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A $58M specialty retailer had tripled its online sales without ever establishing what an order costs to serve. Settling that question moved the channel from negative contribution to about four points, worth roughly $450K a year. With fractional leadership, working the unit economics before the marketing.
Online sales had tripled in three years and the business had never established whether they made money. Orders were picked out of two stores and a third-party warehouse, and returns were handled three different ways depending on where the order started.
Growth was being reported as a success on revenue alone. The cost of serving an order had never been set against the order itself, so the channel that looked like the future of the business was quietly funded by the stores. Each new order carried the same loss as the last, so scale was working against the business rather than for it.
The work started at unit level: what it costs to pick, pack, ship and take back a single order, by product category. Two categories were never going to work online at any volume and were pulled.
Returns were consolidated into one path, which on its own removed most of the cost difference between the three. The free-shipping threshold was reset on measured cost rather than on what competitors were advertising. On roughly $12M of online sales, four points is about $450K a year.
Client names are withheld under confidentiality.
Picking, packing, shipping and returns were measured across two stores and the third-party warehouse. None of the three recorded the same things, so six weeks went on making their numbers comparable before any of them could be used.
Both categories that were pulled had been growing. Removing them cost about a tenth of online revenue in the following quarter, and it was the call the merchandising team argued hardest against.
Three return routes became one. Order volume dipped for two months after the free-shipping threshold moved, then recovered on a higher average basket.
The e-commerce manager took the cost-to-serve model and reviews it by category each month. Category contribution is now reported beside revenue, which is the change that keeps the rest honest.
Two categories have since been put back on the same test, and both cleared it.
