In developing e-business, we often talk about growing the customer base, marketing, and all kinds of tips on how to direct first-time customers through a ‘funnel’ to make a deal. Profitability, however, receives undeservedly little to no attention. Yet it is critical to the success of a business. A profitable company is capable of investing, prepared for the unexpected, and dares to take risks to find new ways to increase its market share.
A simple example: John and Tina are competitors – they both own an e-shop selling goods for pets. From the word ‘go’, Tina has earmarked a certain part of her earnings for involving partners, optimisation and automation of operations. Today, the profitability of John’s business is 10% while Tina’s is 30%. It means that after deducting operating expenses, John will receive EUR 10 and Tina EUR 30 for each purchase worth EUR 100. As Tina manages invest three times more on each sales transaction, her business is growing faster and over time she will take over John’s market share.
How to be smart like Tina and increase the profitability of your e-business? Based on our customers’ experience, we have put together four vital pointers.
Analyse and optimise
Sure enough, operating expenses have the greatest impact on profitability: sales, marketing campaigns, purchase of goods, logistics. Every business certainly has also smaller and more specific cost items.
The first step to start with would be to review all the processes involved in the above activities, evaluate their cost-benefit ratio in the business, and look for opportunities for optimisation. The latter here means streamlining the processes and reducing the number of steps taken within them. For example, review your purchasing process – how many e-mails or calls do I need to make and place a single order? Could this be done in fewer steps?
The benefits of optimisation are versatile. Firstly, business growth without increasing staff costs by leaps and bounds. Secondly, employees would be able to focus more on development activities and the creation of value for the customers. The result will be an increase in the volume of transactions and stability in the relationships with customers.
Once the processes have been analysed and streamlined, it would only be logical to find those activities where human resources can be saved by introducing technological solutions. For example, one well-known consumer electronics vendor automated a section in their purchasing process where a supplier is selected to fulfill an order placed by a customer in the Web store. This means that for each sales order, no human communication with the supplier is needed; instead, the best solution is automatically found via the information systems between the seller and the supplier.
Another example: an international electric goods vendor introduced a central product management platform that umbrellas all product marketing and sales information, logistics requirements, and supplier analysis. Thus, the vendor managed an almost tenfold increase of the product range of the e-shop within a short period of time! A larger selection of goods for customers also increases revenue.
Increase the value of an average order
One of the surest ways to increase the profitability of an e-business is to increase the average order value (AOV). Along with the increase in this indicator, the logistics costs of the company will also increase marginally, but the turnover will grow much more, which again will mean a higher profit per order.
There are several ways to increase the value of your average order. One tactic is to demonstrate to the customers guiding purchase recommendations. You could use a service provider or set up recommendations in the content management of your e-shop. Secondly, combooffers deserve consideration where an extra product is combined with the main product. It is also a good trick to design discount campaigns so that the discount applies at a specified cart value. It is important to have the courage to experiment. What works for other businesses may not always be the best way for your company and for your ideal customers.
Develop the customer experience and increase repeat purchases
The absolute golden rule in sales is that it is always more expensive to sell to a new customer than to an existing customer. Keep this also in mind when developing your e-business model. In addition to bringing in new fans from social media sites, appreciate your existing customers. A good way to do this is, for example, a loyalty programme that gives repeat customers some financial gain. It is also worth considering discount codes that give a discount on repurchase or free shipping.
Positive customer service and experience is crucial – a modern consumer is willing to pay even more for a smooth purchase made in an e-shop. For example, consider adding a chat application to your e-channel so you are just one click away should a customer have any questions. Customer relations management (CRM) software is invaluable in managing customer queries and communication – the support provided to the customer is stable and sales processes can be conveniently monitored.
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