Lesson 1: What are the best methods to increase your Gross Profit Margin? - Nostradamus.cloud - Your e-commerce buddy

e-CommerceLesson 1: What are the best methods to increase your Gross Profit Margin?

Lesson 1: What are the best methods to increase your Gross Profit Margin?

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It’s good to see that you have stumbled upon this article. That means that you probably have your own eCommerce shop, and you are either using Nostradamus.cloud to boost your sales, or you are looking for some quality content to gain vital knowledge about running your business and actions. Here I do have to warn you – across the internet; you can find myriads of websites telling you the 10 ABSOLUTELY NECESSARY AND VITAL SECRETS ONLY WE KNOW THAT WILL GET YOUR E-COMMERCE SHOP TO THE MOON AND BEYOND IN LESS THAN TWO HOURS. I have to bring you back to earth – no secrets or black-magic techniques will instantly bring you sales and fortune. Running an eCommerce shop requires patience, diligence, finding a niche, and satisfying customers’ needs – like in every profitable business. However, some techniques can help you in developing a successful business. We will provide you with vital information you need to remember when running an eCommerce shop. First, we will focus on GROSS MARGIN, which measures your profits as a revenue share. It simply is the amount of total revenue subtracted from the cost of your sold goods. We will present the ways to keep your gross margin in control or even to improve it significantly. Have a good read!

Table of Contents:

  1. Reduce your operational costs
  2. Increase Average order value (AOV)
  3. Building Trust
  4. Raise your prices
  5. Make product bundles
  6. Analyze checkout and abandonment behaviour
  7. Build reliable customer care and customer service
  8. Reduce customer acquisition costs
  9. Sell more to current customers

1. Reduce your operational costs

Every company has an ongoing expense associated with everyday maintenance and administration. Every profitably running business has its costs. Good businesses must keep track of their costs to maximize their profit. The costs subtracted from the revenue are decisive in matters of income. Operating costs mainly include labour and payroll, utility, insurance costs, commissions, amortisation of assets and costs of order fulfilment (inventory intake, storage and package of orders, return management, abandoned carts management etc.). In addition, we need to consider the costs of shipping and advertising. Cutting them acutely can reduce the productivity of the company. Cutting them too mildly may cause too much capital outflow. There are times when we fail to align our own spending with our priorities. We spend too much on paid advertising in social media, neglecting the cost of customer service and allowing its quality to drop so that customers attracted by the advertising still bounce because they do not like the product or the website is unsafe or poorly designed. The opposite situation can also happen. Let’s imagine that we have a great product and great people in the team who provide top customer service, but practically no one has heard of our shop and the traffic on the website is almost zero. This situation will also be disastrous for us because, in the long run, it will not provide us with a profit. Prioritising expenses is crucial for developing and promoting our eCommerce company. Reduction of the costs is to keep them as low as possible and still have the ability to increase the company’s sales. Simply put, reducing costs is spending less to earn more.

  • Try to estimate your revenue and your costs.
  • Identify the costs which are too extensive at your level of business
  • Try to make customers as loyal as possible, as they are willing to pay more for your products
  • Avoid unnecessary capital outflows

2. Increase Average Order Value (AOV)

Average Order Value (AOV) is the measure that tells you how much money a single customer spends on average. The higher values you reach, the better customers you have. Knowing your average order value will help you to estimate the threshold where you need to start encouraging your customers to buy more and increase average order value by adding more products to the basket, especially when the current order summary is close to the mentioned limit. To encourage your customers to do more shopping, place a counter in the shopping cart indicating how much is missing to get free delivery. Such a simple solution can be very motivating! Intro customers are more likely to leave more money at stores that offer them participation in loyalty programs. This is because they hope for additional discounts and freebies in the future. It is worth considering implementing a loyalty program. To spice up the AOV, you can also consider upselling and cross-selling. Cross-selling will increase the value of the shopping cart and increase customer satisfaction – having learned about additional products; they can purchase them immediately, saving time and effort. You’re encouraging your existing customers to spend more money – and it doesn’t require much effort on your part. The most profitable businesses use free. Do not forget about nurturing the loyalty of existing customers – It will increase your Average Order Value, and your average order value will increase your overall revenue – easy to learn, hard to master. Try it!

Key takeaways:

  • Bundle products
  • Create a loyalty program
  • Upsell and cross-sell products where applicable
  • Reduce operating costs where applicable
  • Try to make customers as loyal as possible, as they are willing to pay more for your products.

3. Building Trust

You can have a decent, good-quality product, but it will not be sufficient to gain a satisfying number of orders. People do not buy products from people they do not trust. Building fruitful relationships with customers makes them loyal. Loyal customers come back and buy more goods. Successful eCommerce shops offer many guarantees of trust – safe websites, positive reviews, money-back guarantees, tracking of the parcels and much more. Also, remember that acquiring a new customer is much harder than gaining the loyalty of an already existing one. To strengthen existing clients’ loyalty, brands and social media groups are being created, and social media influencers are hired as ambassadors. Social media ambassadors often get brand products at a substantial discount or for free in exchange for reviewing the product and recommending it to their social media followers. This method is also one of the newest and cheapest forms of marketing and brand building. Observers who are often interested in the brand generate additional traffic, building the page’s popularity and creating a social proof that tells others that your shop is trustworthy.

Others set up discount clubs, rewards and loyalty cards. Customers will feel appreciated and return to your business because they are more likely to identify themselves as “members” of a brand. As loyal members, they will come back, and your customer retention will grow along with your business. Ways to achieve loyalty are limitless, but they have only one goal – increasing revenue from the existing, trustworthy community. Safe and reliable customer service is the crucial way to build trust, and trust is crucial in building profitable eCommerce.

Key takeaways:

  • Build an attractive loyalty program
  • Create premium products for the most loyal clients
  • Organize reciprocal discounts with other brands
  • Reward your customers
  • Hire influencers or ambassadors

4. Raise your prices

It may seem counterintuitive, but higher prices attract customers of better quality and solidify the worth of a client, making him more noticeable to the brand. High prices are often the self-proof of a business value. Showing high value is crucial to becoming trustworthy among value-based clients. Premium prices often place the business as respected in the eyes of the clients. Lastly, high prices make clients see themselves as investors, who are more confined to the shopping process because of the needs and results they are willing to pay for. High prices are often associated with premium brands and a select customer segment. This can seem unintuitive and is often misunderstood. To raise prices does not mean to raise them indefinitely by offering a product at a horrendously inflated price. Such a strategy will hardly ever work. You should not set too low a price ceiling for your products. By pricing yourself too low, customers will think that you are just another shop offering average-quality products and are unlikely to have anything better to offer. Keep your prices in line with the value of the product. It is often a mistake for beginners in eCommerce to offer low prices because you are not known in the market. Such action is understandable; in some cases, it can be effective, but such a pricing strategy makes little profit. Such a shop will likely fail more quickly in tougher times and a more difficult economic situation.

Furthermore, by pricing too low, you make customers suspicious. Believe in yourself and your products, and carefully analyze your competitors and the market situation. You might even consider introducing a premium segment for your products to offer something to more affluent customers and show that you can meet the needs of a wide range of customers.

Key takeaways:

  • Identify your best and worst-selling products
  • Create a “premium” branch of your products
  • Make the customers feel special because of buying your product

5. Make product bundles

Making product bundles is a well-known eCommerce technique. Product bundling will raise the average order value, resulting in a noticeable sales rate and revenue growth. The main surplus of bundling is the release of frozen capital by mixing low-selling and high-selling items. This is an easy way to combine worst-and best-selling products into one, giving more circulation to the capital. Moreover, customers often see the opportunity to use the bundle discount and are more willing to pay for the bundle than for the same products sold as single goods. The most common building practice is selling packages containing the smallest and best-selling products. Not every product we produce is an instant bestseller, and its production does not always turn out to be a hit.

Key takeaways:

  • Cross-sell least and best-selling products
  • Create bundles for the most loyal clients
  • Create buy-more-pay-fewer bundles
  • Try to create personalized bundles for your target audiences

6. Analyze checkout and abandonment behaviour

Customers do abandon their carts and checkouts. A high rate of abandonment rate means that one of the sales funnel stages is not working correctly. Abandoned carts are the customers who add items to the cart to buy but eventually leave without buying. It is an important measure because it shows the rate of people who were initially satisfied and engaged in the sales process but stopped following it for unknown reasons. The reasons for abandonment are vastly varied. The proper analysis of checkouts and carts will give crucial information about the stages where the drop-offs occur. Faulty website, complicated checkout process, lack of customer security assurance. These are some of the many factors that can lead to the abandonment of the cart and not closing the sale, resulting in a lower conversion rate and revenue.

With such a wide range of issues, identifying problems can be difficult. If the problem lies with website security, investigate every aspect of the website. If you’re unfamiliar with it, let an IT specialist handle it. HTTPS encryption and SSL certificates, secure ordering process, secure payment process, anti-phishing protection, secure database, and password encryption. IT issues are many; it’s not easy to grasp it all. If your customer finds the ordering and payment process too difficult, they won’t buy anything from your shop and will leave it to your competitors. These processes should be as clear and intuitive as possible. It is best to put the form itself on one page and clearly describe each step, from filling in the data to confirming the obligation to pay for the orders. The customer must know what he is doing and how much he is paying. Today, a non-registered user in every shop should be able to place an order. In a busy world, not everyone wants to take the time to register with yet another shop and leave their personal information there. The lack of such a possibility scares potential customers. Keeping the above things in mind will make it easier for you to gain the trust of your customers.

Key takeaways:

  • Invest in the security of your page (SSL certificates, trusted hosting)
  • Invest in secure payment systems with many forms of payment
  • Ensure integration with customer email, parcel shipping
  • Provide a clear call to action during checkout
  • Offer checkout to unregistered users

7. Build Reliable Customer Care and Customer service

Paying attention to customer service is a must. Most of the carts are abandoned because of insufficient customer experience. Poor quality of service increases the cost of associated services (re-shipping, returns, paybacks, additional time consumed) etc. The cost of failing the customer expectations is high. It is generating additional operational costs resulting in noticeable losses in revenue. Except for financial outcomes, the business’s reputation can be damaged, and disappointed customers will choose another brand as customers quickly announce their disappointment resulting in more losses to the business. Customer service must be of the highest standard. An investment in improving the quality of service will more than pay for itself. You won’t always be able to do it alone. If you feel that customer service takes up too much of your time and is too much of a chore, hire an account manager to look after your customers and help you build quality relationships with them. Customer retention can become higher as your shop grows. Customers make more complaints, claims, requests, and compliments. Their activity on social media will increase. The difficulty of embracing all this, depending on the quality of your products and the quality of your business, can increase very quickly.

Key takeaways:

  • Hire account managers
  • Answer the customers’ requests as soon as possible
  • Provide multilingual customer support
  • Leave the place for feedback from the customers

8. Reduce customer acquisition costs

One of the greatest challenges for eCommerce owners is to acquire new customers. To sell something to a customer, you first need to reach them. Reaching customers is one of the most expensive costs of an eCommerce shop. It is much more expensive than retaining an existing customer, so this process needs special attention. Due to the possible multichannel nature, complexity and long duration, the costs generated for customer acquisition can outweigh the initial revenue and cause unnecessary liquidity problems for the company. To operate efficiently, we need to optimize costs. Some of the most costly areas of customer acquisition are SEO and marketing. Optimizing the website for long and short keywords placed on product pages and blog entries is necessary. In addition, we can automate marketing using marketing campaigns sent via email or purchased on social media. The purpose of this is to reach the target group and learn about its needs or, if we do not know the target group, to profile it to sell the product as effectively as possible and achieve constant profits. Costs connected with the acquisition should always be cut to the optimal level, and every insignificant and costly action should be excluded from future processes. For the company to be successful, it needs to maintain a healthy balance between customer acquisition costs and the number of customers it brings to the shop. Approximated costs should be as low as possible while maintaining the rising number of customers acquired.

Key takeaways:

  • Increase website traffic by optimising pages
  • Automate your marketing processes
  • Get to know what your target audience is like and prioritise them

9. Sell more to current customers

The cost of acquiring a new lead is always higher than the cost of maintaining a customer who is already loyal to the brand. Building trustful and reliable relationships with existing customers will skyrocket the circular, repeated sales, resulting in greater revenue for the business. You can go beyond your imagination, but simultaneously, you must remember one universal: to surprise with gifts or discounts. The customer needs to know that he gets bonuses for his loyalty. Thus, customers will feel appreciated and will come back to your business. Here, too, a good strategy would be the cross-selling, upselling and bundling described earlier to build customer trust with premium packages, which will pay off in the future. Invest in your customer to have fruitful relationships and sales.

Key takeaways:

  • Offer special discounts to the most active clients
  • Boost your customer care strategy
  • Upsell and cross-sell the goods to the existing customers
  • Monitor and understand the needs and requirements of your customers