In today’s rapidly evolving ecommerce landscape, businesses continually seek innovative strategies to enhance online sales and improve customer satisfaction.
One increasingly popular approach is partnering with third-party logistics (3PL) providers. By outsourcing warehousing, fulfillment, and shipping operations to a reliable 3PL partner, businesses can streamline their operations and focus on core activities like marketing and product development.
However, engaging a 3PL is just the beginning. To truly maximize the benefits of this partnership and drive online sales growth, businesses need to pay close attention to key performance indicators (KPIs) and metrics derived from their fulfillment centers.
In this comprehensive guide, we’ll dive into why metrics matter, explore essential KPIs for ecommerce success, and discuss how businesses can leverage these metrics to optimize their operations and boost online sales.
Why Metrics Matter When Managing Your 3PL?
Before diving into specific metrics, it’s crucial to understand why they matter in the context of ecommerce sales. Metrics provide valuable insights into your fulfillment operations, including efficiency, accuracy, and cost-effectiveness. By tracking and analyzing these metrics, businesses can identify areas for improvement, make data-driven decisions, and ultimately enhance the overall customer experience.
Order Accuracy Rate
A high order accuracy rate is crucial for maintaining customer satisfaction and reducing costly returns and exchanges. As a business owner, seeking the highest percentage of order accuracy ensures you eliminate errors in your operations, resulting in faster deliveries. Studies show a high order accuracy rate directly correlates to increased customer retention and profitabiity.
With a precise order process, your company will see reductions in returns, refunds, and reshipments, which usually eat profits. Order accuracy rates that are lower than 90% can directly affect your business’s brand reputation. So, how do you calculate it?
Order accuracy rate = [total orders fulfilled accurately ÷ total orders fulfilled]
Then, multiply that sum by 100.
For instance, let’s say your DTC brand fulfilled 500 total orders. Of those 500 orders, 20 had some sort of mistake (like a mispick, for example). But 480 orders were fulfilled accurately. In this situation, your order accuracy rate would be 98%.
[480 ÷ 500] * 100 = 96%
Then the question is, “is this a good rate?” If your brand scores less than 95%, you may find yourself losing customers. Stay on top of these metrics to make sure you don’t.
Order Cycle Time (OCT)
The second important KPI to remember to ensure accuracy is ordered cycle time. This metric tracks the time it takes for an order to be processed, picked, packed, and shipped. In short, it is the time it takes for a company to complete the order fulfillment process, from when a customer places an order to when the product is delivered to the customer.
Shorter order cycle times result in faster delivery, which will lead to higher customer satisfaction and repeat purchases. It has been proven that customers will return and are more likely to be loyal to your brand if they trust that their package will be delivered on time, every time. According to Forbes, “the probability of selling to an existing customer is up to fourteen times higher than the probability of selling to a new customer.” Why spend your marketing budget on finding new leads when you can just retarget old ones who already trust your brand?
By honing in on reducing order cycle time, businesses can achieve significant benefits that directly impact customer satisfaction and loyalty. This will have them returning for more reasons than just your product.
Inventory Turnover Rate
The inventory turnover rate indicates how quickly inventory is sold and replaced within a specific period. A high turnover rate can suggest efficient inventory management and can help businesses avoid overstocking or stockouts.
An example of an inventory turnover ratio is 4 to 6, which can be an ideal KPI for most food or ecommerce businesses. This ratio would mean your business will not run out of stock, which allows you to meet customer demands, and in the same vain, your 3PL will not be holding an unnecessarily high volume of unsold products.
How to calculate the inventory turnover ratio for your business? Depending on your industry, this ratio can change. The inventory turnover ratio equals the cost of goods sold divided by the total or average inventory. This shows how many times inventory is turned or sold. This formula can assist you with excessive inventory levels compared to current sales. Your 3PL can assist you with this at any time.
Shipping Cost Per Order
Calculating the average shipping cost per order provides insights into the efficiency of your shipping operations. Businesses can reduce shipping costs and increase profitability by optimizing packaging, carrier selection, and shipping methods.
If your product is experiencing exceptional sales, but your shipping costs are disproportionately high, they can most certainly impact your probability of success. In fact, you may even find it difficult to break even if shipping costs are not effectively managed. Being proactive on shipping costs is a must for an ecommerce seller trying to maintain a healthy profit margin.
This involves carefully evaluating and optimizing various aspects of your shipping process, such as carrier selection, packaging efficiency, shipping methods, and fulfillment strategies.
Your 3PL will give you the best possible cost working with all carriers. Prices can vary depending on the period, package size, and dimensional weight. You want to be sure you are keeping track of these metrics to make sure your 3PL is offering you the best prices for your product.
Return Rate
Monitoring the return rate helps businesses understand customer satisfaction and product quality. A high return rate may indicate product descriptions, sizing, or overall customer experience issues. Monitoring return rate metrics is crucial to your business because it measures customer satisfaction and product quality. By tracking the frequency of product returns, businesses can gauge whether or not their product has met customer expectations.
A high return rate serves as an important indicator that something may need to be addressed with the product or in your operations. For example, it may suggest discrepancies between product descriptions and actual product features, leading to customer dissatisfaction upon receiving the item.
Similarly, sizing discrepancies or inconsistent product quality may contribute to a higher return rate, indicating the need for better quality control measures or clearer sizing information. A lower return rate indicates higher customer satisfaction and product quality, leading to increased customer loyalty and repeat purchases.
Therefore, by closely monitoring return rates and taking proactive measures to address underlying issues, ecommerce sellers can improve customer satisfaction, build trust with their audience, and ultimately drive long-term business success. Quality may contribute to a higher return rate, indicating the need for better quality control measures or clearer sizing information.
How to maintain metrics
Ecommerce sellers can find it hard to keep track of all this data on a monthly basis. However, once businesses have identified relevant KPIs and metrics, the next step is to leverage this data to drive improvements and optimize online sales.
Here are some strategies to maintain success on a monthly basis:
- Continuous Monitoring and Analysis: Set up a monthly check-in with these metrics where you can track and analyze your chosen metrics to identify trends, patterns, and areas for improvement.
- Benchmarking: Compare your metrics against industry benchmarks or previous performance to gauge your progress and identify growth opportunities. To plan for continuous improvement, you need a benchmark.
- Operational Adjustments: Implement your observations! Use insights from your metrics to make operational adjustments, such as optimizing warehouse layout, refining order processing workflows, or renegotiating carrier contracts to reduce shipping costs.
- Customer Experience Enhancement: Make sure your adjustments and observations enhance customer support and experience. Utilize order accuracy, shipping times, and return rates metrics to enhance the overall customer experience and build customer loyalty.
Businesses can save money, streamline operations, and ultimately drive online sales growth by harnessing the power of metrics derived from your fulfillment center operations. Partnering with a reliable 3PL provider and strategically analyzing relevant KPIs and metrics are essential to achieving ecommerce success in today’s competitive landscape.
Maximizing online sales can be directly correlated with your 3PL. It requires a strategic approach to identifying and analyzing key metrics directly impacting ecommerce success. By leveraging these metrics effectively, businesses can optimize their operations, reduce costs, and deliver exceptional customer experiences, ultimately driving sustained online sales growth.