4 Essentials to Planning Growth of Your Ecommerce Business

Many small-to-medium ecommerce businesses do not employ sufficient long-range planning as part of their business culture. The old joke about the definition of long-range planning is operative in some companies, “Where are we going to eat lunch?”

Large businesses have comprehensive processes necessitated by owners and investors and the need to communicate objectives and results to various stakeholders.

While long-range planning can be time consuming in larger companies, smaller businesses can benefit from adopting some of the key best practices. Advantages include:

  • A top-down and bottom-up planning process that can act as a guide to achieving business objectives with expense control and profitability
  • Planning cash requirements for inventory purchases, payroll and expansion that are in line with projected sales and resulting gross margin
  • Broadening the analysis of results to include merchandising, marketing, fulfillment and accounting in addition to standard ecommerce metrics
  • A quarterly review of goals and financial plans and discussion about adjustment if necessary

Start Planning on a Longer-Term Horizon

What length of time is realistic? Most SMBs have an annual sales goal but may not have a detailed plan of how to get there. This includes month-by-month goals for sales, gross margin, major expense categories, acquisitions and profitability. At what periods during the year do you expect to have a greater need for cash, and will you need temporary borrowing to purchase inventory?

From our experience, planning is difficult beyond two or three years, as ecommerce businesses grow and change so fast. We use the word “longer” with the idea it’s a longer time horizon than many smaller businesses currently employ. Extend your planning for the current fiscal year forward to a second year as a series of realistic benchmarks, if you reach the current year’s goals. The second year will be necessary to plan purchases with longer lead times, such as proprietary and exclusive product. Update the plans quarterly with your best available data and intuition.

Adopt a Formal Budgeting Process

To support the profit projection, institute a budgeting process for at least major expense categories and report monthly on “plan to actual” for sales, expenses and profit. To make accounting data more timely, reduce the time required to close a fiscal period. Large companies close within two weeks of the end of the month. This gives you the data to review in order to institute more discipline in planning and managing the business.

Start with a Post-Holiday Season Analysis

In a recent blog we discussed ways to evaluate your fulfillment after the peak holiday season. The same type of evaluation and planning is needed for all major areas and should become part of the planning process.

For example, in many ecommerce companies 20% of the products provide 80% of sales and maybe a higher percentage of profit. When you look at item profitability do you allocate advertising, fulfillment and SG&A expenses to determine net profitability by product? How will you grow the item assortment seasonally and by year? This type of analysis should become part of the quarterly process.

Involve Key Employees Throughout the Process

In larger companies the planning process is most likely driven by the CEO or CFO, with detailed planning by merchandising, marketing and fulfillment managers. They in turn enlist key employees to help develop plans. The planning process needs to start with ownership and senior managers setting top-down sales goals. Then a bottom-up detail plan can be developed by key people in each area to meet them.

Communicate the results of monthly sales and profitability to senior people involved in the process. This may take a culture change on the part of ownership. It doesn’t mean that everyone has detailed access to sensitive financial information such as payroll. But help key employees understand how you make money and what the major expenses are. We have found that when given this type of knowledge and feedback, they help grow the business profitably.

As your planning becomes more effective, implement a quarterly communication meeting with all employees to share highlights of sales, profitability, customer service and new initiatives. We believe most employees want to help the company reach its goals and not just pick up a paycheck.

Adopting a longer-term planning process has many advantages. It does take time and will lead to more detailed planning in all major areas of your business. The time and effort invested in the new year will leads to improved sales, profitability and improved customer service.

Brian Barry is President of F. Curtis Barry & Company

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