If you’re an e-commerce entrepreneur, you can find thousands of online articles about how to grow your e-commerce business: how to market it, how to find customers, and how to choose the best platform.
All of that information is super important… but:
If you don’t have a deep understanding of which products are bringing in what value, the best marketing in the world won’t allow you to meet your full revenue potential.
Your financial metrics — and hence, your books — should be the starting point for every decision you make. But if you don’t know what those metrics are (or what they mean), you’re essentially flying blind.
Reconciled offers online bookkeeping services to dozens of e-commerce entrepreneurs — from those just starting out to rapidly scaling companies. While all businesses share some of the same financial needs, bookkeeping for e-commerce has some unique challenges and opportunities.
- Don’t integrate your e-commerce platform with your accounting system
This might sound like odd advice — after all, wouldn’t having everything integrated on one platform be more efficient?
In theory, this is true. But accounting platforms weren’t built to house all the transaction data that exists in an e-commerce platform. And they weren’t built to report in the same way.
Unless you are a low volume/high dollar e-commerce store, integration will lead to a huge mess of confusing data that won’t tell you what you need to know. But what you can do is review the e-commerce reports that are native to your platform to get immediate information.
You can also hire a bookkeeping firm with e-commerce expertise (like ours) to help you build a best practice of getting that information into Quickbooks on a weekly or monthly schedule.
- Create a practice of reviewing sales reports
Just because you’re not integrating your e-commerce reports doesn’t mean you shouldn’t be looking at them. Those financial reports provide the immediate data you need to determine whether you’re on the right track today or this week.
Schedule it into your calendar so that getting accurate information about the state of your sales and finances isn’t something that gets pushed aside when things get busy.
- Identify the true cost of getting your goods out the door
It’s not enough to know that you can get pens for $0.10 and then sell them online for $0.50. You need to know how much every step of the process costs. You need to know, for example, how much it costs to ship the pens to your warehouse, how much it costs to purchase the packaging, and how much it costs to get the pens into the packaging.
If you forget to build these process costs into the cost value of your goods, you can all the sudden find yourself with half the margin you were banking on.
- Understand your gross margin percentage
An accurate cost value determination will help you fully understand your gross margin percentage — both by individual product and as a business. A 40-60% gross margin range on a project is pretty standard.
If you’re looking at a gross margin of less than 40%, then you’ll need to be sure that you’re operating a high volume business. Otherwise, you may have a hard time supporting the overhead expense of running the company.
- Track your inventory from the beginning
Many e-commerce entrepreneurs fail to carefully track inventory in the early stages of their business — and this can quickly become one of the biggest financial burdens for a growing e-commerce company.
The upside — for companies that do actually track the value of their inventory — is that inventory is bankable. That means you can borrow against it. But in order to do so, you have to keep disciplined track of inventory. For most e-commerce businesses, that means monthly inventory counts.
Of course, even if you’re not hoping to take that inventory to the bank, tracking your inventory allows you to see what products are selling well and which products are becoming stale.