founder and Owner of Kindfolk Yoga
Next, think about putting some of those funds into marketing.
Boost Marketing Spend
RBF can also help scale your marketing efforts. A great example is HigherDOSE, which used Clearco's funding in 2019 to invest in marketing and inventory, resulting in impressive growth. Here are some ways to allocate RBF to marketing:
- Track Performance: Keep an eye on key metrics to ensure your spending is effective.
- Test New Channels: Experiment with platforms you haven’t tried before.
- Scale Winners: Focus more on campaigns that deliver a strong ROI.
"Clearco's dashboards, KPIs, and data, have been extremely useful for me in growing the business. It helped direct me where to look and how to benchmark. They've given me a big leg up in terms of coming up to speed with the different e-commerce metrics to focus on." – Katie Kaps, Co-Founder & Co-CEO of HigherDOSE
Now, let’s talk about improving your operations with technology.
Upgrade Your Tech Stack
Investing in technology can streamline operations and improve customer experiences. Use RBF to build a tech stack that grows with your business. Focus on these areas:
| Tech Investment Area | Impact | Priority Level |
|---|---|---|
| eCommerce Platform | Better customer experience | High |
| Analytics Systems | Smarter decision-making | High |
| CRM Integration | Stronger customer relationships | Medium |
| Automation Tools | Increased efficiency | Medium |
Start by assessing your current systems:
- Identify bottlenecks in your existing setup
- Set measurable goals for performance improvements
- Test new integrations carefully
- Measure ROI soon after implementation
Managing Your RBF Effectively
Track Your Numbers
Keeping a close eye on your key metrics is essential for managing RBF (Revenue-Based Financing). By linking your sales platforms - like Shopify, Amazon, or Walmart - with accounting software, you can automate revenue tracking and stay on top of your performance. Here's what to monitor:
| Metric | Why It Matters | How to Monitor |
|---|---|---|
| Daily Revenue | Determines repayment amounts | Use integrated accounting software with eCommerce platforms |
| Cash Flow | Ensures funds are available for payments | Review weekly financial reports |
| Revenue Growth Rate | Helps forecast future obligations | Analyze monthly trends |
| Contribution Margin | Shows true profitability | Track per-order profitability |
Once you have these numbers, align your payment schedule with your growth strategy to stay in control.
Plan Your Growth vs Payments
Since RBF payments adjust based on your revenue, careful planning is a must.
"You need to be as detailed as you can, because this is something where your revenue is impacting the cash that's coming in." - Suze Dowling, Co-Founder and Chief Business Officer of Pattern Brands
Build realistic financial forecasts that consider:
- Seasonal revenue fluctuations
- The effects of marketing campaigns
- Inventory purchasing timelines
- Anticipated growth milestones
This approach ensures your payments don't disrupt your operational goals.
Mistakes to Avoid
Avoiding common errors can make a big difference in your RBF management. Here's what to watch out for:
-
Poor Financial Planning
If finance isn't your strong suit, bring in experts - whether full-time or fractional.
"If you don't personally come from a finance background, make sure whether it's full time or fractional, that Finance is a critical resource that you have sitting at the table with you. Make that FP&A process a part of your routine and your rituals."
-
Neglecting Supplier Relationships
Build strong partnerships with your suppliers and financing partners. Negotiating better terms can help safeguard your cash flow.
"Settle allows you to get the capital you need to buy inventory in a structured, responsible way. Without Settle, we would not be able to scale the way we have in our first year." - Jason Goode, Founder of Flakes
- Overlooking Revenue Fluctuations Since RBF payments shift with your sales, it's crucial to maintain cash reserves for slower periods. Balance short-term needs with long-term planning to avoid surprises.
Conclusion
Key Points to Remember
Revenue-based financing (RBF) solves major challenges for DTC brands, as highlighted by its growing popularity. Here’s how it can make a difference:
| Benefit | How It Helps DTC Brands |
|---|---|
| Flexible Payments | Payments adjust based on revenue, easing cash flow concerns |
| Ownership Control | No equity loss, letting you keep full control of your business |
| Quick Access | Get funding in as little as 24 hours, compared to traditional delays |
| Growth Focus | Aligns funder’s goals with your business success |
Michele Romanow, president and co-founder of Clearco, explains this alignment perfectly:
"If the company deploys the capital and grows, Clearco sees a return on its investment. So our incentives are aligned to that of the company"
Get Started with Onramp Funds
RBF is a smart option for brands looking to expand. Onramp Funds simplifies access to growth capital, supporting key eCommerce platforms like Amazon, Shopify, and TikTok Shop. The entry requirements are straightforward:
- $3,000 in average monthly sales
- A registered business entity in the United States
- Integration with supported eCommerce platforms
The results speak for themselves. Jeremy, Founder of Kindfolk Yoga, shares his experience:
"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable time frame once we made sales. The process was quick, easy, and the support was great"
Take a close look at your sales history and growth plans to see if RBF aligns with your goals. If it does, this approach could provide the capital you need to grow your DTC brand - without giving up control.
