Let’s talk about the link between eCommerce and business operations and why it’s so critical to look beyond your eCommerce goals when you implement your new solutions. Part IV of my eCommerce Operations Series.
As I have worked on major initiatives in larger companies, my finance partners have been incredibly important. Their access to data and focus on the bottom line can be invaluable in building business cases and in making policy decisions based on data rather than subjective opinion. For example, are you losing on shipping fees because of legacy decisions? Or are you seeing order margin leakage in other areas because of pricing rules, discount policies, or lack of handling/restocking fees?
When you work in a large organization, pennies per order can add up to a major difference in profitability. If you partner with and harness the power of the Finance team, you learn so much about your business, help the Finance team achieve their profitability goals, and strengthen your eCommerce platform and business case.
Whenever I work with Finance, they are always creatively looking for either growth opportunities or ways to cut expenses to improve profitability. They are often exerting energy that can feel oppositional to Sales; for example, trying to edge margins up or add in fees to cover expenses around shipping or distribution, while sales is constantly trying to cut prices to win more business from their customers. The eCommerce platform and re-ordering processes often offer windows of opportunity to secure some of these shipping and handling fees or to expose customers to more competitive margins in a passive way.
How do we start?
- We look at your overall business strategy and goals and bounce them off your current eCommerce policies. We ask questions like:
- How are you charging for shipping? (Flat Fee, Shipping Calculator, Min. Order Value, Free no matter what, etc.) Are there holes?
- Do you have a handling fee? (Hazardous or complex items, refrigerated items, fragile items, etc.)
- Do you charge a restocking fee for large items that are returned?
- When it comes to profitability, how do your online orders compare to orders placed from other channels?
- How do you calculate your “base” price? “online” price? “customer” price? How is that intersecting with order profitability?
- What possible changes could be made to inch up order margin over time without impacting customer experience?
- How do we help the sales team feel empowered and engaged with the decisions while margin expands and prices inevitably go up?
- What communication vehicles are you using now to communicate about these things and how can you communicate honestly with your customers without creating negative feelings or impact on your business?
These can be heavy topics, I know. In my experience, there are really two keys to success.
First: Having the data clearly defined up front. With analysis on hand, you’ll be able to see the problems and define a path forward. The finance team can be a great ally in this entire process–from data gathering and analysis to defining how you think you can create the path forward with the platform.
Second: Pulling Sales leadership into the process as early as possible. In my world, Sales was my toughest constituent group for change because they were the toughest defender of the customer (as they should be). Bringing them into the room forces real understanding of sales and customer impact and, while it may slow you down, you’ll end up with a better policy and rollout plan because of it.
Developing these kinds of plans as a team can bring everyone much closer together, and will help you come up with more creative solutions for future challenges.
So, how do you creatively leverage your eCommerce channel to reduce margin erosion?
- Establishing rules-based ordering behaviors, like:
- Enacting pricing driven by customer behavior or tier (unless there is custom pricing set for a given item). A base price online that is set competitively–but not as low as you can go–can make online ordering more profitable.
- Setting shipping fees based on a minimum order value.
- Defaulting customers to the DC that is physically closest to them and making sure the inventory levels they see are reflective of that DC (controls shipping costs).
- Charging restocking fees for returns.
- Charging for expedited shipping.
- Set handling fees for any items that require additional work or handling for proper shipping.
- Communicating any and all fees upfront and honestly.
- Engaging with sales and marketing on communication, FAQs, and explanations.
- Empowering sales to still be able to waive some fees and create exceptions, but leveraging your discount code function for this, limiting them to X times per month.
Not all of these strategies are right for every business, but standardization and application of rules driven policies on your website can absolutely drive up profitability online. If your sales team benefits from these strategies, they will be more likely to buy in, and once they see them in practice online, they may be more likely to stop offering discounts right out of the gate.
When you leverage your eCommerce solution for external or internal ordering, you can build in rules and boundaries for customers and reps alike to guide your users down the path towards your goals while offering them a smooth and successful customer experience. You can plug those margin leaks on a vast majority of orders, especially re-orders placed online. When you help customers self-serve, you’ll be amazed at the efficiency and value opportunities that are possible.