The 2021 holiday sales season is quickly approaching, and most eCommerce companies face it with a mix of excitement and dread. If anything, 2020 taught us that the threat of everything falling apart is always there, even if you’re having a banner year. That means now is the time to shore up operations and put protections into place to keep revenue secure and customers satisfied.
Companies can enable that protection by focusing on their products and order fulfillment. You’ve got to have goods to sell and the ability to meet those order promises, or all the marketing tools, chatbots and customer recommendations in the world won’t help. To get on the right track, let’s look at five key performance indicators (KPIs) and metrics that’ll help you evaluate operations now and provide a clear track for Q4 success.
Then after you've reviewed the metrics that are most important to you, you're going to want make sure your colleagues stay up-to-date. You can use Geckoboard to build a dashboard that keeps your team focused on the metrics that matter – as you head into Q4 and beyond.
This is a guest post from Red Stag Fulfillment, an eCommerce fulfillment company focused on helping growing businesses reach customers across the U.S. in two days or less.
Supplier Lead Times
The big lesson from 2020 and early 2021 is that uncertainty is here to stay. Your supply chain can be disrupted at any point – increasing delays, limiting inventory, and making it harder to fill orders. As you prepare for Q4 and the potential increase in sales, it’s time to take another look at your Supplier Lead Times.
These lead times, sometimes called Total Lead Times, cover how long it takes for your fulfillment locations — which can be your warehouse or those from a third-party logistics provider (3PL) — to receive inbound products after you purchase them. Prioritizing this KPI will help you understand how long it’s taking you to replace sold inventory. That helps you keep goods in stock, so you won’t have to turn away orders during the holiday season.
If this is already climbing at the start of Q3, you might want to consider restocking at higher levels. It’s also essential for companies using 3PLs or other outsourced fulfillment options. Start talking with those providers now to see if you can increase SKU counts to avoid stockouts if your supply chain is disrupted.
Keeping in line with operations, the next KPI to consider is Inventory Accuracy. This is a measure of how accurate your inventory counts are in the software you use compared to the usable inventory on your shelves. You’ll need to conduct an inventory audit to calculate your Inventory Accuracy. When there’s a mismatch, you might be holding onto more inventory than you need or putting yourself in a position where you take orders you can’t fill.
You always want to get as close to 100% accuracy as possible. What’s acceptable will depend on your product volume, but anything below 98% indicates a very significant problem.
Inaccuracies also cause bookkeeping headaches and may increase overall business costs outside of order fulfillment. Inventory issues reverberate through your supply chain, such as hiking up storage costs when you order too much stock. Or, they can force you to expedite inbound or outbound shipping to get products and meet the shipping promises you make to customers.
If you’re using a 3PL, they should guarantee Inventory Accuracy because it’s their responsibility. You shouldn’t have to worry about your stock and dashboards when only they can do the physical checks. The protection they offer should also extend to shrinkage, a common source of discrepancies in inventory counts.
Tackle accuracy problems now so that you’re not overspending in Q4. When sales scale, so do the costs and concerns of inventory inaccuracies.
Perfect Order Rate
Perfect Order Rate measures how many of your orders go out the door and arrive in the customer’s hands without an issue. That means the products in the order are picked and packed correctly, there’s no damage during transit, and it arrives on time. It’s an excellent measure for the health of an eCommerce business.
High Perfect Order Rates require significant planning. You need to have enough staff to pick daily orders correctly. Systems should be in place to verify order accuracy throughout the pick-and-pack process. Your carrier selection must ensure delivery when the customer expects the product. And, you’ll need to do extensive box and packaging testing ahead of time to ensure that goods are secured safely to mitigate potential damage during travel.
In many cases, you’ll also need to create additional time for yourself and the order just in case. This may mean getting orders out the door ahead of time so that a carrier delay doesn’t impact the customer’s expectations. Typically, the longer your Perfect Order Rate streak, the better your customer service rankings and happier your shoppers.
We saw significant carrier delays and capacity concerns during 2020’s Q4, and this may happen again in 2021. Work to build in additional leeway in your fulfillment practices to help keep Perfect Order Rates high. You may also want to include website and marketing elements to let shoppers know of potential delays or how to avoid them. Starting your year-end sales early, for example, may help your customers avoid December delays. That keeps your revenue flowing and can ensure they think of your store fondly.
Backorder Days Out
The Backorder Days Out KPI is designed to help you create a reliable understanding of your backorders. It involves tracking when the next round of backordered SKUs is set to arrive at your warehouse for use in orders — how many days out are they from being delivered to you.
You track Backorder Days Out with a few pieces of information. Combine how many days it is until you next reorder the product and then add the standard time it takes you to get the product after your supplier processes this order. Finally, add the amount of time it takes you to process inbound inventory and have it ready to fill orders. If possible, do this at the SKU level so that you can update customers with the most relevant information when taking and filling backorders.
Many eCommerce companies are dipping their toes into backorders because of the uncertainty that 2020 caused. Customers want your products and more seem willing to try a backorder. However, the longer these take to fill, the more chances customers get to change their minds and cancel an order. You can understand that risk better by knowing your average Backorder Days Out.
To create and monitor this metric, you’ll likely need to do some work within your order management and inventory management tools. Each SKU will require some independent tracking, so you know what’s available in your warehouse for orders, what is on backorder, and how long until replacements are projected to arrive at your warehouse or distribution facility. Use those dates to plan when you offer something on backorder.
During Q3, you may want to test “days out” windows to see when people cancel their orders. Allowing backorders on products with a 15-day window may allow you to fill orders quick enough to avoid cancellations while a 30-day window doesn’t. Your mission is to keep orders flowing and people happy enough that they buy from you. Don’t let backorders cost you an entire sale or drive down customer service ratings and reviews ahead of the Q4 sales season.
The final metric you’ll want to start taking a closer look at is your current Return Rate. Return Rates tend to rise for everyone during and after the holidays. In early January 2021, UPS recorded 1.8 million returns, daily.
Return Rates are important for a few reasons. First, you want to know how much volume you’re handling. Do you have the staff size and physical space to process these additional inbound shipments? That can tell you if you need to expand either during or after the Q4 holiday sales season.
It’s easy to track Return Rates in most eCommerce platforms. You’ll also want to track how long it takes to get these goods back into your available inventory. Speeding this up can allow you to use more existing products and potentially reduce your resupply expenses, especially at the end of Q4. If you’re struggling now and this is impacting your Inventory Accuracy (KPI mentioned above), there’s enough time to adopt a new inventory management tool before the holiday crunch.
Measuring your current Return Rate against customer lifetime value can also help you understand how much customers appreciate your returns policy. If your shoppers tend to return products but then come back for additional purchases, the policy could be key to maintaining revenue and profitability year-round. However, if people who return products rarely purchase from you again, there’s a chance you could tighten returns requirements ahead of Q4 to protect your revenue.
Use Return Rates as a helpful way to guide investment in your physical space, customer service departments, and the technology used to manage your inventory.
Get ready now
The five KPIs listed above were chosen to help you think about today’s operations and what you might be struggling or succeeding with. Potential gains and problems scale for every eCommerce business during the holidays. You can use these KPIs to understand the threat and ensure you’re following the right practices to protect your company while supporting its growth.
A fundamental lesson in all of them is that the best time to start paying attention is now. You’ve still got some time to understand your operations and make changes so that you’re best positioned for a healthy Q4.
Keep your KPIs visible
Finally, make sure your KPIs are easy to access and instantly visible to you and your team. During busy periods, the last thing you want to do is trawl through spreadsheets and endless reports to find the data you need to know about right now. Many eCommerce companies use Geckoboard to create dashboards designed to keep everyone up to speed on what's happening with their most important KPIs.
Jake Rheude is the Director of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse that was born out of eCommerce. He has years of experience in eCommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.