The money quarter – or biggest quarter of the year – is fast approaching. Paul Waddy, eCommerce expert and strategic advisor at Wayflyer shares his best seven tips to ensure you’re ready, selling and able.
Online retailers are preparing for what we know to be the biggest quarter of the year. The ‘money quarter’ is driven largely by Black Friday and Cyber Monday promotions and the Christmas period.
So what do online retailers need to remember when preparing for this quarter?
Get your stock position right
It’s a fine line between enough and too much, and it can be a very tough period in terms of cash flow right about now. On the back of a model FY23 Q1, many retailers don’t quite have the cash in the bank they expected, with lower than anticipated sales. Still, with a big quarter of expected sales, retailers need to hold the inventory to maximise sales.
If a business has achieved sales of $500k a month for the past three months, it could well be targeting 100 per cent growth in the next quarter, which, depending on margins and profitability, could leave bank balances a little shy for buying.
A business should aim to hold 3-4 months of inventory, so it’s important to have your budgeting correct. For example, if you’re seeking $2m in sales over the next three months, but you end up only doing $1.5m, you will likely have cash flow problems.
This is where revenue-based financing providers, like Wayflyer, can help. These alternative finance providers often provide funding quicker than traditional options. They can also help you determine how much inventory you might need and how much revenue you might be able to make.
Have your promotions ready
If you have to discount, do it because your inventory dictates it, not your competitors. In other words, clear your Grade C stock – the stock that accounts for less than 5 per cent of your revenue (Shopify has a great ABC stock analysis you can use for that).
Most importantly, check your profit margins. If you’re a business that operates with gross profit margins of less than 50 per cent on products, you’re unlikely to be able to participate in discounting, unless you’re operating your business at an OPEXratio of less than 30 per cent.
Think about keeping Christmas special
If you’re discounting in November, try and plan special activities leading up to Christmas.
New products, stocking stuffers for last-minute presents, and generally lots of full-priced products to bring your margins back in order.
Think about 2023
January cops a hiding because of the huge November and December sales – everyone is pretty shopped out. Try and plan some new products or interesting activities around January to kick start the new year.
Also, remember to keep your operating costs low this month, as it’s likely to be your lowest revenue month of the year, as Boxing Dales sales tend to fizzle out early.
Consider your logistics position
Online retailers should consider having up to 30 per cent of their labour on flexible arrangements, either via casual contracts or labour hire, to flex up and down.
You want to be able to cope with the huge volumes over the money quarter, but strip your operating expenses in January.
Broaden your marketing strategy
You might have to increase your marketing efficiency ratio (the percentage of revenue you put back into marketing) now in top-of-funnel or brand-building exercises to be in the purchase discussion in November-December. Leaving your run too late is likely to cap your sales opportunities.
You’re also likely to spend more in November and December than any other month on marketing.
Does your strategy rely solely on declining paid media channels? Or have you thought about offline marketing, brand partnerships, strategic alignments, micro and even nano influencers, and generally, thinking outside the norm? Throwing all of your money at Google or Facebook is not a good idea.
Measure profit, not income
Above all, your business should exist to improve your life, and profit does that, not sales. So remember – revenue for vanity, profit for sanity, and set yourself profit targets and sales targets.
For example, if you’re discounting this quarter, you need to reduce your gross profit margin, so where will you pull that back from? If you’re expecting your gross profit to decline 5 per cent due to discounting, ask yourself if your bottom line needs to take that 5 per cent off your marketing expenditure to remain healthy.
It always surprises me how many businesses do not have net profit targets, and what’s the point of revenue if it doesn’t translate into profit?
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Now read this:
How to unlock cash from your online business ahead of the crunch