Have you ever heard of a KPI? KPIs, or Key Performance Indicators, do just that. They’re metrics that can help you track the performance of your business and output both in the moment and over time, giving you a big-picture view of how your company is doing. All the demand forecasting in the world can’t help you if you’ve input bad data, and tracking KPIs aims to give you the best information possible in order to make your other business calculations as accurate and useful as they can be. Curious about which KPIs are worth tracking for a beginner ecommerce merchant? Read on for our definitive list of the top 6 KPIs every seller should know.
KPIs worth taking a look at are ones that provide evidence of progress towards a desired result and offer comparisons so that you can make the most out of the data you have at your disposal. Common categories of KPI include inputs, outputs, processes, outcomes, and project KPIs. Inputs measure the amount, type, and quality of things consumed in the making of a product. Output represents the result of this consumption. The process measures all tools and steps taken in the creation of a result. Outcomes show the impacts or accomplishments that result. And finally, project KPIs measure the status of deliverables.
First, take a look at your perfect order rate. Perfect order rate represents the amount of orders where everything, from picking to packing to fulfillment, went off without a hitch. The correct item was packed safely and sent on to the customer in the correct time frame, without any complaints. A high enough perfect order rate can go a long way towards ensuring customer satisfaction and repeat orders.
Next thing to keep an eye on is your fill rate. This is the amount of orders your company could fill right away, instantaneously, without waiting for any further materials or product. How many units of each SKU do you have on hand? Do you have sufficient boxes and dunnage to ship them in? Or do you consistently have to put items on backorder?
The third metric is the customer order cycle time. This represents the amount of time that takes place between when a customer places an order and when they receive it. If you want to meet that key 2-day delivery metric, keeping a close eye on customer order cycle time is especially crucial.
A related quantification is on-time shipping, which is the fourth KPI it’s important to track. This means that the product was delivered within the quoted time frame. Not necessarily quickly- if you promised delivery within two weeks and it arrives in ten days, that’s totally valid.
Fifth is inventory days of supply, also known as the inventory period. This is the average amount of time your company keeps a hold of inventory before it’s sold. The less time inventory is kept, the more vigorous the demand for your product, which is great so long as you can keep up!
Last but not least is inventory turnover, which represents the goods a company sells and then replaces. This KPI is highly indicative of how well your company is selling its inventory, which directly correlates to the health of your bottom line. Inventory turnover is an especially important metric with far-reaching implications because it informs the state of your warehousing and fulfillment operations.
First, it might be helpful to describe what we mean when we refer to a shop’s supply. Simply speaking, it’s an account of all the goods a company has in store. Raw materials, works in progress, and finished items all count towards the total. So what is inventory turnover? It’s the rate at which a company replaces stock in a given period of time, due to sales.
The question of how to find average inventory rates is an important one for the savvy business owner because it can be an important diagnostic regarding the health of the company. Low inventory turnover can be a sign that a business is struggling to make sales, or is perhaps in its off-season. High inventory turnover, on the other hand, means that a shop is doing very well, although it may have slight trouble keeping merchandise on the shelves.
Is there some kind of inventory turnover ratio formula?
The inventory turnover formula goes as follows: Cost Of Goods Sold divided by Average Inventory. Cost of Goods Sold (COGS) is a measure of the production cost of goods and services, including the price of raw materials, manufacturing, and factory overhead. You calculate average inventory by taking into account fluctuations throughout the year, considering both peak and off-seasons. At that point, you want to run a Days Sales of Inventory calculation by taking the inverse of your number and multiplying it by 365. This tells you exactly how many days it takes to sell out the entirety of your stock.
Once you’ve performed the calculations above, it’s simple math to discover how much stock you go through in any given period of time, whether that be on a weekly, monthly, quarterly, or yearly basis. If it’s a bit low, you’re able to begin looking into how to improve inventory turnover to make sure that you’re keeping a steady pace and making enough revenue for everything to run comfortably. It’s an excellent benchmark from which to make adjustments until you find a set of circumstances and actions that work for you and generate a manageable level of demand.
The reorder point definition goes as follows: simply speaking, it’s the minimum level of inventory you should have on hand. If stock happens to dip below that degree, you need to acquire more merchandise, and quickly. This order point is calculated by taking into account the number of customers asking for your products at any given time, and making sure you have enough stock to keep up with demand until you’re able to get your new goods squared away in your warehouse.
Is there a way to know how to calculate reorder point numbers?
Reorder point calculation isn’t as difficult as it used to be before the age of technology. Your SKU manager may very well have the capacity for calculating reorder point numbers built in. If for some reason you don’t have a reorder point calculator on hand, though, here’s the time between orders formula you can use to do it by hand:
The reorder point equals demand during lead time plus safety stock.
It’s that simple. Of course, the trouble can come when figuring out how much demand there is during lead time, and how much safety stock you should have on hand. But let’s say that it takes a month to receive new products from the manufacturer. You may want to take the amount of orders processed during your highest month so far, and then double it or even slightly more. This ensures that your reorder level is sufficient even if there happens to be extra demand, or your new inventory is a bit late.
We here at P2Pseller believe that information is king and data conquers all. If you’re interested in tracking these KPIs to keep a better eye on the state of your business at any given time, P2Pseller is proud to offer demand and inventory planning tools with real-time updates, 24/7, for all our e-commerce selling partners. Sell more, scale infrastructure, and grow your business to unprecedented levels. We’re excited to help you smash sales records quarter after quarter, with zero stress and zero phone calls.