There are two ways a seller can scale their business:

  1. Sell effectively on more marketplaces and explore new sales channels.
  2. Support a higher volume of orders by improving and automating inventory management.

Though these two steps sound simplistic, they actually make sense if you properly analyze the retail supply chain and tie it to the buyer’s journey.

Most retailers either close down in their first year or are unable to scale up and compete with big players, simply because it’s difficult to cut down operational costs. In turn, the supply chain makes it difficult to offer more competitive prices to customers. The same rules apply whether you sell apparel or electronics:

 

“There are two kinds of companies: those that work to try to charge more, and those that work to charge less. We will be the second.”

Jeff Bezos, CEO of Amazon

Amazon has become an ecommerce powerhouse by charging customers less. Through efforts like Prime, Amazon has grown tremendously and rose to the top. How? By delighting customers through low prices and convenience. But how did they do that? By optimizing their supply chain operations.

Generally speaking, the ecommerce supply chain involves purchasing inventory from your vendors, listing products on sales channels, then shipping orders to your customers – all the while maintaining up-to-date inventory across your warehouses or third-party logistics partners. Amazon has become a colossal force in the supply chain by being the dominant marketplace and fulfillment network.

Similarly, low prices, ease, and efficiency have been to three main drivers of online purchases. Shoppers are always looking for better deals, and according to a study by BigCommerce, “convenience and price are the two most important influences on a purchasing decision.”

 

The Complete Omni-Channel Retail Report:
What Brands Need to Know About Modern Consumer Shopping Habits in 2018

Report Source: BigCommerce

 

For an online seller looking to scale their business by charging more for their products, this can be a tough pill to swallow. However, it is vital to understand this reality and to act upon it, meaning, to focus on what truly matters in achieving success.

But how does a seller slash prices and make even?

Discounting is just a gimmick — you need a long-term strategy. The key to winning the pricing war is not about cutting corners but to optimize your supply chain. Doing so will reduce your operational costs, so you can price your products better.

According to logistics expert Wael Safwat, it is not organizations that are competing – it’s the supply chains that are competing.

 

Another way to look at the supply chain is to look at the daily operations involved in running an ecommerce business. They can be broken down into five major components:

  • Inventory Management – When and how often should you purchase inventory from vendors?
  • Warehouse Management – Where do you store your inventory?
  • Channel Listings – Where do you reach your customers?
  • Order Processing – How fast and accurate do you process orders and returns?
  • Shipping – Which shipper has the best rates for my products?

Failing to optimize any of these processes means failing to invest in your retail supply chain, which often means you will need to increase your prices to keep up with growing pains. This, in turn, will turn off customers, lower your margins, and consequently will make it easier for your competitors to beat you on price and volume.

 

“If you don’t understand the details of your business, you are going to fail.”

Jeff Bezos, CEO of Amazon

In this guide, we’ll focus on why you need to sell on more sales channels, and what you will need to support this growth.

 

Benefits of Multi-Channel: Why Sell on More Channels?

These days, selling on a single channel is not just outdated – it means minimal reach, and as a result, minimal profit. It’s increasingly difficult to find a successful online business that operates only through its own ecommerce website or on one marketplace like Amazon. Instead, companies both large and small are going multi-channel to serve shoppers everywhere.

Here are the top reasons why multi-channel selling is important:

  • To maximize reach and visibility

– According to a UPS Study, 36% of online shoppers search for products on one channel then purchase the product via another channel. This cross-channel phenomenon often happens across devices. For instance, one user on the hunt for a new TV might be browsing the Walmart app on their tablet, while later comparing prices on Amazon and eBay on their mobile phone. Depending on the deal and other factors, such as convenience, price or desire to have the product immediately, the user could very well purchase the product from Best Buy. You limit your chances by not having a footprint in any of these channels.

  • To harness the power of marketplaces

– Artificial intelligence is not just a hot topic these days – it’s becoming part of our daily lives, from Netflix to Alexa. Marketplace algorithms, such as Amazon’s A9 or eBay’s Best Match, are designed to help shoppers make faster purchasing decisions. Best results, lightning deals, pricing thresholds, and even Jet’s smart basket technology, all make online shopping more enticing and harder to resist. Marketplace reviews also make lesser known brands stand out. Trust based on a marketplace’s rating system can directly influence sales.

  • To harness the power of search

– When it comes to ecommerce, it’s easy to dismiss Google’s power. After all, more than half of shoppers start their product search on Amazon rather than Google. Of course, not everyone is ready to purchase on the spot – the rest of us might have questions and would like to research the product or similar items before making a purchase. Google’s Shop the Look feature is an example where niche fashion brands can have better chances of being found than on a marketplace. This is where your own branded website comes into play, and where search engine optimization is important. Still, building your own website is simply easier than opening up a new brick-and-mortar store.

Multi-channel selling offers more opportunities to market your products. Every shopper is different, and diversification is key to powerselling. Not everyone is in love with Amazon, and some shoppers prefer listening to influencers on YouTube or Instagram to discover new products. For an online seller in niche markets or ones that sell international and imported goods, diversification is especially effective.

Recent studies support this. In a recent survey done by BigCommerce, researchers found that shoppers aren’t particularly loyal to any channel. In fact:

  • 74% of Americans have shopped at large retailers
  • 54% shopped at ecommerce marketplaces
  • 44% shopped at web stores
  • 36% shopped at category-specific online retailers.

When we compare the average value an online shopper spent last year, the numbers are not too far off. Online shoppers spent an average of $488 with marketplaces, followed by $409 with large retailers such as Nordstrom and Best Buy.

These figures indicate that while online marketplaces take up a huge portion of digital commerce, the customers are quite well-spread across a variety of channels.

It’s also worth noting that different demographics have channel preferences. For example, while Walmart.com tends to be the first choice for older consumers with families, young tech-savvy millennials prefer Jet.com. In addition, young customers are inherently multi-channel buyers as they are incredibly price-conscious, searching for the same item on different platforms, comparing all pros and cons before purchase.

In other words, the benefit of multi-channel selling is clear: new revenue streams and access to more customers.

No time to read? Download the PDF version and learn later.

Challenges of Multi-Channel Retail

Despite all this data on multi-channel retail, many sellers hesitate, reluctant to take the leap of faith (even though this is all backed by numbers!). But caution is very understandable, given the work involved in ecommerce management. It’s true: expanding into new channels is not an easy feat.

There are at least 2 questions business owners need to ask themselves before launching a new channel:

  1. Is it worth it?
  2. Do I have the resources to make it happen?

Let’s break this down into more specific challenges:

Relevance and Targeting Relevance and Targeting

As with any business, ROI should be top of mind for decision makers. Targeting an irrelevant audience is like playing tennis against a wall. What’s the point of trying a new marketplace if your products aren’t relevant to that specific target audience?

You need to evaluate whether or not the new channel caters to the right audience and the right community. Newegg and Etsy are as different as Home Depot and Toys R’ Us. Buyers on each channel have different intentions and desires. Similarly, once you find the right channel, it’s important to make sure your listings appear on the appropriate categories and subcategories. More on this later.

Cost and Resource Requirements Cost and Resource Requirements

Cost is another factor to consider, and we’re not just talking about listing fees. New channels will require more man-hours, due to the complexity added to your operations.

Inventory management becomes a much serious issue once you start selling on another channel. Understocking and overselling can directly affect the customer experience, and thereby your store’s reputation.

Every channel is different, each with their own listing requirements and shipping policies. A slight negligence could adversely affect your performance on a marketplace, whether you are rated lower than your competition or temporarily losing your ability to sell.

The Growing Pains of High-Volume Selling The Growing Pains of High-Volume Selling

Once you start selling on new, relevant channels, it’s likely that you’ll experience an immediate influx of orders. Many retailers are not ready for this: products go out of stock, deliveries get delayed, and you start receiving negative reviews from disgruntled customers, making it difficult to make a comeback.

A lack of visibility and delays in order processing will result in failure, no matter how happy you felt during the initial spike in orders. Without some form of multi-channel automation, it’s difficult to know how much you should reorder from your vendors, which products you should prioritize, or how to price your items competitively. Without technology that can unify or centralize the data, your team will get lost in the in-between of things.

How to Price Your Items Competitively

One thing all sellers have in common is the need to price their products competitively. While pricing varies across the industry, here are a few tips to help you do it right:

Know Your Costs

Understand your all-in costs so you know your breakeven price.

Choose Your Desired Margin

Determine your margins. Do they leave room for error (shipping returns, damaged products, etc.)?

Analyze Your Competition

Study your competition and see what pricing strategies they are using. Are they sustainable?

Know Your Customers

Get to know your target customers. What makes your products special? What problems are you solving? When you know the answers to these questions, it’ll be easy for you to price your products because you’ll understand their importance and demand.

Calculate Product Demand

Determine the overall demand for your product. There are many tools that can help you accomplish this. You typically want to sell products that have a medium or higher demand level in order to avoid holding deadstock.

Choose Your Pricing Strategy

There are many different pricing strategies out there. But keep in mind, these strategies aren’t one-size-fits-all and what works for one business may not work for yours.

      • Anchor pricing is often combined with sales. You display the original price and the new sale price in order to create perceived value in the price difference.
      • Skim pricing involves you listing items at the highest possible price the market will accept and slowly lowering the price over time. This allows you to capture higher margin sales and to capture additional sales as you lower the price.
      • Charm pricing is one of the oldest tricks in the book. If you’ve ever seen an item listed at $0.99, that’s charm pricing. Charm pricing is an effective pricing strategy because our brains are trained to round these types of prices down.
Offer More

This may be difficult to provide over the Internet, but when you can offer a little more (customer service, free shipping, or something else), your customers will likely choose you over a similar product of equal quality that offers less. More is always better.

Commentary by Dani Avitz, Co-Founder of Algopix,
an automated product market research platform for eBay & Amazon sellers

 

In an ideal world, an all-in-one solution can provide you with easy-to-read dashboards that tell you how much inventory you have, when to reorder, which marketplace listings need updating, which shipping carriers offer the best rates, and which channels give you the most profit.

What’s a Seller to Do What’s a Seller to Do?

As you can see, there are many roadblocks to successful multi-channel commerce. Let’s look at each of these challenges in detail.

Types of Sales Channels Explained

Now that we’ve covered the basics of multi-channel retail we can actually talk a bit more in-depth about those actual sales channels.

Online marketplaces such as eBay and Amazon have changed the rules of the retail game, and they offer new opportunities to online sellers worldwide. Choosing the right channel and taking the right steps in establishing your business are all critical to success. There have been many success stories of newer sellers and lesser known brands effectively competing on an even playing field.

In general, there are 3 types of marketplace models:

 

Vertical Horizontal Global
A vertical marketplace is often a retailer-operated marketplace that sells the same type products, but may offer a wide selection of brands. This particular market model focuses on meeting the needs of a very specific target buyer. These specialist marketplaces could also be official distributors of major brands. A horizontal marketplace tends to sell a variety of goods that share a particular theme or customer intent. Most of these marketplaces offer more departments than vertical marketplaces, but are still limited to certain categories that cater to a relevant audience. Shoppers on these places usually know what they want. Lastly, a global marketplace offers the widest assortment of products and are open to virtually all types of sellers, big or small. On these marketplaces, shoppers can usually find everything from toilet paper to auto parts. These large marketplaces have a lower barrier to entry, but can be difficult to compete on.
Examples:
  • Lenscrafters.com
  • Urban Outfitters
  • Authorized Dealers
  • Etsy
  • Wayfair
  • Home Depot
  • Amazon
  • eBay
  • Alibaba
Pros:
  • Very targeted audience
  • Dealers can recommend your wares
  • Larger targeted audience
  • Trusted sites and dealers
  • Vast reach
  • More room for shoppers to browse and discover your products
Cons:
  • Not much room for new products
  • Extremely picky and limited audience
  • Technically difficult to manage inventory
  • Low degree of brand positioning freedom
  • Often requires EDI/FTP connections to manage inventory
  • Incredibly high competition
  • Challenging to target the right audience
  • Each marketplace has its own seller portal

 

An Overview of Global Marketplaces

Amazon Amazon
Amazon is the largest online marketplace in the US, with more than 50% of its inventory sold by third-party sellers. As referenced on their logo, the marketplace sells virtually everything from “A to Z.” Amazon attracts customers with its rich selection of products, user-friendly design and smart search system. But succeeding on Amazon is no easy task, due to strict policies and the enormous competition in virtually every category. If you want to profit from this marketplace, you need to play by Amazon’s rules. This can be cumbersome to new sellers as optimizing your listings requires a proper appropriation of keywords as well as a knack for writing great product descriptions. Customer service is immensely important to Amazon, and the customer is always right when it comes to returns and refunds. Amazon is also becoming a Pay to Play marketplace. Since the buy box favors Prime-compatible orders, you may need to fulfill orders via Fulfillment by Amazon (FBA) or Seller Fulfilled Prime (SFP). Amazon’s Sponsored Products program is also the quickest way to gain visibility for your store.
eBay eBay
eBay is often recognized as a “first of its kind” when it comes to global marketplaces, and it is still one of the top sales channels for the retailers worldwide. Millions of shoppers check eBay every day, and it’s not just the auction listings that people pay attention to – eBay is especially popular amongst hobbyists and specialist retailers. For instance, eBay Motors has a thriving community of buyers and sellers of aftermarket auto parts: something that cannot be found in generalist global marketplaces. Many niche market sellers find success on eBay because buyers are more open to new and unfamiliar sellers than on other channels. Still, the success of your store will greatly depend on the quality of your data, particularly because eBay is pushing for higher relevance through structured data and artificial intelligence. eBay sellers need to pay close attention to their product  IDs and attributes. eBay also has a promotion program that runs on a Cost Per Acquisition (CPA) model. Advertised products appear on the 4th and 5th slots in the search results, because of their push for highly targeted organic results.
Jet Jet
When it comes to global marketplaces, Jet is a newcomer targeting price-conscious, tech-savvy millennials. With its smart basket technology, buyers are tempted to add more products to their carts in order to earn more savings. Selling on Jet, however, may require more technical resources, such as a third-party Jet integration. And unlike other marketplaces, Jet has a strong emphasis on quality product images and mobile shopping. To improve visibility, you should list items with high-resolution images that showcase the advantages of your product. While other marketplaces tend to reward descriptions that simply include keywords, the unique aspect of Jet is the fact that complete sentence descriptions of the product tend to perform better. The marketplace also allows you to include up to 5 bullet-points to cover any information that is not included in the description. Filling in attributes such as size, material, color, and dimension similarly helps your product’s visibility.
Walmart Walmart
Although late in the ecommerce game, Walmart is still the largest retailer in the world, making it a disadvantage not to sell on this channel. Walmart is both a big-box retailer and a marketplace targeting price-conscious families, and is at constant war with Amazon for market share. Shrewd merchants should take advantage of these battles, the same way that slick shoppers grab the better deals. Gaining approval to sell on Walmart Marketplace, however, can be a challenge as they carefully handpick each seller to ensure the quality of their marketplace. Walmart prefers sellers that integrate with a full-service solution provider. Managing attributes can be cumbersome if done manually, as Walmart provides hundreds of attributes for almost every category. As with other marketplaces, the more information you provide about a particular product, the higher it’ll be ranked, improving your visibility.

The 2018 State of the Merchant eCommerce

Report source: EcommerceFuel

Should You Sell on Retailer-Operated Marketplaces?

As noted earlier, global marketplaces are not the only places shoppers go to. In fact, 73% of all online shoppers have visited a retailer-operated marketplace in the last year. Retailer-operated marketplaces are essentially large stores, offline and online, that carry products from third-party sellers catering to the same target audience. These horizontal marketplaces are a great way to reach new clients because:

  1. The marketplace invests in its own reputation and branding.
  2. Buyers usually come in with the intent to purchase.

Examples include Best Buy, Home Depot and Wayfair, each with their own industry experts providing trusted customer service and advice.

Selling on the appropriate sales channels can significantly boost your reach and put your products in front of a larger targeted audience. The most common mistake that sellers make here is thinking that they cannot get into this store. While it’s true that these marketplaces are selective and could potentially turn into a logistics and inventory nightmare, it’s all about understanding the resources you need and not letting fear hold you back from earning more business.

Every large retailer-owned marketplace typically has its own online supplier portal and approval process. Once you meet their requirements, the next thing you need is to integrate that new channel with your own inventory management system, usually through File Transfer Protocol (FTP) or Electronic Data Interchange (EDI). This can be done through a third-party service such as CommerceHub, which acts as a connector between you and the retailer, carrying all data transfers, processing incoming orders, and managing outgoing inventory.

Further Reading on G2Crowd: 10 Great Online Marketplaces for eCommerce Pros

  1. Amazon
  2. eBay
  3. Walmart Marketplace
  4. Jet
  5. Rakuten
  6. Etsy
  7. Newegg
  8. Overstock
  9. Wayfair
  10. Houzz

4 Reasons Why You Should Have Your Own Web Store

1. You need to build a brand. If you ever want to sell your business for a “retire and live on a beach” sum of money, you need to have a brand. Brands have intrinsic value, and to the right buyer (say, for example, a competitor interested in consolidating), they can be worth a premium. It’s damn near impossible to have a brand without having your own website, your own content, your own social media profiles, etc. and so on.

2. You can market more completely. When you’re a seller on a marketplace, your customers aren’t actually YOUR customers. They’re the marketplace’s customers. If you want to announce a new product, offer a service the compliments your existing products, promote an affiliate, etc. to your previous customers, you can’t. That’s usually against the rules, in fact.
But, when you own the store, you can market whatever you like however you want to. While it takes more work to acquire customers, they tend to have a higher lifetime value when you own the relationship.

3. Web store margins are higher. First and foremost, margins for marketplace sellers are atrocious. Most of the retailers in auto parts, for example, are earning a 1 or 2% net margin on eBay and Amazon. While they can do a sizable amount of revenue, it’s still just a penny or two on every dollar.
Conversely, selling parts in your own store can generate a net margin of 15-20%. To say nothing of the remarketing opportunities that will lead to additional revenue and profits.

4. The seller-marketplace relationship is one-sided. Sellers are often dependent upon the marketplaces for revenue, but the opposite is almost never true. For every product, there are usually multiple sellers standing by, ready to serve customers. As a result, marketplaces can unilaterally change fee structures, return policies, etc. without too much concern about how these changes will impact sellers.

So, rather than placing all your faith in a one-sided relationship, it’s a good idea to develop your own web store as a stream of revenue “just in case.” While there are downsides to having your own web store, the long-term benefits of both building a brand and diversifying your revenue are hard to ignore.

Commentary by Jason Lancaster, President of Spork Marketing, an agency for the parts industry

Why You Should Invest in Your Own Web Store

It’s not enough to sell on marketplaces. In this day and age, there are many things that happen before and after a person makes a purchase, and these include researching a product or brand, and sharing the news with other people. Without a proper website, you are missing out on a huge amount of traffic, both from search engines and social media.

According to studies compiled by MineWhat,

  • 81% of shoppers conduct online research before they make a purchase.
  • 60% begin by using a search engine to find the products they want.
  • 61% will read product reviews before making any purchase.
  • On average, a consumer will visit three stores before making their purchase.

In another study, 3 out of 4 people consult social media before making a purchase.

An old website that was built in the 2000s will not impress today’s tech-savvy consumers, especially if they’re browsing on mobile devices. Template styles are always changing, and you need to ensure that the user feels secure when buying from your store. In fact, 6 out of 10 shoppers canceled a checkout when they felt unsure about the site’s security.

 

Rather than build your own website, consider the variety of shopping cart solutions available. A good cart software usually has three parts: product data storage, order gateway and product data rendering.

The most popular ones include:

ShopifyShopify        WooCommerceWooCommerce       VolusionVolusion       MagentoMagento      BigCommerce

Just like with marketplaces, there is no shortage of options when it comes to choosing web store, and each solution will have its pros and cons.

What to look for in a SaaS Ecommerce Solution?

Again, there’s a ton of factors to consider when determining what type of Ecommerce platform to use in supporting your online business. But the most important and often first decision you need to make is how much technical responsibility you want to own for your site.

If you aren’t too tech savvy, you’ll want to opt for a hosted, cloud-based platform that makes it as quick and easy as possible for you to get your online store operating. These platforms allow you to easily customize your site with your own branding and their provided templates. Many SaaS Ecommerce solutions also integrate with leading marketplaces like Amazon, Etsy, and more.

The other option here is to design and build your system from scratch. This is highly technical and labor intense—and honestly, if you’re reading this, then this option probably isn’t for you.

When evaluating providers, perhaps the most critical feature is the performance reporting/dashboard that the system provides. You need to track critical KPIs like:

  • The number of visits to your site as well as the number of those that are return visits.
  • The percentage of visitors that complete an action on your site such as making a purchase, putting an item in a cart, clicking on a product, or signing up for a newsletter. This is your conversion rate, and it’s critical you monitor it.
  • And where/how people are getting to your site. You can track whether visitors are coming directly from a Google search or from a social post or even from links you’ve earned on other websites.

On top of the reporting and KPIs, there are a couple newer criteria you should prioritize for your new Ecommerce system. These include mobile readiness and social selling/integration.

Most website platforms feature automatic formatting to optimize your site for the mobile experience but definitely confirm this with your vendor before making a decision. This is extremely important considering mobile’s growing share of online sales—online sales via mobile are projected to top $150 billion in 2019.

As for social selling, it’s a very real future for Ecommerce. Lines between shopping and experiencing continue to blur both in-store and online. This creates a great need to integrate products and “make buyable” the items you’ve listed on social media—whether it’s simply a picture of a product or a picture of an experience with a product(s) featured within it.

Commentary by Justin Guinn, Senior Content Analyst for Software Advice, a Gartner Company

Understanding the Multi-Channel Game and Inventory Management

Now that we’ve covered all the ways you can sell and maximize visibility, it’s time to go back to the supply chain and how you can support such massive undertaking as launching all these new sales channels! With each new channel, you are entering a whole new game with a different set of rules, but all of them start with inventory management.

Multi-channel selling involves multi-channel inventory, and inventory control becomes exponentially critical to your business. Each channel, whether it’s a vertical, horizontal or global marketplace will have its own web portal, which makes it challenging to manage stock and import orders.

Failing to track inventory can lead to stock-outs, thus losing customers to your competition. Even worse, by not having real-time visibility, you can oversell and then later realize you have a mountain of backorders, leading to buyer frustration and even cancellations. In this case, you would have to notify the customer of the order delay and suffer repercussions, whether that involves just losing the customer for life, or them complaining to the marketplace, or even leaving a negative review.

Multi-channel commerce is tough, and it’s understandable why many businesses stay single channel. Setting up a channel and attracting new customers are actually the easy parts of the game. Maintaining that channel is the challenge, as online customers are so much easier to lose given the variety of options available on the Internet.

The 2018 State of the Merchant eCommerce

Report source: EcommerceFuel

Inventory management is like keeping the ball in motion – how long can you dribble without dropping the ball? The key to winning the multi-channel game is to have a fit ecommerce operation, which each department functioning at top shape, all to deliver an excellent customer experience.

Challenges of Inventory Tracking

Businesses that sell online often face many difficulties related to inventory, but they all can be summarized in three biggest pain points:

  • Not knowing your inventory status

According to research by IBM, nearly 80% of supply chain officers will experience a lack of inventory visibility at some point. Transparency is important across your entire ecommerce operations, and so is knowing the status of each of your items down to the bin location level. If your channel listing managers are not on the same page as your warehouse managers, then you risk overselling or even listing the wrong items.

  • Flawed processes

Even today, ecommerce businesses rely on outdated software or even worse – manual processes and files of spreadsheets. Without a proper tracking system, you may end up shipping the wrong SKUs, only realizing that particular items are no longer available in the warehouse but are still being sold on multiple channels.

  • Keeping up with customer demand

Good inventory analytics involves predicting customer demand and having the stock to supply them. Unfortunately, without a good tracking system, you will not have such data. By not being able to forecast demand, your competitors will always be ahead, limiting your ability to scale your business.

Top 6 KPIs That Will Help You Improve Inventory Management

While it’s one thing to extract numbers from a database, it’s another thing to truly monitor and analyze the progress of a specific KPI.

When we talk about multi-channel retail, having too much or too little inventory will inevitably cause losses in revenue. As a part of your operational strategy, you need to adopt universal key performance indicators (KPIs). This will help you identify and define progress towards your goals.

Inventory turnover

The most basic business performance indicator – inventory turnover – simply shows you the number of times inventory is sold and replaced in a given time period. The mathematical formula for this particular KPI is extremely simple: Sales divided by Inventory.

In its very essence, it measures the frequency at which you sell out your inventory.

Why is it important? For any ecommerce business, most of your cash is tied up to inventory and it is paramount to know what’s selling and what simply takes up valuable storage space. Inventory turnover is the first insight into customer behavior and you can use the knowledge of the audience’s purchasing habits to adjust your inventory accordingly.

Day to sell inventory (DSI)

This indicator measures how long on average it takes for your operation to turn inventory into sales. The formula again is not overly complex: Inventory divided by Cost of Sales and multiplied by the number of Days in a Single Year.

Why is it important? DSI is the true measure of the effectiveness of inventory management. The KPI gives a perspective that can be turned into annual, monthly and even daily goals.

Costs of holding

This KPI shows the cost of storing the unsold inventory, typically you’d want to include the cost associated with damaged and spoiled goods, as well as additional expenses such as labor and insurance.

Why is it important? Holding costs are true expenses of ordering too many goods. Highly effective companies are all striving to only order enough inventory for a certain period of time (usually around 90 days). If neglected, holding costs can simply discard savings such as large quantity discounts.</span >

Return rate

This is the percentage of orders that are returned and need to be restocked. It’s equally important to track the reasons why the item was returned for addressing the issue in the future. Sometimes the reason behind the return can be tied up to key trends that can prevent costly returns in the future.

Why is it important? The high rate of return is often an indicator that there is a flaw in the supply chain management. Simply put, neglecting this KPI is medical equivalent of ignoring a high rate of sugar in the blood – it can be a one-time thing or it can be a sign of diabetes.

Stock out

The one KPI nobody wants to see. It represents a time when demand cannot be met simply because there is no inventory left. It’s terrible no matter how you look at it – lost sales, missed opportunities and frustrated clients.

Why is it important? Stock-outs are screaming KPIs, and if not managed in a timely fashion, they can cause you not just losses in profit but they can ruin the reputation of your store and ultimately destroy the business.

Inventory accuracy

This indicator addresses the problem of measuring how close official inventory records match the physical inventory. Filling the shelves is one thing, making sure that what’s on your shelves matches what’s in your books/logs/databases (we hope, it’s the latter), is ultimately as important as acquiring inventory.

Why is it important? There are both financial and operational reasons. First of all, if you run a large retail operation and you have investors, they want to know that the book value is accurate. Taxation can depend on inventory value, and overpayment of taxes is bad for your business, while not paying your taxes in full is illegal. From the operational point of view, your staff will waste hours looking for misplaced or missing items if the books are not accurate. Plus having inaccurate database simply hurts the efficiency and growth rate of your business by negatively affecting other important KPIs.

Evaluation & Interpretation

Ultimately it’s not about these numbers. Different business models will have different priorities, while some companies will be able to afford to store a part of the inventory for a long period of time, others will not.

The trick is always to interpret and apply these KPIs to fit your business. Which one affects you the most? Track it and insert resources to improve it. Then reevaluate priorities again, step by step.

No time to learn more? Download the PDF version and read it later.

What are Inventory Management Systems?

Optimizing your supply chain takes up a lot of time and manpower, and this could mean hiring more people to do all the tedious bookkeeping required to track inventory and manage the performance of your ecommerce business.

An alternative: automate this labor through an inventory management system.

In his book The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich, Tim Ferris says the key to success is to eliminate that which produce problems and automate tasks using technology wherever possible.

During the early years of ecommerce, retailers such as yourself realized this problem and decided to automate their business with technology. Our very own founder built an all-in-one ecommerce system to sustain his toy business.

Inventory management is a continuous, laborious process that touches nearly every part of the ecommerce supply chain, from your vendor to the shipping carrier. Without an inventory management that automates processes for your workers, you will have to track inventory through emails, spreadsheets and other manual intervention that not only limits your scalability but often leads to mis-ships, miscounts and more headaches.

An inventory management system is designed to alleviate these problems and reduce your operational costs, which enables you to lower prices for your customers.

Inventory software come in all shapes and sizes, from free basic software to more robust ones around $500, to ERPs that cost more than $10,000  month. To better understand the reasoning behind these ecommerce software costs, it helps to know the value of multi-channel inventory management and how it affects your entire operations.

Features of a True Multi-Channel Inventory Solution

Inventory and WarehousingInventory and Warehousing

An inventory management system’s main purpose is to give you real-time visibility of your stock levels, so your team can make smart, informed decisions.

Warehouse management systems (WMS) offer barcode scanning capabilities, which enable your team to receive items faster, thus reducing the chance of error and manual labor costs. Warehousing and inventory need to be in sync so that inventory data in the warehouse can be put to use immediately in your frontend operations.

Knowing how much of an item is in stock prevents your business from having too many backorders on any sales channel. Similarly, knowing which products sell faster will help you maximize warehouse space and eliminate overstocking, so your cash flow is not tied up. By being able to forecast accurately, you can better manage purchase orders so that you have optimal stock levels at all times.

Going beyond vendor inventory, there are classes of inventory management systems that provide even more multi-channel inventory control. These enterprise-level solutions typically provide visibility of drop shippers and third-party logistics (3PL), such as Amazon FBA and Multi-Channel Fulfillment.

Products & ListingsProducts & Listings

Many inventory management systems are now offering some form of product or listing management capability. After all, products and inventory go hand in hand. Listing on different channels and then managing inventory separately is not optimal, as your frontend department will be out of sync with your backend teams.

Real-time synchronization across all sales channels is ideal for growth. You’ll simply have to set up the new channel and plug and play. Why worry about going through Amazon Seller Central every time your inventory changes after each sale on eBay? Why edit your Amazon and eBay listings separately?

Import your eBay listings to Amazon easily and securely through a proper ecommerce management solution. Other benefits of listing solutions include the convenience of bulk listing tools, which simplify and accelerate the process of managing multiple items.

Depending on the platform of your choice, product management features will vary. More robust listing platforms will allow you to create multiple listing profiles, shadow listings, channel-specific images and custom templates. Other solutions will not even import all the data from your channels, or may be too slow to update their API integration, which means someone from your team will have to go back and edit each listing’s attributes.

Order ProcessingOrder Processing

Some companies distinguish between inventory management systems (IMS) and order management systems (OMS). An OMS streamlines and centralizes your multi-channel orders, returns and refunds onto a single interface.

When looking for an ecommerce management system, see if they are able to import orders from your desired channels, in addition to inventory control. You probably would not want to manage an IMS separately from an OMS.

Many online merchants are switching to the drop shipping model, meaning that they no longer store goods in warehouses but rather order and ship products directly from the manufacturer or supplier. In this case, a business requires seamless EDI integrations between the ecommerce platform and the supplier’s order management system.

Also, given Amazon’s dominance and large logistics infrastructure, it’s worth considering Amazon Vendor Central, FBA, MCF, and SFP as potential areas to grow your business. All this fragmentation in channels and order fulfillment justifies the need for an all-in-one solution, rather than a best-of-breed IMS or OMS.

When you shop for solutions, look for potential, rather than cost. Look for a software that can support these features, as switching from one software to another can be difficult later on.

ShippingShipping

In order to optimize your supply chain costs, you’ll need to have access to the best shipping rates available. To compete in marketplaces, you’ll need to deliver goods cheaper and faster, and these days there are so many shipping options. Some sellers use FBA or MCF depending on the customer’s location, or they use drop shippers to supplement their warehouse inventory.

Shipping management software allows you to calculate the best rates in real time by automatically selecting the best carrier, mail class and box size for each parcel. On top of that, if you have a unified system, you’ll be able to submit, track and cancel FBA and MCF orders without ever switching to another interface.

Many solution providers also tend to have agreed upon commercial plus rates with their shipping partners, so be sure to take advantage of these discounts.

Most Time-Consuming Aspect of Shipping

Report source: Software Advice

 

Most Common Shipping Software Benefits

Report source: Software Advice

Accounting & AnalyticsAccounting & Analytics

Accounting is arguably one of the toughest parts of running any business, ecommerce or not. Even for a small business, bookkeeping is a complete pain as it demands accurate tracking of all your financials, from generating invoices and quotes to reconciling your bank balance.

So when shopping for an IMS or OMS, make sure that they offer some form of accounting integration, such as Quickbooks Online or Enterprise.

Alternatively, a built-in accounting software can help with basic accounting, sales tax collection, bank reconciliation, and a profit and loss analytics. Rather than rely on spreadsheets and manual data entry, an automated solution will save you time and money and establish an objective view of your financial performance.

With the right solution, you can create in-depth reports and interactive dashboards in a manner of clicks. With such functionality, you gain a complete overview of not only financial performance but also channel insights, historic inventory reports and key performance indicators of your ecommerce business.

IntegrationsIntegrations

This is probably the most important aspect to consider when choosing a specific solution because the purpose of switching to a multi-channel software is to have a holistic approach to ecommerce management.

Most ecommerce platforms can be integrated with:

  • Marketplaces
  • Web stores and shopping carts
  • Retailer-operated marketplaces
  • Shipping providers
  • Electronic data interchange (EDI) providers
  • Accounting tools
  • Payment gateways

The ideal solution is one that combines and streamlines all these features you need without charging you extra for custom integrations. An all-in-one ecommerce software will empower you to run your entire supply chain from the convenience of a single interface.

No more pulling data from one source to another, and just have everything in one place!

Choosing the Right eCommerce Software for Your Business

Finding the right solution to all your specific integration and operational needs can be a tricky challenge.

Before you start looking for an ecommerce software, you need to look at your existing workflow and identify the core needs for your business.

Ask yourself the following questions:

  • What are some of the key performance indicators (KPIs) in my business that are lagging? Which ones need improvement?
  • What problems in the supply chain are causing issues, and what can be solved through automation?
  • Which are my top channels and which channels would I like to grow and expand my business on?

How to Choose the Right Software for Your Business?

When choosing the best inventory management system, retailers must choose between tons of different specs and features. Here are two critical considerations retailers should determine:

  1. How much detail do you need: The amount of inventory you keep on hand (either at your store(s) or your warehouse) will dictate how detailed an inventory system you need. For example, if you only need to record a SKU number and basic product details, then you don’t need as robust a system. But if you have a huge inventory and want to use RFID tags to geo-locate items, you’ll need a more detailed system to support that.
  2. Are you a multi-location business: If a retailer needs to manage inventory across multiple locations (even a single store plus an Ecommerce site), then a more robust, centralized inventory is key. A centralized inventory will enable retailers to see total inventory counts/projections across all sites as well as a breakdown of the on-hand inventory at the site level.

Commentary by Justin Guinn, Senior Content Analyst for Software Advice, a Gartner Company

Comparing eCommerce Software Providers

Now that you have a comprehensive view of your business requirements, you can move onto considering your options. At this point it’s simply going through the functionalities of each ecommerce platform and matching them to your needs:

Business requirements Software 1 Functionality Software 2 Functionality
I need software that can help me with inventory management across 3 warehouses. Multi-warehouse syncing. ✓ Multi-warehouse syncing. ✓
I need to sell on Walmart Marketplace. Walmart Marketplace Integration.  X Walmart Marketplace Integration. ✓
I need to manage multiple stores from a single account. Multi-Store Accounts. ✓ Multi-Store Accounts. X

After you’ve done your research, it may be a good idea to read customer testimonials or go through review sites such as Capterra or FinancesOnline, where you can see unbiased reviews from users and software experts.

 

Important Note Important Note:

If no platform can satisfy all of your specific needs, you can try asking the software provider to build you a custom feature. Some providers will gladly provide you with add-on features and custom integrations.

Pro Tip Pro Tip:

Some inventory management solutions may have partnerships with shipping providers and partnerships with EDI integrations. This means you can get special rates and faster access to certain channels.

Warning Warning:

Only consider software that scales with your business, without charging you extra. Pay attention to the pricing models of each inventory management software, as some companies move you to a more expensive tier as you surpass a certain amount of sales!

SaaS Ecommerce Solutions for Multi-Channel Retail and Inventory Management

The thought of managing each channel seems like a nightmare, but it doesn’t have to be! Gone are the days when you have to upload and edit listings individually, or enter inventory counts manually across channels.

Thanks to technology and the dedicated people that built them, multi-channel sellers today now have access to a wide range of solutions to compete in the market. Automation is key to optimizing your supply chain and reducing operational costs.

Once a retailer makes the decision to adopt an ecommerce management solution, they generally have two options: either buy an on-premise application; or subscribe to a cloud-based solution. Traditional, large-scale retailers often opt for the on-premise solutions, but sellers with smaller resources now have the advantage of modern cloud-based platforms.

Many companies are coming to recognize the benefits of the cloud infrastructure:

  • It doesn’t require a large upfront investment; instead, you pay monthly (or yearly in some cases). This also means you can unsubscribe anytime, without losing your money.
  • There is no need to hire an IT specialist to deal with maintenance issues.
  • Upgrades are introduced regularly by the provider. This means you won’t need to search for a more up-to-date solution in a year or two.

Really Understand the Software You’re Paying For

“My experience with ecommerce buyers shows that there are a few assumptions about this type of software that may jeopardize the selection process.
The first assumption is that any ecommerce solution can be used to sell anything to anyone. In reality, there are essential differences between ecommerce software for B2C and B2B, and not all solutions can be used for multi-channel or omnichannel commerce. Also, not all ecommerce solutions are a good option for companies selling services or a mix of products and services.

Another assumption is based on the belief that cloud technology simplifies integration between ecommerce software and other solutions like CRM or accounting. Integration may, therefore, be overlooked or given a low priority during the selection process. While in theory, all cloud solutions can integrate with each other much easier than on-premises software, it is essential to understand how ecommerce vendors partner with other software providers for integration. A partnership provides a tighter integration that requires no extra investment.”

Commentary by Gabriel Gheorghiu, Research Principal from G2Crowd

 

The other consideration sellers must choose is whether they need a “best of breed” solution or an “all-in-one solution.” There are many best-of-breed solutions in the IMS, WMS, and OMS markets. The challenge is finding an all-in-one solution that does every facet of multi-channel adequately.

Jazva − A Simple and Powerful Multi-Channel Selling Software

At Jazva we have developed an award-winning, all-in-one ecommerce solution that empowers you to run your entire multi-channel retail operation from a single interface.
Our software addresses every need in supply chain management and allows you to expand and grow across multiple sales channels, including Amazon, eBay, Walmart and more. With Jazva, you will ultimately cut down on labor costs through powerful automation technology, allowing you to price your products effectively while delighting your customers with excellent service.
Our solution was made with your whole team in mind – from business owners and ecommerce managers to your warehouse managers – providing a holistic approach to your entire supply chain.
How does Jazva compare?

Don’t let fear stop you from making decisions. Choose what’s best for your business and take advantage of the next-generation supply chain technology.

 

“In business, what’s dangerous is not to evolve.”

Jeff Bezos, CEO of Amazon

 

Whether you are selling twenty or thousands of orders per day, Jazva can take your business to new heights. Schedule your demo today to see how we can get you there.

Albert Ong

Albert Ong is the marketing manager at Jazva, a cloud-based multi-channel ecommerce solution that helps merchants fast track their online business. Jazva delivers a suite of enterprise functionalities that high volume B2B and B2C retailers need to compete and succeed in the market.

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