Data is the new buzzword. If you own or operate an ecommerce business, then you may have wondered which data matters to your business. While it sounds like something for a statistician or data analyst, the truth is that you can glean simple, powerful insights with a little education.
There is a lot of different types of data out there, here are some straightforward things you should be doing:
- Tracking inventory and orders efficiently
- Calculating cost of goods sold
- Calculating marketing or customer acquisition costs
- Product profitability
These four steps are ones every ecommerce business owner should do, and they will provide you with keen insights into your sales operations. Knowing how much something is really costing you and how much money you’re really making from the sale will let you make relevant choices to the future of your business.
Inventory and orders: How much product do you have on-hand at any given time? How many orders went through your webstore, marketplaces, or storefront today? Knowing exactly what is passing through your sales channels lets you understand how much product you have and what you will need for the future.
Cost of goods sold: You don’t need to be an accountant to know how much your product is actually costing you. Knowing the ‘landed cost’ can make your pricing more relevant. Landed cost is the price per unit plus the cost of getting it in the warehouse – if you order 1,000 widgets for $1,000 plus $500 in shipping, then your landed cost per unit is $1.50. From your landed cost, you can add the cost to ship it to a specific customer plus fulfillment costs if you’re using a third-party logistics provider (or your own warehouse costs), along with any marketplace and credit-card transaction fees. You can easily set this up in Excel, shown below, to compare sales on Amazon versus my Shopify store.
Based on this comparison it looks like I’m making a little bit more money through my Shopify store. If I wanted to know where to put more advertising spend I’d lean towards Shopify, since I make more money per sale.
Marketing/acquisition costs: This can be tricky but most digital marketing solutions will provide an acquisition cost for each customer. We can break this down further by understanding how digital marketing works – if you are using Google or Facebook Ads, each time someone clicks on the ad you are charged for it. The amount of people that click on ads and make purchases is not the same; however, for some businesses you need 20, 30, or hundreds of customers to click on an ad before a sale is made. For simplicity’s sake let’s assume each ad click costs you $1. If you get a customer (on average) to make a single purchase for every 20 ads you show, then your cost to acquire that customer is $20 ($1 * 20). This cost needs to be incorporated into each transaction cost. In this example, if after the cost of goods sold and other selling fees (see above) I only have $10.00 in profit, then $20 to acquire a customer means I’m losing $10.00 on every transaction!
Product profitability: The above examples can be tied together, along with marketplace and seller fees, to understand where your products make you the most money. Once again I’ve set this up using Excel, but there are a lot of software solutions out there to help you. Accountants that specialize in ecommerce, like LedgerGurus, are also available.
Continuing with the examples I’ve been using, let’s assume for sake of simplicity it costs me $6.35 to acquire a customer through Amazon advertising and $8.15 to get a sale using Facebook ads through my Shopify account. Now the profitability per site looks like this:
Suddenly Amazon is looking more promising! If I wanted to put additional funds into growing my business, I would consider going with Amazon.
This simple example illustrates how data can provide your business with important insights. The trick, however, comes down to getting accurate data for this model. If I’m wrong about acquisition costs or costs of goods sold then my insight would most likely be wrong. Furthermore, I can look into why my Facebook cost is higher than Amazon or why my shipping costs are higher out of my own warehouse than Amazon. Data provides insights not only for the future but on what is happening right now in your business.
| Matthew Holman is the ecommerce manager for Aspen Chutes, a marketing, technology and consulting firm. |
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