You may have heard the saying, “if you can’t measure it, you can’t improve it.” This outlook holds true for most things in life, and omnichannel retail is no exception. In order to identify bottlenecks and measure success in your omnichannel order management strategy, you need to be watching the right metrics.
Key performance indicators (KPIs) measure performance over time for a specific objective, and they guide the trajectory of retail brands’ growth and digital transformation. Because the omnichannel order management space is constantly evolving, establishing modern KPIs across online and in-store teams is a real challenge.
Our previous blog, “KPIs to Measure Your Omnichannel Success” outlines many of the familiar metrics we hear day in and day out: conversion rates, average order value, and on-time shipping rates. In this blog, we’ll expand upon this foundation and dive into more specific KPIs that measure the success of omnichannel order management initiatives like BOPIS, Ship From Store, and Pre-Orders/Backorders.
1. Return on Inventory
We all understand ROI to stand for “return on investment,” an important metric no matter what line of business you’re in. But there’s another “ROI” that retail brands need to keep top of mind when measuring the success of their omnichannel initiatives: return on inventory. Most merchants will pay close attention to their gross margin return on inventory investment (GMROI) to evaluate whether a sufficient gross margin is being earned by the products purchased compared to the investment in inventory required to generate those dollars. Considering that 70% to 80% of a retailer’s assets are tied up in inventory, this is an incredibly important metric for tracking profitability.
The central aim of omnichannel order management strategies like BOPIS, Ship From Store, and Pre-Orders/Backorders is to achieve the best return on inventory possible. In retail, a lot of capital is “stuck” in inventory, and some stores end up with too much of a certain product whilst other locations run low. Leveraging an advanced omnichannel order management system (OMS) helps to sell inventory efficiently, specifically by leveraging in-store stock to satisfy online demand.
2. Cancellation Rate
Cancellation rate is an important indicator of an omnichannel program’s overall health because they can happen from orders both online and in the store, and can occur both due to a customer changing their mind and due to the retailer being unable to fulfill the order. No matter the culprit or reason, cancellations always mean less profit for you and a sub-par customer experience. Therefore, this KPI is intimately tied to customer satisfaction.
There are two key ways in which an omnichannel order management system (OMS) helps reduce your order cancellation rate. The first is by providing you with real-time inventory visibility, allowing you to display accurate product availability directly on your product detail page (PDP), thereby reducing the chance that a customer will cancel their order upon reaching the check-out page and finding that a product is out-of-stock. That full inventory visibility will also ensure that you fulfill all orders in a timely fashion and avoid overselling stock.
3. Delivery Time (Across All Types of Omnichannel Orders)
Customer expectations have transformed over the past few years due to the so-called Amazon Effect. Today, shoppers demand lightning-fast delivery for all online orders, and smaller retailers need to leverage all their potential fulfillment locations (stores, warehouses, etc.) in order to meet these steep expectations. Smart order routing is a necessary investment to ensure orders are fulfilled from the most optimal location, taking into account the order priority, customer proximity, stock availability, delivery requirements, and target profit margins.
Measuring delivery time and – critically – how it varies across different types of omnichannel orders (i.e. ship from store, ship from warehouse, etc.) is crucial to understanding where and how you should optimize your omnichannel order management program.
4. Time to Market
For modern retail brands, agility in the market is an important way to stay competitive and drive business growth. That’s why the time to market (TTM) for new products and initiatives is an important KPI to monitor in your omnichannel order management strategy.
TTM is important for brands because the shorter the time to market is, the quicker the return on inventory can be realized. It also increases the market share a brand can control in a specific market segment. Ultimately, getting new and attractive products to market quickly improves a brand’s reputation and attracts customers.
To do this, retail brands must offer pre-order options to their customers, which refer to orders placed for products that have not yet been released in the market. When products are expected to be available within a reasonable timeframe and their production is already planned, pre-orders are a great way to sell future inventory and improve speed-to-market.
5. Profit Margins
Profit margins, incredibly important to any type of business, represent another KPI linked to the omnichannel strategies of BOPIS, Ship From Store, and Pre-Orders. Why?
One of the key benefits of pre-orders is that they allow brands to sell more full-price inventory and thereby reduce markdowns. Increasing the portion of your inventory sold at full price directly improves your profit margins. Additionally, a reduction in delivery costs directly translates into increased profit margins, which can be achieved by leveraging an intelligent order routing system and utilizing store fulfillment. Last, but certainly not least, initiatives like Ship From Store allow you to transform your brick-and-mortar locations into mini-warehouses, allocating stock to fulfill orders based not only on customer proximity but on product availability. This has been shown to increase inventory turnover and sell-through.
6. Average Order Value
All retailers know that increased average order value is a good thing and translates into more revenue. But why is it necessarily a KPI indicative of your omnichannel order management success?
Well, increases in average order value are a direct result of successful omnichannel initiatives. Take BOPIS, for example. Bringing online shoppers into the stores to fulfill orders is a great way to increase in-store footfall and supplement their original online order’s value with in-store purchases.
Offering mixed carts, or orders that contain some items for store pick-up and others for home delivery, is another way to drive up the average order value. Unfortunately for Shopify merchants, Shopify’s platform does not currently offer mixed cart capabilities. This issue is compounded by the fact that shoppers have no visibility on the product detail page (PDP) regarding which items are available at the store and which are not. As a result, shoppers will continue to the checkout page without knowing which items in the cart are eligible for in-store fulfillment. Thankfully, the HotWax Commerce Order Management System (OMS) and BOPIS app integrates with Shopify merchants' eComm and POS to split orders, allocating the requests to their respective fulfillment locations.
7. Conversion Rate of Omnichannel Initiatives
Finally, every business knows that conversion rates are a key indicator of their growth and success. Every omnichannel order management initiative is designed to enhance the customer experience and ultimately increase conversion rates, both online and in-store.
Some strategies that retailers can employ to drive conversions within their omnichannel framework include offering in-store fulfillment options directly on the PDP, showing accurate estimated delivery dates on the PDP, and offering pre-orders/backorders to avoid missing out on sales due to stock shortages or future releases.
Ultimately, your omnichannel order management system should provide you with the inventory visibility and order routing capabilities to increase conversions. If your tech stack is not able to deliver on that promise, it’s time to go on the hunt for a system that provides that return on investment.
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Understanding and monitoring these seven KPIs is critical for leadership teams at retail brands of all sizes. These indicators allow decision-makers to identify challenges within their omnichannel initiatives, measure their success, and ensure a smooth roll-out of new programs across the business at large.
HotWax Commerce works with retailers to provide the best return on their inventory through omnichannel retailing strategies such as same-day BOPIS, Ship From Store, and Pre-Orders. If you are interested in learning how our omnichannel solutions can take your brand to the next level and increase conversion rates and profitability, contact our omnichannel experts today.