Let’s face it - most ecommerce professionals work their tushes off to become experts at sourcing great products and making sales, and even working at keeping control of expenses. However, ask them about their profits and you realise they’re often working on a wing and a prayer. You’d be amazed at how many eSellers have little or no idea what their day to day profits look like.
In a post-covid world that’s going to need to change. Increased competition means pressure on pricing and on expenditure control – so that the business that knows its numbers can react accordingly to threats and opportunities.
Always remember - cash is king. A business starved of cash will die as surely as a bourbon and coke at an AA meeting.
And the only way to keep an eye on cashflow is to keep track of your numbers accurately and correctly. Here we detail some of the most important numbers every online retailer MUST have at their fingertips to be successful (Keep in mind these numbers may mean very little in isolation - you should be actively comparing them against 1) the prior month 2) the same month last year and 3) your set targets and budgets).
Make sense? Okay, here we go:
Sales
Obvious, right? But let’s look at the detail - you should know your sales by product, by category and, importantly, by marketing source (how else can you evaluate the efficacy of your ad spend?).
You also need to monitor average order value and cost of sales - which is the true cost of bringing that product to market - including manufacturing/transit/setup and marketing costs. All these indices need to be matched to a budget and a target.
Site Visits & Conversions
Think of your online presence as your shop-front in a shopping mall. Not only do you need to pull customers to the mall, you need to drag them on to your floor, away from your competitors on the floor above and below, and then you have to pull them through your front door - and once they’re on the premises you need to persuade them to buy from you.
It’s essential that you know, and monitor, the numbers and percentages of people who cross each of those thresholds - AND then break that down by marketing source, so that you can tailor your ad spend where you know it’ll work best (and cheapest!).
We call this Conversion Rate - effectively: orders/visits.
Marketing Costs
Let’s say you sell the same product to two separate customers - your costs for doing so are the same for each, right? No, wrong.
Your customers come to you from a range of sources - let’s continue the shopping mall analogy: customer A has heard about you on Facebook, walks into the mall, seeks you out and walks straight through the front door with his cash in his hand. Customer B has never heard of you and walks into the Mall, checks out your competition, travels several floors, sees your shop-front, walks in, compares you to the competition, then goes away to think about it, and finally returns to you with her cash.
Customer A was way cheaper to convert, right?
So, you need to know how much each marketing method you use costs, and consistently compare them day to day, week to week, and month to month - so that you’re continually tailoring that spend to where it works best.
Business Overheads
The beauty of an e-commerce business, and the reason that entrepreneurs eye the sector jealously, is that business overheads are usually vastly less than traditional bricks and mortar ventures. It’s often touted that you can run an online business from your back bedroom armed only with a laptop and an internet connection.
And of course, that’s true. However, there are a range of sneaky expenses that can catch you out if you don’t monitor and control them. There’s an increasing number of suppliers seeking to pull cash out of your bank account: software tools, product selection tools, ad agencies pitching PPC and SEO expertise (often exaggerated!!), accountancy and professional services, staff (even freelancers and support people).
All these costs need to be understood and monitored.
Gross & Nett Profit & Margin
It’s staggering bow many business owners don’t know the difference between gross and net profit…and so don’t monitor and track those numbers. How often have you heard an e-commerce professional proclaim that they ran out of stock, or ran out of cash? That’s because they haven’t kept a close eye on their figures.
Put simply, gross profit is the amount you’ve earned from sales, and net profit is the amount left after you allocate expense costs. Margin is simply the difference between them.
You need to know your margin by product, by category and by marketing source. How on earth can you otherwise assess whether you’re making any money?
In my experience, online retailers either track their numbers too much, or not at all. Whether you react to them is an individual business decision for you - but not knowing them is a sure-fire route to disaster.
Remember, though, the more professional you are…the better equipped you are to react when the numbers turn against you.
A word from the author:
Our software Profitizer, is an app that makes it easier for eSellers to understand their marketplace profit & loss data from the top of their business right through to individual or grouped product profitability. For Amazon, eBay, Etsy and other marketplace sellers, Profitizer is “Profit and loss, made simple”.
Find out more: https://www.profitizer.app
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