Once the business owner has a handle on the concept that margins need to be analyzed and KPI’s assessed in order to make intelligent business decisions, it’s time to dive even deeper into each level of reporting. If we were getting into the weeds by identifying different margin analysis areas, we are going to be splitting hairs with the sales channel breakouts of each. Again, a good thing when it comes to compiling accurate historical data to move forward and forecast with confidence. Accountfully is intensely committed to learning every detail of the business to better advise the owner on performance.Sales Channel Layers Within Your Analysis
A key viewpoint when it comes to the overall operating profit is the sales channel breakout. You’d be surprised at how many nuances are involved in each channel and their effects on the bottom line. Many times the sales channel- specific reports from your online account hub don’t show you everything involved. While they can be insightful to a degree, you shouldn’t rely solely on these. Think of it this way: if all of our data was at a high level, a profitable sales channel may make up for the bleeding of the lesser profitable one when reported so vaguely. It could look like you are doing OK overall, but that’s just because your success in one area is pulling the weight of a lesser successful one. Anyone who has been graded on a bell curve in school can relate to this. The A students pull the weight of the slackers. Not cool. Especially where your margins are concerned.
Each line can be further explored by sales channel in Fathom:
Imagine cutting ties with the profit sucking sales channel and enjoying better margins by focusing your sales efforts on the great sales outlet? That's what the details can do. There are a few basic sales channels that make sense to break out within each line in your P&L.
Let’s check out a few examples:
This is a key sales channel to note. It is its own animal in that it has many fees associated with it, especially selling fees, fulfillment, and advertising. Think of the benefit of selling on Amazon to begin with: exposure to a massive audience. You are also paying for their fulfillment and storage services. If inventory is not moving fast enough, you are paying for this - either in storage fees or the added advertising to get them moved. Just the difference between storing these less popular items at your HQ (that already has its costs associated with it), may mean better margins. Or think about the extra fees associated with manually fulfilling sales items from Amazon as needed vs. a bulk removal from Amazon to its preferred location. Little items add up, so track them.
eCommerce/Website Sales/ Direct to Consumer
Sometimes companies enjoy their best profitability when they sell directly to their customers through their website, others may do best with a solid dealer network. These sales websites have their own fees associated with them. Hosting and monthly fees or per-sale fees will need to be considered. Maybe the sales you get by focusing ads to send customers straight to the site is worth it, but you don't know this until you report and analyze it.
Wholesaler: Distributors and Dealers
If you have dealers and distributors, this is one to also consider. Sometimes this is the easiest way to sell, because the bulk of the cost of selling is now handed off to the dealer. There can be extra costs associated with selling through a dealer that can go unnoticed or add up in small increments. Don’t forget the inevitable marketing involved to make sure your product is worth it to sell by a wholesaler or dealer. Things like brochures, posters or display items dealers will want are a cost that’s on you. There is also the inherent brand value your company needs to maintain on your end to be a wanted product.
Below is an example of how each type of wholesaler stacks up in terms of Gross Revenue:
Similar to the wholesaler or dealer, it seems easier because they buy and you’ve made a sale. Many times your product can come back to you. Returns, broken items, etc may become a cost associated with retailers. Keep in mind that even if you get re-sellable items back, the packaging could be damaged or worn from sitting somewhere and being handled in a less than ideal way.
Third Party Sellers - Drop Shipping Portals, Etc.
Here you may get more exposure by using multiple hosts for your goods through other sales sites, but the “juice may not be worth the squeeze” at the end of the drop shipping line. Many hosting fees can be associated with just getting your product on these sites. Not only are you paying the drop shipper, but the host of these multiple drop shipment platforms. An example may be Inventory Source, Printful or similar. Other drop shipping arrangements, like a dealer that wants to offer your product without the upfront cost of buying at wholesale prices, can put a strain on manpower, which turns into a cost in labor and admin time. Delays in shipping, disconnects in stock levels, and updating records for these dealers may make it not worth it to continue. In a perfect world, these all integrate with your online stock records through your website, but a lot of these mom and pop operations rely on manual stock updates. You will see this once you break out your sales channels and customers.
If you attend trade shows or host sales at industry specific events, this is a big one. The flurry of sales with the added traffic can easily distract you from the cost side of these. Items involved like labor to man the booth, processing fees, shipping your set up (the initial purchase of said-set up), samples handed out, hotel and booth rental need to add up favorably in the end. If you're not coming out with a small profit, or breaking even, is the advertising (aka exposure) cost worth it in the long run? Drilling down further, by breaking these events out by even/customer, you will see which trade shows tend to make more sense, and which ones add more expense and hassle.
Let’s not forget the epitome of the complex inventory based business - the food entrepreneur. In this case, you may be selling directly to restaurants or food service providers. Addressing these channels are very important. Having your product in big name restaurants or on that trendy food truck may be worth it for the exposure (aka advertising), but not super profitable. Either way, it is an important breakout. You may even be able to see which general locations are doing better or worse with your products, the more you dive into the details.
By Customer Within Each Channel
Within each sales channel you can break it out further into customers. Maybe there are some heavy hitters that should be nurtured more within these sales channels to improve profitability. It is well known that you can get a major return on your advertising investment when investing back into your top customers. Whether this is a select list of actual individuals that alway buy the latest release of your product, big spenders or a category of type of store/restaurant, etc, this is a seriously important break down when it comes to focused advertising and sales.
Example: imagine identifying a VIP list of your top customers that have spent $500 or more at your online store. If they have been this loyal to you, imagine what a special marketing campaign or thank you gesture geared toward engaging these customers would do to boost sales (and the good will and word of mouth it could spawn). This would be a great example of the cost of advertising, discounts or freebies that pay for themselves. However, you can only identify this by the drilling down of each and reporting it properly. Perhaps a free hat to each customer on your VIP list makes a ton more sense than handing them out at trade shows?
You’ve Got The Details, Now What?
By now, you get it. Not only do you need accurate reporting on the micro level in your business, you need to analyze the details. As you can see by some of these breakout examples, there are a ton of areas that may offer some serious profitability insight, just by looking at them.
When you, as the brains behind the brand concept of your company, can focus on nurturing the areas that show good margins and the potential for success, you can really grow your business. It’s a lot harder for the big thinker to get into these weeds initially, so that why it makes sense to outsource your accounting, and let Accountfully gather and show you the stats, so you can move ahead with your big ideas in the right areas.