After last week's posts outlining some of the costs and complications that can come with eCommerce fulfillment in the bev alc industry, we received a flood of requests for more information on how to further optimize the channel. Below is a rundown of the most common advice we give our 600+ suppliers using the AccelPay platform.
More SKU's = More Problems and /= More Revenue
The most successful sites tell a clear story, have a clear purchase path and limit opportunities for customers to get distracted and lost. Analyzing AccelPay's hundreds of brand customers and hundreds of thousands of orders, it's clear that offering 3-4 SKU's is the sweet spot.
That's enough variety to create bundles and pairings to drive up cart value, but not so much that it creates decision fatigue or OOS / supply chain issues.
The worst product is one that sits on the shelf for more than 10-30 days.
Each of those bottles was ordered with somewhere between 10-30 day payment terms. A dusty bottle is one that represents tied up capital that can't be used to purchase something else that might turn over 2-3 times within a payment period.
We often have brands that want to represent their full catalog on their website, if that catalog has 10 skus and the retailer has to bring in 1 case of each of those skus before the site is even live then it represents a significant financial commitment.
There's an even bigger issue of OOS at distribution. We all have frustrations with distributors at times, but being in the middle of the chain it's harder to respond to consumer trends.
Making it easier for all tiers involved, by limiting your sku count (at least to start), experimenting with bundles and new products throughout the year, and keeping the supply chain simple is the easiest way to make sure your channel is healthy and fulfillment complications are kept to a minimum.
Determine your budget first
Brands run promotions and campaigns without a clear budget in mind. If those campaigns require a relatively high marketing subsidy and those campaigns are wildly successful, then they could end up with unanticipated marketing bills.
In the last holiday season, we have had two brands with hugely successful eCommerce campaigns that ended up with $40K+ marketing bills. This is perfectly normal for many of our brands, and if planned correctly will result in positive ROI. However, in both instances these new-to-world brands underestimated their demand, over spent on fulfillment subsidies, and not allocated budgets correctly.
Brands should look at both budget line items and determine how much they want to invest in marketing, knowing their consumers and building those relationships. They can work with AccelPay to develop campaigns that are first-order profitable, so there's a positive ROI for their efforts.
Understand your unit economics
Every day we speak with brands that don't actually understand their COGS.
For example, we worked with a large multi-national beer brand that, until speaking with us, was unaware that they were spending more to fulfill eCommerce orders than they were making off of it. When a brand knows the profit from a single unit or case, it makes it easy to create a long-term, viable eCommerce program. AccelPay has walked clients through this a hundred times, and there's several marketing partners that we work with that can create this out easily with you in a spreadsheet.
eCommerce can be a legitimate, non-trivial revenue driver for brand, not just a marketing-expense, if you build your model from the ground up, based on your COGs.
Create a Listing that's Profitable
Once you know your budget and unit economics it's time to shape your desired cart. Most 750ml bottles or 18-24 packs are solid candidates for single-unit orders. It's just a matter of making sure the COGS are in balance with your revenues.
Let's look at this example:
Canned RTD brand A has a DTC price of $22/4 pack.
- The retailer purchases those 4 packs for $15.39 (30% margin).
- That is a $6.61 gross profit per 4 pack.
- Most retailers use a rough calculation of $6 fixed cost per order to fulfill (box, overhead, platform fees) that means if a retailer was fulfilling an order for a single 4 pack they would make $.61/order.
- The remedy for this is to set a 2 x 4 pack minimum order which allows the fixed costs to be absorbed by the first 4 pack and the profit to be realized on the 2nd.
- It's not hard math.
You now know your COGS and your individual order economics. Put these two datapoints together and you know how much the brand stands to make off of each order when originally sold to the distributor. You can then factor in how much could be invested to grow the channel to meet your goals.
Conclusion
The single most complained aspect of eCommerce is fulfillment costs. AccelPay's been able to drive costs down with its partnerships with Gopuff and Doordash for local on demand delivery, as well as our Dynamic Shipping Reduction (DSR) program. Regardless there's some fundamental unit economics to make this channel work that every successful brand in our platform considers as they launch their digital experience. As always, reach out to success@accelpay.io to talk more.