Three golden nuggets for eCommerce financial metrics management

One comment | Posted July 30th, 2010 in eCommerce | Tags: ,
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The ultimate goal of financial metrics in your eCommerce operation is to provide a measurement against revenue and profits required to sustain and grow your business. Choosing which financial metrics to measure can be a tricky endeavor. You want to make sure to capture relevant data that define your business and to use your time wisely. Common areas of measurement include revenue, average cart purchase, up-sell ratio, retail dollars, number of items in the cart, cost to operate, adword spend,and delivery dollars.

But what is financial metrics management really about and how should you structure this part of your eCommerce operation?

Use financial metrics that define the success of your business

Make sure the financial measurement points to a key performance indicator in your business. Remember too that areas that define the success of your business go beyond dollars spent. For example, it’s commonly documented that retail giant Costco makes the bulk of its profits on membership dues rather than merchandise sold. Costco retail margins are capped at a lower threshold than typical retailers which is the basis for it’s low-cost but high-quality reputation. While I don’t work for Costco, I can imagine that a critical financial metric for them is both memberships sold and renewed. Other possible metrics include:

  • Profit per order – Filling shopping carts is only beneficial if its done so at a profit.
  • Number of units sold – Important for businesses that need to move multiple units to turn a profit.
  • Average time of inventory before sell – Think about the implications of receiving your customer’s payment for a product before paying your supplier.
  • Percentage of inventory sold – Think about transportation providers and selling available seats for a specific trip
  • Revenue per order – If your cost structure is in good order and you are trying to show investors a growing revenue stream then you may be focused on the highest revenue possible
  • Revenue mix – You measure the revenue mix of eCommerce (Internet) against other available channels. This is important if you Internet channel has a higher profit per order than other channels so you may want to show the total contribution of profit of the channel.

It’s worthy to note here that it’s also important to focus on measurements of customer behaviors that lead to the dollars spent. This often gets into site measurement areas such as time on the site, delivery selection breakdown, and number of items in the cart. I consider these building blocks to the financial results, but that’s the topic for another session.

Use incremental financial metrics as a basis for enhancements justification

If you are a marketer or product manager then the financial metrics of your existing eCommerce property are the gold used to purchase new enhancements. In some cases you may have measurements on a pilot effort and are looking for the remainder of funding to complete the roll-out process of that feature. In other cases you may be able to show the existing reach and contribution of an eCommerce property to your business as a basis to request more funding for expansion of products and ideas. One fundamental concept to remember when creating new businesses cases is that you need to use the incremental financial contributions your change is forecasted to bring to the business. Your existing financial metrics baseline is already established. Don’t double count the financial contribution that would be present if your site remained as-is.

Increased financial metrics may trump decreased site metrics

After you release any new changes to an eCommerce property there are a number of measurements to gather to determine if the new release is successful. The ultimate scenario is that a new release increases both site metrics (conversion rates, number of visitors) and financial metrics. However, there are some situations where a decrease in site metrics may be off-set and even trumped by an increase in financial metrics. A simple example to consider is with a price increase or additive fee on a site. The resulting price increase may decrease the site’s overall conversion rate yet give it a stronger contribution towards financial goals. So remember to compare the resulting financial metrics against the established baseline after a release. Consider the long term implications of the results on both site metrics and financial metrics. This will guide your decision whether or not to keep the change.

Taking timeout for the important stuff

Leave a comment | Posted July 23rd, 2010 in Ideas |
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I didn’t get around to posting this week because I spent much of the week in the hospital visiting a relative recovering from cancer surgery.  It’s good to see the altruistic nature of a person as they abandon all else to aid another.  It’s also refreshing to see the good nature of people who helped as they could.

Next week I’m taking a bit of rest and relaxation with the family and then closing the week with a business trip. I’m anxious to get back to writing and sharing my thoughts and learnings with you.

Career mentor specialists?

One comment | Posted July 14th, 2010 in Career, Ideas | Tags: ,
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We live in an age of specialization. You see it in the medial profession, in corporate america, and in professional sports.  One area where I have not noticed a great deal of content about specialization is in career mentoring. Career mentoring itself gets a great deal of thought in books, blogs, and self-help publications. From my reading though, the act of career mentoring is regarded as a specialty (of sorts) unto itself. So I wonder, is it too much to try to have mentors in specific areas of your career?

For example, as an executive with responsibilities in multiple areas should you seek to have a mentor in each area? (Finance mentor, Strategy mentor, Information Technology mentor, Career guidance mentor, etc. ) The idea is to get more focused  mentoring with the trade-off of additional time commitment and complexity.

What are your thoughts and experiences with career mentoring? Have you used multiple mentors or just one?

Beware Bloated Processes

One comment | Posted July 8th, 2010 in Business Process Management | Tags: , ,
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We’ve all been there. Something goes wrong and as a follow-up we look for the root cause and how to prevent it from happening again. More times than not, we solve this procedure by adding another step to an existing process. It’s almost automatic and we don’t think twice about amending a process because we are doing this in the name of quality.

STOP.

Let’s take a minute to think a little about this.

Adding process steps can have lasting consequences. Sometimes it ends up for the good and sometimes for the worse. Process designers, stakeholders, and managers should consider the full costs before taking action.

Potential Benefits of Adding a Process Step

1.       It solves a previous problem

If you’ve had a fault or failure in a procedure then it might be because you didn’t have the proper checks and balances in place. The questions to ask in this situation is if the new step still has the aim to solve the business problem, does it contribute to the process output and can other steps be removed if the new step is added?

2.       It adds more quality to the output

A new process step can add to the overall process quality if it prevents future faults, failures, or defects. Examples of this for software development include adding test steps to exercise a certain area of the code, designing before coding, or communicating with the user how to use the product.

3.       Provides a checkpoint for approvals

Some call this a “toll” gate.  Make sure approval checkpoints are not overused and don’t involve too many people.  This is a tricky area because the checkpoints deal with human egos and emotions.  We need certain checkpoints for oversight and guidance, yet we don’t want to overburden the process with too many steps that don’t produce actual work. A question to ask yourself here is how much total time in the process is spent waiting for approvals? Are you comfortable with the answer you find?

Potential Drawbacks of Adding a Process Step

1.       It adds more time to create process output

So much of today’s business is based on speed, agility, and being nimble.  Over time, adding required steps compounds and the process may become bloated with repetitive or unnecessary steps.

2.       It adds complexity

When processes become too complex or burdensome for people to understand, they will look for ways to circumvent steps. It’s a taboo subject in the business world because leaders often don’t want to take time to perform maintenance on their processes or admit that they are a burden for the organization. An easy check for this is to see if people try to get around steps by having executives given them green lights to just do it.

3.       It doesn’t address the real reason for the process

The real reason for a process is to solve a problem or a need. It’s not to provide a basis for making sure that people do their jobs. If we are creating processes to manage people then we may have the wrong people trying to complete the process.

In all cases, remember that processes exist to solve a need. At the end of the day a business need is a transaction that is conducted between two parties where a product or service is exchanged for some form of compensation. As such, processes need to be easy to use and produce the required rate of output. So before you add a step to an existing process, make sure it helps to solve for the original problem.

Process Steps – to add or not to add?

Big Bang vs Evolution – A software look

One comment | Posted July 1st, 2010 in Agile Organization, Business Process Management, Business and IT Alignment, Ideas, eCommerce | Tags: , , ,
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If you do any amount of reading today on current topics in software development you’ll find a growing community for agile development methods in addition to those using the more traditional waterfall development method. Large and/or older corporations tend to use the waterfall approach to software development because that was the standard that grew from process maturity over the last 30 years. Small and/or newer organizations
tend to have some form of an agile method because they must produce software quickly to survive.

Jedi Mind Trick

We are nimble in our approach

Some people live in an environment that practices waterfall but likes to talk in the terms of agile development. That’s the big corporation. There are lots of stakeholders involved and an established process built through decades of use.   While it’s acceptable to talk about process maturity and the consistency that it brings to the software development team, the time it takes to complete release cycle is often ignored. So stakeholders use terms like “agile”, “nimble”, and “iteration” as a way to describe an ideal and make it look like the process is moving on an express route. Those familiar with agile development techniques would consider this a Jedi mind trick for sure.

As I see it, the waterfall method of software development is like a Big Bang approach. Whereas the agile development methods are like an evolution approach. The Big Bang approach to software development is challenged to keep up with B2C software for personal computing devices, mobile devices, and the Internet. The Big Bang approach may work for B2B software where businesses are not as constrained by competitive forces and speed to market. But its the evolution approach to software development with quick bursts and incremental improvements that win-out in the B2C world. Amazon, the leading retailer on the Internet doesn’t release features in a big bang approach once a year. It’s a steady stream of small incremental changes based on what they have learned works and doesn’t work to generate revenue. Need other examples? Check the blogs for Google, LinkedIn, Evernote, etc. and see how they consistently make incremental changes to their products.

The Big Bang approach is useful when the number of competitors are small, when you must receive approval from a large number of users before making changes, or when the users are not part of the market segment of early adopters. This fits many B2B client setups. I’d use terms like mature, risk adverse, and thorough to describe this approach.  But let’s be fair. It’s not agile, nimble, or iterative. Those terms are reserved for those that practice a true agile development method in a more evolution like approach.

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