Auto enthusiasts will do almost anything to make their cars look good, and more importantly, drive smoothly. Of course, quality shock absorbers are essential for ensuring that smooth ride. But buying them was a bumpy ordeal until Shock Surplus came along in 2012.
“We combined what is typically a bad catalog shopping experience with an easy, one-click purchase experience with buying shock absorbers for a vehicle,” says Sean Reyes, Founder and CEO of Shock Surplus. “We also made it easy for those buyers to figure out what they needed for their vehicles.”
Shock Surplus originally sold suspension systems and shock absorbers through online marketplaces like eBay and Amazon, but these platforms gave the business little control over the customer experience, which made acquisition costs high. After switching to a direct-to-consumer business model via Shopify in 2017, Shock Surplus’ sales doubled and its cost per sale shrunk from 15% to 6%.
To continue on this growth trajectory, Shock Surplus needed funding for inventory, marketing, and website updates. However, the metrics the banks used to provide loans—such as average cash balance and earnings before interest, taxes, depreciation, and amortizations (EBITDA) margin—didn’t paint the full picture of the company’s success, making it difficult to obtain funding through traditional means at a rate that made business sense.
Fortunately, the team discovered Shopify Capital, Shopify’s business funding solution, which paved the way for Shock Surplus to obtain the funding it needed.
Since obtaining funding through Shopify Capital, Shock Surplus has seen multi-million dollar annual revenue growth, lower product return rates, and an increase in average order value (AOV).
Challenge: No access to traditional funding
Shock Surplus’ sales have skyrocketed since migrating to Shopify.
“We've been growing by 100% year over year for about five years straight,” Sean says.
Instead of letting cash from these sales sit idly in the bank, Sean reinvested it into the company for purposes including web development to provide a better user experience and the company’s organic content program that educates buyers prior to their purchase. With little cash on hand, Shock Surplus needed to secure outside funding to keep scaling the business.
“With that money, we could make our next move in terms of growth or in terms of developing a better product,” Sean explains.
Unfortunately, when Sean attempted to get loans from banks, he was rejected over and over again. Even though business was booming, the metrics regarding cash flow that matter to traditional lenders obscured Shock Surplus’ success.“Banks wouldn't lend us a dime because our average cash balance didn't meet their metrics,” Sean says. “They don't care if you’re pouring all your profits and all your cash back into the business to grow it like we were. To them, that doesn't matter at all.”
Solution: Hassle-free funding through Shopify Capital
When traditional lenders failed to come through for Shock Surplus, Shopify Capital came to the rescue and injected much needed cash into the business.
Shopify Capital is a business funding solution that tracks key performance indicators of a healthy business to identify funding opportunities for your business.
“Shopify sees a history of performance and then they bet on that performance,” Sean says.
Applying for funding through Shopify Capital is a simple process. There is minimal paperwork and no personal credit check required. When you’re approved, you receive funds in as little as two days.Loan payback is automated as a percentage of your daily sales, and you can track your progress through Shopify. If you need access to more funds, you can top up before you’ve fully paid back your first loan.
Businesses are eligible for up to $5 million in loans through Shopify’s business funding solution. So far, Shock Surplus has obtained approximately $2 million through three rounds of funding through Shopify Capital.
Sean says that compared to what he had to go through with banks, Shopify Capital makes it much easier and more affordable to obtain funding for his business.
“The numbers are straightforward and seeing that the funds are available immediately in your dashboard is huge for peace of mind. Plus, repayment is easily trackable. Shopify Capital is also one of the least expensive options out there, both in terms of percentage of remittance and administration because it's already part of the system. You don't need to set up a new relationship with a new lender and all those things,” Sean says.
Results: Substantial revenue growth and greater profitability
With funding through Shopify Capital, Shock Surplus has been able to buy directly from some of the largest wholesalers in its industry.
“It’s very hard to buy directly from some of the big brands in our space unless you have volume and money to back up that volume. You need a lot of cash runway. Shopify Capital has helped us approach the biggest brands in our industry by allowing us to go to them with large checks to show that we’re serious,” Sean says.
By securing deals with these suppliers, Shock Surplus can now access the best prices. Thanks to these lower prices, the business has increased its profit margins.
“Like a lot of retailers, we're in a commodities game. When we can use capital to basically corner all the commodities of a certain unit in the country, that increases our margins dramatically. It could mean another 5 or 10 points of margin, which is a game changer for a business like ours,” Sean says.
With easier access to capital, Shock Surplus has experienced dramatic growth and become a household name in its industry, helping its sales to grow by multi-millions of dollars each year.
Beyond investing in inventory with its capital, Shock Surplus also invested in scaling marketing efforts and updating its website to improve its user experience. As a result, the company has seen its average order value increase and return rates plummet. The road ahead for the company appears brighter than ever.
All loans through Shopify Capital in the United States are issued by WebBank.
Most small business owners don't have an alternative funding option because they’ve been bootstrapping their businesses with credit cards and don't have lines of credit from banks. With Shopify Capital as an option, you can develop a new product, acquire more of your best sellers, or increase the conversion rate on your website. All of these things produce real margins for your business.