Making informed decisions for your e-commerce business is a key ingredient for driving profitability. I’ve always been great with numbers and wanted to run my operations guided by the numbers. Data-driven e-commerce strategies helped me run my business smarter.
To maximize profits and to know where to focus my efforts, I use segmentation to filter my sales and profit by such metrics as sales channel, supplier, brand, and product. This allows me to focus my efforts on the top performing areas of my business.
Some example decisions you may end up making once you utilize this data-driven approach are:
- Focus all your energy on most profitable products
- Routinely dropping your 20% least profitable products
- Keeping an eye on profit trends for each supplier so that if a spike occurs up or down, you could try to identify the cause and brainstorm actions to promote or prevent further spikes.
Here are the top 3 reasons why data-driven e-commerce strategies fail:
1. You are trying to use your Accounting software for Data-Driven E-commerce
Do NOT use your Accounting software for data-driven e-commerce decision making!
Some of the most popular accounting software on the market (cough Quickbooks…), was designed in the early 90s and is nowhere near capable of handling a data-driven e-commerce approach.
Even modern day accounting software primarily has the role of reconciling your accounts and preparing high level financial statements.
One of the major reasons to use an ERP is to adopt a data-driven e-commerce approach. ERPs are designed to store and analyze data to make business decisions. If you are using an ERP such as sku.io this is a great first step! SKU.io was specifically designed with e-commerce decision-making in mind from day 1.
2. ERP numbers do not match Accounting Software
One of the pain points I experienced in my past attempts as an e-commerce seller to use a data-driven approach, is that I didn’t have confidence in my data. My gross profit numbers in my past ERP would never match my accounting software, which led to a feeling of despair in using this approach and taking control of my business.
SKU.io treats the accounting software as a subsystem for all top-line accounting transactions, so that you can have peace of mind knowing your ERP and accounting software show the same numbers, and you are making informed decisions based on accurate data.
3. Failing to track and allocate Product Costs
One of the most valuable forms of data analysis is segmenting profits by product. Keeping an eye on the profit, not the revenue, is a great way to avoid confusing activity with progress. The most complex part of product-driven profit analysis is cost analysis.
Revenue is easy to track. To track costs a sophisticated system connected to your e-commerce integrations (Sales channels, Shipping providers, etc.) finally makes it possible to know your true product profitability.
Most ERPs never take into account most product-driven costs (aka variable costs), resulting in overstating profitability on products that can lead to poor decision making… I’ll cover this topic deeper on my next blog.
If you’re interested in taking control of your e-commerce business through accurate data-driven strategies, click here to learn more about how SKU.io can help you succeed. Book a call with me today by clicking here.