Selling online is easy, but growing your Ecommerce venture profitably is getting harder than ever.
The online marketplace and Ecommerce industry is expanding quickly. Every day more retailers are making the move to selling online, while budding entrepreneurs are getting their start through Ecommerce ventures. Today, global Ecommerce growth records an average rate of 20% increase year-on-year since 2019. According to Statista, Southeast Asia’s Ecommerce revenues are predicted to reach US$172 billion by 2025.
As Ecommerce competition grows intense, your business needs to find ways to grow profits and remain competitive. The only problem? Growing your Ecommerce profits is challenging and you can easily get lost in trying to figure out your profit margin ratios or simply come to a standstill on where to start when it comes to reaching your potential customers.
But don’t worry. We’ve got you covered here at Commerceplus.
In this guide, you’ll learn about the ideal formula for Ecommerce profitability and tips on how you can create the perfect Ecommerce growth strategy to boost your brand and revenue.
How to Increase Ecommerce Profitability?
At a glance, scaling your business may seem complicated. However, all it takes to increase and manage your Ecommerce profitability comes down to just one equation. It is the guide and fallback for all we do at Commerceplus to evaluate and determine the priorities of actions for our clients and our brands.
You’ll be surprised by how simple this formula is. But it truly works regardless of what you sell or what business model you are using. No matter if it is dropshipping or selling your own products, you can easily increase your profit by adopting this Ecommerce Growth Formula.
The Ecommerce Growth Formula – Explained
The Ecommerce Growth Formula is a framework for guiding Ecommerce profitability growth and takes into consideration 4 essential factors that contribute to your revenue, which are:
- Visitors (V) – get more people to your website or marketplace
- Conversion Rate (CR) – convince more people to buy your products
- Average Order Value (AOV) – get people to spend more money when they buy. This also includes a component of lifetime value.
- Variable Costs (VC) – reduce expenses to increase your profit margin
The formula explains the role of each factor in achieving multiplied growth and is a system for creating explosive results in short timeframes. Just try doubling any of the variables like visitors or conversion rate, and you will immediately double your profits.
Now, to help you get a better understanding, let’s jump into each metric of the Ecommerce Growth Formula. We will go through how they work and quick tips you can adopt for your business today — starting with the front of the equation: visitors.
Visitors (V): Driving More Targeted Traffic
It goes without saying that having more visitors at your Shopify site or online store at marketplaces like Lazada, Shopee, and Amazon will result in more sales. But when it comes to traffic, you should not only be looking at numbers but rather people that are keenly interested in buying what you’re selling.
So before you dive into any traffic strategies, know your audience.
Study your existing buyers and have a clear understanding of who you’re targeting, where they are from, what characteristics define them, what channels do they frequent? and so on.
With more customer data and insights, the better you would be able to craft your marketing strategies and reach highly-qualified leads.
Once you have your persona down, here are 5 effective Ecommerce marketing strategies that will drive traffic to your online store.
1. Use SEO to Boost Organic Traffic
Organic traffic refers to any traffic at your site which isn’t paid for. In Ecommerce, these are people who discover and click to visit your website or online store from Google and marketplace search results.
This is often a result of search engine optimization (SEO) where you optimize your website or online store around specific keywords in order to rank high in search engines.
87% of shoppers begin their product searches online which makes SEO one of the best Ecommerce marketing tactics with the highest ROI.
For Ecommerce marketers, SEO can also be accomplished through content marketing, such as blogging, posting social content, and even creating podcasts or any free resources targeting certain relevant keywords.
2. Use The Marketplace Paid Traffic to Attract Ready Buyers
On the other hand, if you have a ready budget and are looking for quick results, paid ads on marketplaces like Shopee or Lazada might be a better choice for your company.
It gets you the results of SEO by showcasing your products at the top of the search result page and positions you in front of ready buyers who are interested in your products.
Here, customers are more sensitive to pricing. So make sure your products have a competitive pricing with good value and work on soliciting good customer reviews.
3. Use Non-Marketplace Paid Traffic for Brand Awareness
Besides marketplaces, advertising on 2 important sources of traffic: Facebook and Google can also provide Ecommerce businesses with a great return on their marketing investment.
Creating ads on platforms like Facebook, Instagram or Google Display and Video can be helpful in establishing your Ecommerce store brand while acquiring new customers.
Different from organic content marketing which can take months to see results, a well-structured Ad Campaign can start to bring in quality traffic immediately.
With Facebook marketing, having a good understanding of setting up a consolidated ad account structure with ad sets picking up new visitors while another retargets to close the sale will be an evergreen source of traffic. More info on this later.
Additionally, using Facebook Custom and Lookalike Audiences feature can be helpful in targeting your competitors’ audiences and also to reach new potential customer segments.
4. Participate in Marketplace Campaigns and Utilize Tools for More Sales
Sales promotions on online marketplaces is a simple yet effective way to boost visibility for your online store to reach buyers who have their wallets out and ready.
Marketplace campaigns can be differentiated into the Super Campaigns like 11.11 Raya Sales to the monthly campaigns like 5.5, 6.6, 25th Payday sales to the custom daily sales and event category specific campaigns as well.
One thing to be mindful of is to have a guideline setup for discounts and promotions for joining these events. This is where you need to be able to manage variable costs, which can bring tremendous impact on your profitability.
In addition, there are 2 free tools to use such as Boost selected products for additional visibility on Shopee and Seller picks for Lazada. These are limited in nature, so choose your top-selling products to give your products an edge over the compeititon.
5. BuildBrand Campaignsto Connect With Your Audiences
Every business should have a brand marketing campaign. It is a way to control your brand’s narrative and public image, as well as differentiate yourself from the competition.
Besides, the purchase journey requires multiple touchpoints with the consumer. A good brand campaign should aim to keep the message tight and drive in the traffic without overselling; so that customers can understand the story behind the brand first.
That’s why a good brand campaign means distributing across multiple touch points such as paid channels, using influencers, organic postings on social media, marketplace efforts and more.
Here at Commerceplus, we especially believe that a lasting relationship is an emotional one. This means you should always try to connect and evoke emotions from your customers, as many studies have pointed out – consumers often decide to buy a product first only to rationalize their buying decision later .
More importantly, it places your message in front of audiences, which lets them remember you — building brand equity in the mind of the consumer.
6. Build a Website forBrand Assets Traffic
You might have found success with your Ecommerce business on Instagram or Shopee, but no matter what it would be the best move to have an official website.
Ecommerce companies are often at the mercy of marketplaces, and your traffic can suffer a huge hit if they were to make a change to their policies.
Having a website can be one of the foundations to build a sustainable audience in the long run. A well-optimized website can also provide information about your business and gather direct traffic when users are actively looking for you.
Above all, everything on your website will be under your control and you can easily reach out to your potential customers as they subscribe to your email list.
Ecommerce Growth Advice: Diversify Your Traffic/ Channel Sources
Most Ecommerce businesses rely on paid traffic methods like marketplace and social media advertising. But ideally, you should aim to build a 50/50 paid-to-organic traffic ratio.
Because just like an investment portfolio, you should never put all your eggs in one basket. The more diverse traffic sources your Ecommerce business has, the less likely you are at risk of a significant blow when the channel fails.
Besides, as advertising channels become more competitive, customer acquisition costs can become more expensive. As a result, you may be getting reduced return on ad spend (ROAS) and lower profit margins.
So do a quick check using Google Analytics, and if you find yourself disproportionately strong or weak in one area, it’s time to think about exploring these areas of opportunity.
Conversion Rates (CR): Increasing Likelihood of Purchase
Conversion rates can make or break any advertising campaigns. You can have the highest volume of traffic, but if no one buys from your store, it would be useless.
Your online store or website conversion rate decides your return-of-investment (ROI) and directly determines your profitability. To calculate, you can just take the percentage of your website visitors that make a purchase as compared to the total number of visitors.
Having a good conversion rate not only means saving your money and efforts, but it will also help you get better insights on what your audiences are looking for which will allow you to create a better product that meets your customer goals.
Now that you have the ways to boost your traffic, here are some quick tips to optimize your conversion rate.
- Reviews: Customer reviews on the internet can strongly influence customers’ decision to purchase, so make sure to highlight your customer testimonials in your website and always encourage your buyers to leave a review after their purchase.
- Content: Content can help with conversion as much as traffic acquisition. Take for instance, content like real-life usage videos, store designs, and well-structured product listing pages can help evoke your audience’s emotions and get them to take action.
- Creativity: There are lots of details to consider when designing your sales page or an online ad, and this is where creativity and A/B testing is important. It lets you stand out among the crowd while using data to find out which version has better conversion.
- User Experience: Good user experience is critical to any business. Confusing design experience can frustrate users and cause them to drop out from the buying process. So make sure your audiences encounter as few obstacles as possible on their way to purchase to boost higher conversion.
- Ads Optimization: Ad optimization is about creating ads that can catch your target audience’s attention. By optimizing your ads to increase its click-through rates (CTR), this can in turn lower your overall ad campaigns’ cost-per-click (CPC).
Average Order Value (AOV): Boost Your Revenue
Sometimes maximizing profit is about getting the most out of your existing sales. And this means increasing your customer’s average order value (AOV)
The AOV is a metric that tracks the average dollar amount spent each time a single customer places an order. This is an important metric as it lets you know how much you can expect from a new, first-time customer to your Ecommerce store.
It can directly affect your Ecommerce profit as you are making more money when your customers’ AOV is higher. This also lets you know the long-term value of each customer which makes it easier to evaluate your overall marketing efforts and pricing strategy.
Lifetime value (LTV), a metric that lets you know how frequently your customer might interact with your business, is considered a subset of AOV. As you get more repeated orders, the basket size will increase and hence LTV will also increase.
Using this formula, you can calculate and identify specific customer segments that contribute the most profit to your business.
By breaking down your AOV, this should allow you to find the right audience and better manage your product SKUs, as well as creating more targeted promotions to make your customers happier.
One quick trick is to create an email marketing strategy that fosters the relationship with your customers. By using the right email automation tool and a mix of sharing useful information and promotion, you can maximize your Ecommerce sales while building customer loyalty.
Variable Costs (VC): Reduce Cost Expenses
The key to maintaining a healthy profit is monitoring your costs. Variable costs, or variable expenses, is how much you spend to produce and sell your products.
For example, variable costs may include the costs of raw materials and packaging or shipping and transaction fees which can rise or fall depending on the number of output and sales. This is different from fixed costs that remain constant such as rental fees.
You should never underestimate the impact of these expenses on your gross profit margin, particularly if your variable cost increases as sales goes up. In any case, this can also be an accurate representation of your company’s operational efficiency and effectiveness.
That is if you find your Ecommerce business getting more sales but still maintaining the same profit or worse losing money, it’s time to look into your variable expenses.
Here is a quick list of factors that contribute to your variable costing and tactics on how you can lower these fees to control your business costs.
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Promotions and Discounts
Juicy promotion offers are hard to resist. As marketers, we know this very well and are always employing sales promotions to convince potential leads to become buyers.
From vouchers to bundles and free shipping, there are many promotional tactics that can give you a surge in traffic and sales. However, this is provided that your promotional pricing strategy still retains profitability.
On one hand, if you are offering that worth way more than your gains, you risk suffering sluggish revenue. What you need is a plan that allows your business to benefit from sales promotions just as much as your customers.
An effective promotion strategy to adopt is to use stackable discounts. Here’s an example by Pottery Barn that only opens up more discounts with more purchases.
Not only does this tactic encourage your customers to spend more, this also places limits on the customer’s ability to redeem discounts past a certain threshold, ensuring that the profit margin is still maintained.
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Product Cost and Negotiated Volume Pricing
When it comes to getting more profits, it is a balancing act between your product cost and selling price. The lower your product cost, the better profit margin you can command.
In any scenario, product cost refers to the expenses used when creating or acquiring a product. It can involve the cost of labor, raw material, transportation expenses and so on.
To increase your Ecommerce profitability, you need to find ways to lower your production cost. Variable cost can be lowered as your production volume increases.
If you are a reseller, do not forget to use your high volume purchase to negotiate for a lower cost unit price. Or if you make your products, look into your production line for efficiency. Check and compare raw materials and manufacturer costs and select the most cost-effective.
This should all be taken into consideration when you decide on your pricing and promotion. As long as your price covers your expenses and provides a better profit margin, you can always test and adjust it as you go to find the best profitability.
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Product Labels, Packaging, and Printing Costs
Packaging and labels isn’t purely a cost. They are also an investment in your brand and have a huge influence in how your customers perceive your products.
First impressions matter. For new users, your label branding and packaging can be the factor that entices them to put your product in their cart. If successful, your packaging is also what they will remember you for.
So instead of taking a price-first approach, you need to factor in brand equity and consumer perception into your product labelling design.
Ask yourself, what do you want people to feel when they see your product and how can you stand out among your competitors? Use creativity to tell the right packaging story with a cost-effective label.
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Packing and FulfilLment Costs
As important as it is to sell your products, getting them to the buyers on time is also equally significant. Packing and order fulfillment is a vital part of the Ecommerce’s supply chain.
Depending on your product and online channels, you can leverage the fulfillment service offered by each channel or look for external sources that are more cost-effective.
Different order fulfillment services have different pricing models and quality of services. So make sure you are clear on the details before jumping right in. [Text Wrapping Break]
Most importantly, make sure to calculate your product fulfillment cost by SKU before you price your product or offer free shipping, otherwise your business expenses can be high.
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Returns and Refunds
You might be doing well in the marketplace and your Ecommerce store, but still it’s impossible to avoid tricky customers that are looking for a refund.
Once a refund happens, this can add costs for processing returns such as transportation and storage. Besides, it can be difficult to repack the product and put it online so you want to avoid this if possible by offering excellent customer service.
Deal with returns and refunds through empathy and try to understand the reasons why your customers are refunding. Inspect your customer experience, fulfillment time, product quality so you could lower and even forecast your cost in a more efficient and manageable way.
If any of your products are getting a lot of requests for a refund, check to see if your brand perception matches with the product you are delivering.
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Promotional Acquisition Costs
Your marketing cost is also considered a variable cost as it changes and fluctuates according to sales volume. When adjusting your promotional acquisition costs, it is not about how much you spend but rather the ROI for each of your marketing channels.
Basically, this is calculated by dividing all the costs spent on acquiring new customers by the number of new customers acquired during the campaign.
Through CAC, you want to look for the traffic acquisition method that offers the best return of investment and center your marketing campaigns around it.
Conclusion
Every company is looking to increase their profits. It takes a combination of creating growth and managing costs efficiently to build a sustainable and profitable Ecommerce business.
At the end of the day, make sure you constantly monitor and improve these 4 core metrics in your business to generate better sales growth.
Should you have any questions regarding the Ecommerce growth formula or are looking for expertise to bring your Ecommerce business to the next level, feel free to reach out to our team at Commerceplus to learn more.