The final stage in the ecommerce process is the logistics of getting your product in and out. As your business scales, logistics will become a more considerable headache, and you will need to keep tight stock control and ordering processes to ensure you are appropriately stocked to meet the needs of your customer base.
Stock Control Tips
Keeping an eye on your stock levels and ensuring sensible ordering should be a simple part of the process of running your business. However, as you start to scale it can become difficult to hold this information in your head, and proper systems of measuring, tracking and stock-taking can help you avoid and reduce wastage while ensuring you have the products you need to fill demand.
Here are a few central factors you need to bear in mind when managing your stock, to protect your margins and ensure your business can survive the logistical challenges of scale.
- Watch out for ‘Shrinkage’: Shrinkage occurs when actual stock levels differ from stock in, either as a result of damages, theft, or unsellable returns. Studies show this accounts for an average of around 1.4% of stock levels, though this may be more or less in your ecommerce business. By keeping a close eye on stock levels, you can ascertain the shrinkage percentage, and whether you are able to reduce this percentage and boost your margins into the process.
- Verify Stock In: Counting stock when you receive it is essential, so that you can have accurate records and track the journey of your stock through the fulfilment process. As soon as you receive a delivery, make a detailed report of what stock has actually been received, which you can cross-reference with the actual details of your order. This will provide you with a better idea of whether you’ve received what you have ordered, while providing the best basis for calculating your stock levels relative to losses, damages and other forms of shrinkage.
- Work To Minimum Reorder Levels: Minimum reorder levels are a great way of ensuring you never run out. If you know the rate at which you sell a product, and the amount of time it takes to receive delivery of a restock, you can create a minimum reorder level which allows a buffer zone, so you ideally never run out of stock. If you computerise your system, you can automate the levels at which you need to be restocking, such that you get a daily or weekly report of what you need to order to restock efficiently.
- Choose Smart Stocking To Avoid Errors: When you are storing stock, you need to think carefully about how you catalogue your products to avoid errors in shipping (which can lead to costly returns processes). That means cataloguing everything so that it should theoretically be simple to find in seconds when you need to. You should also avoid positioning like items side by side – this increases the chances of switching products inadvertently, which leads to unhappy customers and costly margin hits.
- Clearly Name and Label All Products: Labelling is also essential, and your naming conventions should be clear and leave the searcher in no doubt as to which make and model they are looking at. Bad labelling means you end up relying on often similar product packaging to tell which model or product to ship. This takes time and increases the likelihood of mistakes, all of which are bad news for your ecommerce operation.
- Manage Restocking and Returns: You need a process for tracking returns, and also for handling returns, exchanges and other forms of restocking in to your business. It can be easy for margin to leak from ineffective or inefficient returns and exchange processes, and ecommerce businesses that scale quickly can find this one of the single most challenging elements of stock control. As with all inventory management, it is a question of running a tight administrative process, so you know what’s coming back and what you intend to do with it. Once you’re tracking a problem with stock, it becomes much easier to take control of it.
- Perform Regular Stock Checks: However you structure your stock control, one thing you need to be doing regularly is checking your stock. Stock takes are your regular chance to establish how much stock you have remaining, so you can update your systems accordingly to take account of shrinkage and wastage along the way. While this can be time consuming, it is an essential for keeping tight control on your stock – the essential asset your business needs to generate revenue.
Choosing Shipping and Fulfilment Methods
Shipping and fulfilment can be time-consuming and costly, and it is easy to tip an otherwise profitable sale into the realms of unprofitability if you are not careful in handling your packaging, delivery and distribution models. Especially as your business scales, it simply isn’t feasible for you to personally post out individual parcels – you would need a team packing every day, and a very patient post office with the resources to handle your volume.
Instead many choose to eventually open a trade account with a courier company, where packages can be collected and deliveries invoiced on account, or to outsource the process altogether to a fulfilment warehouse specialising in ecommerce deliveries.
As with all things ecommerce, it boils down to keeping the numbers in check, so that your business is not getting stung with excessive shipping costs. Before you can offer a product at a set price, you need to have factored in all the tiny applicable costs, and written these off against your margin to see whether a profit remains – you would be surprised how quickly things like processing fees and shipping costs can add up to destroy your overall profit margin from selling through ecommerce.
The first decision you need to make when shipping your products is the packaging you will use. Some companies use their packaging as an additional branding tool, creating a positive ‘unboxing’ experience for customers, and helping ensure brand consistency and reputational value throughout the whole process. Others go for something much blander, and depending on your market it should be obvious which way will work best for your customers.
Of course, the nub of the issue is as always cost, both in terms of the cost of the packaging materials themselves, but also the resulting shipping costs. Shipping rates are often variable against the dimensions of the product being shipped and the weight of the package – lighter-weight, smaller boxes are much more affordable to buy and ship.
Setting Up Business Accounts
When you achieve any kind of scale, you are going to want to think about setting up a business account with a courier, who will be able to handle the volume of your shipping requirements on a daily basis. A business account will entitle you to discounts off regular shipping rates, and this can often be negotiated for larger ecommerce operations on account of volume.
Take care to shop around, and monitor how your customers react to different delivery options. Delivery isn’t always a commodity service, and some of the cheapest distribution companies can actually damage the reputation of your business – false economy in the competitive world of ecommerce. Speak to different couriers, and play them off against each other if you want to secure the best deal for your deliveries.
Above all, make sure you know your ceiling price from a margin perspective, so you know how much you can afford to pay if you offer free shipping, or how much the customer will be paying if you are passing costs along.
Consider Outsourcing Fulfilment
When your ecommerce shop starts to turnover a significant volume of product, shipping and deliveries will prove an increasing headache. Even storing stock can be a problem, and before long you will find yourself in need of warehouse space, if not some other solution. But before you rush out and sign that lease, you need to consider outsourcing the fulfilment process.
There are companies out there specialising in ecommerce fulfilment, which can actually help you save money on building this infrastructure yourself. While you will pay slightly more per product versus just shipping these yourself, this takes into account a series of other costs you don’t have to pay (not to mention the cost of having someone else worry about your fulfilment and stock management). This frees you up to concentrate on selling, and on marketing your website effectively to secure as many customers as possible.
Again, look around. Speak to different fulfilment companies to find out minimum volumes and pricing, so you can get a better idea of how much this is likely to cost. As an alternative to creating your own facility, this will invariably work out to be slightly cheaper and a lot easier.
Amazon Fulfilment Services
One option ecommerce retailers use for fulfilment is Amazon. Fulfilment by Amazon (FBA) allows you to effectively outsource your back-end operation to Amazon. You direct your inventory to Amazon, and they proceed to handle your fulfilment, for a price per item sold.
This allows you to take advantage of the sophistication of the Amazon logistics network, while also meaning you can sell through the platform directly, leaving your products eligible for Prime and rapid delivery.
Retailers who use FBA widely report an increase in the number of units they sell, through the benefits of being listed on the Amazon Marketplace. Add to that the convenience of the Amazon fulfilment option, plus the trust that comes with the Amazon brand, and you have a recipe for convincing on-the-fence buyers and delivering to your confirmed customers quickly.
Of course, the downside to this is the additional cost, and you need to factor in the margin hit when pricing up your store. As a general rule of thumb, Amazon charges a per item fee, ranging from pennies to tens of pounds, for handling the fulfilment of your stock.
In the interests of balance, there are downsides to Amazon fulfilment in particular, versus other solutions – including the fact that Amazon competes directly with those using FBA services in a wide number of categories, while simultaneously having access to your sales data. If you like the sound of fulfilment but aren’t sure about the Amazon factor, there are others who can handle the basic fulfilment stuff.
Whenever you sell something in the course of business, you will be liable to pay and possibly collect taxes on the value of the goods you have sold. In the UK, if your turnover reaches the relevant level, you will need to register for VAT, and collect VAT at the prevailing rate from every customer you sell to. You can deduct from this amount the VAT on anything the business buys, including stock, but the balance must be remitted to HMRC in accordance with your VAT payment cycle.
Beyond that, you will be required to pay income tax as either a sole trader, or corporate taxes if you are trading through a limited company. The amount you pay is dependent on your profitability in both of these cases, but you are obliged to keep all records for a period of years so you can support your tax returns if requested by HMRC.
Tax is of course a huge, complex issue, and those starting businesses outwith the UK will have their own issues to deal with. A lawyer, accountant or specialist tax adviser is the best to help you reach the right conclusions as to how much tax you should be charging/paying, but be aware that your selling activity must be declared in some form to the relevant tax authorities if you want to operate in accordance with the law.
VAT Mini One Stop Shop
Those who are selling to consumers across the EU may be required to register for the VAT Mini One Stop Shop service (VAT MOSS), covering the application of VAT which may arise throughout the EU under the laws of any member state. This means you don’t have to register for VAT in every single country you sell to, with the ‘One Stop Shop’ element meaning one return and one payment to HMRC, who then take care of forward payment in respect of your liabilities.
You can read more information about VAT MOSS and the different types of scheme available at: https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop
When it comes to ensuring your tax and legal affairs are in order, it is advisable to seek professional advice – particularly in relation to your VAT requirements, and whether you are eligible for a VAT MOSS solution. This will ensure you are as up to date as possible in your legal and tax requirements. If you’re not an expert, and even if you think you are, there’s no substitute for professional, current legal advice.