e-Commerce Case Study
The e-Commerce client engaged YOCFO due to stagnant growth issues and increased competition from Amazon. YOCFO addressed the issues, developed a strategy, and help to implement the plan.
Initially, YOCFO evaluated our client's three different lines of business: commercial online sales, commercial in-person sales, and retail sales. Given the increasing reliance on e-commerce for business, the need for well-structured and efficient logistics became critical to successful business function. This subsequently meant that the 3-5% realizable profit margin on retail sales was not enough to support the need for further investment in logistics.
Also, employee turnover was increasing rapidly, further stifling the company’s ability to process and fulfil orders on a timely basis. A lack of steady employees proved to be a serious process bottleneck and coupled with a short selling window due to the seasonality of the patio equipment industry, warehouse efficiency would make or break the company’s ability to meet quotas for the year and supply sufficient cash for growth.
Our initial evaluation included a review of the previous four years P & L statements, personnel productivity, cost of goods sold.
A plan was established to evaluate metrics using both the accounts receivable and accounts payable cycles along with the entire cash conversion cycle. Early on, our team was able to pinpoint clear visibility issues regarding the AR and AP reporting stemming from their non-systemized inventory management.
The company’s current bookkeeping and tax accounting resource was not only preventing us from gaining transparent insight as to the company’s financial situation but was stifling the business’s ability to grow.
By implementing a weekly manual update on a side sheet for the AR, AP, and cash balance changes we were able to clearly make sense of the company’s cash conversion pain points. The addition of this process allowed our team to begin working with the CEO to map out a plan for expenditure stabilization and financial reporting structure.
With their massive technology-enabled distribution network, Amazon is a key competitor for our client's business, specifically within the retail e-commerce space. YOCFO recommended that the CEO begin to focus on the commercial market for revenue generation despite “margin creep”.
With focused tracking of expenses, management resources, and service issues within the business’s retail side, we had come to the realization that continuing with retail sales was not a viable option for the business going forward. Initially, to phase out the business’s retail practices, we implemented an increase in commercial advertising, a revamp of the website, and a staff reduction. All three plans were effective measures as the business began a pivot to exclusively serve the commercial sector.
We continued to cut expenses and focus on seasonality challenges, and by the third year saw that retail had been reduced by 85% with increased growth in commercial sales each year. These efforts lessened the cash pressure, and ownership was able to shift focus onto larger sales channels, resulting in increased profits and a higher gross margin overall.
We instituted revenue metric tracking of online commercial SEO, including percentage penetration on key words, conversion to quote, and conversion to final sale. The client team is proficient at converting quotes at a 50% conversion rate and actively utilizes an SEO specialist to implement and measure targets for monthly monitoring.
The team instituted a new incentive plan for the sales team in response to the impact of COVID-19. Cash management is now measurable and predictable, with the business receiving two PPP loans and a $150K EIDL loan further easing the artificial seasonality created by COVID-19.
With a strategic, forward-looking perspective, YOCFO advised ownership that 2021 is the year to increase marketing and sales in order to allow the expansion to accelerate the expansion of the commercial channel.
Ongoing evaluation of sales generation metrics from SEO, SEM and the executive team to measure and pivot as seasonality brings an increase in sales, revenue and deliveries.
With two years of “Lean FP&A” implementation, the ability to measure and predict has become engrained in the business process. It is efficient and has positioned the client to make the full transition to a growing commercial client base in 2021.
Retail revenue was $982K in 2018, $619K in 2019, $458K in 2020, further estimated to be $250K or less in 2021.
While commercial sales have remained steady, albeit with a hiccup in 2020 due to COVID-19, revenue is predicted to be $2.65M for 2021- a 7% increase from 2018’s $2.48M
Their ability to focus on commercial business has kept sales steady, earning a slight overall profit for 2021. During 2021, the business will finalize the closing of the retail component and grow their investment in the sales and marketing infrastructure for a strong 2021 followed by a stronger 2022, given all the new connections and the rebounding outdoor marketplace.