Maximizing Online Sales with a 3PL: How to Leverage Metrics for Success!

In today's rapidly evolving e-commerce landscape, businesses are continually seeking innovative strategies to enhance their online sales and improve customer satisfaction.

One increasingly popular approach is partnering with third-party logistics (3PL) providers. By outsourcing warehousing, fulfillment, and shipping operations to a reliable 3PL partner, businesses can streamline their operations and focus on core activities like marketing and product development.

However, engaging a 3PL is just the beginning. To truly maximize the benefits of this partnership and drive online sales growth, businesses need to pay close attention to key performance indicators (KPIs) and metrics derived from their fulfillment centers.

In this comprehensive guide, we'll dive into why metrics matter, explore essential KPIs for e-commerce success, and discuss how businesses can leverage these metrics to optimize their operations and boost online sales.

Why Metrics Matter When Managing Your 3PL?

Before diving into specific metrics, it's crucial to understand why they matter in the context of e-commerce sales. Metrics provide valuable insights into various aspects of your fulfillment operations, including efficiency, accuracy, and cost-effectiveness. By tracking and analyzing these metrics, businesses can identify areas for improvement, make data-driven decisions, and ultimately enhance the overall customer experience.

Essential KPIs for E-commerce Success:

• Order Accuracy Rate:

A high order accuracy rate is crucial for maintaining customer satisfaction and reducing costly returns and exchanges. As a business owner, seeking the highest percentage of order accuracy makes sure you eliminate errors in your operations therefore resulting in faster deliveries. Studies show a high order accuracy rate is directly correlated to an increase in customer retention. But why is customer retention important? According to a report from Bain & Company and Harvard Business School, “Increasing customer retention rates by 5% increases profits by 25% to 95%."

With a precise order process, your company will see reductions in returns, refunds and reshipments, which usually eat profits. Order accuracy rates that are lower than 90% can directly affect your businesses’ brand reputation. So, how do you calculate it?

order accuracy rate = [total orders fulfilled accurately ÷ total orders fulfilled]

Then, multiply that sum by 100.

For instance, let’s say your DTC brand fulfilled 500 total orders. Of those 500 orders, 20 had some sort of mistake (like a mispick, for example). But 480 orders were fulfilled accurately. In this situation, your order accuracy rate would be 98%.

[480 ÷ 500] * 100 = 96%

Then deems the question, Is this a good rate? If your brand scores less that 95% you may find yourself losing customers. Stay on top of these metrics to make sure you don’t.

• Order Cycle Time (OCT):

Henceforth, the second important KPI to keep in mind in order to ensure accuracy is order cycle time. This metric tracks the time it takes for an order to be processed, picked, packed, and shipped. In short, it is the time it takes for a company to complete the order fulfillment process, from the moment a customer places an order to the point when the product is delivered to the customer.

Shorter order cycle times result in faster delivery, which will lead to higher customer satisfaction and repeat purchases. It is proven that customers will return and are more likely to be loyal to your brand if they trust their package will be delivered on time, every time. According to Forbes, “the probability of selling to an existing customer is up to fourteen times higher than the probability of selling to a new customer.” Why spend your marketing budget on finding new leads, when you can just retarget old ones who already trust your brand.

By honing in on reducing order cycle time, businesses can achieve significant benefits that directly impact customer satisfaction and loyalty. This will have them returning for more reasons than just your product. 

• Inventory Turnover Rate

The inventory turnover rate indicates how quickly inventory is sold and replaced within a specific period. A high turnover rate can suggest efficient inventory management and can help businesses avoid overstocking or stockouts.

An example of an inventory turnover ratio is 4 to 6, which can be an ideal KPI for most food or ecommerce businesses. With this ratio, it would mean your business will not run out of stock which allows you to meet customer demands and in the same vain your 3PL will not be holding an unnecessary high volume of unsold products.   

How to calculate the inventory turnover ratio for your business? Depending on your industry this ratio can change. The inventory turnover ratio equals to the cost of goods sold divided by the total or average inventory. This shows how many times inventory is turned or sold. This formula can assist you with excessive inventory levels compared with the current sales. Your 3PL can assist you with this at any time.

• Shipping Cost per Order: Calculating the average shipping cost per order provides insights into the efficiency of your shipping operations. By optimizing packaging, carrier selection, and shipping methods, businesses can reduce shipping costs and increase profitability. If your product is experience exceptional sales, but your shipping costs are disproportionately high, they can most certainly impact your probability for success. In fact, you may even find it difficult to break even if shipping costs are not effectively managed. Being proactive on shipping costs is a must as an ecommerce seller, who is trying to maintain a healthy profit margin. This involves carefully evaluating and optimizing various aspects of your shipping process, such as carrier selection, packaging efficiency, shipping methods, and fulfillment strategies. Here at Phase V, we offer best way carrier selection an option you want to be sure your 3PL takes advantage of. Essentially, your 3PL will give you the best possible cost working with all carriers. Depending on the period, package size and dimensional weight prices can vary. You want to be sure you are keeping track of these metrics to make sure your 3PL is offering you the best prices for your product.

•       Return Rate: Monitoring the return rate helps businesses understand customer satisfaction and product quality. A high return rate may indicate issues with product descriptions, sizing, or overall customer experience. Monitoring return rate metrics is a crucial part of your business because it measures customer satisfaction and product quality. By tracking the frequency of products returns. Businesses can gauge whether or not their product has met customer expectations.

A high return rate serves as an important indicator that something may need to be addressed with the product or in your operations. For example, it may suggest discrepancies between product descriptions and actual product features, leading to customer dissatisfaction upon receiving the item. Similarly, sizing discrepancies or inconsistent product quality may contribute to a higher return rate, indicating the need for better quality control measures or clearer sizing information. Ultimately, a lower return rate indicates higher customer satisfaction and product quality, leading to increased customer loyalty and repeat purchases. Therefore, by closely monitoring return rates and taking proactive measures to address underlying issues, ecommerce sellers can improve customer satisfaction, build trust with their audience, and ultimately drive long-term business success. Quality may contribute to a higher return rate, indicating the need for better quality control measures or clearer sizing information.

How to maintain metrics

Ecommerce sellers can find it hard to keep track of all this data on a monthly basis. However, once businesses have identified relevant KPIs and metrics, the next step is to leverage this data to drive improvements and optimize online sales.

Here are some strategies to maintain success on a monthly basis:

•       Continuous Monitoring and Analysis: Set up a monthly check in with these metrics where you can track and analyze your chosen metrics to identify trends, patterns, and areas for improvement.

•       Benchmarking: Compare your metrics against industry benchmarks or previous performance to gauge your progress and identify opportunities for growth. In order to plan for continuous improvement, you need a benchmark.

•       Operational Adjustments: Implement your observations! Use insights from your metrics to make operational adjustments, such as optimizing warehouse layout, refining order processing workflows, or renegotiating carrier contracts to reduce shipping costs.

•       Customer Experience Enhancement: Make sure your adjustments and observations are all to enhance your customer support and experience. Utilize metrics related to order accuracy, shipping times, and return rates to enhance the overall customer experience and build customer loyalty.

By harnessing the power of metrics derived from your fulfillment center operations, businesses can save money, streamline operations, and ultimately drive online sales growth. Partnering with a reliable 3PL provider and strategically analyzing relevant KPIs and metrics are essential steps toward achieving e-commerce success in today's competitive landscape.

Maximizing online sales can be directly correlated with your 3PL. It requires a strategic approach to identifying and analyzing key metrics that directly impact e-commerce success. By leveraging these metrics effectively, businesses can optimize their operations, reduce costs, and deliver exceptional customer experiences, ultimately driving sustained online sales growth.