One of the biggest challenges ecommerce business owners face is scaling to their growth. Not only do they need to efficiently scale the business in a lean and agile manner, they also need to know when to scale such that it doesn’t negatively impact operations. According to a study by Startup Genome, 74% of startups fail because of premature scaling.1 In order to scale efficiently, ecommerce business owners need to look at capital efficiency, operational infrastructure, data, and how their businesses utilize headcount.
Improving Capital Efficiency
Maintaining capital efficiency is vital to scaling ecommerce businesses. Ecommerce businesses cannot simply charge more to offset costs. The market is too competitive. Buyers are always just a few search terms away from identifying the best price. Margins tend to be thinner in any case, so the real efficiency of an operation is how well it can fulfill orders at volume. From getting goods from the supplier into the hands of customers, that entire exchange needs to operate with as little overhead as possible.
Capital efficiency also involves knowing how to manage and allocate expenses, and effectively managing supplier relations. Understanding suppliers and their challenges will help in executing efficient transactions with them. Those transactions affect cash flow and the ability to retain desired inventory.
Building an Ecommerce Technology Stack
Beyond the fast, fancy customer website, growing ecommerce businesses need to maintain an organized backend infrastructure, or technology stack. These include fulfillment, customer relations management, warehouse management, inventory, supplier management, AR/AP, and enterprise resource planning. The best method for designing the technology stack for operations so it can meet the capacity of the business is to build and create core operations in-house versus outsourcing. While some investment must be made upfront, this approach provides deep visibility and control with each step in every department. It’s a better process for identifying what’s working and what’s not, and streamlines information handoffs between key systems. There is also a potential savings which can add to profitability long term.
Being More Data-Driven
The only way to know if your ecommerce business is scalable is by looking at the data – not only orders and returns, but deeper, regular collection and analysis across all functional processes. By analyzing the effectiveness of marketing efforts, ROI, conversions, and customer satisfaction, the business can decide if there are customer-oriented changes that are required. By looking at data related to backend operations (e.g. time required to manage a supplier, invoice processing costs, operational error rates), these and others help define what areas need to be addressed and made lean as part of expansion planning.
Minimizing Headcount Impact
Finally, another factor to consider when scaling an ecommerce business is headcount. Headcount is a major profitability parameter. When growing the business, there are going to be some additional headcount requirements to meet operating needs. However, increasing headcount adds an extra layer of inefficiency and cost. Many ecommerce businesses believe that’s the only option, but actually that’s what technology is for.
Leveraging technology to replace headcount is a more efficient and cost effective way of getting things done. Not only does it cost less, but it decreases time wasted and the risk for errors. The best technology is that which can take over best practice operations instantly. That’s where companies need to look at ways to automate complex, repeatable, cost-impact functions. After all, if each employee is capable of doing what 5 to 10 normally can, that bodes well for the business’s ability to grow.