The actual cost to ship the order is a fulfillment expense and normally an operational, or G&A, line item. S&H rate charts normally are set (and adjusted) by a catalog’s marketing department, which is another justification for having this important line item on the top line of the income statement.
What to Measure, How to Reach Your Goals
Cancellations primarily are caused by backorders. In general, cancellations run from 1 percent to 3 percent of sales. If you track the peaks of your cancellations (from the date of order), they generally occur when the 30-day and 60-day back-order notices are received by the customer. This prompts the customer to take action.
Allowing enough lead time from order to need, using back-up suppliers where necessary, developing strong inventory control/forecasting, and maintaining accurate and current stock information for the contact center team all play significant roles in managing cancellations due to backorders.
Customer return rates have an enormous impact on your bottom line. Not only is a return costly to process ($8 to $10), it can dramatically reduce your gross demand (and your revenue per catalog mailed). Return rates can range from a low of 1 percent to a high of 25 percent, depending on your type of business.
Analyze what’s being returned and why. To reach your return-rate goals, address the high-volume, high-return-rate items first. If there’s a top-selling item that’s returning at a high level, have the supplier fix what’s causing the returns. Or be more accurate in your creative for the item, so the customer knows exactly what to expect when the package arrives. Also, try to reduce order-processing errors by conducting random checks on orders and measuring the accuracy of the pickers, packers and other key personnel.
Cost of goods should range from 45 percent to 55 percent, and of course, the lower the better. There may be room to reduce your cost-of-goods percentage by raising the retail, but you must remain competitive and keep an eye on the perceived price/value of each item. Reducing your cost generally is a less-risky approach to managing cost of goods. Negotiate with your suppliers at every stage of the life of each item in your catalog. Run the numbers for each item, and know what you can pay to make the item profitable. In addition, consider quotes from alternate suppliers.