Focus on Ecommerce Profitability – What You Can Do

Wednesday May 11, 2022 | Posted at 10:34 am | By Paul Dicken

May 11, 2022 @ 10:34 am

In this post we talk about the things you can do to protect and maximise your ecommerce profit in the face of some pretty challenging economic conditions.

For many ecommerce sellers, the ongoing supply issues continue to have a double impact, affecting volume and margins. They can’t get enough products to grow the business in accordance with their goals. In addition, the cost of getting product has risen considerably, which threatens profitability. Faced with these challenges, the industry has further narrowed its focus on margins and profitability.

It makes sense too, since as the old saying goes, sales are vanity, profit is sanity, cash flow is reality. The higher your cost of goods sold, the lower your gross margins and the smarter you have to work to protect your net margins. For merchants, as opposed to brands and retailers, this makes it even harder to make money since they have less margins to play with in the first place.

We’ve just finished the first half of our blog series on the Volo Levers framework. There are 10 levers you can pull, to varying degrees, to increase sales and productivity in your ecommerce business. We’ve covered the sales levers, and we’re about to cover the productivity levers. Productivity has a direct relationship to profitability, since the more productively or effectively you can run your business, the more profitable it should be.

Over the course of the next few weeks we’ll devote a post to each of the productivity levers, which are purchasing, inventory and stock control, warehousing and operations, fulfilment and shipping, and customer service. In this post, we’ve a couple of general observations that we think will serve you well.

Focus on web stores sales

During the course of the pandemic we’ve seen our customers steadily grow their web store business. While it makes sense to have good coverage across marketplaces and websites, so you’re not overly dependent on one channel, your webstore is the one channel that offers you more control, and greater margins, despite the time and money you need to invest in order to build and retain traffic.

If you’re using marketplaces to move your products, and you’re investing in advertising tools too, it’s not uncommon to be giving away 20% or more away to the marketplace, which is considerably higher than you’ll give away for your websites. You’re also more in control of the buyer experience, since you own the relationship and can remarket to your customers to keep them coming back for your great prices and your (hopefully) exemplary service.

In our complementary ebook on scaling up your business, we talk about the natural evolution of growth from marketplaces to web. If you’re new to web as an online sales channel, as opposed to a brochureware site, then there’s no shortage of platforms on which you can build your end-to-end web store business, from the starter to the industrial. A google search will inundate you with the hundreds of potential offerings, so look for a recommendation or ask us.

Focus on ecommerce profit analytics

It’s all very well to say that we should focus on margins, but it’s an altogether different proposition to know what our profitable products or orders are. We might think we know what they are, but when all the factors are included, exactly where are we making or losing money? Analytics is like a ‘super lever’, sitting on top of your other 10 levers and telling you exactly how well each lever is performing for you.

This is where your data comes in. Analysing the full range of costs you pay for acquiring the product, storing it, listing it, selling it and getting it to your buyer as part of their order – while also factoring in returns, credits, refunds – will give you the full picture. Of course, this is far easier said than done, since you need to be able to identify the data, collect it and present it in a format that’s insightful. And let’s not forget that there’s also a cost attached to the time or money you invest in getting the information you need.

Various analytics packages can help you automate this process to varying degrees, but really the place to start is to identify what kinds of data you want to have collected and presented in the first place. This complementary ebook on what’s important to measure is a good place to start. Armed with this information, you can then define what your analytics requirements are. Multichannel commerce management systems like Volo provide you with an analytics package as part of your investment. Volo’s Vision package collects pretty much all your activity across your ecommerce channels and presents the information in dashboards and flexible, drill-down reports. Some of our customers configure their margin analysis so that they can see exactly how much profit they’re making on each order.

Focus on ecommerce automation

It’s no use growing your sales if you’re also growing your costs, since then you can’t scale your business. Selling productively on ecommerce channels is about finding ways to replace slow, error-prone and manual tasks with fast, reliable and system-driven processes. If you sit down and list all the things that have to happen in your business, from ordering product or raw materials through to serving your buyers after they’ve received their orders, you’ll probably find over a hundred different tasks or processes you can improve.

Once you’ve done that, and you’ve decided to use systems and software to take care of the repetitive stuff and humans to take care of the added value stuff, you’re generally faced with a dilemma: do you build software to automate the way you currently work, or do you adapt your processes to the system best suited to your requirements? This is a business call that depends on how optimised your current processes are, how good your product data is to start with, how quickly you want to move, what internal resources you have at your disposal, and the budget you can set aside to increase your productivity.

A really important part of your automation project is the set-up of your software and system for how you want to do business. Either you’ll have to do this yourself or your provider will do it as part of their contract with you. Either way, the set-up is your best opportunity to maximise the configuration or customisation so that you can take full advantage of the automation. After all, the more you automate, the more you accumulate. As with any software, there will be customers who use more of it than others, and they’re the ones who’ll see the better return and the better profitability. At Volo, we collect a customer’s detailed requirements during the discovery process and then focus our onboarding project on customising the comprehensive system to maximise the available productivity gains.

In later posts we’ll explore the automation aspects of the 5 productivity levers you can pull to enhance your profitability.

To talk with us about focusing on profitability in your ecommerce business, please send us a note here.