Being able to analyse and report on how your business is doing can be challenging. Many people running an ecommerce business are simply too stuck in the day-to-day operations to be able to do this. It becomes a struggle to think more than a few days ahead, especially when there are the daily headaches to solve and fires to fight. The urgent takes priority over the important.
But what is the important stuff? The important is knowing how efficiently you’re ordering products, how well you’re purchasing, how long the stock is sitting around before you sell it and convert it into cash. It's knowing all your costs in your business so that you can improve on the areas where you're doing less well than others. The important thing is knowing how much net profit you’re making after you've successfully delivered a package to a customer who’s satisfied with what they’re received.
If you can’t measure your business, you can’t manage it. In order to measure it, you have to decide what are the key indicators of performance, on both the revenue and cost sides, that you should track. If you select too few data points, you don’t have enough of a handle on how your business is doing and miss chances to reduce your costs and improve your efficiency. Too many data points, and you spend so much time analysing your productivity takes a similar downturn.
Once you've decided your key metrics, you’re not finished. Can you actually collect this data in a way that you can analyse it and produce meaningful reports to help you see what’s happening? How accurate is the information? How up-to-date is it? How often should you analyse it? What will you do with the insights you get from the data?
Balancing stock and sales
Getting your inventory right requires a fine balance of time and quantity. It’s also directly linked to how good you are at purchasing. You want enough stock so that you don’t run out, suffer a stock outage and oversell. You don’t want too much stock so that your money is tied up doing nothing except increasing your costs. You need to be aware of the time it takes to move each item of inventory and the different lead times for ordering and reordering, down to a SKU level. Good reporting will allow you to balance your stock and your sales, sliced across a range of criteria. This could be a marketplace or channel, region, SKU or supplier.
Better reporting will also help you get better at purchasing and better manage your exposure to or risks with certain suppliers. You can buy more accurately and use the power of reporting intelligence to negotiate better prices from your suppliers. The best sellers get the best prices from their suppliers and derive the highest gross margin, gross margin being your revenues less your cost of goods sold.
If you can see your stock value by supplier and your sales by supplier, this allows you to match supply and demand more efficiently. For example, you wouldn't want to see a high stock value for a supplier and low sales for that supplier. A ‘scatter plot’ chart allows you see your supply base at a glance. It can also help you spot the problem areas where you're holding too much stock from suppliers whose products aren't bringing you high sales. Then you can drill into the individual supplier to see the stock value and sales across specific products or products lines.
Similarly, dead stock is another drain on your profitability. Being able to see what stock has had no sales over the last 7, 30 or 60 days, for example, allows you to identify poorly selling items and see what the stock value is of those SKUs. Perhaps they are seasonal SKUs, explaining the period of inactivity, in which case you could explore selling to countries where they are in season. If they’re not seasonal, you could bundle them into promotions to move the dead stock and recover some of your costs. Either way, reporting and analysis allows you to use the information as you see fit.
A stock forecast report is a very valuable piece of intelligence. If you could see, down to the individual SKU level, how many days of stock you had left, the supplier lead time for reordering the stock, and the days until you had to re-order the stock, wouldn't this be a great way of improving your efficiencies, especially for those items with long lead times? You don’t want to lose your listing and your history for an item through being out of stock on a marketplace for too long, Furthermore, a zero stock report showing you how long each item was out of stock for, combined with supplier lead times, helps figure out your total elapsed time without stock. Better still, a system like Volo allows you to set up automated email notification to let you know if a SKU’s stock level goes ‘amber’ or ‘red’, according to rules you put in place.
Accurate warehouse reporting and operational efficiencies
When it comes to the operational side of the business, covering warehousing of deliveries all the way through to fulfilment and order dispatch by couriers, you’re looking for maximum productivity with minimum errors. Great reporting allows you to see your courier spend, for example, and what you’re spending on different parcel types to different countries. When you can report on courier usage you’re able to evaluate other courier options based on current and forecast volumes.
The better your productivity, the more efficient your operations, whereas every mistake in warehouse allocation, picking, packing and dispatching eats directly into your hard-earned margins from the original sale. Accurate reporting lets you judge the relative performance of your warehouse staff in processing supplier deliveries and customer orders. This helps you pinpoint the problem areas and staff, so that you can provide more training or better deploy your resources to increase throughput while reducing the error count.
Do you know your credit/refund percentages, by revenue and volume? A critical area for reducing costs is looking at your credits and refunds, since they impact both your customer service and purchasing areas. Interrogating your order data and splitting out the credit and refund elements lets you spot which suppliers – physical suppliers versus drop-shippers for example – and which SKUs or categories are causing more credit and refund problems and eroding your margins. High refund figures could be the end result of poor product quality or incorrect item descriptions.
You can take the same approach when you look at your customer service centre and their service load. Being able to see the minority of products that is taking up a disproportionate amount of customer service effort helps you make informed decisions on what you need to fix. Similarly, if you can analyse and report on the type of customer questions that crop up frequently, you can work to introduce more automated information and more answers to frequently asked questions to reduce the service costs and the need for manual intervention.
A multitude of costs combine to turn your gross margin into the all-important net margin on the items you sell. Operational and order processing costs, shipping fees, channel fees, payment gateway fees, tax, insurance, other fees; each adds an incremental layer of cost that you need to have visibility on and manage. Having to do this manually is extremely time consuming and laborious. Great reporting and analysis gives you the mechanism to define all of these charges, set targets and monitor performance against target across ecommerce channels, suppliers, countries, SKUs and over time. For example, you can compare your margins for products below or over a certain price point. Alternatively, you can see how your margin performance is trending over time and make adjustments accordingly.
Once you have set up your key performance indicators and targets across the important areas of the business, you can sit back and let a system like Volo take care of the rest. The more you can automate your reporting and analytics using multi channel software and set up alerts and notifications across a range of levels and thresholds, the less time you spend looking at numbers and charts and the more time you can spend marketing and selling.