March 19, 2009

Mega-Metrics: Merchandise Profitability And The Item Resume

An area of opportunity for the Business Intelligence community is in assessing merchandise profitability. Here's a sample profit and loss statement for an item during the 1st quarter of 2009, what I call the "Item Resume".

Quarterly Merchandise Profit And Loss Statement

Demand $8,000
Fulfillment Rate 90.0%
Return Rate 25.0%
Net Sales Percentage 67.5%
Net Sales $5,400
Gross Margin Percentage 55.0%
Gross Margin $2,970
Less Catalog Expense $1,150
Less Paid Search Expense $250
Less E-Mail Mkt. Expense $50
Less Affiliate Mkt. Expense $100
Less Portal Adv. Expense $200
Less Pick/Pack/Ship $621
Variable Operating Profit $599

% Of Net Sales 11.1%
Ad To Sales Ratio 32.4%
% Of Demand: New Buyers 47.0%
% Of Demand: Organic, Non-Advertising 33.0%
% Of Demand: Repeat Item Buyers 29.0%
% Of Demand: Online 62.0%

Now this isn't just one mega-metric, but rather, a compilation of numerous mega-metrics. Our job is to evaluate the item resume.

Is the item profitable?

Does the item generate demand organically, or is the item dependent upon advertising to generate sales?

Does fulfillment rate or return rate hurt the profitability of the item?

Does the item recruit new customers?

Do prior item buyers purchase the item again?

This style of reporting is sorely missing in our KPI / Dashboard / Customer-Centricity / Conversion-Rate / Shopping Cart Abandoned world. Show me the last time you've read an article that featured this style of reporting? Now, tell me what your merchandising team would think of this reporting ... would they be able to make better decisions?

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