We think that the Margin Report is the king of e-commerce reports. Why? Because it gives an e-commerce retailer the confidence that they are trading profitably and properly. Any Finance Director will be interested in ensuring that the company is secure in the long term and the Margin Report allows him to set minimum levels of return. It's then up to the business managers to set the prices and drive the sales volume. More than that, if the Margin REport is used predictively, then business managers will be able to model how any product will contribute if they adjust the price.
And we're going to show you why and how to use it to check whether your current pricing and your prospective sales prices are set at the right level.
Why are Margin Reports so good?
Margin Reports are like an instant health check for a business. It is the amount of money left over when all the variable costs have been taken into account. But, in addition to that, it is a very good measure of your production efficiency. Moreover, it determines your breakeven point and every Finance Director is very interested in knowing this figure.
What are the consequences of not knowing your margin?
There are three main consequences that you need to be aware of:
- Avoid pricing problems
- Stop losing money on sales
- Not being able to stay in business
Many internet shopping sites think they need to adopt a low price strategy and then depend on sufficient volume coming in, often because competition is keen. However, once you've established a price-point it is extremely hard to then raise the price (and have it stick).
A very common problem is selling too cheap while still having high costs. A margin report will quickly fix this.
Lastly, margin is a dynamic thing and it will change over the lifecycle of each product. So that means that your margin report will change over time. Hence, the need for dynamic margin reports.
How do you make your margin report dynamic?
The best way that we know how to do this is to link your trading platform with your ERP platform and run the two together in real time.
For example, if you are running an internet shop using a platform such as Magento, you can link this directly with a very good mid-range ERP solution such as SAP Business One, then it will produce a margin report which constantly updates whenever any of the input factors change in either system. Given it is linked to the shop platform there could be changes any time a product is sold. If you are in a highly competitive marketplace and you are making daily calls on prices and promotions then you will need to know the consequence of your decisions.
Business modelling gives you something more credible than guesswork
What does this actually mean? Well, it means that if you are going to run a sale then you can test the prices that you are thinking of using to see how that might affect your ongoing margin. This also involves how the price affects the volume sold (the accepted wisdom is that lower prices mean higher sales volumes). If you allocate a set, known volume of products for a sale you will be able to understand the prospective change in margin. The variable here is time and how long it will take to sell out the sales products and then return to higher prices.
Your dynamic margin report can give you a reasonably accurate view of the near future. Your Finance Director will love that. Your sales managers will be able to construct propositions on a more accurate basis. And you, as the owner manager, will give you a bit more predictability and you will be able to set minimum values for margin which keeps your business healthy. That is what your e-commerce margin reports will deliver.
If you liked this blog then perhaps you would also like this previous blog too: http://inbound.itqsolutions.net/blog/4-ways-to-tell-if-your-erp-system-is-now-overloaded