Your eСommerce business may have multiple goals. But what is the ultimate goal of your business? Profit? Of course yes!
No commercial business can exist without profit. Otherwise, what's the point? And this is the truth for all companies: in order to get more profit from your business, you need to get more income.
But how can you do that? There are thousands of ways to generate income from your eCommerce business, and you may have already started making some significant income.
However, as we know, perfection knows no limits, so in this blog we will consider the best, from our point of view, ways to increase your profits. Interested? Then keep reading!
What is the profit margin?
Let’s start with the clear definitions of profit and profit margin. In simple terms, profit is the difference between total sales and expenses. Then, we have another indicator, the profit margin. This is the percentage obtained by dividing a company's profits by its total income. It is an indicator of profitability and financial health as it compares the ratio of profits to sales. It also gives you a clear idea of whether you are pricing your products correctly and making money.
Good profit margin for an eCommerce business
A good profit margin is a quite subjective thing as it depends on a number of factors, including industry and location. Different types of businesses require different profit margins to succeed. If we are talking about a startup, it may need a higher profit margin than a more established business to survive. Online stores tend to have higher profit margins than brick-and-mortar stores because they have lower fixed costs.
According to a January 2022 NYU Stern School of Business study, the average gross profit margin for eCommerce retailers is 41.54%. Therefore, if your profit margin falls below this average, or if you just want an above average profit margin, you can implement the following tips to reach your profit goals.
Top 5 Ways to Increase Profits
Let’s consider the best ways to increase profits for your Shopify store.
- Boost your level of trust.
Trust is necessary to increase sales and increase net profit. It is easy enough to evaluate the price, quality and features of a product, but trust is harder to measure and understand.
One of the easiest ways to build trust is to use customer testimonials and reviews. Research has shown that customer reviews have a huge impact on conversion rates. People are more likely to buy a product if they see that other people are happy with it. So, according to BrightLocal research, 91% of consumers in the 18 – 34 age group trust online reviews as much as recommendations from family, friends, and other personal contacts.
Try asking for reviews on every order and including it in the comments section for every product. You can offer rewards to get more honest reviews.
Another great way to boost your level of trust is to provide customers with transparent information about their orders. For example, you can use Trackr, the Shopify order tracking app, to provide transparent information about the orders on every stage (from order placing till its delivery).
Giving customers such an opportunity to be aware of everything happening with their order, you increase your level of trust and reduce customers' excitement. This way, you provide them with exceptional customer experience and increase their loyalty.
2. Increase your average order value.
If you want to make a good profit margin, focus on increasing your average order value (AOV). Average order value is the average amount of money a customer spends per transaction in your store.
There are a lot of practices you can implement to increase your average order value. Let’s consider some of them.
- Create a minimum order amount for free shipping. To encourage customers to add more items to their carts, you can offer free shipping if their order exceeds a certain amount. This is a common strategy that many online stores use to increase the average order value.
Tip: If you decide to offer free shipping on a minimum purchase, be sure to make it visible: include this offer on your website: homepage, product pages, and checkout. - Use upsells and cross-sells. Whenever possible, show or mention product recommendations to your customers to increase sales. It can be as simple as mentioning which elements go well together in your product descriptions. Make it clear in your messaging and store layout that your items gain more value when paired with other products.
Trackr app is a great tool not only for order tracking, but also for upselling. Enable this special feature and add product recommendations to email notifications as well as to the order tracking page. - Provide set deals and bulk options. Group products that go well together or are commonly sold together as "sets". This will encourage customers who wanted to purchase only part of the set to purchase the full (and more expensive) set, thus increasing your average order value.
You can also offer small discounts when purchasing more than one item. Customers can see the savings made when buying items in bulk and add more items to their shopping cart. - Offer time-limited deals. Nobody wants to miss out on a big deal. Urgency may necessitate the need to add more items to the cart. Try offering short-term discount codes (up to 72 hours) on certain items to increase your average order value.
3. Implement One-Click Checkout.
According to Sleeknote research, 57% of shoppers will abandon your site if it takes more than 3 seconds to load the checkout page.
Too many steps in the checkout process can frustrate customers and lead them to abandon the purchase altogether. But it's easy to fix! Simply install one of the many plugins available for ecommerce platforms to make it happen quickly on your site without the need for code.
This is especially useful if you're selling products that people might buy on a regular basis.
4. Focus on your most profitable products.
Not every product is created equal when it comes to profitability. Some products bring in higher profits than others. However, it is often optimal to sell a mix of high margin products as well as lower margin products. If the latter serves the role of attracting customers to your store, where you can then sell more profitable products.
You also need to consider the total profit you can make by selling your products, not just the profit margin per unit. While low-cost, high-margin items may seem attractive, you will need to sell these items in bulk to make a decent overall profit.
5. Implement a loyalty program.
E-commerce businesses are well aware of the fact that customer retention is cheaper than acquisition. And that deduction excludes the value that loyal customers bring. Following the Pareto principle, 80% of your e-commerce sales will come from 20% of your brand supporters.
It is important to remember that your loyalty program must be really useful.
A Rare Consulting study says that 83% of customers say loyalty programs make them more likely to stay with certain companies. Therefore, starting a customer loyalty program can be a great way to increase your eCommerce profit margin.
Starbucks has a great example of a loyalty program.
Conclusion
Increasing your profits doesn't necessarily mean you have to raise your prices and risk losing or scaring away customers. Try to apply our tips and you will see results very soon.
Remember: every business is unique, and it's important to remember that what may work for one company may not always work for another. Therefore, it is important not to give up, but to learn new strategies and not be afraid to use them.
