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How 5 Experts Optimized DTC Operations [+ Metrics To Track]
![How 5 Experts Optimized DTC Operations [+ Metrics To Track]](https://cogsy.com/wp-content/uploads/2023/02/feature-image-1.jpg)
Ecommerce experts at Blume, Doe Lashes, Kuru Footwear, and more identify 15 ways DTC brands can make their day-to-day operations easier.
As an ecommerce retailer, you know how much behind-the-scenes work goes into managing your business.
Customers only see the front end: your website, emails, social media ads, and the like. But they rarely understand how back-end operations make those systems work smoothly (so they can have a seamless shopping experience).
Truthfully, managing your DTC operations includes some of the most time-consuming tasks. And yes, there’s a science and an art to balancing your front-end needs and back-end operations.
But the frustrating part is you can’t control it all—this is something that Bunny Ghatrora, the co-founder and COO of Blume, has learned over time.
“"There's a lot of dreams I have with operations; things that I wish were in my control. One thing I'm thinking a lot about is finding the things that are in my control that I can really optimize and focus on in the best way possible."Bunny Ghatrora, co-founder & COO of Blume
But what is in your control when it comes to your DTC operations? We chatted with 5 ecommerce experts from Blume, Doe Lashes, Kuru Footwear, and more about 15 proven ways to take control of your DTC operations and grow your brand in 2023.
In direct-to-consumer (DTC) ecommerce, operations refer to the daily activities that empower the business to run smoothly, including inventory management, fulfillment, finance, marketing, and customer support tasks.
The role of operations varies from business to business. As the President of KURU Footwear (an innovative shoe company focusing on comfort), Sean McGinnis, explains: “In short, [DTC operations] focuses on manufacturing and logistics. But depending on the size and configuration of the business, ops might also have an internal focus on tech stack selection, process development, adherence, and more.”
Think of operations as all the tasks required for your brand to function.
The efficiency of your ecommerce operations can drastically impact customers and their experience. In fact, 38% of online shoppers say they will abandon their order if the delivery takes longer than a week.
So, how do you ensure your day-to-day operations work efficiently? You ensure your internal systems work efficiently (which starts by tracking the right DTC metrics).
By tracking and improving the right DTC metrics, brands can boost efficiency, maximize cash flow, and increase profitability.
The trick is knowing which metrics are the “right” ones to track. So, to get you started, here are a few data points that every business needs to focus on.
Building and maintaining a loyal customer base is a difficult (but rewarding) process for DTC brands.
Today’s customers have more choices and higher standards than in the past. So, here are some customer success metrics to focus on as you establish your brand.
Also commonly referred to as gross sales, total sales is the value of all products delivered to customers during a given reporting period.
Similar to total sales, total orders refers to the sum of all customer orders during a given time period. This metric can help you identify seasonal DTC trends and better meet customer demand.
Average order value (AOV) is the average dollar amount spent for each submitted order. This metric, in addition to total orders, can help brands gauge customer experience over time.
When AOV increases over a customer’s lifetime, you can generally assume your customer experience is satisfactory.
But when AOV decreases, it could mean more than just an unsatisfactory experience. Your retargeting or retention efforts may fail to keep your brand in mind. Or, you may be experiencing product cannibalization.
To calculate AOV, use the following formula:
average order value = total revenue / total orders
Cart abandonment rate is the percentage of customers leaving your site after adding items to their cart and before before checking out.
This metric shows whether customers are fully engaged in their shopping experience. And it can also help you identify any hiccups in the checkout and payment process (depending on where customers drop off).
For instance, the average abandonment rate falls between 70% – 86%. But this rate will generally be higher for mobile users than desktop.
You can find this metric in your Shopify or Amazon dashboard or calculate it manually using the following formula:
abandonment rate = total orders / shopping carts created
Customer lifetime value (LTV) refers to how much money a customer spends with a company throughout their relationship with that brand. It can be calculated per consumer to identify your best customers or per average customer to predict future profits.
Plus, you can boost your ecommerce profit margins by increasing your LTV. How so? Because acquiring a new customer is 5-25x more expensive than retaining an existing one. So, each time a customer returns, the less you spend on that sale and the more profits you can pocket.
To calculate a customer’s lifetime value, use the following formula:
customer lifetime value = lifetime revenue – cost of acquisition
Customer acquisition cost (CAC) is how much you spend to acquire new customers. It’s commonly calculated by channel or across all channels to gauge marketing effectiveness.
(Psst, this one is big.)
That’s because the lower your CAC, the more affordable it is to scale up acquisition efforts.
Retail brands have seen growing CAC in online channels due to privacy updates and increased competition in the past few years. As a result, customer acquisition costs in the DTC ecommerce space are up ~60% from 5 years ago.
To calculate customer acquisition cost, use the following formula:
customer acquisition cost = total sales and marketing spend / customers acquired
Annual recurring revenue (ARR) is the predictable revenue from subscription customers within a year. Meanwhile, monthly recurring revenue (MRR) is the predictable revenue generated by subscription customers every month.
ARR and MRR help brands see whether or not their subscription revenue is decreasing or increasing. In addition, this helps predict and forecast upcoming revenue and measures customer churn.
Improving order fulfillment is pivotal to the success of any DTC brand’s operations. Today’s customers expect orders to arrive quickly, as promised, and undamaged.
In fact, 69% of consumers will switch to a competitor if a purchase is not delivered within 2 days of the date promised. And a whopping 58% said that damaged packaging deters them from buying from a brand again.
Luckily, there are some fulfillment metrics you can track to prevent customer churn.
Initial order fill rate is the percentage of orders that are shipped complete (meaning, they include all the items your customer ordered) within your company’s shipping standard or the promised date.
This metric shows whether a brand has enough inventory on hand to meet demand without running into stockouts or relying on backorders.
Typically, DTC brands aim for a higher fill rate, or as close to 100% as possible, as it signifies an optimized inventory.
To calculate order fill rate, use the following formula:
Initial order fill rate = (completed orders / total orders) x 100
Orders shipped same day is exactly as it sounds. This metric tracks the percentage of orders processed, picked, and shipped out on the same day the customer placed the order.
The advantage here? The more orders shipped on the same day, the lower your inventory backlog.
Orders shipped error-free is the percentage of orders that arrive correctly the first time. This includes arriving on time, undamaged, and with all the customer’s ordered items.
When brands see an increase in orders with errors, they can move quickly and identify possible supply-chain operations or fulfillment issues. But it’s not always easy to quickly spot these problems.
That’s because this information is typically only caught when customers reach out to complain, and not all customers will bother reaching out. It’s more likely that your brand’s inventory accuracy will continue to decrease with each order error until it’s caught in an audit or causes a stockout (AKA, too late).
Dock-to-stock time measures how long it takes to process a shipment and move those items into inventory. This measurement begins when shipments arrive at warehouses via the loading dock and ends once the stock is properly stored as inventory.
Generally, brands should aim for the shortest dock-to-stock time possible because it ensures that shipments become ready for orders as quickly as possible. That said, you don’t want speed to impact inventory accuracy, so brands must find a balance between both.
Returns processing or returns rate measures the number of orders sent back compared to total orders. This metric signifies whether or not customers are satisfied with products and can identify issues (like quality) before they impact your margins.
For example, if an item is returned once, you paid to ship it 3 times before it found a forever home. This, in turn, lowers your margins on that unit.
To calculate returns processing, use the following formula:
Returns processing = (orders returned / total orders) x 100
Running a business takes money. So, understanding your financial situation is key to optimizing your operations. After all, you can’t improve revenue or cut costs without knowing where you stand today.
Here are 4 money-related metrics that can help you track your financial health.
Cost of goods sold (COGS) is the direct cost of producing products. These include variable costs, like material cost, landed cost, outbound logistics, and packaging. However, COGS does not factor indirect operational costs, like warehousing or shipping.
Knowing your COGS is important because it directly affects your gross profit margins. How? Because the higher your COGS, the lower your profit margins.
To calculate the cost of goods sold, use the following formula:
cost of goods sold = beginning inventory + purchases – ending inventory
Gross profit is the money retained after incurring the cost of goods sold. This metric measures your brand’s profitability and ability to optimize your operations.
To calculate gross profit, use the following formula:
gross profit = net sales − cost of goods sold
Gross margin measures how much money you retain for each dollar generated. It’s expressed as a percentage and signifies the health of your operations. Because ideally, you want this margin to be as high as possible to prevent your brand from operating against itself.
To calculate gross margin, use the following formula:
gross margin = (gross profit / total sales) x 100
Using the above formula, you can calculate profitability as a whole, per product, for each sales channel, marketing channel, and marketing initiative. This will allow you to narrow down how every element of operations impacts your overall profit margins.
That said, not all DTC sales are created equal since the COGS might differ for each channel depending on its operationalization. But knowing your COGS helps prioritize limited resources and identify opportunities for maximum returns.
Return on working capital (ROWC) indicates how efficiently ecommerce brands turn invested capital into profit. This metric is key for tracking your brand’s financial health and ability to optimize operations.
Most working capital for DTC brands will be tied up in inventory. The longer this cash is tied up, the lower your returns. Why? Because there are higher holding costs, likelier product discounts, and missed opportunities that shrink profit margins.
Ideally, you want to spend money on inventory to make more money. But if you’re not seeing a positive return on your working capital, your brand’s financial health is likely in danger.
To increase your ROWC, you can hold less inventory and sell on backorder to flip the cash conversion cycle. You can also secure products at a lower cost by negotiating better vendor terms and selling products at full price.
To calculate ROWC, use the following formula:
return on working capital = gross profit / average inventory value
Now that we’ve covered the top DTC metrics, let’s talk about what you can do to improve those numbers and optimize your DTC operations.
It all starts with your internal systems—how you manage tasks, communicate as a team, and document how everything works. Because when you increase efficiency here, it impacts the rest of your operations.
You’ll hear many marketers recommend talking to your customers, but those working in operations or product development can also benefit from these conversations.
“I’m constantly managing the relationships with our customers and understanding what they’re seeing, what they’re receiving, and where their pain points are. Try to understand what is most important to them. Is it fast shipping? Free shipping? Both?” explained Bunny Ghatrora, co-founder of Blume, a beauty and wellness brand focusing on skincare and period care.
She recommends using these customer preferences to develop more efficient operational strategies that meet customer expectations.
““At the end of the day, we wouldn't exist if it wasn't for our customers. So we really try to involve them in as many aspects of the process as we can.”Bunny Ghatrora, co-founder & COO of Blume
The most time-consuming task for Doe Lashes founder Jason Wong is project management.
Why? “It’s difficult to be both a manager and an operator, which is why larger companies typically have dedicated roles for these tasks. But at our scale, I need to do both,” he said.
As the founder of this growing beauty brand selling Korean Silk false lashes, Jason relies on technology to help him. And he uses project management tools like Asana, Zapier, and Airtable to build internal automation systems.
Strong ecommerce systems today can save you a massive headache tomorrow.
Duh, right?
Well, actually, as a first-time founder, it’s easy to get caught up in the busyness of running a brand. And if you’re like most of us, you accidentally deprioritize your operating systems to focus on other things.
Blume has experienced this first-hand. But after bringing in a VP of Operations, they spent time reviewing their current processes and finding ways to strip them back and rebuild them more efficiently.
“It was super time-consuming and took up almost all of the VP’s time. But now, each month we go back to that system, we quickly see what’s working and what’s not, and it becomes a little bit faster,” shared Bunny.
Her advice? Right from the beginning, set up your systems properly.
“My favorite strategy for being more effective is to document everything and build SOPs around what we do repeatedly so we can either automate or outsource it,” said Jason Wong.
Documenting processes can also help with transferring knowledge to new employees or contractors, so they can be as efficient as possible right from day one.
In the new year, Jason plans to have more frequent team meetings to pulse check how everyone is doing their job. That way, the team can collectively assess how to improve those processes, which leads us to our next point…
When the business grows, processes that used to work can suddenly become inefficient.
The solution is simple: host a recurring operation improvement meeting to keep efficiency top-of-mind.
Wes Blundy, founder and CEO of bra and lingerie company Curvy, shared, “We find operation meetings useful for identifying and addressing process improvement opportunities. Most of this is done in a weekly meeting where we identify, discuss, and solve these issues together.”
The Blume team at an internal ops meeting.
Source:
@blume
This is also something that Madhu Sharoff, founder of Kimbala (a ready-to-drink chai beverage brand), said their team does as well. While constantly evaluating every step of the process, the Kimbala team searches for inefficiencies and tests possible solutions.
And this doesn’t just include project and product management—it’s baked into everything the brand does.
The Kimbala team will try changing the type of equipment they use, altering batch sizes, adjusting the flow of their overall production, and even changing where products are produced.
If their test fails, they’ll either try again or go back to doing something the traditional way. Madhu suggests having a backup plan if you’re going to try a new way of doing something.
If you’re worried about testing new processes, you can always “fail-safe,” as Madhu puts it. This means starting small, automating as much as possible, making adjustments, and repeating if you’re successful.
““The smallest change can make the biggest impact. My wife and I make a point to challenge one another on why we do things certain ways and always consider if there is a better way to do it.”Madhu Sharoff, founder of Kimbala
Every founder has gone through the experience of having limited resources.
I get it—you want to do it all, but as a growing business, there are never enough hands. Ever.
According to Wes Blundy of Curvy, the hardest thing is finding the right balance between where you need to focus versus what you want to focus on.
“One of our international sites has been on autopilot with no resources for about two years now. Fortunately, the demand has been strong enough that it’s on track for seven figures with less than one hour a week spent on it,” Wes said. “But it’s hard knowing the opportunity is so much bigger. We just don’t have the resources to focus on it because our main site is in our home market and doubling year-over-year.”
Put your resources behind the parts of your business that you know will have a positive ROI, and tell yourself that it’s okay to take your focus off of other parts.
Once your internal processes are cleaned up, start looking at where you can improve some of your external operations. Your product creation is a great place to start, and I’ve got two great tips below.
One way the Blume team has improved efficiency with new product creation is by simply building positive partnerships or relationships with their labs (AKA, manufacturers).
Source:
Blume
Not only can this help manufacturers better understand your product, but it makes these key stakeholders more excited to work with you.
“We see our labs and our partners as an extension of our team and treat them as so. We really want them to feel like they’re along this journey with us, and that allows us to have more commitment—for lack of a better term,” said Bunny.
It’s simple math, really. If you’re working with labs that are passionate about the product and brand, they’re going to help you create the best products possible.
Keeping track of the raw materials on hand is just as important as end-product inventory. That’s because knowing when you need more ingredients or materials makes your manufacturing operations less likely to be interrupted.
This is a common practice at Kimbala, and Madhu Sharoff understands the importance:
“It can be really easy to neglect keeping records of raw materials, and then all of a sudden be completely out of a critical item you need to produce your product. It’s not a good look to have to take an item out of stock because you didn’t re-order the labels, for example.”
AKA, running out of boxes or one key ingredient sends product production processes into a tailspin. And every direct-to-consumer business knows how important it is to create and ship products on time.
Shipping and logistics may cause some of the biggest headaches for you. Thankfully, these experts know their stuff and have great tips that’ll make you more efficient.
Managing shipping expectations isn’t a walk in the park. Ecommerce businesses are constantly competing with the Amazons of the world, making it difficult to get customers to support even a small fee.
But did you know 68% of consumers say it increases their perception of a brand when that brand sends them proactive customer service notifications?
This is why Jason believes in honesty as his primary policy when it comes to shipping costs and timelines.
“We’re upfront about what expectations are when shopping at our store. It’s really just setting those expectations with the consumer so they don’t think we can do what Amazon is doing,” he explained.
Source:
Doe Lashes
Keep in mind that being honest about your shipping costs and times can mitigate customer service inquiries. And it can reduce your cart abandonment rate if customers aren’t greeted by a nasty shipping cost surprise at checkout.
A few ways you can be upfront about shipping is by:
“"We're relying on over-communication and letting our customers know what's in our control, what's not in our control, what we can share with them, what information we have, and why certain things are happening."Bunny Ghatrora, co-founder & COO of Blume
Truthfully, this level of over-communication may just be the future of omnichannel marketing, earning you more customer attention and an opportunity to build deeper relationships.
While most brands start as digitally native vertical brands (DNVBs), as they expand, many see retail or marketplaces as new avenues for growth. However, merchandising your products and adding more sales channels adds more complexity to your daily operations.
And do you really need that right now?
The truth is, it actually doesn’t make sense for you to try and be everywhere. Instead, focus on the best experience you can give customers.
In addition to new channels creating more complexity, a secondary issue is the tension between focusing on growth and focusing on efficiency. This is why you shouldn’t expand before you’re actually ready.
Sean of KURU explained this concept well: “Underinvesting in inventory means you’re not able to satisfy the demand you’re creating, which makes your marketing less efficient. It’s the same problem with funding inventory for other distribution channels. Staying focused [on efficiency] also keeps growth possibilities in your back pocket for when you really need them.”
Unless you’re ready to put resources behind other channels to keep them running efficiently, focus only on your core channels to avoid being spread too thin.
““During the summer [of 2021], we had some stock level issues that prompted me to look at the correlation between our general conversion rate and out-of-stock percentage. Let’s just say those two things are strongly correlated in our business.”Sean McGinnis, president of KURU Footwear
🔥 Tip: One way to combat out-of-stock issues is to sell products on backorder. In fact, Cogsy’s backorder feature converts nearly as well as when the products are sold in stock.
One new process the Blume team uses is pre-booking shipments. Thinking proactively like this has really saved them from some of the current supply chain issues.
As soon as the Blume team receives a ready date—the date that the manufacturers say they’ll have the next batch of products done by—the Blume team is pre-booking the shipments with carriers.
Bunny said they’re pre-booking these almost one full month in advance, which has helped them avoid delays during peak times when carriers are overloaded.
“This has been really helpful because we’re seeing huge delays in ports coming out of certain countries where even if the goods are ready in January, for example, they can’t get on a boat until February. We are pre-booking those shipments so that when something’s done in January, it actually gets out in January,” she explained.
Sometimes those bigger-name carriers can offer an appealing pricing package, but the Blume team explains why you should consider only using carriers you can trust.
When you’re familiar with a carrier and their rates, your shipping and logistics are more likely to stick to the plan, and you can easily contact someone if there’s an issue.
Blume has seen first-hand what happens when they opt for a lower-cost carrier option. “It’ll be cheaper, but our pallet will get lost. And it’s a few days spent trying to get a hold of somebody to tell you what’s happening,” said Bunny.
On the other hand, when using carriers they’re familiar with, they already know who to contact and can find a resolution quicker.
She explained, “There’s a little bit more control [when working with careers, you know] than there is with some of the larger carriers who are running thousands and thousands of pallets a day.”
Finally, let’s talk about demand planning. It’s never easy to know how much inventory you need to order and when, but these tips will help you improve.
Demand planning is always a struggle for brands. With so many external factors, it’s hard to predict where consumer demand will be a month from now, six months from now, or even over a year from now.
Ecommerce veterans say it’s important to create a system that’s as accurate as possible. Combining sales history, order lead time, and stock-on-hand is a good way to start, and if you can do this with inventory forecasting software, it’s even better.
And, of course, don’t be afraid of some trial and error when starting out.
“We do our best to predict inventory based on what we know historically and what we expect our budgets are for specific channels, but it’s frankly never accurate. All we can do is to get as close to it through trial and error,” explained Jason.
Luckily, operational optimization tools like Cogsy are solving these common inventory forecasting and inventory planning problems.
By tracking a brand’s real-time inventory levels and historical sales data, Cogsy builds near-perfect inventory forecasts. And you can use these forecasts as a starting point to create smarter production orders, map out different growth scenarios, and plan accordingly. This way, you actually reach your most audacious revenue goals. All without ever touching a spreadsheet.
Knowing how much to order and when is extremely difficult—and it’s a science that’s never fully accurate. But it makes the burden less difficult if you have a plan to get rid of any additional stock you may have.
This will help you stay profitable, even when accidentally over-ordering. (P.s. you can use a tool like Cogsy to forecast your demand, which will be way more accurate than trying to guess.)
For example, to get rid of leftover products, you can do the following:
Source:
@blume
““There are times we end up with extra product, and we will generally find a prospective buyer to give it to as samples, share it with existing wholesale customers for them to give away at their stores, or share with those we know and love locally. And then, at times, we take it home for ourselves because, yes, we do love and drink our own product!”Madhu Sharoff, founder of Kimbala
To avoid backups in your shipments and orders, overstock your hottest products in advance. Don’t forget to take any marketing events (like sales and promotions) into account when doing demand planning; it’s never a good look to run out of stock during a big sale.
Use demand planning software to determine where you think demand will fall based on historical data and over-order a reasonable amount.
In the event you have leftover stock, you can use the strategies we mentioned above to make good use of it still.
Besides, having extra inventory allows for creativity—and that certainly beats not having enough and backing up your operations. Just be sure that you’re making smart safety stock decisions to avoid ending up with dead stock.
A majority of the time, DTC operations go awry at the inventory management level (becuase your inventory is what links your finances, marketing efforts, and customer experience). And with ongoing supply chain issues and excess stock piling up, it’s becoming a lot harder to manage.
Luckily, Cogsy is the demand planning software that boasts predictable inventory management, built for an unpredictable world.
With it, get a godlike view of your stock levels, restock needs, incoming purchase orders, and upcoming marketing events. All in 1 place.
Plus, forecast demand with pinpoint accuracy (up to 12 months out) so you can stock up accordingly.
You can even run “what-if” scenarios to identify your best-case, worst-case, and most profitable inventory strategies. That way, you avoid expensive mistakes (like stockouts and excess) that keep you from reaching your revenue goals.
The most important metrics to track for DTC are inventory management metrics (like backorder rate and turnover ratio), customer service metrics (like average order value and abandonment rate), fulfillment metrics (like orders shipped error free), and financial metrics (like cost of goods sold and gross profits).
The LTV (customer lifetime value) to CAC (customer acquisition cost) ratio compares the value of a customer over their entire journey to the cost of obtaining them. In general, a good LTV to CAC ratio is 3.0, but anything above 1.0 signifies the brand is providing value.
The most successful DTC brands prioritize operational excellence over simply generating demand. This way, they accurately forecast customer demand, cut operational costs, boost overall profit margins, and prevent the brand from operating against itself.
Building a successful DTC brand requires quality products that meet customers’ needs, an optimized operations strategy that prevents inventory issues (like stockouts or selling products sans profits), and enough free working capital to sustainably grow your brand. But to do all that, you need an ops optimization tool like Cogsy to leverage real-time inventory data and KPIs.
![Your Guide To Improving Multi-Location Inventory Management [7 Strategies]](https://cogsy.com/wp-content/uploads/2023/06/Multi-location-inventory-management-scaled.jpg)
