Notifications
You currently have no notifications!
+
Ecommerce Fundamentals (8)
+
Ecommerce Financial Secrets (4)
+
Build, Manage & Grow (5)
+
Marketing & Acquisition (37)
+
Conversion & Retention (19)
+
Analytics & Reporting (2)
+
IRP Research (24)
-
Inspiration & Opinion (21)
+
The IRP Platform (2)
Success through performance measurement
Solving Ecommerce Using Data and a Market-Based Approach
IRP tackles ecommerce by believing in the ability of 'service markets' to solve problems, by continually measuring and comparing team performance.
Author
31 May 2019 - 5 min read

All businesses are in the business of making money. Online businesses can be an exception, specifically when they cannot organise teams and reporting sufficiently to generate profits. After 20 years in ecommerce -- overseeing £1.5 Billion in sales with the IRP team -- I have ended up with two fundamental beliefs about online success:

1. Alignment of people's interests and measurement of their contribution to profit is much more important than technology.
2. A repeatable market-based, quantitative approach can solve the ecommerce problem.

This article aims to expand on these beliefs and to lay out how profits can be delivered, how the interests of business owners can be met, and how ecommerce teams can be motivated and aligned to succeed.

Success through performance measurement

Success in ecommerce always means profits. Profits are driven by sales growth at a fixed CPA% marketing spend with acceptable product margins and operating costs. Profits should always be the shared goal of the business owner - and also therefore their team. This is fundamental.

According to the Harvard Business Review, the first trait of a great team is "extreme visibility of individual performance". An ecommerce team is a sales team and it is critical to have visibility on performance and make the individuals aware of it:

1. Individual performance must be monitored in its contribution to sales and profits ​
2. Bonuses should be available in an uncapped way to create major motivation.
3. Overall team performance should be rewarded to reduce internal friction.
4. Ecommerce managers must be held to account on sales performance.

The ecommerce team must be measured based on profit contribution. In my experience, 80% of ecommerce failure stems from an inability to measure contribution based on profits and performance.

Measuring service provider performance

The first step that teams must make is to use a very clear measurement system based solely on sales and costs. This requires a consistent attribution model that is followed repeatedly. The following example shows how this can work:

Table 1: 'Company A' example service provider performance figures

image

Benchmarking individual performance

To benchmark individual service performance you then compare your team’s results with how the rest of the market is doing. This gives you the performance percentile as shown in the following examples:

Table 2: Example ecommerce manager ranking

image

Table 3: Example Facebook channel ranking

image

In this way you can achieve a ranking against the market and know how performance compares to the peer group for a service, company or individual.

This measurement system is the way to encourage individuals and teams to perform at their best – and great teams and people always want to compete.

Although services and their operation can be intangible to business owners, ranking and results are not – companies should pick service providers based on their performance.

When pursuing profit, the goal is to pick service providers who return the best growth at an acceptable CPA%.

How IRP Commerce tackles the ecommerce problem

IRP tackles ecommerce by believing in the ability of 'service markets' to solve problems, by continually measuring and comparing team performance.

Once you measure the channels and service providers, a 'service market' can be leveraged so that services and profits effectively start to become 'tradeable'.

There is a story of a visiting Soviet Ambassador in London asking his British counterpart "Who organises the bread for London?" The answer was that the 'market' effectively organised the bread, and in a very resilient way.

In the same way, when measurement is applied so that results can be compared and understood, a 'market' can organise much of the success for companies in ecommerce.

Conclusion

The concept of moral hazard is often found in ecommerce. This means that business owners are often led by counterparties into situations where all the risk is on the owner’s side – and the counterparty wins regardless of the profit outcome of the decision.

At the root of this problem is a chronic lack of clear, profit-based information. Correct alignment and attribution can help to solve this and risk is shared.

Ecommerce can be made rational and work in everyone's interests if a system of measurement is set up based on performance.

With this approach – much less is left to chance in the SME ecommerce market and companies have a much higher chance of success.

- COMMENTS
You must be logged in to comment on this article.
CONNECT
UK 02890 78 5869
Ireland 01 513 4969
International +44(0)2030 96 03 95
STAY CONNECTED WITH IRP COMMERCE
  Sign Up
Copyright © 2019 IRP Commerce. Use of this website constitutes acceptance of the IRP World Terms of Use, IRP Privacy Policy and IRP Cookie Policy
IRP Commerce is a Trading Name of Export Technologies Limited, Concourse 2, Catalyst, Belfast, BT3 9DT, UK. Registered in Northern Ireland, Number: NI 041856. VAT Number: GB 888249658
A Deloitte Fast 50 Company six times: 2010, 2011, 2012, 2013, 2014 & 2018