What is an ERP?

An Enterprise Resource Planning (ERP) system is software that integrates various business processes into a unified platform. It allows businesses to streamline their operations by providing a central hub for activities like inventory management, purchasing, sales, accounting, and human resources. With an ERP system, companies can automate manual tasks, reduce errors, and improve real-time visibility into their operations.

In essence, an ERP connects every part of a business, enabling better decision-making, more efficient operations, and scalability for growth.

Key features of ERP systems:

• Centralized Data Management: All business information—inventory, sales, finance—is stored in one database, reducing data silos.

• Process Automation: Routine tasks like order processing or invoicing are automated, saving time and reducing errors.

• Real-time Reporting and Analysis: Provides up-to-the-minute insights into sales, inventory, financial performance, and more.

• Scalability: ERPs can grow with your business, handling increasing volumes of data and transactions.

Why Businesses Use ERP Systems

ERP systems have become essential tools for businesses of all sizes because they provide a range of benefits across different areas of the business:

1. Increased Efficiency By automating repetitive tasks and providing easy access to information, ERP systems help businesses operate more efficiently. For instance, inventory counts can be updated automatically when a sale is made or stock is received, reducing manual data entry and the risk of mistakes.

2. Improved Accuracy Since all data is entered into a single system, an ERP reduces the chances of conflicting or duplicated data. This is critical for ensuring accurate financial reporting and operational insights.

3. Better Decision Making An ERP provides real-time data, meaning managers and executives can make informed decisions based on the most current business information. Sales, inventory, and cash flow data are all accessible in one place, which enables quicker and more informed decision-making.

Account reconciliation is the process of comparing your financial records with external records (e.g., bank statements) to ensure they match. This step is crucial for identifying discrepancies, catching errors, and ensuring that financial reports are accurate.

Steps in the Reconciliation Process:

• Compare Transactions: Match transactions recorded in the ERP system with external documents such as bank statements.

• Identify Discrepancies: Flag and investigate any differences between the ERP records and external records.

• Make Adjustments: Correct errors or create adjustment entries to align the records.

Placeholder for Screenshot: Reconciliation tools in Pakk

Sales Order Lifecycle

The sales order process involves the receipt and management of customer orders. This process starts when a customer places an order and ends with the successful delivery of goods or services. In an ERP system, sales orders are tracked from creation through to fulfillment, providing visibility over each stage of the process.

Steps in the Sales Order Lifecycle:

1. Order Creation: Sales orders are generated either through manual entry or an automated system like eCommerce.

2. Order Validation: The system checks that sufficient stock is available, prices are correct, and any discounts or promotions are applied.

3. Order Confirmation: Once validated, the sales order is confirmed and passed to fulfillment.

Understanding Demand Planning

Demand planning is the process of forecasting the quantity of products or materials your business will need over a specific period. It helps ensure that you have the right products in stock at the right time, avoiding stockouts or overstock situations. Demand planning takes into account sales history, market trends, and seasonal demand to predict future needs.

Key Concepts:

• Reorder Points: The inventory level that triggers a reorder to ensure stock doesn’t run out.

• Lead Times: The time it takes from placing an order with a supplier to receiving the goods.

• Safety Stock: Extra inventory kept on hand to prevent stockouts due to unforeseen demand spikes.

Managing inventory effectively is key to ensuring business efficiency. The ERP system tracks every stage of the inventory lifecycle, from goods receipt to dispatch, ensuring that businesses always have an accurate view of their stock levels.

Steps in the Inventory Lifecycle:

1. Stock Receipt: When goods are received from suppliers, they are logged into the ERP system, and stock levels are updated.

2. Stock Transfer: Goods can be moved between warehouse locations, with all movements recorded in the system.

3. Stock Adjustment: Inventory adjustments are made for reasons such as damaged goods, theft, or other discrepancies.

4. Order Fulfillment: As sales orders are processed, stock is reduced, and inventory levels are updated in real-time.

Creating and Managing Purchase Orders

A purchase order (PO) is a formal request sent to a supplier to provide goods or services under specified conditions. It is a vital document in the purchasing process as it outlines what is being purchased, the quantities, agreed prices, and delivery terms.

Key Elements of a Purchase Order:

• Item Descriptions: Clear details about the products or services being ordered.

• Quantities and Prices: The number of units and agreed price per unit.

• Have you negotiated rates with your chosen credit card provider (if you have existing volume)? Have these been applied to your account?

• Have you integrated at least one credit/debit card processor, PayPal, then any industry specific payment processors you need. Pakk sites - Stripe, PayPal, Paytriot and Viva Wallet are built in and mostly only require you to enter your account ID and enable. You might also need to set up webhook notifications.

• Have you tested your integration well? Have you tried both payment success and failure scenarios to see how your system handles them? Does the information flow through to your customer service team. Pakk sites - for our built-in payment processors we record detailed transaction meta-data which can be inspected in the admin panel.

Overstock refers to excess inventory that is not moving, while deadstock is unsellable inventory. Both types of stock tie up capital and storage space, so managing them effectively is critical for profitability.

Strategies for Managing Overstock and Deadstock:

• Discount Sales: Offer discounts to clear slow-moving stock.

• Bundling: Combine deadstock with faster-moving items in promotional bundles.

Stock Movements and Adjustments

Every inventory movement—whether it’s receiving goods, moving them between warehouses, or fulfilling orders—needs to be tracked accurately in the ERP system. This ensures that inventory records remain up-to-date and allows businesses to maintain full visibility of stock levels.

Common Stock Movements:

• Goods Receipt: Items received from suppliers are added to inventory.

• Stock Transfers: Moving items between different warehouse locations.

Stock-taking is the process of physically counting inventory to ensure that the quantities in your ERP system match the actual stock on hand. Cycle counting is a method of stock-take where different sections of inventory are counted on a rotating basis to avoid disrupting operations.

Why Stock-Takes are Important:

• Ensures accuracy in financial reporting.

• Helps identify and resolve discrepancies early.

• Prevents stockouts or overstock situations.

Working with Suppliers

Suppliers play a critical role in ensuring smooth business operations. ERP systems help manage relationships with suppliers by centralizing supplier information and streamlining the procurement process. An ERP stores all relevant details such as contact information, payment terms, and past order history.

Supplier Management Includes:

• Creating and maintaining supplier profiles.

• Tracking supplier performance, such as delivery times and quality.

ERP Implementation Tips

Implementing an ERP system can be a complex process, but following best practices can make it smoother and more successful. Proper planning, preparation, and training are key to ensuring a seamless ERP implementation that meets your business needs.

Best Practices for ERP Implementation:

• Set Clear Objectives: Identify the specific goals you want to achieve with the ERP system, such as improving inventory accuracy or streamlining financial reporting.

• Engage Stakeholders Early: Involve key stakeholders from each department to ensure that the system meets their needs and that they are invested in its success.

• Phased Implementation: Consider rolling out the ERP system in stages, starting with core modules such as inventory or finance, and then expanding to other areas.

• Data Cleanup: Before migrating to an ERP system, ensure that your existing data is clean and accurate. Eliminate duplicates and correct any errors to avoid problems during the implementation.

Optimizing Your ERP System

Once your ERP system is live, continuous optimization is essential to ensure that you're getting the most value from it. This involves refining processes, adding new features as your business grows, and regularly reviewing system performance.

ERP Optimization Strategies:

• Regular System Audits: Periodically review your ERP system to ensure that it is still meeting your business needs and operating efficiently.

• Employee Training: Provide ongoing training to employees so they can use the system to its full potential and adapt to any new features or updates.

• Leverage ERP Analytics: Use built-in analytics tools to identify bottlenecks in processes and opportunities for improvement. For example, analyze sales trends to optimize stock levels or review financial reports to cut unnecessary costs.

Leveraging ERP for Continuous Improvement

ERP systems should not be static. They evolve alongside your business and should be used to drive continuous improvement. As new technologies and business models emerge, your ERP should adapt to help you stay competitive.

Continuous Improvement Tactics:

• Automating New Processes: Identify processes that could benefit from automation, such as recurring purchases or complex reporting tasks.

• Exploring New Integrations: Consider integrating your ERP with other business tools such as customer relationship management (CRM) systems, eCommerce platforms, or specialized accounting software.

• Tracking KPIs: Use your ERP system to monitor key performance indicators (KPIs) and identify areas for process improvement. Examples include monitoring inventory turnover rates or tracking order fulfillment times.

How ERP Connects Business Processes

One of the most powerful features of an ERP system is its ability to connect different business functions, ensuring that information flows seamlessly between departments. Whether it's inventory, sales, or finance, an ERP system captures data from each department and integrates it into a unified platform. This integration eliminates the need for manual data entry between systems and ensures that all departments are working with accurate, up-to-date information.

Examples of Connected Business Processes:

• Inventory and Sales: When a sales order is placed, the ERP system automatically checks and allocates stock, ensuring that inventory levels are adjusted in real-time.

• Purchasing and Accounts Payable: Once goods are received, the ERP automatically generates an invoice and tracks it in accounts payable, streamlining payment to the supplier.

• Sales and Accounts Receivable: As sales are completed, revenue is recorded, and accounts receivable is updated to track payments from customers.

Placeholder for Screenshot: Example of business process integration in Pakk

Benefits of Real-time Data Flow

In a traditional business setup, each department operates in silos, and information exchange is often slow and error-prone. ERP systems break down these silos by enabling real-time data flow across all business processes, which leads to better decision-making and increased efficiency.

Advantages of Real-time Data Flow:

• Improved Decision-making: With access to real-time data, managers can make more informed decisions based on the most current business information.

• Faster Response Times: Real-time data allows businesses to respond quickly to changes in demand, stock levels, or customer orders.

• Reduced Errors: Since all departments work off the same data, the risk of errors caused by manual data entry or communication gaps is minimized.

Placeholder for Screenshot: Real-time inventory and sales data in Pakk

Data Accuracy and Its Impact

Data accuracy is crucial for business operations. When all data is consolidated within the ERP system, discrepancies and errors are easier to catch and correct. Accurate data helps improve forecasting, reduces waste, and ensures that financial reports reflect the true state of the business.

Key Impacts of Accurate Data:

• Improved Inventory Management: Precise data allows businesses to maintain optimal stock levels, reducing overstock and preventing stockouts.

• Financial Accuracy: Accurate data ensures that financial statements such as profit and loss reports are reliable, aiding in better financial planning.

• Enhanced Customer Service: Accurate order and stock information enable businesses to provide timely and reliable service to their customers.

Placeholder for Screenshot: Accurate data management tools in Pakk

In some cases, a payment may not match the amount due on an invoice, either because of errors or disputes over the product or service. ERP systems streamline the process of managing these situations by allowing adjustments to invoices and payment records.

Managing Payment Discrepancies:

• Disputes Over Products: Flag invoices where the customer has raised an issue, and put payments on hold until the dispute is resolved.

• Adjusting Invoices: Update invoices to reflect agreed changes, such as price reductions or discounts for late deliveries.

ERP systems provide powerful reporting tools to generate key financial statements such as profit and loss (P&L), balance sheets, and cash flow statements. These reports offer insights into the financial health of the business and aid in compliance with accounting standards.

Common Financial Reports:

• Profit and Loss Statement: Summarizes revenue, costs, and expenses over a period.

• Balance Sheet: Provides an overview of assets, liabilities, and equity.

• Cash Flow Statement: Tracks the movement of cash in and out of the business.

Placeholder for Screenshot: Financial reporting interface in Pakk

ERP systems simplify tax compliance by automatically calculating VAT based on sales and purchases, generating VAT reports, and ensuring accurate filing. This helps businesses stay compliant with tax regulations while reducing the time spent on manual calculations.

Key Aspects of VAT Management:

• Automatic VAT Calculation: Based on the goods sold and the customer’s location.

• VAT Returns: Generate VAT reports for submission to tax authorities.

• Audit Trail: Maintain a clear and complete record of VAT transactions for compliance purposes.

Placeholder for Screenshot: VAT reporting and compliance tools in Pakk

Inventory management is the process of overseeing the flow of goods into and out of your warehouse. It ensures that the right quantities of products are available to meet demand while minimizing excess stock and reducing holding costs. An ERP system helps businesses maintain optimal stock levels by tracking all inventory transactions in real-time.

Types of Inventory:

• Raw Materials: Items that will be used to create finished goods.

• Finished Goods: Products that are ready for sale to customers.

• Work in Progress (WIP): Goods that are in the process of being manufactured but are not yet finished.

Introduction to ERP Financials

One of the core functions of an ERP system is integrating financial management with other business operations. By capturing transactions from purchasing, sales, and inventory processes, the ERP system ensures that financial data is automatically updated and synchronized across the system. This streamlines accounting tasks and reduces errors caused by manual data entry.

Core Accounting Modules:

• General Ledger: Tracks all financial transactions and provides a full record of a company’s financial performance.

• Accounts Payable (AP): Manages the money your business owes to suppliers.

• Accounts Receivable (AR): Manages the money owed to your business from customers.

Placeholder for Screenshot: General ledger overview in Pakk

• Have you set up a reviews system so customers can leave merchant and product reviews? Pakk - reviews functionality is built in. Switch on review collection and customise review collection text, email wording and other options.

• Are you displaying reviews prominently on your site? Pakk - a reviews page is autogenerated and linked from the footer. Product pages display relevant reviews.

• Are you featuring your aggregated reviews score (e.g. 4.7/5) on your homepage? Pakk - create a Feature Block with an image of your review aggregation score and feature on homepage.

ERP systems help manage stock levels by automatically tracking stock movements and alerting users when it’s time to reorder based on predefined rules. This helps businesses maintain the right amount of inventory to meet demand without overstocking.

Stock Management Techniques:

• Reorder Points: Automatic triggers when stock levels fall below a set minimum.

• Min/Max Levels: Set minimum and maximum stock levels to optimize replenishment.

• Safety Stock: Buffer stock kept to avoid stockouts during unexpected demand increases or supplier delays.

When a sales order is confirmed, the system allocates or "commits" the stock required to fulfill that order. This ensures that the products are reserved for the customer and not accidentally sold to someone else.

Stock Commitment Process:

• Checking Availability: Before committing stock, the system verifies if the required quantity is in stock.

• Allocating Stock: Once verified, the system allocates the items to the sales order, updating the available stock levels.

• Managing Backorders: If stock is insufficient, the system can place the order on hold or create a backorder to fulfill the request when stock is replenished.

The order-to-cash process involves everything from receiving a customer order to collecting payment. It integrates several business functions, including sales, inventory, and finance, ensuring smooth and accurate operations.

Steps in the Order-to-Cash Process:

1. Receive a Sales Order: A sales order is entered into the ERP system, which checks for stock availability.

2. Commit Stock: The system allocates the necessary stock to fulfill the order.

3. Dispatch Goods: After the order is confirmed, goods are dispatched, and the order status is updated.

4. Generate Invoice: Once goods are dispatched, an invoice is generated and sent to the customer.

5. Receive Payment: Payment is tracked in accounts receivable, and once received, the financial records are updated.

After the sales order is confirmed and stock is committed, the next step is dispatching the goods. ERP systems manage this by generating pick lists for warehouse staff and creating shipping documentation.

Key Elements of Dispatch:

• Picking and Packing: Warehouse staff are provided with pick lists, detailing which items need to be gathered for dispatch.

• Generating Shipping Labels: Labels and documentation are created, ensuring the correct destination and shipping method.

• Updating Status: Once dispatched, the system updates the order status to reflect that the goods are on their way.

The purchase-to-pay process in an ERP system covers the entire procurement cycle, from placing a purchase order to receiving goods and paying suppliers. This process ensures that businesses manage their procurement activities efficiently and maintain good relationships with suppliers.

Steps in the Purchase-to-Pay Process:

1. Create a Purchase Order: A purchase order is generated based on demand planning and sent to the supplier.

2. Receive Goods: The supplier delivers the goods, and the ERP system updates inventory based on the goods received.

3. Invoice Matching: The supplier’s invoice is matched with the purchase order and goods receipt to ensure accuracy.

4. Make Payment: The invoice is processed for payment, and accounts payable is updated to reflect the payment made.

A credit note is issued when a customer returns goods or if an error is made on the original invoice. ERP systems allow businesses to create credit notes that offset the original invoice, helping to manage returns and refunds efficiently.

When to Issue a Credit Note:

• When goods are returned by the customer.

• When an invoicing error (such as overcharging) occurs.

• To adjust or cancel an invoice after dispatch.

ERP systems automatically capture and record financial transactions as they happen across other business processes. For example, when stock is received, the ERP updates inventory and records the associated cost. Similarly, when a sales order is processed, the system captures revenue and updates accounts receivable.

Types of Transactions Recorded:

• Purchases and Expenses: Includes goods and services bought from suppliers.

• Sales and Revenue: Captures revenue from customers when goods are sold.

• Quick global search should allow finding product by keyword from anywhere in site. Pakk sites have global search by default.

• Main product navigation menu should have 5-7 links, corresponding to the main sections or departments on your site. Pakk sites autogenerate the main menu - make sure you have 5-7 parent categories.

• Don't have an infinitely nested category hierarchy if you can avoid it - 2 to 3 nested levels at most. Pakk product navigation menu goes shows only 3 levels deep.

We've tried to bring all these steps and actions points together into one big (huge) launch checklist that you can use whether you're launching a totally new business, a new brand or even just a new site for an existing business. Of course, depending on which of these apply to you, you may already have a lot of this in place - in which case just tick it off an move on.

This list is always going to be incomplete, so if there's something glaringly missing please let us know and we'll add it. It's a living document, so we'll leave a note here of when it was last updated.

This list is not specific to Pakk, so can be used as a reference for launching on any platform. However, it's worth noting two things:

1. This list is somewhat opinionated (a bit like Pakk). We have our approach to e-commerce and a lot of that is codified in this list. Feel free to ignore any of it if you feel it's wrong.

• Homepage: we recommend a single, highly visual, full-width hero image showcasing your most important product/feature/category with a link to it. No carousel, videos, animations etc. Pakk sites - homepage layout enforces a hero image. Configure in site layout setup.

• Homepage: pick out 5-6 features, products, categories, blog sections etc that you'd like to showcase and set up simple blocks of content that briefly summarise them, provide eye candy and a link. Pakk sites - use homepage blocks to create your homepage layout.

• Homepage: display your USP points somewhere prominent. Pakk sites - USP bar is displayed towards the top of the homepage.

ERP systems allow users to specify detailed information on each line item of a sales order, such as VAT (Value-Added Tax), item discounts, and shipping costs. This ensures transparency and accuracy in the sales process.

Key Concepts in Sales Orders:

• VAT Amounts: ERP systems automatically calculate VAT based on the customer's location and the type of goods being sold.

• Discounts and Promotions: Discounts can be applied per line item or to the total order.

• Delivery page: Does it list all shipping methods? Does it answer common questions about delivery that customers might have? Does it explain how delivery costs are calculated? Is it up-to-date? Pakk sites - delivery page is autogenerated from shipping methods available on the site. You can add a custom 'explanatory' text to the top and/or link an FAQ page to be embedded at the bottom.

• Contact page: Does it make it clear what the preferred way to contact you is? Does it encourage customers to use that method? Does it provide alternative methods? Does it give your opening hours? If you have a physical presence, does it give the location/opening hours? Does it provide an embedded contact form that feeds into your help desk? Pakk sites - contact page is autogenerated. Set up opening hours, custom text and embedded contact form in site setup.

• Do you have a workflow set up for customer enquiries/complaints? Where will customer enquiries/complaints go, who will deal with them, how will you track progress? Pakk - use the built in Ticket system. Configure the Ticket system to auto assign and notify incoming Tickets. Create a form for opening Tickets on your site, embed on Contact page, in Help Widget and link from anywhere on site.

• Supporting pages - like an 'about us', 'why shop with us' etc. Pakk sites - create 'pages', publish them and link from aux or footer menus. Feature your top supporting pages in the Help Widget.

• Have you created a knowledgebase or collection of FAQs to cover at least 80% of potential customer enquiries. If you don't have that yet, commit to collecting up customer questions once the business is open and centralise the answers and make them available to customers right from your site. Pakk sites - create FAQ pages. Link to the FAQs homepage from aux bar, footer bar or both. Link to FAQs from products.

• Lead collection - do you have a way to capture information from customers who aren't quite ready to buy? If it's a B2B site, this is particularly important. Pakk sites - use Lead pages and link to them prominently.

• Product descriptions - have you included concise, readable and catchy descriptions for each product? Are they written for humans but keyword rich? Do they contain enough information about the product such that you won't get 'misrepresentation' complaints?

• Supplemental product information - break out as much information about products into common 'attributes' and set them up as custom fields in your system. Characteristics like 'Brand', 'Depth', 'Vitamin D (mg)' are best off outside the product description and placed in well organised groups of characteristics that are displayed after the description and can be used for filtering and sorting. Pakk sites - create 'Custom Attributes' that are applicable for your products and fill in the values for each product.

• Can customers easily find shipping information directly from the product purchase page? It's good practice because customers can get frustrated and leave if they can't immediate see how much shipping will cost. Pakk sites - delivery information is intelligently embedded on the product page.

• Stock and delivery timescales - can customers see, in real time, how much of this item is in stock? Or if you don't want them to know, can they at least see some indication of when they might get the product? Pakk sites - live stock and delivery time estimates are shown by default, configure in site setup.

• Order emails - have you set up your platform to send order confirmation messages and order "workflow" messages (e.g. order dispatched, invoice)? Is the 'from' address and name correct and representative of your brand? Is the language used in the emails 'on brand'? Is the design and aesthetics of the emails representative of your brand? Is the information presented in the email correct and useful? Pakk sites - just configure order emails in the site setup.

More information on how Pakk helps with SEO

Guide to Google Services for E-Commerce Businesses

• Look up best practices for meta data and create good, concise and human readable: URLs, meta title and meta description. Pakk sites - set all these SEO fields under the 'Web' tab for publishable entities like products, pages, posts etc

• Make sure your pages are generating Twitter Card, Open Graph (Facebook) and Structured Data (Google) and embedding it correctly in the <head> of your site. Pakk sites - this is taken care of for you, just get the SEO fields filled out correctly.

• Favicons and site manifests for all different browsers and devices. Pakk sites - just set your 'favicon' logo in site setup, everything else is done for you.

• Submit your site to Google Webmaster console and keep an eye out for errors, crawl problems and notifications. Try to use the "domain" verification method if possible for ease of maintenance.

• In the Webmaster Console, set up and submit your site's sitemap. If you platform allows for autogeneration, set up an upload schedule for the sitemap. Pakk sites - you can always get the sitemap at /sitemap.xml. Set up a schedule for the sitemap to be downloaded daily.

• Set up Google analytics and integrate the JS snippet into your site. Pakk sites - just enter your Google analytics ID in site setup.

• Use the Google 'Rich Snippets' testing tool to preview how Google sees your site and how it might generate snippets. Try to ensure that they are as rich as possible for all page types (product/post/page etc.). *Pakk sites - you don't need to do this - we do it for you.

• Are you on Google business? Make sure you have claimed your business and keep the details up to date.

• Sign up for and active Google Merchant Center. Set up all your business details and if you are intended to run multiple sites/stores from the same account, ask for your account to be upgrade to a "Multi Brand" account.

• Get your product feed into Google Merchant Center. There are a variety of options for doing this, ranging from manual entry to CSV import to API integrations. *Pakk customers - just choose the "Web Crawl" option and Google will automatically build a feed from the rich metadata we embed on each product page.

• Put the feed in Google Merchant Center to work by activating free listings and potentially linking with your adWords account and activating paid listings.

• Can people find your brand presence on social media? Include links to your profiles wherever possible. Pakk sites - just set up your profiles in site setup and links will be shown throughout the site automatically.

• Are you creating engaging and informative content on a regular basis? Is it easily discoverable within the site? Are posts cross-linked to product where relevant? Pakk sites - use the 'Posts' and/or 'Feed' functionality to create content on a regular basis, link to the 'content homepage' from the main site homepage. Cross link products and posts with 'content tags'.

• Have you negotiated shipping rates with couriers? Do you know how the Post Office charges for your types of products? Could you achieve better rates by using a courier "aggregation" service.

• Have you considered / talked to your courier about less common services like international shipping, remote areas shipping, express services, insured services, collections, pay-on-delivery etc. Don't get surprised when couriers charge you over the odds for such services because you forgot to negotiate specific rates.

• Set up the shipping methods you want to offer on your e-commerce system so that they reflect the charging structure (unless you want to explicitly make a loss or profit on shipping). Pakk - set up your shipping methods and apply to your site.

• Could you offer free shipping? It's highly enticing for customers. Perhaps you could offer free shipping for orders over a particular value.

• Have you set up your physical order processing workflow for maximal efficiency? This is a bit beyond the scope of this article, but think through: picking list generation and printing, picking in the warehouse, packing, shipping labels, daily courier collection or deliver in to courier's depot, post dispatch tracking etc. Pakk - you might want to set up customer Order 'stages' and define a starting stage to reflect your internal workflows.

If you’re just getting into e-commerce, there’s a high chance your top priority when shopping for a platform is “having a great looking store”. Are you finding yourself browsing through template galleries and customer portfolios? Obsessing over image carousels? Considering contracting a designer to help put your store together?

Sure, I get it, it’s natural for a business owner to want a “great looking store”. Wouldn’t we all? Why would we set out to build an online shop and not want to make it look as good as possible? I’m here to tell you though, that having a great looking store, even a good looking store, is not as important as you think. And I can prove it with one word: Amazon.

Nothing wrong with the aesthetics of Amazon - it looks, well, OK, but it’s not going to win any design awards - I think we can agree on that. So why is the way your store looks not all that important? Well, there are actually quite a few reasons.

What looks great today, might not look great tomorrow

The web changes. Fast. If you look back at web trends over the past 15 years, it’s mind bending how quickly styles have come and gone. If you’d have created an ‘on trend’ site in 2005, you’d probably have had to completely overhaul it 4-5 times by now to keep current. That’s expensive and tiresome.

Flashy things often bog a site down

It’s no coincidence that half the web is bust and the other half slower than a broken down bus. Often, in a misguided attempt to make their site “flashier”, designers and store owners load them up with widgets/plugins/carousels/themes or any other manner of digital cruft. Mostly it just gets in the way of the shopping experience. Then it ages badly and you’re back to point 1.

E-commerce visuals have become standardised

Ever noticed how easy it is to tell apart a small-business online store from one of the big players? The small store is the one with the black background, wood-panel-effect header, handwriting font and video carousel. The big ticket store is the one that looks, well, like every other big ticket store.

Will your site look good on a smartwatch, viewed underwater at a distance of 20 meters?

OK, that’s a complete exaggeration, but you get where I’m going with this. It’s hard to make a site look good across the modern gamut of devices. Not “design hard”, but “engineering hard”. You might be happy with the store you’ve created when viewed on a desktop with a lovely big monitor - but you also need to be sure that it looks that great on any of the 1000 handheld devices your potential customers might be using.

So if I’m saying you shouldn’t obsess about creating a great looking site, then what should you obsess about? We think it’s quite simple. Design-wise, this is what we obsess about for Pakk stores:

• Clean, minimal, timeless style - doesn’t need to be updated yearly

• White background across the whole site - few exceptions

• Simple, high quality product shots - white background, high res

• Subtly branded - think one or two colours, logo and font

I won’t go into all the different elements of functionality - that’s for another day. I think it’s enough to stress that aesthetics should take a backseat to efficient functionality. Go simple, fast and clean over flashy, gaudy and “custom”.

Unless you’re selling diamond rings or custom-designed travel experiences, you don’t need to tell a story - you just need to present your product catalogue in the most efficient way possible.

Be honest - if I asked you what the resulting margin would be on a 50% markup, how quickly could you answer?

Given how fundamental margins and markups are to any product business, I think it's time we cleared this up once and for all. If you can't be bothered to read this, just grab the "cheat sheet" at the bottom of the article, print it out and keep it in a safe place.

Markup

Markup is how much you add to the cost price of a product in order to arrive at the selling price. It can be expressed in absolute terms (e.g a £1.50 markup) or more usefully, in relative terms (e.g a 15% markup).

Here are some key points:

• a relative markup always leads to the same margin (see below)

• an absolute markup leads to a variable margin depending on the cost price of the item (i.e. it's not the same to add £1 to a product that costs 50p than to a product that costs £100)

Obvious points, but sometimes overlooked.

Formula

(Absolute Markup / Cost Price) * 100 = Relative Markup as a %

In human words: divide the absolute markup (the amount of profit, or absolute margin) by the original cost and multiply by 100.

Margin

Margin is how much profit you make on a sale. Again, it can expressed in absolute terms (e.g. a £10 margin) or more often, in relative terms (e.g. a 20% margin).

The point I made above bears repeating: a relative markup implies a consistent relative margin. What does that even mean in practical terms? Basically, if you always markup your products by the same relative amount (let's say 100%, which is double), the relative margin will always be consistent (in this case 50%, which is half). In yet more words: if you sell your products at double the cost price, half will be profit. Seems glaringly obvious when the numbers are simplified.

When the numbers aren't nice and round, you need to know how to convert back and forward to be able to answer questions like "If I apply a 23% markup, what will be the resultant profit margin?".

Formula

(Relative Markup as a % / (Relative Markup as a % + 100)) * 100

It looks ugly, but its simple. Here's the first case I mentioned as a worked example:

(100 / (100 + 100)) * 100 = (100 / 200) * 100 = 0.5 * 100 = 50%

And here's the answer to the question I asked about the 23% markup:

(23 / (23 + 100)) * 100 = (23 / 123) * 100 = 0.187 * 100 = 18.7%

So, as we already knew, 100% markup is a 50% margin. It might not have been so obvious that a 23% markup is a 18.7% margin.

Cheatsheet

Here's a quick reference for common markups in the range 10% to 100%. If you just need a rough idea of what markup gives what margin, use it as a reference.

• White background. Minimal coloured text. No more than 3 fonts. No more than 3 brand colours. Legible body text. Pakk won't let you do anything else.

• Clear footer with: secondary menu for important site areas, logo, company address, legal and contact details, copyright message. Pakk sites - create footer menu in site setup. Company details are displayed automatically - make sure they are correct in your account setup

• Some sort of top menu in the header with links to prominent pages/sections around the site (e.g delivery page, contact page, content homepage).

Once the customer receives an invoice, the next step is to track and manage payments. ERP systems provide functionality to log payments, track outstanding amounts, and send payment reminders.

Key Concepts in Payment Management:

• Payment Methods: ERP systems track different payment methods, such as credit card, bank transfer, or cash.

• Partial Payments: If a customer only pays part of an invoice, the system tracks the remaining balance.

• Are your company details (legal name, address, VAT and company number) clearly displayed on the site and on your policy documents Pakk sites - Pakk takes care of it for you.

• Privacy policy: Is it GDPR compliant? Does it have a statement to that effect? Does it specify what data is collected and why? Does it specify with whom data is shared? Does it specify how long data will be kept? Does it explain and link the Cookie Policy? Pakk sites - Pakk takes care of it for you.

• Wherever information is collected from customers (e.g. registration forms), are you positively asking for their agreement to the privacy policy? Pakk sites - Pakk takes care of it for you.

• Terms and conditions: Are they linked to prominently around the site? Pakk sites - Pakk takes care of it for you.

• Before purchase: Are you positively requesting agreement to both terms and conditions and privacy policy? Pakk sites - Pakk takes care of it for you.

• Cookie warning. Make sure it respects the 'Cookie Law' in the way it functions. Pay attention to 'essential' versus 'non-essential' cookies. Pakk sites - Pakk takes care of it for you.

• Cancellation form: Do you have a simple form that customers can use to request cancellation of their order? Is it linked from the Terms and Conditions? Pakk sites - Pakk takes care of it for you.

How do most business owners order stock?

Well, honestly, they probably just eyeball it. A lot of business owners have been “in the game” so long they can probably just guess at how much to buy.

I ran a company that supplied restaurants and hotels for a good while and can tell you that precisely 0% of our customers were doing anything other than calling us from inside their walk-in cold room with a list scratched on the back of a chopping board directly from memory.

One Step Up

Beyond just eyeballing, I’d guess the next most common method would be basing ordering off averages. Averages are a relatively simple metric - well understood by most and on the surface, a good indicator of what to order for the forthcoming weeks and months. Let’s take an example:

Acme Widgets have sold 10 widgets per week for the last 3 months and now needs to order stock for the next 3 months. Simple right? Start by working out the average monthly sales, which is just 10 x 4 = 40, then multiply that by the 3 months to get an order of 120 units.

The Hidden Problem with Averages

Let’s take a different example but with a common theme: a monthly average of 40.

This time though, instead of a constant 10 sales per week, the pattern looks like this:

• Week 1: 10

• Week 2: 29

• Week 3: 1

• Week 4: 5

That’s radically different right? Sales are not constant at all, they are pretty much all over the place. Honestly, though, this is probably a much more realistic scenario for most businesses.

Statisticians refer to this as variance - how much the individual numbers that go into an average vary around that average. You might remember studying standard deviation at school and variance is exactly what standard deviation quantifies. The higher the variance/standard deviation - the more “all over the place” the numbers that make up the average. The lower the variance/standard deviation - the more tightly packed together they are.

But what does this mean for stock ordering though? In the end we might still be tempted to add all those numbers up (120) and divide by the number of weeks (12) to get a weekly and monthly average (10, and 40 respectively) - which leaves us right back at square one.

Every Week Is Christmas

Look back at the numbers. What was the highest weekly number of sales? 29, right? So if we want to be sure we won’t run out of stock, we could assume we’ll sell 29 units each week for 3 months. That would mean an order of 348.

Compare that number to the 120 we decided we need to order earlier, based on the average. Ordering 348 gives would give us the advantage that we are MUCH less likely to run out of stock, but it comes with some BIG disadvantages from a business perspective - a big capital outlay, a risk of having a lot of stock lying around for a long time, and in the case of products with a shelf-life, the risk of expiry and having to throw some stock away.

So clearly, assuming every week is Christmas isn’t the best tactic. Is there a better one?

Every Week Is Not Christmas

Let’s summarise where we are.

We understand that ordering according to just the average is a poor strategy that doesn’t account for variance. We’ve also seen that ordering to the “best sales scenario” is also a poor tactic which could leave us hugely overstocked and potentially out of pocket.

What we want is to be “reasonably sure” we won’t run out of stock. In order to achieve that we’ll need to order more than the average, but less than the best case case scenario.

Luckily we don’t have to pick a number out of thin air. There’s a mathematical middle ground that can really help us and it’s based on a concept called confidence intervals - it lets us specify some threshold, like 99% or 95%, of “confidence” that we’ll be able to cover sales. It’s just a statistical measurement based on existing data, so it’s no guarantee - but it’s much better than an average.

Going back to the above numbers and running the calculations: for a 95% confidence interval, the “upper boundary” is approximately 14 and the lower boundary is approximately 6. This should be interpreted as “we are 95% confident that sales per week, during the period we are buying for, and based on past data, will be between 6 and 14.

That’s pretty cool right? 95% is plenty of confidence.

Scientists tends to use this statistical threshold when looking for “statistical significance” in experiments, so it’s certainly good enough for stock ordering!

So if we can be 95% confident that sales won’t exceed 14 per week, we can multiply that up by the 12 weeks to get an order of 168. Let’s now compare the different ordering strategies we’ve looked at:

• Basic average: 120

• Every week is Christmas: 348

• 95% confidence interval, upper bound: 168

Using the 95% CI technique, we’d be ordering “a bit more” than what the average tells us to, but in exchange we are getting MUCH more certainty we’ll be able to cover sales.

In Practice

Obviously you’re not going to be calculating confidence intervals on the back of an envelope. You could use a spreadsheet or perhaps a small script your developer could make for you. If you use Pakk, our integrated demand planner is based on this fundamental technique (see the detailed explanation of how the calculations work).

Update May 2021

Since first writing this article we came to understand that although the unit method, although perhaps the most straightforward, just isn't that popular in the wild. I suspect it might be because it is the method that most amplifies rounding discrepancies. In our experience, UK customers prefer the line method whereas our customers in Spain tend to prefer the totals method where VAT is calculated right at the end, on the grand ex-VAT subtotal.

For this reason, we implemented user control over this setting, so customers could choose which rounding technique to employ. You can find this setting in Account Settings > Rounding Method.

Update December 2021

In order to reduce complexity, we eventually removed user choice of which VAT rounding method to use.

Update March 2023

After running our variant of the line method throughout 2022 and taking feedback from users, we decided to switch to a method closer to the totals method. We now round in the final stage of transaction total calculation. We sum each unrounded line Ex. amount to reach total transaction Ex. (unrounded). We then sum each unrounded line tax amount to reach the total transaction tax (unrounded). We then sum these two amount to reach the total transaction Inc. amount which is finally rounded.

This method is the most accurate (since it removes all compounding rounding errors) and also allows perfect "pretty pricing" (where you have a target Inc. tax amount, such as £69.99, that cannot be achieved when rounding happens earlier in the chain).

First, take a deep breath

If you've got here because you've worked yourself up into a state of rage because the fancy accounting/ERP/web system you pay all that money for each month has produced an invoice that doesn't match up with an invoice you've been given, or a customer has complained that the totals on an invoice you've produced are incorrect - take a deep, calming breath and know this: there is no single, correct way to calculate VAT.

Right now that might sound plainly ridiculous to you, but stay with me for a rock-and roll-tour of VAT and rounding and at the end of the article I'll point you to some hilarious forum discussions where people really lose their shit over this.

How could there be different ways of working out VAT?

Surely 20% means 20%?

Yes and no. It all comes down to when you perform rounding. If you can't remember what rounding is, you're going to struggle with the rest of this article, so here's a refresher.

Rounding 101

The result of a calculation involving amounts of money and fractions (or decimals, or percentages etc etc) can result in numbers that don't make sense within that monetary system. That's a mouthful - here's an example:

In the UK, standard VAT used to be 17.5%. So a £1 + VAT product should cost £1.175 right? But what does that even mean in a monetary system that gave up 0.5p coins donkeys' years ago? And that doesn't happen just with funky VAT rates involving 0.5%s. VAT is 20% right now, so a £3.21 + VAT product should be £3.852 inc. VAT, which is even more meaningless.

So for a monetary amount of 3.852, what do we do? Well, most modern monetary systems divide their primary unit (e.g. Euro) in hundredths (e.g. Cents), which means we need to round to 2 decimal places.

Now, there are a few ways rounding can be accomplished:

• always round down: 3.852 -> 3.85

• always round up: 3.852 -> 3.86

• commercial (common) rounding: round up or down depending on the rest of the number - without going into technical detail, this is probably what you remember from school as "round down if it's below 5; round up if its exactly or above 5".

None of these are technically 'correct', but commercial rounding is the one normally used, well, commercially. It's the safest bet and usually the one either allowed or mandated by accounting standards. It's the one Pakk uses. For uber-geeks, we round -0.125 to -0.13 not 0.12, which is how 'commercial' rounding applies to negative numbers.

If you're starting to already see how things could get gnarly, buckle up - we haven't even fired up the engine yet!

When to round

OK, so we understand that we need rounding because we know prices like 3.852 just don't make any sense. Let's dive deeper into how the simple act of going from 3.852 to 3.85 can cause mayhem in an accounting system. We'll used a worked example. I won't include any specific currency, just imagine this applied to your home currency, like GBP or EUR.

Let's say there is a product, we'll call it Product A. The ex. VAT price is 13.25, the tax rate is 21% and so the inc. VAT price is 16.0325. If you went into a shop, picked up the product, went to the counter and were asked to pay 16.0325 you'd rightly be confused. Luckily, that would never happen. You'd be charged 16.03.

Let's just step back a minute and philosophise: what actually happened to the 0.0025 that got lopped off the end of that price? Where did it go? In the game of money there are always winners and losers right? So who won? and who lost? Well right off the bat, we can see that you, the consumer, saved yourself the princely sum of 0.0025. That's a lot of cash. To put that in perspective, if you did that 10 times, you'd have saved 0.025 which is....hmm, also in need of rounding. Forget it. You saved some money. So who lost out? Maybe the retailer - after all, he collected 0.0025 less then he would have done without the cunning rounding stealing his income. That's true, but remember, the VAT that the retailer collects goes to the tax authorities eventually, so really it was the tax man who lost out here. Shame. Well, you win some, you lose some, as we'll see later.

Right, so we've established that the effective inc. VAT price of Product A is 16.03. Cool. So you go back to the same shop to buy 4 of them to complete your set. You take them up to the counter, and as you are counting out your coins to pay exactly 64.12 (16.03 X 4), the cashier throws you a curveball and asks for 64.13. Did you think you were always going to be a winner in the game of VAT and rounding? Sorry to burst your bubble. But what just happened there? It's actually quite simple to understand. The till system used by the store did the multiplication of quantity (4) first, then calculated the VAT. So: 13.25 X 4 = 53; 53 X 1.21 = 64.13.

So who's laughing now? Earlier in the day, when you'd paid only 16.03 for a single unit of Product A, you'd left the shop highly contented with the bargain you'd scored. Now, as you trudge away after having to scrape together that extra 0.01, you leave the store highly discontented. Surely you've been scammed out of a penny? Where did that penny go? Well, assuming the merchant accounts for VAT in the same way the till calculated it (which might not be a valid assumption, even though it would be a mini "fraud" if they didn't), she will pass on 11.13 to the taxman, leaving 53.00 as her net income. That represents exactly 13.25 per unit, which is what you paid in the morning for the single unit. So, as you probably already guessed, that penny went to the taxman. Like I already said, you win some, you lose some.

So, the difference between these two examples is down to where the rounding was applied. In the first transaction, since there was only one unit, the inc VAT price of that single unit was rounded. In the second, the line total (i.e. the total price after multiplying by quantity) was rounded. If the same method had been used in the second transaction, we would have multiplied the already rounded 16.03 by the quantity of 4 to reach a total of 64.12, which is what you were expecting to pay, right?

From now on, we're going to refer to the above methods as the unit method and the line method, respectively.

Actually, there's another way

OK, this is where it gets really complicated and working an example through is too hard to follow in an article like this, so I'll include a spreadsheet if you are interested in looking up particular combinations of numbers that can cause the scenario I'm about to describe. For now, just trust me.

In the second transaction I described above, and in transactions of its kind, we refer to lines. A transaction is composed of multiple lines, each line refers to a product and quantity. So in the above transaction, there was only 1 line, with a quantity of 4. Simple.

However, in a commercial setting, transactions tend to have many lines, so there's now an extra level of complexity. In a multi-line transaction, it's entirely possible to leave each line Inc tax amount in its raw, unrounded state, add them all up and then round the total!! This gives the same result as just adding up all the line Ex VAT prices and doing a single VAT calculation right at the end. Predictably, this can give a result that differs from both of the methods described above. I'm going to call this final method the transaction method.

Actually actually, there are at least 4 other ways

From the previous article I wrote about rounding, I can think of all these approaches to rounding, and I'm sure I haven't got all of them:

• Round the unit ex price, multiply by quantity, apply tax, round again

• Apply tax to the unit ex price, round, multiply by quantity (the “unit” method)

• Multiply the unit ex price by quantity, calculate tax, round tax, add to line ex (variant of “line” method”, with rounding of tax)

• Multiply the unit ex price by quantity, calculate tax, add to line ex, round line inc (variant of “line” method”, with rounding of line inc)

Just tell me the right way to do it

The right way to do is consistently. That's pretty much the only answer I can give you. Once you understand that, you'll start to understand where the torrents of rage you can find online come from.

Most tax authorities are happy for you to just choose a way and stick with it. As long as you're not doing open fraud or have discovered a way to cheat them out of millions in tax revenue, rounding is going to make very little difference in the long run. I know this to be the case in the UK (link below), and I suspect it is the case in most countries, but at the end of the day, I'm not a certified accountant or tax guru, so you'll have to try to find out how it works in your country. PS: good luck with that - this is such a minefield of complexity that 'experts' will probably not be able to give you a straight answer and it might even be totally ambiguous in your country's tax code. In the UK it has sometimes gone to court!

The really irksome scenario is where different systems do it in different ways and I believe this is what drives most people nuts. Given the complexity I described above, most casual users could be forgiven for not understanding the layers of accounting assumptions that are baked into any ERP/accounting/transactional system and so when they find that a transaction their system produces doesn't match up to the "same" transaction on someone else's system, they assume that one of the systems is "wrong" or "broken" and get into forum or helpdesk flamewars (see links below for some real nutters).

OK, so how does Pakk do it?

We use the unit method. We think it makes the most sense for most users. If you round "early", then the numbers that result down the chain just make sense, and you don't end up charging your customers 64.13 for 4 items that cost 16.03. We like that simplicity, but we also know that it will often mean that people used to the line or transaction method might complain that their invoice is "wrong".

It's not wrong. And if they don't believe you, point them here. In the worst case scenario they'll see how long this article is, not bother to read it, and just decide to leave you alone about it.

Resources, some serious, some just plain funny

• (see 17.5.2)