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KPI of the Day – Retail: % Sales order cancellation rate

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sales order

Definition

Measures the ratio of sales orders that are canceled within a given time period.

Purpose

To indicate the amount of surplus stock due to clients canceling launched orders.

Recommendations

In order to cover the loss generated by potential cancellations of orders, sellers should charge penalties for order canceling (a percentage of the launched order value), if the stock is ready for shipping to the client.

Sales order cancellations almost always imply negative experiences, both on the side of the customer and the side of the retailer. Especially today, when online businesses prosper and physical store retailers start focusing on e-commerce, % Sales order cancellation rate is a vital KPI to be monitored.

While it is applicable in all commercial situations, it has an especially strong impact on digital stores. The flexibility degree of online purchases allows customers to change their mind even for insignificant reasons and cancel already placed orders with relatively great ease.

On the one hand, such actions have strongly negative consequences on retailers, most of which have a 24- and even 48-hour delivering policy. This means that after an order is placed, an entire process is quickly set in motion, from pulling the product from storage, to handing it over to the often-subcontracted deliverer. For these reasons, order cancellations turn out to be extremely time and resource consuming.

On the other hand, this KPI is strongly connected to % Customer satisfaction, when it reveals underlying reasons for which customers cancel their orders. The most important step to be taken in the case of high cancellation rates is identifying the reasons for these occurrences.

Popular prevention methods also include:

  • Describing products, details and features in a clear, accurate, trustworthy manner, so customers build up an authentic impression of their future purchases;
  • Establishing an effective line of communication with customers, keeping them informed at all times on the status of their delivery and receiving as much feedback as possible,
  • Providing high quality customer service to efficiently answer all customer questions, requests and complaints, thereby contributing to the prevention of sales cancellations.

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KPI of the Day – Logistics: $ Cost per ton-mile
KPI of the Day – Retail: # Safety stock
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