5 Ways to Improve the Profit of Your Ecommerce Business Without Getting a Single New Customer

You’ve probably heard that retaining an existing customer is much cheaper than getting a new customer. Look at these two stats:
  • Acquiring a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one (Harvard Business Review)
  • The probability of selling to an existing customer is 60-70 percent, while the probability of selling to a potential customer is 5-20 percent (Marketing Metrics)

Clearly, getting new customers can be challenging, so let’s take a look at five ways that you can improve the profit of your eCommerce business without having to win a single new customer.We are going to look at how you can increase the profit of your store through the two essential ways of increasing profit: Increasing Sales and/or Decreasing Expenses.

Want a KPI tracking spreadsheet that will track the 12 numbers every eCommerce business must track to grow profit? Click here to download.Profit

Increasing Sales Strategies

Way #1: Resell to existing customers

When a customer purchases something from your store, that tells you one significant thing about your customer: you’ve earned their trust.

This is powerful. Especially in the world of Amazon! Your customer decided to spend their money with you. Whatever their reason is, you need to leverage that trust and try to resell to them.

Try to segment your existing customers (put them into groups based on what they’ve purchased) and send them promotional messages via email, direct mail, or digital re-targeting that are closely related to their purchase.

For example, if you sell bicycles, you can send your customers related parts and accessories promotions based on the type of bicycle your customers have purchased.

Way #2: Upsell to existing customers

There’s a reason why grocery stores put gum, candy, and magazines close to the cash-register. The stores know that, most likely, their customers did not come into buy gum or the latest Oprah magazine, but the store wants to try to upsell the customer as much as possible, so they offer an array of product next to the check-out line and hope for what are known as “impulse purchases”.

The same concept can be applied to eCommerce. Your customers came to your store to purchase something. Again, you’ve already earned their trust and so you might as well try to increase the average sale by offering them impulse purchases.

These items can be accessories, add-ons, parts, or other smaller dollar items that the customer may be interested in. For example, if you sell shoes, you could offer a variety of laces or socks as upsell items.

Way #3: Increase pricing

It’s easy to say that you should increase your prices; it sounds like a very obvious thing to do. However, many eCommerce store owners are very resistant to increasing pricing for fear that they may lose customers to their competitors.

The problem is these owners make these gut assumptions without using data to backup their claims. They’ve never actually tested the market to see if they can raise prices.

Try running some A/B tests on your popular products. Essentially, how this works is that half of your visitors will see the original price while the other half will see the increased price. Then, simply measure the conversion rate and the gross profit and take a look at the results.

It doesn’t necessarily matter if your sales declined as long as your gross profit increased. In fact, it’s better for your business to have fewer transactions but more profit for each transaction because, in the end, you will have fewer customer service calls, fewer returns, and less order processing.

Decreasing Expenses Strategies

Way #4: Reduce your cost of sales

Once you’ve made a sale, any additional cost or time spent on that sale is costing you money. Here is what I mean: the order value less the direct cost of providing that order is known as your Gross Profit Margin. The ultimate goal is to have a 100% Gross Profit Margin. However, as you know, this is not possible. But the fact remains that you should strive for this at all times.

There are two main factors that are involved with eCommerce Cost of Sales: (1) the cost of the actual product that you sold, and (2) the shipping costs.

When was the last time you negotiated with your existing suppliers to reduce the product cost? There may be opportunities for you to do this by either increasing your supplier orders or paying your invoices in advance. It may well be worth your time.

If your suppliers simply will not budge, you can always price shop with your suppliers’ competitors to see if they can offer you a better rate.

Of course, shipping costs are a nature of the eCommerce beast. Luckily, you have shipping options with at least three major carriers: USPS, FedEx, and UPS. Instead of shipping all of your orders with one carrier, you can determine the carrier that has the cheapest rate depending on the destination of the order.

Way #5: Reduce your overhead costs

Your Gross Profit Margin less your Overhead Costs give you Profit. Any money spent on Overhead Costs is reducing your profit. So, the rule of thumb for Overhead Costs should be to only spend money if you believe that you will see a higher return on profit.

Overhead Costs are essentially comprised of Marketing, Payroll, and General & Administrative Expenses. Based on the rule of thumb, every time you spend money in each of these areas that money should come back to you in the form of more profit. If it didn’t there would have been no reason to spend the money in the first place. You might as well have kept the money in the bank.

For example, if you want to purchase customer support software that costs $1,000 per month, you should ask yourself if by purchasing the software will you reap at least $1,001 in additional profit to justify the purchase (either through increased service which translates to more sales and/or decrease time spent on a customer issue, which translates to a decrease in payroll).

Here are the key takeaways:

  1. It’s significantly cheaper to retain an existing customer than it is to get a new customer.
  2. There are only two ways to increase profit: increase sales and/or decrease expenses.
  3. When a customer buys from you, you’ve earned their trust. This is powerful. Leverage that trust into asking them to purchase from you again and again.
  4. Just like brick & mortar stores have impulse purchase products, you should have them as well to increase the Average Order Value of each order.
  5. Increasing pricing is a “low hanging fruit” way of increasing sales. Perform A/B tests on your products to see if you can increase pricing.
  6. Any money that you spend AFTER a sale is made reduces your profit. Do your best to reduce your costs per product sales and cost of shipping.
  7. All Overhead Costs fall into three main buckets: Marketing, Payroll, and General & Administrative Expenses. Before you spend money in each of these areas you should ask yourself if, by spending the money, you will see at least that amount come back to you in the form of more profit.

Want a KPI tracking spreadsheet that will track the 12 numbers every eCommerce business must track to grow profit? Click here to download.

AdamLeanThis is a guest post by Adam Lean, founder of The CFO Project which gives business owners their own 'online CFO' to meet with monthly to help the business get crystal clear on what to do over the next 30 days to increase sales, profit, and cash flow. You can learn more by emailing adam@thecfoproject.com or clicking here.

 

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