How to forecast startup DTC eCommerce sales and costs?

You know what to sell, the site is being setup or you’re already trading.

But how much revenue will your Direct To Consumer (DTC) eCommerce brand do and what will your expenses be?

Excel is demanding answers, and your pulling more figures out of the air than Trump!

Sound familiar?

You’re not a lone. To make things worse it’s the most important thing you’ll do in your eCommerce business.

However, to create an accurate forecast you need previous sales data.

If you’re a start up, you don’t have that.

Bugger.

Start up DTC brands need to take a different approach to forecasting

Ideally you’d know your eCommerce conversion rate and how many visitors you can get with all your marketing activity (you have a marketing plan right, course you do).

However, until you start selling you won’t know these figures, and averages, in this case, are about as useful as a drunk bogan at an economics convention. Entertaining but ultimately a distraction.

Every site performs very differently.

You’ve told me all the things I can’t do, what is the answer?

All smart DTC eCommerce sites buy and hold stock so they have higher margins and quick delivery times.

If you’re drop shipping I suggest you pay an online guru who works from a hammock far to much money to help you and find out it doesn’t work. See you in 6 months.

Anyway, you have or need to commit to certain amount of stock. The more stock you buy the greater the opportunity for sales.

Buuuuuut the more stock you buy the greater the risk.

Time to put on the big girl/boy pants and commit some cash. Otherwise this thing will never work.

Take your stock cost amount (what you paid for it), lets just says it’s $10,000AUD (At Boom Ecommerce it’s always AUD, because we’re about helping Aussie Ecommerce stores).

Work out how much you plan to sell that stock for. Lets say your gross margin is 50% your retail value is $20,000AUD.

You can only sell the stock you have, so until you order more, your revenue will be $20,000AUD.

Now split that into months.

The amount of months will be depend on how aggressive your marketing is.

If your approach is “I’ll build my site and they will come”, then forecast those sales to be over 120 months or 10 years. Because unless you get so lucky that you should buy a lottery ticket, you won’t be selling much anytime soon.

Not sure where to advertise? Watch this Youtube video on “Where to advertise your eCommerce business in Australia” (That’s me in the video, hi Mum!).

Back to the forecasting.

You should now have sales by month for the stock you have, but what are your other major costs?

  • Advertising
  • Technology fees (Shopify, Xero etc)
  • Staff or warehouse fees
  • GST and other super fun taxes
  • Usual business costs

These will vary on your setup.

How much you spend on advertising will depend on your Gross Margin and how aggressive you want to be.

After 3 months of trading you’ll have some data to work with that will make for better forecasts.

If you’re not sure of any of the figures (start-up eCommerce costs or % of marketing spend to revenue) or terminology i.e. Gross Margin, how much you’ll need to get your DTC eCommerce business started, signup for the Boom Ecommerce Training course. It has everything you need to know.

Forecasting sales accurately is ESSENTIAL in eCommerce

You want to sell as much as you can.

Sell too much, you’ll run out of stock.

Run out of stock, no cash flow.

Bad

Sell too little, your cash will be tied up in stock.

Bad

The most important activity in any eCommerce business in getting your sales forecast right.

It dicates how much stock to buy and when.

How much you can spend on adverting.

Who you can hire.

The list goes on.

Don’t skip it or half arse it.

Dedicate time to getting it right.

Your future self will thank you.

You don’t just want growth from Facey and Insta Ads…

Most people reading this will be getting help with Facebook and Instagram Ads. On the surface you want sales to explode.

Explosions are exciting.

However, what you really need is sustained growth or results.

Facebook and Instagram can struggle with this due to the way it’s algorithm works.

The best thing you can ask of your Facebook and Instagram ad person is consistent results.

A consistent Return On Ad Spend (ROAS), or Cost Per Acquisition (CPA).

Consistency allows you to forecast sales and stock better.

Consistency builds solid businesses that consistency generates returns for owners.

Challenge your Facebook and Instagram person for consistent results.

If they can’t it’s time to move on.

Aussie Ecommerce Podcast

There is no end of eCommerce advice from the yanks.

Normally how to sell thigh masters via drop shipping (which is about as useful as tits on a bull) and they generally like to tell you how awesome they think they are.

Let’s face it, we’re not the US.

Here at Boom Ecommerce we’re all about helping Aussie eCommerce businesses.

When we discovered the Add To Cart podcast which is produced here in S’traya, we were pretty excited.

Learn from Shopify APAC team and other eCommerce professionals who work here.

It’s a gold mine of insights, treat yourself.


Australian Ecommerce Podcast Add To Cart

What are Australians buying online?

Setting up an eCommerce store or looking to expand your product range, but not sure what to sell, you’re in the right place.

A quick and easy way to find out what Australians want is looking at what they are searching for. Google Trends is a good way to do this.

Below is data from Google Trends comparing searches in Australia for two products water bottles and dog treadmills over a 5 year period.

Water bottles searches compared to dog treadmills

It shows us more Australians are interested in water bottles than dog treadmills. On top of that water bottle searches are growing year on year.

Why are you comparing water bottles to dog treadmills?

I use dog treadmills as an example product, just because I find them ridiculous!

How to use Google data to pick an eCommerce product

Go to Google trends type in the product you’re thinking of selling and compare it to other products that sell well.

You have to compare at least two product as Google Trends doesn’t give you exact search volumes, just comparatively if it’s up or down.

The geeks call this indexing, but that doesn’t really explain what it is to us non-techies.

If there’s a lot of search demand in Google (which 95% of Australian searchers use) then you’re probably on to something.

What if I don’t know what I want to sell?

Firstly I’d suggest selling you normally buy. That will help you understand the market (as you’re selling to more people like yourself).

However Google does offer more insight into what Australians are actually buying. You’ll need to setup something called a Merchant Centre account. It’s free, but will take a bit longer to get the data than using Google Trends.

If that sounds like hard work, you’re probably not cut out for eCommerce. Although it can be rewarding it’s not the easy option the gurus on Facebook and Instagram would have you believe.

If you’re serious about eCommerce, read on.

Buying trends from Google Merchant Centre

At the time of writing (July 2020) these are the most sort after Fashion and Apparel products in Australia online…

Or best selling brands in electronics in Australia (again for July 2020)

Best selling online brands in Australia July 2020

(No surprises with Apple)

How do I access Australian eCommerce best seller list?

Another good question.

Step 1
You need to create a Google Merchant account. Normally have to do this to run Google Shopping ads, so you may already have one.

If you don’t there are instructions on how to setup one here.

Step 2
Once you have access to a Google Merchant Centre go to…

Growth > Best Sellers > Australia > Select Product Category

Where to find best selling product categories in Google

Now you can easily see what Australians are buying online by different product category and work out how to expand your product range or start something new.

A word of warning

Popular means competitive. Competitive means expensive. If you want to find out how successful eCommerce brands pick products sign up for Boom Ecommerce tips.

Get Australian Ecommerce Tips

Should you quote plus GST on eCommerce pricing?

Firstly you should consult your accountant, and this shouldn’t be taken as financial advice.

Quick GST Refresher

Having said that, here are some basic things about GST.

If your business entity has revenue over $75k AUD in any tax year (July 1st – June 30th) then you will have to pay GST to the ATO in most cases.

More details on the fun subject that is GST here.

Should you add GST to the retail price?

With that out of that way, how should display charging GST to your eCommerce customers?

A mistake we often see here at Boom Ecommerce is eCommerce stores adding GST to the displayed price of a product. For example…

$99.00 +GST

When a business is selling to another business (aka B2B) that is expected, because the business can often claim it back.

However, when selling directly to a consumer, they can’t claim it back. Therefore $99.00 becomes $108.90.

Even though you have been upfront with your customer the price is plus GST and not everyone buying from you understands GST.

Therefore if you’re selling directly to a consumer (i.e. not a business) always quote your prices including GST.

It will save your customer service head aches later on.

Why do eCommerce businesses quote prices plus GST?

Many business owners are used to dealing with GST. 

They are essentially collecting a 10% tax on everything sold in Australia then passing it straight to the tax office minus any GST they have paid for things they need to run their business.

Because of that, they never like to include GST in their revenue and charge it on top of the product price.

The issue is, end consumers don’t understand GST as well as them and it leads to confusion.

Long and short of it, if you’re selling to consumers include GST in your pricing to avoid annoying your customers.

Is Ecommerce A Passive Income?

In short no. 

Passive income or businesses require very little input after being setup. Ecommerce businesses that last more then a few months require careful management, no matter what team and processes you put in place.

An example of a passive income is stocks and shares, for example you could buy an Exchange Traded Fund (Company buys all the top stocks in Australia, charges a tiny fee and you get the returns). With an ETF all you have todo is buy it, keep an eye on how it’s doing then report it in your taxes each year.

That is a passive for or income.

Ecommerce businesses aren’t passive. In a usual month you’ll typically need todo the following…

  1. Upload new products
  2. Write new products descriptions
  3. Setup or manage advertising campaigns
  4. Respond to customer enquires your team can’t handle
  5. Make sure your site is uptodate (WooCommerce needs constant security updates)
  6. Order new stock
  7. Process returns (Some fashion stores get 40% returns)
  8. Quality check manufacturing
  9. Manage cash flow to pay for everything

Even if you have someone or an agency helping you do each of these, you’ll have to manage all of them.

 

Is Ecommerce A Good Business Model?

If done correctly yes. They can generate a lot of cash (cash is better than profit on paper) and they can scale better than service based businesses, but not as well as online service businesses.

Don't Expect To Turn Up On Monday To Lots Of Orders

This is common misconception. Setup eCommerce site orders will follow and I just send them off.

That is the easy bit, it’s everything else llisted above that is hard.

Is Dropshipping Easy?

The dropshipping gurus selling course on Facebook Instagram would have you believe it is (for gods sake, don’t click them or it’s all you will see for the next month).

“Don’t deal with stock, just sell”

It is never that simple. Dropshipping means delayed deliveries (30-60 days), which means lots of customer complaints. You can’t control product quality and who sells it, which leads to price wars and decreased gross margins (percentage you’re left with after you’ve paid for the product to pay all your other bills).

Then if you do get a product that sells well, it might only last a few months, leaving you to search for the next “hit product”.

That’s a very hard business model to sustain.

This Wired UK article on dropshipping is well worth a read.

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