Where profit slips: Exposing margin gaps in modern e-commerce

This webinar, hosted by Rolando Galeana, Marketing Manager at Intentwise, features Kennedell Amoo-Gottfried, VP of Enterprise Growth and Insights at Threecolts. The session aims to help commerce brands identify hidden revenue loss and improve profitability across complex marketplace and supply chain environments by exposing where margins are slipping and what actions can be taken to regain control.

‍

The Problem: Margin Erosion in Modern E-Commerce

‍

Margin erosion is often a silent killer, accumulating across various aspects of the supply chain, including marketplaces, carriers, and operational blind spots. Despite an abundance of data, many brands struggle to translate this into actionable strategies for profit recovery.

‍

Why Profit Slips:

• Lack of Control: Brands often lose control of their products once they are handed over to carriers or retailers for fulfillment, leading to blind spots and potential mishaps.

• Fragmented Data: Data lives across various systems (Vendor Central, Ads Console, internal spreadsheets, BI tools), making a unified view and clear decision-making difficult.
• Complexity: Multi-channel operations (1P, 3P, D2C) and complex account structures exacerbate the problem, making it hard to track and reconcile performance.

‍

Understanding the Supply Chain and Points of Leakage

‍

A typical supply chain involves manufacturing/procurement, transportation to storage, and making the product available to customers either through retailers (1P/3P) or direct fulfillment (D2C).

‍

1. 1P (Wholesale/Vendor) Supply Chain:

Process: Purchase order from retailer → Brand fulfills → Notifies retailer of shipment → Carrier picks up → Receiving station → Fulfillment network → Retailer pays on invoices.

Loss of Control: Once the product is with the carrier.

‍

2. 3P (Third-Party/Seller) Supply Chain:

Process: Brand communicates shipping intent via shipping plan → Carrier picks up → Receiving station → Fulfillment centers → Customer orders → Brand gets paid.

Loss of Control: Once the product is loaded onto the carrier truck.

‍

3. D2C (Direct-to-Consumer) Supply Chain:

Process: Customer orders → Brand's warehouse picks & packs → Handover to third-party carrier.

Loss of Control: Once the product is handed over to the carrier.

‍

Common Margin Leaks Across Selling Models

‍

1P Margin Leaks

‍

These often stem from compliance penalties, discrepancies in receiving, and incorrect fees.

Chargebacks: Penalties for not following retailer rules (e.g., packaging, late delivery, incorrect labeling, delayed/missing ASNs).

• Example: A Walmart 1P customer lost 2.9% of annual net shipments due to delayed ASN chargebacks, despite ASNs appearing to be sent on time. The issue was a lag between shipment initiation and ASN transmission, which was resolved by adjusting the EDI setup and providing a buffer for logistics.

Shortages: Retailers paying for fewer units than invoiced for or shipped.

• Example: A Target customer shipped 208 units but was only paid for 140. With evidence (bill of ladings, carrier pickup proof), the 30% revenue at risk was recovered through a successful dispute.

Overages: Brands shipping more units than invoiced for, leading to unpaid inventory if not detected.

Core Fees: Retailers sometimes double-dip or apply incorrect rates on various fees.

‍

3P Margin Leaks

‍

These can occur throughout the journey from the brand's warehouse to the customer.

During Transit (Warehouse to Retailer's Receiving):

• Units lost or damaged by carriers.

• Unused shipping labels still being billed.

Within Fulfillment Center Network:

• Misplaced, damaged, or lost items during movement between fulfillment centers.

• Requires oversight as retailers may not proactively admit mistakes.

• Outbounding (Fulfillment Center to Customer & Returns):

• Automatic refund policies can lead to inventory loss and lack of compensation when customers claim non-receipt.

• Discrepancies in removal orders (e.g., requesting 1000 units back but only receiving 800).

• Example: A client using Amazon's AWD (warehousing and distribution) saw 7,000 units moved to FBA, but only 2,000 were received. After a 20-day dispute, Amazon compensated for the missing units, highlighting the need for vigilance even within Amazon's own ecosystem.

‍

D2C Margin Leaks

‍

Primarily related to shipping and fulfillment costs and carrier performance.

• Shipping/Fulfillment Costs:
  
  • Suboptimal Carrier Contracts: Carrier reps are incentivized to secure profitable accounts for their company, not necessarily to provide the best possible rates for the brand. Brands often believe they have good discounts, but these may not apply to their most-used services or be optimal for their product types (e.g., incorrect dim divisor).
    
  • Accessorial Fees: Surcharges for specific delivery conditions (e.g., residential delivery, multi-floor delivery) that are often overlooked and not subject to discounts.‍
  • Service Level Failures: Carriers missing agreed-upon delivery times, which can result in financial penalties to the brand or customer dissatisfaction without compensation.‍
    
    • Example: A fashion brand saved 21% on parcel spend by optimizing their carrier contract. An analysis revealed that their "good" discounts didn't cover their most-used services, and their dim divisor was suboptimal. Renegotiating the contract saved them $420,000 in the first year.

‍

Strategies to Prevent and Recover Lost Margins

‍

Preventing Leaks

‍

1. Follow Retailer Rules Diligently: All teams (logistics, finance) must understand and adhere to retailer policies regarding ASNs, packaging, quantities, etc., to avoid compliance penalties.
2. Maintain Detailed Records: Keep strong, easily retrievable records of all logistics activity, including photographic evidence, bills of lading, proof of delivery, and packing slips. This evidence is crucial for successful disputes.
3. Negotiate Best-in-Class Carrier Contracts: Proactively analyze shipping volumes and services to secure optimal rates and terms. These multi-year agreements offer significant long-term savings.
4. Periodically Analyze Infractions: Regularly perform deep analysis to identify the root causes of issues and implement corrective actions to prevent recurrence.

‍

Recovering Lost Margins

‍

1. Thorough Auditing: Audit every node of the supply chain to identify what went wrong and what can be remedied.
2. Evidence-Backed Disputes: Couple identified infractions with strong evidence to maximize dispute success.
3. Historical Lookbacks: Conduct regular historical reviews to capture past unaddressed errors, as retailers often have statutes of limitations for claims.
4. Audit Carrier Performance: Verify carrier service levels to ensure timely deliveries and reclaim compensation for failures.

‍

The Threecolts Solution

‍

Threecolts offers Margin Pro services to help brands solve revenue leakage problems. They cover:

1P: Deduction Management Service.

3P: Reimbursement services.

• Carrier: Rate negotiations and reimbursement services.

Threecolts aims to return 1-3% of annual top-line revenue through recovery efforts, with additional returns from preventative measures. Their process involves data ingestion and analysis, auditing, gathering evidence, raising disputes, and initiating billing upon success.

‍

Q&A Highlights

‍

• Identifying Biggest Sources of Leakage: It's difficult to predict where the biggest leaks are without forensic analysis. The best approach is to let the data speak, analyze all areas of leakage, and then prioritize based on effort-to-reward ratios.
• Prioritizing Carrier Negotiations vs. Recoveries: Carrier negotiations generally offer a higher reward-to-effort ratio, as an optimized contract provides compounding, long-term savings with less ongoing work. Recoveries, while important, often involve more burdensome processes due to retailer requirements and limitations.
• Avoiding Margin Leakage Across Channels: For multi-channel brands, hyper-vigilance across all marketplaces is crucial. It's essential to follow each channel's specific rules, regularly audit all transactions, and dispute issues wherever necessary, as settings for one retailer can inadvertently affect others.

‍

The webinar concludes by emphasizing that clear signals across all channels, proactive management, and diligent auditing are essential for faster decisions, stronger alignment, and more confident growth in modern e-commerce.

‍