When it comes to your own webstore, you hold the keys to the kingdom. You decide how buyers find your products. You control how they purchase. And you define what KPIs matter to your team as you look to improve customer experience.
But when you branch out onto a marketplace like Amazon, eBay or Walmart, you enter foreign turf. You face rigorous performance reviews and metrics just to stay competitive—or to avoid being banished from the marketplace altogether.
The sooner you familiarize yourself with these metrics, the quicker you can start improving upon them and getting the most out of your investment in a diversified sales channel portfolio.
In this blog we’ll cover the essential KPIs for earning your right to sell on these channels and ones for growing your profitability (we’ll call these your selling-right metrics).
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The general rule of thumb is, if you can make your customers happy, good things will follow.
After all, Amazon, Walmart, eBay and the like have the same goal for their marketplaces as you do for your brand: to deliver the best customer experience possible.
Right-to-sell metrics let you get your foot in the door and ensure that buyers and marketplace owners alike enjoy having you around.
Order defect rate (ODR) is the main metric here. The lower the ODR, the better standing you have with your marketplace and customers; you not only “earn your keep” but also benefit from greater listing visibility and/or buy box retention.
ODR encompasses a lot, so we’ll break it down into the most important subcategories.
Say you offered someone a product, they agreed and paid you for it, but then you say, “We’re actually not going to send you the product. Take your money back.”
Man, is that frustrating for the customer! It’s no surprise that ODR is a right-to-sell metric across all ecommerce channels. While each marketplace has its own standards and level of tolerance for backorders, you’ll generally want to stay under a 1% backorder rate to maintain your selling privileges. Ideally, you’re firing at 0% backorders month after month.
A high rate of backorders is often a result of poor inventory management, which gets more complex with every new sales channel you add.
To keep your backorders down, make sure your inventory systems:
If you’re really struggling to keep your backorder rate low, try enforcing an inventory threshold (or buffer) or a maximum listed quantity to avoid making all of your inventory available on all your channels simultaneously.
This is another factor of ODR and is not to be confused with late delivery. This tracks how frequently you miss your expected “ship by” date.
Note: if you fall behind and ship your order late, then attempt to pay out of pocket for faster shipping service, this will not get you off the hook (though this is probably better than missing your shipping date AND your delivery date altogether).
Late shipments are generally a result of pre-order or post-order failures. A pre-order failure means you set the wrong expectations, i.e., you may say that you can ship within two days when in reality you can only reliably ship within three days. Post-order failure is likely because you have poor visibility over what orders need to be shipped.
Another cause is a sub-optimal workflow. Don’t assume you should always ship the oldest orders first (first in, first out). It’s more important to ship out the orders that have the greatest urgency, e.g. a seller-fulfilled Prime order will take precedence over a previous sales with a three-day lag time.
To avoid late shipments, your product and order management solution should:
While right-to-sell metrics get you through the door, selling-right metrics grant you VIP perks for selling on these marketplaces.
They include metrics like average order value (AOV) and sales price above minimum (SPAM). Optimizing these metrics will allow you to grow your sales volume and overall profitability.
Average Order Value (AOV) is your GMV divided by volume of orders over a select period of time. For example, if during the month of April you grossed $100,000 over 5,000 orders, your AOV is $100,000 divided by 5,000 or $20.
Understanding your AOV is key for making strategic decisions for your company, like how much should you invest in advertising and remarketing?
You likely know what your margins are for each order. We’ll assume 15 percent commission rate and 20 percent item cost leaves you with a 65 percent margin before shipping, storage, advertising, and administrative costs. In the previous example, that gives you $13.
Your shipping costs may vary based on product dimensions, but your storage, advertising, and administrative costs will likely be the same or similar across all of your products. This means that every dollar that you can increase AOV hits your bottom line and lets you reinvest in your business.
A highly effective way to increase your AOV is through kits/bundles. Kits can help you sell complementary products (e.g., a pair of cufflinks to go with that French cuff button-down) or upsell offers (e.g., a two pack). In general, kits can grow your AOV and catalog without requiring you to front the costs of physically packaging products together. You can wait to invest in unique packaging until after you’ve seen the demand for kits and have identified valuable ones to offer, a.k.a., those that are actually driving sales and increasing AOV.
If you’re on the hunt for a commerce operating system to help you manage kits, keep in mind that the best tools will let you:
SPAM tells you how much revenue you’re capturing compared to the minimal amount your comfortable with making. It’s a great metric to track when evaluating your pricing strategy. Though there are a dozen and one repricers out there, both algorithmic and rules-based, you’ll likely still wonder, how effective are they?
Aside from paying attention to how frequently you win the buy box, it’s important to watch the prices at which your product sells above your minimum price. This is how you can really tell if your repricer is making you money or just tossing you into the race to the bottom.
For example, say you set your Minimum Price for SKU-A at $25 and you get three sales at $32.50, $30.98, and $34.11. Your SPAM would be:
Meaning, you profited an additional $22.59 on these sales.
Another way to calculate SPAM is by simply looking at your AOV over a period of time and subtracting your minimum price, then multiplying it by the order volume. Let’s assume we only sell one SKU. If our AOV in April for this SKU is $28 and we did 3,000 orders, our SPAM for the month would be ($28 - $25) x 3,000, or $9,000.
Having a high SPAM is great! That means your strategy is paying off and you’re adding more revenue than you require for this product. It’s also a good reflection of how buyers perceive your brand, based on the effort you put in listing optimization, product differentiation, advertising and more.
Conversely, having a low SPAM can indicate two things:
Say that a potential customer walks into my store and looks at some t-shirts.
“I’d like to buy this shirt,” she says. “Do you have it in a medium?”
“I do not,” I answer and explain that I only have smalls and larges in stock.
“Too bad, I would’ve bought the medium. Good bye!”
In this totally real, example I lost out on a sale. I know this because the customer told me so.
But this type of dialogue rarely happens in ecommerce—you’re more likely to lose a sale without even knowing there was an opportunity.
Suffice it to say, losing sales because of out-of-stock inventory is the definition of opportunity cost. Smart sellers understand the opportunity cost for each SKU in their catalog and make purchasing decisions that minimize this metric.
You can calculate a SKU’s opportunity cost by looking at the average sales per day from this product and multiplying it by the average sales price, then multiplying it by the days this product is or will be out of stock.
To keep your opportunity costs from ballooning, you should implement a reordering tool that:
There’s a science that you can apply to selling online. You should never feel like you're shooting in the dark when it comes to your seller performance, catalog health and pricing strategy.
Pay attention to the KPIs above to find opportunities for improvement. If you have any additional questions or want to see how Zentail’s ecommerce automation tools can help you out, contact us at [email protected].