Essential Holiday Season Metrics: Mastering Inventory, Sales and Cashflow for Peak Performance

The holiday season presents unique challenges for e-commerce and retail businesses. Events like Black Friday and Cyber Monday, along with the Christmas holiday and other festivities, lead to a surge in consumer demand. Businesses with inventory often see this time of year generate the majority of their annual revenue. Successfully navigating the holiday season also requires tight cash control as well as appropriate oversight of inventory levels to make the best management decisions for your business.

Inventory Metrics

Close inventory tracking ahead of and during the holiday season is especially important to ensure that all products are sufficiently stocked – the last thing you want is to run out of your top-selling items. At the same time, wise e-commerce and retail business leaders also want to avoid keeping excessive cash reserves tied up in inventory.

How do you achieve this balancing act? While unique to every business, inventory turnover, stock-out rate and lead times are key pieces of the puzzle:

• Inventory Turnover – This is the rate at which inventory stock is sold, used and/or replaced. Know your company’s turnover to predict how often you need to re-order products and anticipate how long they’ll be on your shelves.
• Stock-Out Rate – This is the percentage of items that are unavailable for sale when needed. The average stock-out rate is around 8% but often increases when products are on sale. A high stockout rate can lead to lost sales, customer dissatisfaction and other negative consequences. Watch this rate closely.
• Lead times – This is the amount of time it takes to move a product from the start of the supply chain process to when it is delivered to the customer. Knowing your lead times for every product you sell can help you make informed decisions about when to reorder and when to slow down purchasing to avoid excess stock.

Retail businesses should track this data year-over-year to familiarize themselves with trends and consumer preferences – and to make an informed plan for next year. Remember as well that the holiday season also means an increase in the number of returns and exchanges, both of which affect inventory.

Sales and Margin Indicators

In addition to keeping a close eye on inventory metrics during the holiday spike, e-commerce and retail leaders should also take a holistic look at various sales metrics.

One of the most important metrics for retail companies, and especially e-commerce, is cost of acquisition. For example, what are the advertising costs to acquire one new customer? If the cost of acquisition is more than the profit on the goods sold, this indicates that the advertising is not being spent efficiently. On the other hand, business owners should assess the lifetime value of a customer, as many companies lose money acquiring a new customer on the first order in the hopes that they convert into a repeat customer.

(The lifetime value of a customer is how much value a single customer brings or how much revenue they bring in over their time with the business.)

Remember, too, that high competition during the holiday season drives a surge in marketing and ad spending. Analyze the performance of your enterprise’s past ad campaigns and adjust accordingly. It might make sense to focus on retention over acquiring new customers, so define early on what a successful holiday season looks like for you – and allocate resources effectively.

Return on advertising spend is another key sales metric. Retail and e-commerce business leaders must track conversion rates, which are the percentage of visitors to your site who end up making a purchase. If your conversion rates are low, consider strategies to improve your return on advertising, such as conducting keyword research, improving landing pages for a seamless user experience, and focusing on the highest-performing channels.

Cashflow Metrics

During the high-volume holiday season, it is especially important that you can cover day-to-day expenses and navigate around the unexpected. Sufficient cashflow is vital to seeing that your business can meet its financial obligations. Inventory purchases require large payments to acquire, ship and store the items you need for the holiday season. What can a business do to maintain appropriate cashflow, despite those large payments to secure needed inventory?

Consider doing a 13-week rolling cashflow and making updates each week as needed. This strategy, which uses historical data to predict the future state of a business on a continuous basis, helps identify any cash needs so that you understand when additional funding sources might be required, such as loans or drawing on lines of credit. This forecasting method can help you stay agile by regularly assessing financial health and predicting future liquidity based on ongoing changes.

Putting It All Together

‘Tis the season…for unanticipated snags, such as weather-related shipping delays and even website crashes. Understanding and using the metrics above can help you navigate some of the challenges of e-commerce and retail during this period. You might also consider working with a business advisory service to better harness these and other metrics for increased performance – this holiday season, and for years to come.

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Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed and private client services to build value, drive growth, manage risk and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,000+ team members providing solutions to clients in industries including manufacturing and distribution, non-profit and education, professional services, real estate, construction, restaurant, franchise and hospitality, government contracting and technology and blockchain. 

Emily Cheshire, FCA, advises clients on getting started with digital assets, technical accounting issues, and technology solutions, working with forward-thinking CEOs and CFOs of technology companies and startups that want to capitalize on the business opportunities of digital assets, outsourced accounting, financial planning and analysis, and advisory and blockchain consulting.