Profit margins in ecommerce are razor thin, so every dollar counts. Sounds scary, but increasing your ecommerce business’s profitability doesn’t have to be complicated. With essential business analytics at their fingertips, retailers and brands can make clear-eyed decisions about where to make small changes with big impacts.
Read on for some practical and actionable tips on how to boost your business’s profitability, from shipping, fulfillment, marketing, and more.
Find Your Most Profitable Products
To learn where to focus your business efforts, follow the data, says Hilary Halstead Scott, president of jewelry wholesaler and distributor Halstead Bead. “A lot of people spend a lot of effort stocking the wrong products that really aren’t the ones driving revenue. You have to understand which pieces of your collection are really driving your revenue and profitability, and you have to make sure you focus the most on those items.”
But determining which products are the most profitable is not always cut and dry. Every item you sell comes with a whole host of costs, and it’s easy for a few to slip through the cracks. Fortunately, business analytics that sync your inventory, accounting, and online store can help ecommerce businesses understand the breakdown of expenses, from sourcing materials to getting products to the end customer.
Track Relevant Keywords
Keyword research can not only ensure that you’re selling the right products, but it can also help customers find your products when they’re looking for them. Are you building out your product descriptions with the right keywords?
With tools like Google’s Keyword Planner, you can see how often people are searching for keywords that align with your business. If you find frequently searched phrases that relate to your products, don’t be shy about adding them to your online store or marketplace listings. Look out for seasonal changes too—add terms like “Mother’s Day gift” to your product listing if you think it’d be a good fit for those shoppers.
Keyword research can also give you an idea of what to add or change about your product selection. For example, if you sell wristlets but find that the search volume for “monogrammed wristlet” is high, consider adding customizable options to your products down the line.
Focus Your Marketing on the Right Channel(s)
Just as with your products, determining which sales channels are your strong suit is key to scaling your business. Channel-specific profitability insights inform better, data-driven decisions about where to sell certain products and focus your time.
“Identifying where your customers come from prior to making a purchase on one of your channels is crucial,” says Sean Buckley, retail partnerships lead at Shopify. “You want to identify the conversion paths that produce the most valuable customers and focus on the profitable paths to increase the quality of your customer base.”
If you can identify your most profitable channels, then you know where you can put your time and resources marketing that channel and improving the customer experience to nurture those existing customers.
Compare Marketplace Fees
Marketplace fees prove to be a significant challenge when reporting item or sales channel profitability. With complicated fees ranging from product-specific percentages, flat fees per item, and monthly charges, it’s no wonder why retailers have trouble keeping track.
“When looking at channel-specific profitability, the key here is, ‘Am I making money after fees at the item level on the marketplace?’” says Keith Fileccia, COO of Mendelson Consulting. “Many business owners have no clue what the fees by item are. They see one big fee deduction.”
Lucky for you, we’ve compiled a breakdown of fees from the top marketplaces so you can see how each one measures up. Do the math to see if paying more for a membership will increase your net profit, or switch marketplaces if you’re spending more money on fees than you should be.
Avoid Stockouts AND Overstocking
Retailers know that running out of stock on an item is a curse. It stops a sale right in its tracks and negatively impacts the customer experience. It’s understandable that you want to avoid stockouts, but be careful before buying too much inventory.
The key, according to Hilary Halstead Scott, is balance. “It really requires discipline from your purchasing department to make sure they’re trying to match stock levels to demand as closely as possible without carrying too much excess,” she advises. “You do want to avoid overstocking, but you don’t want to be so lean that you get caught out if there’s a supply chain disruption like we are experiencing now.”
The problem with overstock, Scott says, is that “it not only drains your cash flow, but can also cause problems if you carry a type of product that may go out of fashion, spoil, or somehow degrade over time. You end up writing off inventory later in order to capture a sale now. You really have to watch those balance points, make sure you’re not kicking the can down the road and causing problems later, and look at your profitability over longer-term periods instead of just the current quarter.”
Add Another Sales Channel
When scaling your ecommerce operation, adding more sales channels is a surefire way to expand your reach and get your products in front of new shoppers. You might start your own online store on Shopify or Wix in addition to a marketplace presence, or you might diversify your marketplace presence by adding another one (or two) to your business. A brick-and-mortar presence could also be an opportunity for your business growth.
Regardless of which path you take, adding another sales channel is likely to help you, not hurt you. “The multiple presence doesn’t hurt as long as you’re profitable,” Keith advises. “I don’t go to Amazon and Walmart to shop for the same item. I honestly don’t. So listing your items in two places is going to help, as long as you keep the costs in mind.”
It’s no secret: returns are the bane of ecommerce businesses. About 15 to 40 percent of online orders are returned—much higher than the 5-10% of items purchased in-store. And those returns are costly. Not only do retailers usually eat the costs of shipping and restocking for the sake of “free” returns, but often the items themselves are not even suitable for resale.
How can retailers find a balance between ensuring a positive customer experience and keeping an eye on profit margins? Help prevent shoppers from needing to make returns. Returns will happen, but try out these techniques and see if you notice a difference.
- Include as much info as possible in your product listings: measurements, photos, material details, everything.
- Allow user reviews and incentivize customers to post them.
- Adopt a liberal return policy. It might sound counter-intuitive, but the longer a customer has to return an item, the more likely they are to keep it.
- Improve your packaging to avoid damaging items in transit.
Level Up Your Fulfillment Game
Businesses with large order volumes can quickly become bogged down with the labor and time involved with personally shipping products: packaging the product, writing out the customer’s address, and going to the post office. In this case, it is more financially efficient to pay extra upfront to simplify the shipping process by using a fulfillment service.
Sellers who use a fulfillment service ship their inventory to a fulfillment center for warehousing. The fulfillment center organizes, maintains, and manages the inventory of the sellers’ products. When customers make a purchase, workers at the fulfillment center select the products from the warehouse, package the items, and ship them to the customer.
Both Amazon and Walmart offer fulfillment services integrated with their marketplace: Fulfillment by Amazon (FBA) and Walmart Fulfillment Services (WFS). This type of fulfillment service is ideal for sellers who do a significant portion of their business on these marketplaces. Third-party logistics (3PL) companies, on the other hand, are not tied to a marketplace and can be used on any sales channel. 3PL companies are also more likely to provide a higher level of customer service and build a partnership with your business.
Start a Customer Loyalty Program
If you want customers to keep coming back and sharing their experience with others, start a customer loyalty program to enhance their experience through rewards and incentives. Customers who feel a connection to your brand will be more likely to interact with your business on social media, recommend your products to a friend, shop on your online store or marketplace, and visit your brick-and-mortar locations.
Koshika Samarasinghe, retail product partnership manager at Shopify, explains, “The brands that make it really easy and fun for customers to shop with them across those channels and really help their customers feel seen and valued end up having the most loyal customers. Turning a customer into a repeat customer that keeps coming back means that you have this customer that’s now a brand ambassador. They could be promoting your brand on social media. They’re willing to spend more, they’ll try new products, they’ll leave reviews. And most importantly, they’ll keep coming and coming back and buying from you.”
Tweak Your Packaging
Like returns, product packaging is another case of weighing customer experience vs. cost. Unique packaging may be a delighter that can bring in repeat customers. On the other hand, if you’re spending too much money on packaging that is just going to be thrown out anyway, take the opportunity to cut costs. A fun way to compromise is to use generic packaging but with unique branded stickers or tissue paper.
Where to start if you’re investigating more cost-efficient materials? Look into switching up the type of box, filling, and even the tape that you’re using. If you notice damaged items being returned, opt for more durable packaging to save you money in the long run. And for eco-conscious brands with environmentally minded customers, look for shipping options that use less packaging or can be recycled.