September 01, 2024
How to Increase the Profitability of your eCommerce
In the increasingly competitive world of eCommerce, increasing profitability is critical to survival and growth. Profitability, or how profitable your business is, depends on several factors such as cost management, customer retention, and optimization of your sales channels. Here are some strategies you can implement to increase the profitability of your eCommerce.
1. Optimize your Conversion Rate.
One of the most direct ways to increase your profitability is to improve your conversion rate. This means converting more visitors into paying customers. Here are some methods to achieve that:
- Improve Ease of Use: Make sure your Web site is intuitive and user-friendly. Visitors should be able to navigate easily, products should be easy to find, and the purchase process should be simple and streamlined.
- Site speed: it is still often underestimated, but if a crucial page in the purchase process (think shopping cart view, product pages, search result generation, order confirmation, etc.) does not load at lightning speed there will be a frustration (especially on mobile) on the part of the user and fnuff your conversion rate.
- Perform A/B Testing: Run regular A/B tests to optimize different elements of your website, such as call-to-action buttons, product page layouts, and headlines. This will help you understand what works best for your target audience.
- Integrate Social Proof: Reviews and customer testimonials can make a huge difference in the decision of potential buyers. Make sure your website includes enough social proof to build trust.
- ROPO: consumers go through several stages before making a purchase. In doing so, they mix the use of different devices. Typically, a user on mobile will rather orient & inspire (content, video) and, if the order does not take place on mobile, later proceed to purchase on tablet or desktop. In a multi-channel sales model (e.g. retail + eCommerce), the user will possibly first inspire and orient ‘offline’ before purchasing online. This has research offline, purchase online or sometimes vice versa. Make it as easy as possible for users to make this transition by using e.g. Provide QR codes per product in your store or based on scanning in your store immediately add products to the shopping cart in your app on your user’s mobile device.
- Urgency: giving the impression to the user that it is “now or never” to make a purchase also works as an incentive. Play with the indication of your stock in your web shop. Why indicate that you still have 100 pieces in stock? The customer will feel more urgency if he or she thinks you ‘only’ have 5 pieces left.
- Remarketing: a user rarely makes a purchase immediately, but requires several contact moments with your web shop or brand. The more frequently you can have your user come back to your webshop, the higher the chance of conversion. Remarketing via Google or social media is a very effective tool here. But do it right: a user wants to be reminded on social only of the products he or she has actually viewed on your website and not purchased. A good setup of your product feeds and pixel settings is necessary here.
- Less is more: on mobile devices, the user expects speed, clarity. The technical limitations of a mobile device necessitate structure and simplicity. Strip your mobile website of all “distractors” and simplify your navigation. The user wants to get to your solution as quickly as possible.
- Payment methods: you will still find webshops where you can only pay with paypall or bancontact, for example. Not all web shops have the possibility to pay e.g. with payconig. This is killing for your conversion. Usually it is only a matter of activating certain options with your payment gateway provider to activate all possible and common payment options. The more options, the higher the chance you will be able to serve every user. Is your webshop active abroad? Then make sure you also offer the local, common payment options (e.g. IDEAL, Carte BLUE, etc.).
- Paying in installments: more and more web shops offer the option to pay in installments. Providers such as Klarna automate this process so you have no administrative follow-up here but still receive your pennies immediately.
- Increase the accessibility of your platform: make sure your platform is accessible to any audience in any context. We already wrote a full article about this which you can read here.
2. Focus on Customer Retention
Bringing in new customers is important, but retaining existing customers is often even more valuable. It typically costs seven times more to attract a new customer than it does to retain an existing one.
- Introduce loyalty programs: Encourage repeat purchases by offering loyalty programs. Reward customers with points for each purchase that can be redeemed for discounts or free products.
- Personalize the Customer Experience: Use data to make personalized recommendations, send tailored emails, and offer exclusive offers tailored to customer buying behavior.
- Provide Excellent Customer Service: Provide excellent customer service to foster loyalty. Satisfied customers are not only more likely to return, but also more likely to recommend your brand to others. Many Web shops also fail to communicate very clearly about their customer service. Yet, clearly communicating customer service has been shown to have a positive impact on conversion.
- Community: if you succeed in building a community (yourself on socials) around your webshop or brand you will see more and more returning customers. You can also consider offering exclusive benefits to your ‘fans’ to reward them for their brand loyalty. In this community you can also start a ‘referral’ program: for each new customer delivered, the referring customer receives a bonus.
- Cost of change: develop functionalities that require the user to use your platform. Consider, for example, an administrative archive in which you keep purchase receipts, invoices, delivery notes, warranty receipts, manuals and the like for the customer. The user will consider this an extra service. For example, you may also consider offering the user to register his or her purchased product through your website for additional warranty. Ideally, your customer will also automatically receive a notification (e-mail, text message) when a maintenance, replacement or update for a purchased product is necessary or desirable.
3. Optimize Inventory Management
Smart inventory management can significantly reduce your costs and increase your profitability. Excess inventory can lead to increased storage costs and shrinkage, while too little inventory can lead to missed sales opportunities.
- Use Predictive Analytics: Use predictive analytics and demand forecasting to more accurately forecast demand and better manage your inventory.
- Deploy Automation: Use automated inventory management tools to make processes more efficient and reduce human error.
- On order: the question is frequently asked: should out-of-stock products remain in your webshop? Our answer is yes! But make sure that the user can order or request these products. It is best to leave products that you will no longer take in stock or that will never be available, but make sure you offer a worthy alternative. This way, these products will generate continued traffic from Google and generate purchases on alternative products.
- All products online: webshops with a very large selection sometimes choose to offer only part of the product range in the webshop. However, this is disastrous for growth! Large webshops such as Bol.com, Coolblue.be, Amazon.com and Kingfisher.com realized their biggest growth after adding a significant number of SKUs to their webshop. More products means more choice, means more Google impact, means more up-sell & cross-sell.
4. Cost Structure Optimization.
Look critically at your cost structure and find ways to reduce operational expenses without sacrificing quality or customer satisfaction.
- Negotiate with Suppliers: Renegotiate regularly with suppliers to get better terms. By buying in bulk or signing long-term contracts, you may be able to negotiate better prices.
- Reduce Shipping Costs: Explore ways to reduce shipping costs, such as consolidating shipments or negotiating with different carriers for better rates.
- Improve your Return Management: Returns can be a significant cost. Optimize your return policy to minimize this, such as by providing clear product descriptions and photos to reduce returns.
- AvoidNo-shows: the carbon footprint and cost of a delivery multiplies due to a no-show delivery: the customer is not at home and cannot take delivery of the parcel. A new delivery is necessary or the customer must then take the car to a pick-up point nearby anyway. Find out how to avoid this in this article.
- Optimize your marketing budget: there are many initiatives you can take to optimize your marketing budget to achieve the same results with fewer resources. Discover this article in which we offer some concrete suggestions for this.
- Optimize your infrastructure: you entered into a contract with a hosting party possibly years ago. But is your contract still up to date? Are the prices still consistent with the offer that exists in the market today?
5. Increase Average Order Value.
Increasing Average Order Value (AOV) is an effective way to increase profitability without having to acquire more customers.
- Upselling and Cross-selling: Promote related products or offer premium versions of products to entice customers to buy more.
- Bundle offers: Put together bundles of complementary products and offer them at a discounted price. This encourages customers to buy multiple items at once.
- Free Shipping Threshold: Set a free shipping threshold just above your current average order value. This encourages customers to add additional products to their cart to qualify for free shipping.
- Smart pricing: use the rule of 3 when setting your prices in your offer: if the same product has a cheap, acceptable and expensive variant, the user will usually choose the acceptable variant. You can play with this and take more margin on this acceptable variant by deliberately pricing it higher and closer to the expensive variant.
- Minimum volume: requires users to purchase certain products in your webshop in a certain quantity. Obviously, this does not go for all products, but why wouldn’t a customer who needs e.g. a new filter for an appliance suddenly purchase two filters….
- Volume discount: offer the user the possibility to buy in standard volume packaging and offer a small price advantage. Be sure to play the ecological card here: it is better for the environment not to remove products from their packaging individually and then repackage them individually. But above all, it is better for your logistical efficiency … and your margin.
6. Use Data for Insight and Optimization.
Use data analytics to understand customer behavior, trends and pain points.
- Analyze Traffic Sources: Understand where your traffic is coming from and which channels are most profitable. Focus your efforts on the channels that offer the best ROI.
- Customer segmentation: Segment your customers based on their purchase behavior, demographics, or other relevant criteria. This allows you to run targeted marketing campaigns that convert better.
- Develop a solid lead strategy: generating leads is one thing, adequately following up and developing your leads is another. You should avoid making a lot of investments to generate leads, but getting nothing or too little out of them afterwards. Discover our lead generation model that will enable you to develop an effective lead strategy.
7. Invest in Marketing with a High ROI
Not all marketing strategies produce the same results. Invest in channels that are proven effective for your niche and target audience.
- Email marketing: This is one of the most cost-effective forms of marketing, especially to motivate existing customers to make repeat purchases. Build a strong email list and use automation to send relevant, personalized messages that encourage customers to purchase.
- SEO and Content Marketing: By investing in search engine optimization (SEO) and valuable content, you attract organic traffic searching for your products, which can lead to higher conversion rates. This will also increase your eCommerce returns, because in the long run, SEO visitors are defacto free.
- ROAS approach campaigns: make sure that all campaigns that aim to generate visitors to your web shop are conversion-driven based on a ROAS or POAS model. A return on ad spend or profit on ad spend model indicates on the level of a product category or individual product how much budget you can maximally spend on marketing to generate a sale of that product to ensure profitability. You can make this calculation as complex as you wish: account for repeat purchases, account for returns, account for up-sell & cross-sell, etc.
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