Why sellers should commit to back-end operations before pursuing just another pretty piece of SaaS
At the risk of over-simplifying the ecommerce industry, most of its software falls into one of two categories — sexy and unsexy. Inevitably, the more seductive side of selling entices business owners to buy tools they must have to attract customers, such as beautiful websites, video tools, artificial intelligence, marketing automation, and the like. Because owners think they need customer-facing tools in order to sell online—and because they’re more fun to use—they put tremendous business resources toward these shiny objects.Why #online #sellers should commit to back-end ops before pursuing another pretty piece of #SaaS… Click To Tweet
The truth is, sellers who first invest in the software that does the heavy lifting around data and order management are far more likely to survive their first year. Because the less showy, “boring” side of the business is what sellers actually use to run the company, without it, they are sure to fail. Among dozens of other tasks, this is the software that allows them to
- automatically post and sync sales data to accounting, inventory, and shipping
- easily track expenses, fees, and costs to calculate profits
- process returns and exchanges
- transfer payment from their customers to their bank account
- manufacture or source their products
- ship products, track inventory, see what’s in and out of stock
- calculate, validate, and collect sales tax
Go a little deeper, and those same sellers use these more subtle tools of technology to identify trends in sales, customers, and inventory to better predict next year’s spending and revenue. At first, these numbers geeks may be suffering from FOMO while the cool kids are taking selfies at the rave. But they’ll eventually get the most likes—and get the big prize in the long run. Operational challenges must be addressed before sellers even think about expensive photo shoots and video demos. Sadly, most online businesses don’t have the fortitude to withstand the nerdy library study group of inventory management, data automation, and business analytics. Instead, they head straight to more tantalizing hangouts, like social media marketing and customized platforms.
Swipe right at your own risk
For those legitimate business who make it past the survival phase — for example, those experiencing startup growth, a successful brick-and-mortar store going online, or even a successful marketplace seller that just crossed their first $1M in revenue — the complexity and volume of unsexy operational noise can be equally deflating and debilitating. It’s far more entertaining to think about the sparkly side of things, so these businesses often spend a disproportionate amount of time doing so. To the detriment of their business, they neglect operational logistics, which could be far more efficient.
Because of the way the software industry has evolved, the overtly sexy applications and platforms that help retailers reach out to customers are front and center. They are the shiny objects that are featured in the marketplaces and in the foreground in advertising, so of course retailers gravitate to them. This means ecommerce businesses end up with multiple applications, including selling on more channels, which is great at first, but soon they’re drowning in sales and choking on data. Having too many apps really messes with the operational side — inventory, warehouse, shipping, financial management, and such — which is not set up to handle 15 different tools that don’t speak to each other. Very quickly, the business gets out of sync and chaos ensues. Today competition is so fierce and margins are so low, businesses that singularly chase sexy ways to make more money are doomed to fail. Instead, profitability lies in finding ways to sell more efficiently. It is imperative to cut costs and expenses.
Vote for Pedro
Forgive me for stating the obvious, but accounting is the leader of the nerdy pack. Because sales tax compliance and financial accounting is mandated, ecommerce businesses simply look the other way and say, “I’ll have an accountant or bookkeeper take care of it. I don’t want to deal with accounting.” No one looks at their accounting as being the hottest piece of their business — the one that could actually unlock the secrets to saving and making more money. Accounting is all about making money, what’s more exciting than that?
Take business intelligence, for example. Analytics comes from the numbers, and the numbers come from the accounting. The breakthroughs to profitability lie in the insights businesses glean from their data. Every ecommerce business needs to know:
- What’s our most profitable product?
- What is our average customer value?
- Which parts of our operations can be optimized to cut costs?
- On which sales channels do we have the best margins?
Analytics even tell you which marketing campaigns drive the most traffic to your site. So, until financial data is a priority and ecommerce businesses create a system focused on a single system of record, they’re all dressed up with nowhere to go.
Few people start an ecommerce business by first becoming a financial accounting expert. Accounting is either farmed out or added in as an afterthought and under duress. Typically, when it comes to finances, new businesses want to know
- How do I invoice?
- How do I manage my cash flow?
- How do I know if I’ve made any money
That’s usually as far as it goes. Once a business sets up accounting, it goes on autopilot. The momentum required to learn, change, or adjust the accounting system is insurmountable to the average SMB. As a result, all the valuable insights that reside in a business’s reconciliation details never see the light of day. Yes, bookkeepers and accountants oversee the numbers as dutiful chaperones should, but sellers need to set their own dance mix to set the pace of the party.
Do you mind if we dance with your data?
SMBs must take the lead with their own financial data. Sure, they have customer lists in a few different email marketing systems, invoices are coming into their inbox, and they might have a support ticket system with still another set of customer data. But until these systems are introduced to each other and mix it up, there will be no sustainable profitability. It is crucial for sales data to intermingle with all the sensible systems that keep the lights on, like order fulfillment, warehouse management, inventory, and accounting.
When an ecommerce business puts its focus first on the sensible side of operations, it operates efficiently, data flows freely between employees and departments, and the business is able to scale on demand without stressing all of the workflows. Only then will SMBs reach the sexiest goal of all—50 shades of green.