We’ve previously discussed increasing your Net Promoter Score (NPS) and making it easier to sell on more channels. This post dives into the third benefit of having better control and transparency into your operational processes: Improving your profit margins.
You need to truly own the inventory and order management process, from the moment the customer is perusing your product pages to when their order is sitting at their doorstep—and every return in between. This requires taking your data out of their silos and having all vital inventory and order status information in one place—accessed and controlled by your brand, not your third-party logistics (3PL) provider.
Only then will you be able to make better business decisions that can help reduce costs and uncover previously unrealized opportunities for revenue.
Metrics Brands Can Control to Improve Their Profit Margins
In the most basic terms, profit and loss (P&L) statements show the difference between what your brand is earning (income) compared to what your brand is spending money on (expenses). The goal is to increase the percentage of each dollar you get to keep after expenses, yet the retail industry has historically struggled to maintain high profit margins.
As a general rule of thumb, a 20% net profit margin is considered high, while 10% is considered average and 5% low. When looking at the average profit margin by industry, online retails hovers around the low side of 7.26%.
Taking control of your operations will give your ecommerce brand some much-needed room for improvement. Here are some key metrics you can track when you have visibility and control into your operations:
Carrier & Warehouse SLAs
If you could choose your own trusted carriers and your own service-level agreements (SLAs), you would have more control over a top line-item on your P&L statement. When you select carriers based on the different needs of your various customer geographies, you can always ensure that you are shipping from the most cost-effective location each time.
It’s not just the selection of these fulfillment partners that are important. The monitoring and reporting is critical to keep your profit margins healthy long-term. Of course, you can only achieve this if relevant order information that sits in your 3PL’s warehouse management system (WMS) is synced into your systems for full transparency. If you received shipping event exception alerts, you could better monitor warehouse SLAs because you will know when a breakdown in order orchestration (e.g., delivery delays, errors in packing, etc.) happens.
Order Editing & Returns
When a customer makes a mistake with their order, it ultimately ends up costing your brand money. When someone requests a change because they ordered a medium shirt instead of a large, how is your brand responding? Typically, it goes like this:
The order has already been processed and sent to the warehouse for packing, meaning a Support Agent cannot change the order. This puts the onus on the customer to wait for the unwanted package (Shipment #1), print a return label, mail the unwanted package back to the warehouse (Shipment #2), and then wait for the revised order (Shipment #3). These extra shipments are costing your brand unbudgeted dollars.
Even worse, if Shipment #3 takes too long, Support may have to deal with the dreaded refund question. In fact, we surveyed 600 consumers and found that 57% would cancel the order altogether if they made a mistake and had to deal with the inconvenience of reordering.
With more control into your operations, you would have been able to give your Support team time to respond to order edits. If you withheld orders from processing for a set period of time before they got sent to the warehouse, your Support team could edit orders within that specified window.
- Improve NPS: Delight your customer by giving them what they need and avoid frustrating back-and-forth, increasing the chance of a repeat purchase
- Reduce costs: Save on shipping costs by not requiring a return label and reducing three shipments to one
Like order edit requests, returns are seen as a cost center instead of a profit center… but it doesn’t have to be. The sooner your brand has visibility into inbound returns and their status, the sooner you can add units back to your on-hand inventory. When your returned merchandise is sitting idly at your warehouse, you lose revenue, customers, and future buying power. When you know exactly when a returned item is en-route, your brand can put that item back up for sale faster—within season, and without the need to discount—to increase revenue.
Inventory Health Reports
Want to make better decisions about what products to sell and how much stock to keep on hand? Making more informed decisions based on the realities of your business is only possible when the data you review is accurate and accessible. Data is only as good as the time it takes you to retrieve it—too late, and you’ve accidentally over-bought items or oversold to customers, harming your margins.
With accurate data, you can identify top-sellers, improve your planning and replenishment processes, better analyze how inventory moves over time, and assess how healthy your inventory positions are.
Have Better Control of Your Savings Potential
To control your profit margins, you need to have real-time inventory and order tracking capabilities to achieve the following:
- Have more strategic say into how your shipping expenses are spent and monitor how your 3PL is performing against their SLA
- Avoid refunds by being able to help customers when they make mistakes
- Get returns back to sellable faster so all items have a better chance of being sold at (or near) full price
- Improve your inventory forecasting to purchase more of what you need (and less of what you don't)
