Why You Have No Financial Visibility In Your E-Commerce Business
If you are selling online, you’re already tracking tons of different metrics. Click-through-rate, conversions, cost-per-click, cart abandonment rates, impressions – the list goes on and on. You can track your Facebook, Twitter, Instagram and LinkedIn campaigns from your phone. Google Analytics provides you nearly endless possibilities for analyzing site traffic – and again, you can do it all while you are on the go. This is wonderful because without driving traffic and awareness, how will anyone know about your brand or find out about your holiday sale? So let’s start by acknowledging all of that is extremely important.
For the majority of small-to-midsize e-commerce companies, those are easy things to track. The tools are relatively easy to use, awareness is mainstream, and the cost to analyze is minimal (or free). However, analytics can’t stop there. Traffic and conversions are steps 1 and 2, but what happens after that? How do you know if your campaigns and your ad spend are effective from a profitability perspective? Are you paying too much to acquire a customer? Are you effectively managing shipping costs? Are your margins appropriate? Do you even know your margins on a SKU-by-SKU basis? Unfortunately, most small-to-midsize e-commerce companies aren’t tracking these KPIs on a regular basis and they certainly aren’t available on mobile. There are 5 main reasons for this lack of visibility:
You’re probably using great systems in other aspects of the business. Whether its Shopify, BigCommerce, ShipStation, ShippingEasy, Skubana or Stitch Labs, you’ve likely spent time ensuring that your systems can handle not just your needs today, but a reasonable amount of growth. Accounting and finance systems are no different. There are systems that are intended for DIYers and there are systems that are intended for serious businesses. Without a system that can handle data properly, you’re already behind the power curve.
Too Much Manual Work
A byproduct of a weak system means you need to track data in multiple places and then pull it all together in the dreaded Excel sheet. Accountants love Excel because it is what they were raised on. Its flexible, its lightweight, and its easy to use. Oh, and its (virtually) free. But if you are running an e-commerce company, who has the time to export 8 different reports, build 3 pivot tables, link 50 cells, use a 6-color category system, and then email the outcome to 5 different people who can’t possibly understand it on their iPhone.
Any accountant can tell you that good processes are critical for a variety of reasons. But in a small, scrappy company, you just need to worry about putting one foot in front of the other. You’re worried about making sure that you actually have product for the upcoming sale and tracking the cost is something you’ll worry about another day. The problem is, that other day rarely (or never) comes. And at that point it becomes just more manual work (see above) that nobody has time for.
The advent of software like QuickBooks gave nearly everyone the ability to keep their books. The good part is that you can have some semblance of a picture of where you stand. You should be able to generally tell whether or not you made money, but that won’t actually help you make business decisions. Running a more sophisticated system that does give you the data to make decisions requires a more advanced skillset. Typically, those are highly trained professionals who know the principles of accounting inside and out – and they definitely don’t come cheap.
Not a Priority
Accounting is part of the “back-office” for a reason. Its not sexy, its confusing, it doesn’t get likes on Facebook, and nobody has ever bragged to their friends about the sophistication of their general ledger. There are only 24 hours in a day and running a company takes up every last minute of the time you have available. If you’re lucky you can squeeze out an hour or two a week to update QuickBooks or work on an Excel analysis. To be brutally honest – that’s not enough.
Any one of these 5 common pitfalls could be enough to financially derail an e-commerce company. However, because one typically leads to another, most small-to-midsize e-commerce companies are experiencing most, if not all, of these issues. That said, its not surprising to find out that according to Ventana Research, 62% of companies have significant issues with the quality and consistency of their financial data.
At Lumiola, we’re regularly solving these issues for our clients. We use cutting edge software, automation, artificial intelligence, and a little human intervention to make sure your accounting work is handled for you. All you need to do is check your real-time dashboard and use the insights to grow your company.