While e-commerce shopping in 2020 became necessary due to lockdowns and restrictions across the country, 2021 will show continued growth in this space. This year will be defined by changing consumer preferences as we negotiate an economic recovery locally and abroad. This month we focus on the lessons of the last year and to create a strategy for e-commerce businesses moving forward.

Follow these steps in January to make the rest of 2021 profitable: 

January delivers a slowdown in sales and paying accounts with Australia Post or couriers. This means it is extremely important to focus on cash flow once the busy December season is over. Due to the decrease in sales in January do not rely on new revenue to pay outstanding accounts. Settle it from the sales from the previous quarter. An outstanding balance at the beginning of the year can easily snowball as the year goes on.

One area of focus should be settling all final accounts. For e-commerce it is no surprise that postage will be one of the biggest invoices due in January. One important thing to keep in mind is that Australia Post invoices can be very large due to increased sales and returns and exchanges. It is critical to ensure the correct amount is set aside to cover these expenses.

The less busy time in January is a perfect time to do a stock take. This can help e-commerce brands achieve two goals. One is to keep on top of inventory and the other is train staff in any new stock or changes. 

While January can and should be a time to relax after the mad rush of Christmas, it can also be used effectively to touch base with staff and planning for stock management.

E-commerce return rates can go up by almost 50% above normal after the holidays. Returned holiday gifts is the biggest problem for e-commerce retailers. In addition, clothing and shoes are returned at the highest rate year-round, especially because customers often buy multiple sizes with the intention of returning items that don’t fit. It is important to manage returns properly and hang onto profits.

Review the data from past returns and calculate the average e-commerce return rate for your business. If it’s below 30%, that is really healthy. If it’s higher, it might be time to implement strategies to reduce your return rate. Of course, clothing always has a higher e-commerce return rate, so start thinking about pricing that includes this as part of the cost of doing business.

If tracking e-commerce return rates hasn’t been done before in your business, it’s time to add that metric to the key performance indicators (KPIs) for your business. A clear understanding of how e-commerce returns affect profit margin helps to establish both pricing and paid return label costs that keep your business profitable in the long term.

The slower summer months is also a good time to review the sales of the last quarter. This can easily be achieved when completing your stock take, no need to schedule extra tasks.

When restocking review what has been selling and what is not. If you need less or should discontinue products now is a perfect time to make that call. It is also important to review margins on sales. Do you need to put your prices up? Or are your margins good enough to lower prices and become more competitive. These are great pieces of information to have early in the year. And finally, review which channels are making most sales. For example, are most sales coming through your own site or third-party sites such as eBay, Kogan or Amazon. Understanding where to focus and what to let go is a great way to build more value into your sales strategy.

Now that the busiest quarter of the year is over it is a perfect time to reflect on marketing and advertising budgets. While there is no perfect mix, budgets for marketing in 2021 should grow to maintain and increase business in an environment where online spending is only set to increase.

Consider which platforms worked best for you. If email marketing in newsletters or social media platforms provided results plan on increasing spends in those areas. Often a good guide is to increase spending budgets by at least 10%. However, this is only a guide, each business should review their spends to decide on their increases. 

On the other hand, if certain platforms or types of content where underperforming now is the perfect time to revise spending in this area. Marketing is a complex mix of content, platforms and ad spends, however, looking at the busiest time of the year provides the most clarity on what is working and why. 

Gabby Leibovich and Hezi Leibovich, two of Australia’s most successful online entrepreneurs wrote a book, Catch of the Decade. This book explains how they built, launched, merged, and sold some of the most disruptive businesses in Australia: Catch, Scoopon, Menulog and Luxury Escapes. We at 360 Accounting believe this is foundational reading for any business owner in the e-commerce space. This book contains secrets and strategies to shorten a new or seasoned business owner’s learning curve, lists mistakes to avoid, and helps your business thrive in these uncertain times.

While the silly season is over, we cannot stress enough the importance of learning, taking stock and building for the future in January. Of course, if you have any questions or would like to schedule a review of your books please get in touch. We are always happy to help.