Flying Blind: Why Ecommerce Brands Can’t Afford to Operate Without Real-Time Financial Data

Much of the talk about Generative AI in the ecommerce space revolves around the customer journey. From providing personalized recommendations to chatbots that manage customer inquiries, GenAI is lauded as the ultimate experience enhancer. However, its potential extends beyond the customer experience. A notable yet less discussed use case is in data analytics - and it's interesting to gauge retailers' priorities in this regard.

To benchmark the current use and potential future of analytics across industries, Consumer Goods Technology (CGT) recently commissioned a study. Based on a survey of businesses of various sizes, the study reveals retailers’ top areas of analytics focus:

• Inventory planning (40% upvotes)
• Pricing strategy (38%)
• Demand forecasting (28%)

The Visibility Vacuum

Unfortunately, many retailers in the ecommerce space still lack visibility into:

• Real-time financial data
• Fully reconciled books
• Ledger-based ecommerce financial analytics 

This causes issues in all three areas of inventory planning, pricing strategy, and demand forecasting.

The most affected areas are probably inventory management and inventory planning. Whether due to manual practices or systems not native to the financial ledger, tracking inventory levels, exact costs (per SKU, per warehouse, etc.), and turnover rates can quickly spiral out of control and lead to errors.

The Financial Impacts of Inaccurate Inventory Tracking

In the small-margin reality of ecommerce brands, where every error takes money out of the owner's pocket, this can make or break a business. Overstocking, for example, can increase storage costs and create product obsolescence. Misallocating resources – by investing in underperforming products or overlooking successful ones – is another common scenario. And, lastly, there's understocking, which often results in lost sales and dissatisfied customers.

In the small-margin reality of ecommerce brands, where every error takes money out of the owner's pocket, this can make or break a business by leading to:

• Overstocking: This increases storage costs and leads to product obsolescence.
• Misallocating resources, such as investing in underperforming products or overlooking successful ones.
• Understocking: which results in lost sales and dissatisfied customers.

Understocking, per Carla Penn-Kahn, an ecommerce leader with four successful ventures under her belt, is a particularly acute pain point. “This is a conversation I have with ecommerce brands all the time,” she said. “They'll say, ‘Our performance last month was great because our best sellers came back in stock.’ I'm like, why were your best sellers ever out of stock? That means you don't know what is the 20 percent in your business that drives 80 percent of profitability.”

The Missing Piece in Pricing Strategy

The same problem applies to pricing strategy. This means taking into account all your expenses – i.e., COGS, shipping & fulfillment, merchant fees, and variable marketing costs such as affiliate fees, paid online ads, etc. – on a per-unit (SKU) basis. And for that, of course, accurate and detailed ecommerce financial analytics are essential.

The key to building a profitable ecommerce pricing strategy lies in understanding the true cost of sales. This involves considering all relevant expenses, such as:

The key to building a profitable ecommerce pricing strategy "

• COGS (Cost of Goods Sold)
• Shipping & fulfillment
• Merchant fees
• And variable marketing costs (such as affiliate fees and paid online ads.)

And since it is imperative to understand these on a per-unit (SKU) basis, accurate and detailed ecommerce financial analytics are essential."

Another essential element of pricing strategy is discounts. Here, too, ecommerce financial analytics play a crucial part – especially in identifying your core range, meaning SKUs that emerge as the backbone of your profitability. “If you're going to discount,” said Penn-Kahn, “try not to discount your core range because you just get less money back to repurchase that core product.”

Being able to repurchase core products is built into demand forecasting, retailers' third area of analytics focus. Effective demand forecasting requires analyzing both historical and real-time financial data. Key data points include:

• Past sales
• Seasonality
• Pricing
• And promotions

All of these factors are critical to accurately predict product demands. That’s why DTC brands that rely on outdated financial data and rigid, slow, or inaccurate processes can't optimize their supply chain to meet market needs.

They also can't evaluate their results within a larger framework. Historical and real-time financial data, said Alan Lin, COO and co-founder of Outfund, who provides revenue-based financing for ecommerce businesses, “offers a nuanced and informative approach.

“Looking at, and cross-referencing, a range of different data points allows us to delve deep into the cyclic nature of ecommerce sales and infer correlations with other inputs such as marketing spend or a specific campaign or event, identifying peak periods and contextualizing performance.”

How Real-Time Financial Data Enhances Decision-Making

Sometimes, this contextualization is a precondition to getting the capital you need. “For example, we have financed many ecommerce companies that typically display low revenue in certain months,” said Lin. “However, a detailed analysis of their historical stock and marketing activities often reveals significant sales surges during expected key periods, such as Black Friday. This holistic approach allows us to tailor our financing to each business.”

As the ecommerce landscape becomes increasingly competitive, one thing is clear: without real-time financial data, ecommerce brands will keep stumbling into the pitfalls of inventory management, pricing strategy and models, and forecasting. Those who understand the value of having 100% accurate and up-to-date books at all times, on the other hand, will be better positioned to optimize their operations, anticipate market demands, and maintain profitability.