UNDERSTANDING UNIT ECONOMICS OF E-COMMERCE

Ever imagined what are all the figures that are counted in E-commerce ?

Here is a sneak Peak into understanding about the Unit Economics and why should it be focused the most ! There has been massive cashburns with a goal in lieu to Customer acquisition and increasing GMV. But what many have failed to make it go right is unit economics.

Lets understand Unit economics in the simplest way or the cost in the simplest way.

Scenario One : 1

• Average Order Value : 500 Rs.
• Gross Margin ( 20% ) : 100
• Coupons ( 10% ) : 50
• Packaging & Shipping : 50
• COD/Payment Gateway : 30

Contribution Margin : ( — 30 Rs )

So let’s assume there is an average order of Rs 500. Upon which the gross margin ( Profit ) stands to be 100 Rs. Now let’s markup the costs involved which are Coupons ( 10% ) : 50 Rs + Packaging & Shipping : 50 Rs + COD/Payment Gateway : 30 Rs. this totals to 130 Rs against the margin of 100 Rs gained simplifying the calculation : 30 Rs. Is the loss incurred.

Adding to this there is more to this, something we call it Marketing Cost or the fancy word called Customer Acquisition Cost which can be even as high as 300–400 Rs.

Note :- This are just the basic figures where in the certain cost will be fixed like Shipping and packaging regardless of the order value so if the order value is merely 200 rs, The gross margin would be only 40 Rs. which will again increase the Loss figure.

In addition there can be even extra costs involved like Reverse Logistics, Customer Service and few others.

Scenario One : 2

Lets understand it with an example of Hyper Local or On Demand E-commerce.

1.Total No of Offices in a city : 15 * 20,000 Rs ( Average Rent ) = 3,00,000

2.HR Structure and Cost :

• Top Management [ City Heads/Area Managers ) = 1,40,000 Rs
• Senior Managers Average salary 40,000 * Avg. No. 10. = 4,00,000 Rs
• Middle level Managers Average Salary 25,000 * Avg. No. 10 = 2,50,000 Rs
• Assistant Managers Average salary 18,000 * Avg. No. 40 = 7,20,000 Rs
• Supervisors Average salary 15,000 * Avg. No. 20 = 3,00,000 Rs
• Packers Average salary 12,000 * Avg. No. 15 = 1,80,000 Rs
• Delivery Boys Avg. Salary 10,000 * Avg. No. 200 = 20,00,000 Rs

3. Internet + Utility + Electricity ( Average ) = 1,20,000 Rs

4. Packing cost Monthly average orders 30,000 * 15 Rs Cost = 4,50,000 Rs.

5. Petrol Cost of delivery boys Average 2000 * 200 delivery boys = 4.00,000 Rs

Total : 1,40,000 Rs + 4,00,000 Rs + 2,50,000 Rs + 7,20,000 Rs + 3,00,000 Rs + 1,80,000 Rs + 20,00,000 Rs + 1,20,000 Rs 4,50,000 Rs + 4.00,000 Rs = 49,60,000.

Per Month Average Cost 49,60,000 Rs. / 30 ( No. Of Days ) = 1,65,333. Rs. Per Day Cost.

Per Day Cost 1,65,333 Rs./ 700 Avg. No. Of Orders = 236 Rs Per Order Cost.

Revenue : Avg. Margin 5–10 Rs. ( Being FMCG Products )

Contribution Margin : Profit 10 Rs — 236 Cost = ( — 226 Rs. )

Note : This are the average figures which tends to vary at a larger scale from various aspects. Even if we take the avg. no. of orders slightly high again there will be addition to the packing and petrol cost involved.