In many ecommerce companies, business owners and CEOs focus heavily on growing more sales. I frequently hear “If we can just grow our sales, all our problems will be solved,” or “If we can just grow sales, we will have the budget for marketing.” This is interesting as it raises the question whether marketing is a function of sales or whether sales are derived from your marketing efforts. I would tend to lean to the latter. While I understand that you do need sales to generate cash flow to allow for budgets for marketing, I believe that it is not an either-or proposition.
Measuring sales is easy; it’s measuring selling productivity and operations that can be challenging. I’ve been working with several clients now, and my experience has shown that as entrepreneurs we tend to have a myopic vision when it comes to our organizational metrics.
There was a period in 2006-2007 when my old company grew sales by 50%, but we did not make any significant improvements on our net profit margin. I was perplexed. How could it be that we worked harder and increased our sales by 50% only to see our profits remain stagnant? That was the year that changed the way I looked at metrics. It didn’t dawn on me until that year that sales could increase and we can still make about the same about of money.
Through my team, we created and reviewed measurement for productivity by departments, my job description, by task and activity. What we learned is that when we don’t look at the right numbers and data, it all becomes a big guessing game. One of the keys to reducing our stress levels and helping us operate more efficiently was understanding how the metrics can help us be more productive. We figured out what areas were our core competence in the business and what areas were taking away from our productivity and were problematic. We measured metrics in the four categories:
- customer experience /satisfaction
- stress levels
Do you frequently hear this type of conversation in your company? “Well, I believe that we would increase sales if we just allow ______”. And, “No, that doesn’t make sense, we have to increase sales doing it this way ______. “ The second way might be the complete opposite of what the first person was suggesting. We wanted to avoid the guess work of choosing random strategies and went after measurable metrics.
We addressed productive by department and measured activities like number of bags embroidered per hour, per machine, number of engraving jobs completed per hour, per day and number of footsteps taken to retrieve bag to be loaded into the embroidery machine. We optimized the jig frame/holder so we didn’t have to swap it out as often, and then pooled like merchandise to embroider them together to minimize the replacement of the jig frame, all by design to reduce touch points and have maximum efficiency point. The idea was not to just produce more units but also reduce error rate and break age (the more you touch something the higher the probability it will break or be out of whack). So this measure went on and on by department and metrics of measurement for success were created and communicated to the employees who were responsible for carrying out the actual work.
In sales, we reviewed not just the gross sales and COGS, but also product category margins, product level margins, inbound shipping cost, carrying cost, inventory capital investment, warehouse usage, inventory turnover, purchase order generation frequency, purchase order fulfillment ratio and vendor turnaround time. The idea was to understand the context of the sales numbers being generated and not just the final sales numbers.
In customer experience we measured and tracked, types of calls, frequency of each type of calls, our return rate, our charge-back numbers, charge-back dollar amounts, number of days to shipment delivery, number of days to get the product to our customers hands from our warehouse and from our vendors warehouse among a whole list of check points which also includes number of days orders are on backordered.
Now that we knew what to measure and more importantly what to report, we realized that you can just look at the top line sales number and either beat yourself up for not doing a good job or pat yourself in the back and call it a good day. But the real strengthening of the company will come from improving productivity and customer experience. As many of you well know, it’s not that easy to figure it all out and more importantly, it’s even less easy to be consistent about reporting these metrics at the organizational level.
The result was by end of 2007, we double our net income, with only increasing gross sales by $300,000, almost flat on sales but more profits, I’ll take that any day.
The key to success is not just reporting on the metrics of your company, but to ensure that business processes can continue to be reviewed and improved. If the business processes are improved then the metrics can also be improved. Another way of stating this is that what you measure consistently can consistently be improved.
Another important detail about metrics is that you need to involve your entire organization and not keep these numbers to your executive team or to yourself. Your people are not mind readers, they can’t just be constantly hounded by saying “improve sales” or “get more customers.” Share the metrics you collect, better yet, have them collect the data collect and create a process on how you want this done.
And in order to answer that how question, you need to know your customers, you need to know how your company adds value to their lives, why should do they business with you? Who influences their buying decision, what problems are they trying to solve? And you if you can answer those questions above, you need to ensure that you give your sales people and customer service people, in fact everyone in your organization, the proper training program. Ensure that you’re setting them up for success. Inadequate training, ad-hoc training, random training are all recipes for failure, and you can’t honestly blame the employees when they don’t do well.
Keep in mind that the main benefit for all the proper way of documenting your business process and proper training is that that sales will grow, customer will have a better experience with your brand, and most importantly your internal customers (your employees) will have higher job satisfaction which will reduce their stress levels and create a better work environment.
Best-in-class sales organizations understand that to drive performance, they must measure not just their sales, but their collective ability to execute and deliver; only then are they able to drive the sales growth improvements they seek.
By: Shirley Tan