Internet retail and inventory management
Most internet retailers have to deal with at least some level of inventory and it can be quite a pain. For instance, intuitively you might think that you can just track your sales and figure out the cost of goods sold by calculating how much you paid for the merchandise (including shipping, of course).For the IRS, however, this isn’t good enough - first of all, it doesn’t account for “shrinkage” of your inventory - the fact that your inventory will shrink over time because of returned products, theft, misplacing inventory, etc. For this reason when your inventory level hits a significant level (usually greater than $100K) you need to use this formula for calculating cost of goods sold:Beginning of period inventory - End of period inventory + Purchases madeNote that on an accrual basis the inventory levels at the beginning and end of the period should include all inventory orders in transit.As you can imagine this can cause quite a few problems if you either have a bad count or are dealing with a lot of purchase orders (placed by you to suppliers or with you from customers). My advice - come up with a meticulous process for counting your inventory and document every step of the purchase order process to be able to iron out all of the inevitable wrinkles later.
Another Google update
It looks like the dust is finally starting to clear for the first phase of Google’s latest update. You can check your PageRank in the different datacenters at SEO Chat.Google typically has 2-3 phases which compromise a complete update so don’t be too discouraged or too excited about the results you are seeing right now. The rumor is that we are now seeing the results from the BigDaddy Data Centers across all DC’s. Stay tuned for more info on the update as it unfolds.On a side-note my posting has been quite slow lately - expect more posts this next week.
Dirty SEO trick
This weekend I was reading a few search engine marketing forums (SEW and WMW mostly) and I came across a dirty SEO trick that I wanted to warn internet retailers about.When you first create a site on the internet it takes a while for you to rank well on your target keywords. Depending on how specific your keywords are, it could even take years to rank really well on competitive phrases or words. Most people believe that there is some type of penalty imposed on new sites (commonly referred to as “the sandbox”). The logic is simple - sites who have been around for a while are typically more authoritative than brand new sites.Some SEO’s will watch for new sites, then advertise their services to webmasters after the site has been live for 6 months - 1 year. By coming into the game at this point they are almost guaranteed to look good to the webmaster (since their rankings are due to “pop” anyway). The webmaster will generally fork over some money and then the SEO will take the credit for all of the hardwork that the webmaster originally put into the site.I am not saying that you shouldn’t hire an SEO - in fact, I think it’s one of the best ways for an internet retailer to improve their rankings (and revenue). When you do hire an SEO, however, have them explain what they are doing very clearly. This will ensure that you are getting the best bang for your buck and will help you identify anything shady that might come back to haunt you later.
The Blue Nile Lesson
Blue Nile released their financials for Q4 2005 and missed their earnings targets. The explanation from the company is that keywords during the holiday season were bid to irrational levels meaning that if they had tried to compete for the top spots they would have had to do it at the expense of profitability. As a result they have shifted much of their ad spend offline.I like Blue Nile and I believe that keyword prices in their industry have in fact been bid beyond rational levels. We have seen it happen to us on many different keywords and I believe it is a result of an influx of marketers who don’t know how to track their ad spend or are willing to take a loss leader in exchange for some brand equity.The internet retail world is no stranger to irrational ad spending - look at 1999 for proof. Eventually people will realize that they cannot operate indefinitely without profits and search spending habits will change - this will be good for Blue Nile (and other companies who are vigilant about maintaining profitability) and bad for Google as its stock will have to adjust to reflect more modest expectations of search revenues.This temporary market inefficiency will not affect all industries in the short-term, but over time I would expect any industry with promising growth to experience demand for search inventory which exceeds the supply that would in a more perfect world result in some kind of equilibrium. My advice to retailers is to meticulously watch your bottom line and keep your cash flow healthy in spite of newcomers who are willing to shoulder a short-term loss - they won’t be around for long.
ie7 doesn’t like me adding stuff
So yesterday I really liked ie7 because everything went smooth with the install - this was true. But then I did something that wiped out my google toolbar and so I tried to reinstall it - it won’t take it. It keeps saying that it’s installed but I can’t see it there (and, more importantly, I can’t see the tools that I like to use with it).Now when I want to check PR and stuff I’m using FireFox - maybe I’ll go back to ie6.
ie7 - Pretty nice
I just installed Internet Explorer 7 (which is still in Beta) this morning and so far I really like it. I always liked tabbed browsing with FireFox and finally Microsoft seems to have gotten that right. I actually like the tabs better in internet explorer because it seems more intuitive.The upgrade was pretty seamless, though it did require a reboot (which I expected since it’s a core component of the OS). The add-ons seem to work well in 7 so that’s pretty cool.Only time will tell if I will fall in love with this browser but so far I think it’s pretty nice and I don’t think I’ll roll back to 6 unless I have huge problems.
Easy 301 redirect in Wordpress
OK, let me qualify this first by saying I am not an idiot and I do know how to do a redirect in my .htaccess file. However, something really weird happened on my server where I cannot see my .htaccess file through my ftp client (and yes, I have my client set to show hidden files), yet I know it exists because I am using permalink rewrites and I can see it through wordpress (under presentation). It is not writable so I have been looking for a different way to implement an easy 301 redirect from prestonwily.com to www.prestonwily.com.Enter Greg Boser (aka WebGuerrilla) and a nice WordPress Redirection Plugin. It was simple to use and now I don’t have to worry about messing with my .htaccess file.This is going to save me a bunch of headaches from Google treating my www and non-www sites differently. Thanks for the plugin, Greg.Also, if you’re interested in this SEO stuff I highly recommend SEO Rockstars on WebmasterRadio.fm Greg and Todd Friesman (aka Oilman) are the hosts and last week even featured Google engineer Matt Cutts.
Low-cost Broadband - Great for internet retailers
Yesterday AT&T announced a new $13/month DSL service for up to 1.5 Mbps download speeds. After 1 year the price goes up to $30 (if consumers renew their contract - I’m guessing that after going to broadband most users would). Also, you have to place your order online and subscribe to a local phone plan (starting at $10/month).This is great news for internet retailers. Chew on this statistic - about 50% of all internet users are still using dial-up (slightly less now). I wouldn’t disclose the exact percentage, but let me say that the vast majority of our revenue comes from broadband users. The logic is simple - shoppers like to see a lot of pictures and content and getting a decent picture of a product over dial-up takes too long to load.As the rest of the country comes into the broadband fold internet retail will skyrocket. It’s a great time to open an internet storefront.
Credit card alternatives
In my not-so-humble opinion, every internet retailer should allow customers to purchase merchandise by using a credit card despite the fact that the retailer will ultimately pick up the tab for fraud. The most compelling argument for accepting credit card payments is that virtually every internet shopper has a credit card and because of the protection offered by their issuing bank (courtesy of the retailers), most shoppers feel comfortable using their credit card online.PayPalThis should not, however, discourage internet retailers from offering alternatives. Many people prefer to use PayPal and integration is so easy that there is no reason not to offer it as an option.Bill Me LaterAnother increasingly more popular alternative is Bill Me Later. This allows your customers to choose to be billed for their purchases by Bill Me Later who would then handle collection of the payment. I’m not sure logistically how this all works.Before contacting these guys be aware that they won’t even talk to a retailer with less than $5M in revenues and would prefer that you are much larger to be a good candidate for their service. Their arrogance when we were smaller has resulted in me not wanting to contact them now that we can, but it is an innovative and cool idea. Hopefully another company will incorporate this model and be more “small-business friendly.”Secure E-BillSecure E-Bill (from Moda Solutions) is a really cool alternative to credit card payment for people who are worried about security on the internet. When your customers choose this as their payment option and complete their order they will receive an email with instructions for paying you through their own personal online banking terminal (using Bill Pay). This is similar to them sending a check, but it clears much faster (2-3 days) and you don’t have to worry about the transit time for a paper check to arrive.They do have a minimum volume of $5M/year, but they acted like it was a general guideline rather than a hard-and-fast rule. My impression from talking to their reps was that they are very small-business friendly. You will also probably shave about 1% off of a normal credit card transaction fee and they don’t have fixed costs associated with each order.Purchase OrdersFor your best customers that you have a business relationship with you should consider offering terms. Sending merchandise out to a company on nothing but their word might be a bit scary, but as long as you do your due diligence and determine that they are credit-worthy you will find that the savings on large purchases will in the long-run offset the cost of fraudulent PO’s if any do slip through the cracks. Offering terms creates loyalty with your customers and makes it more difficult for them to go to another supplier. Also, many government and education buyers require terms to do business.Paper Checks/Money OrdersSimilar to PO’s but payment is required in advance. In general this goes against everything that I believe the internet stands for, but some people still prefer this method of payment. The largest drawback is that between shipping time and the time the check clears it can take up to two weeks to get a customer’s order shipped out - the advantage of doing business on the internet is the convenience and this is simply not convenient.Wire TransferI would only recommend this option for companies selling products internationally. When you setup an account for international wire transfers (or any transfers) make sure that it is an inbound-only account meaning that people can put money in the account but can’t take it out.Adding additional payment options will potentially have two positive effects - first of all, and most importantly, you will pick up some additional sales that you would not have received otherwise because of your willingness to offer a particular payment method. Second, some people who would have purchased with a credit card (which requires a high per-transaction fee) will opt for a less expensive option and improve your bottom-line. These benefits should more than compensate for the additional hassle of managing multiple payment options.