Basic Mathematics for e-Commerce Companies to become profitable
Hiring is one of the biggest challenges a founder faces in a startup. Recently during hiring process with my startup, I got a chance to meet with couple of employees of e-Commerce companies in India. Yes! they were looking to switch their jobs as either they were afraid that company will shut down soon or they will be fired.The example I am taking example is of one e-Commerce Company that was doing 400 to 600 transactions every day and recently got acquired by bigger e-commerce company. When I asked the employee about team size of that E-Commerce company, I was shocked to know that 400 employees are working there and doing 400-600 transactions a day.
I asked that employee, why do you want to switch your job? He replied to me that CEO told us to switch our jobs as he/she might leave the company soon.
My first interview question was: What is the one thing you want to change in your company if you will be appointed as a CEO for one day. The answer was exactly what I was thinking. He said, he will fire 90% employees of the company as there’s no need of such a big team.
For E-Commerce companies playing in niche has ticket size of INR 700 to INR 2000 and makes on an average INR 100 each order after discounts (Coupon Sites are getting more traffic than most of the E-Commerce Companies), shipping, packaging and taxes. I am not including the cost of people procuring and packaging that order. Average salary in a E-Commerce company is around INR 12,000 Per Month. Obviously few champs have bigger chunk of that Salary.
Now if for each employee in a company, you are not shipping 20 products a day. You can’t be profitable. Never!
And trust me, a team of 30 People can manage 600 orders a day. Yes! I am counting your category managers, developers, designers, marketing guys all into it.
We work at this basic formula: when we make an increase in 50-60 orders a day, we expand our team by 2-3 people. You can’t expect the same guy to work 10 times of what he is doing right now. It all depends on how you put responsibilities on them initially. That employee told me that other reason of why he wants to switch his job because he sits idle for most of the day and surf on net and spends time on such frivolities. He was looking for a challenging job.
It goes without saying that most people perform really well when you give them challenging work. No one really wants to be a sinecure; everyone wants to learn new things and grow. However that very company got lot a of money from VCs and they are expected to scale pretty fast. At the end of a day, their startup is their baby and they should build it in a way they want but everyone should pay heed to some basic mathematics atleast. One has to utilize money better because there's no point in creating more mass recruiters.