Your Online Business – You Can’t Manage What You Don’t Measure – Part I
[Guest Post by Chris Taylor]
I’m an eBay seller. And running a successful business, big or small, means understanding my numbers. What’s my profit? Do I make a profit?? How much am I paying in fees? What is my inventory costing me? Do you know all of these answers? As Jim “Griff” Griffith, Dean of eBay Education and Senior Manager of the Selling Experience team at eBay says, “The numbers…you can’t manage what you do not measure. And a business you can’t manage, you can’t grow.” And he’s right.
Learn from Griff’s Words
Griff recently did a webinar called “Know Your Numbers: Managing Your Business to Greater Success.” I know, not quite the appeal of The Avengers. But I’ll bet Griff’s webinar will do a lot more to make your online selling efforts more successful! (Although who couldn’t use a few super heroes now and again?) Anyway, I transcribed his presentation and wanted to share a few of his recommendations.
The Important Numbers
Naturally we want to turn our attention to how much money is coming in versus how much is going out. But what about the numbers behind profit/loss?
Well, how much did you sell last quarter? Last year? What were your shipping costs? How much did you lose in returns? If you don’t know off the top of your head, can you get those numbers quickly? If the answer is “no” to any of those questions…you have some work to do.
In order to better understand why your business is successful or struggling, Griff suggests creating a Profit & Loss statement. Here’s what it contains:
· Gross Sales
o All the revenue you took in during a specific period.
· Cost of Goods Sold
o In order to sell goods, you need to buy them. So this is that cost.
· Gross Margin
o Pretty straightforward - subtract your Cost of Goods Sold from your Gross Sales.
· Operating Expenses
o These should be broken out into specific categories. There are some common ones and others that will be appropriate for just your business. These could include: facilities, selling fees, shipping costs, supplies, losses, advertising & promotion, and everything else. Add these all up.
· Net Income
o This is the magic line. It means everything to your business. Your Gross Margin minus your Operating Expenses equal your Net Income.
The next post will talk about another set of important numbers. These have to do with your conversion rate, format mix, sales velocity and more. You can wait….or you can watch a recording of Griff’s entire “Know Your Numbers” webinar right now as well as download the guide that transcribes his comments and incorporates with his slides into a PDF for easy access.