The eCommerce space is extremely crowded and challenging. Every retail store’s goal is to achieve optimum economies of scale to maintain their business profitability—especially those with low margins.
Since the market is complex, generic advice on increasing your profit margin doesn’t help—it doesn’t account for the changing market scenarios.
For example, during the pandemic due to the rise of digital commerce sales have been high but profits low.
For situations like these, you need smart strategies that take into account the industry trends as well as your business goals.
Before that, a small reminder on how to calculate your profit margin:
Profit Margin Formula
Gross Profit Margin = (Revenue - COGS) / Revenue x 100
COGS - Cost of Goods Sold
Net Profit Margin = NI x 100 / Revenue
NI = Net income (R - COGS - OE - O - I - T)
R = Revenue
OE = Operating Expenses
O = Other Expenses
I = Interest
T = Taxes
So what’s a good profit margin? The latest research finds a good gross profit margin to be 42.53% and net profit margin to be 4.95%.
Following smart tactics, you can expect a gross profit margin of 20%—like the best brands do.
In this post, we’ll be discussing 20 ways you can increase the profit margin across your eCommerce store and small business.
20 ways to turn your small/medium eCommerce store into a high profit-margin business
1. Focus on your long-term profits
Although it might be tempting, don’t focus your efforts on getting short-term profits—rather think about the bigger picture.
It’s okay to be careful about not losing your profit margin—but if you’re letting go of customers in order to hold on to per-order profits, you may be losing the opportunity for long-term profits.
For example, if you have to give a discount or free returns to win over an angry customer, you’d be giving exceptional customer service that’ll increase their loyalty towards your brand.
Again, insisting a customer pays full price for a service they didn’t enjoy will not only hurt their brand loyalty to your store but lead to recurring losses due to the impact of the negative reviews you’d be receiving.
A few ways you can focus on the long-term profits for your eCommerce store could include:
- Offering free shipping for a replacement of an order that was initially returned
- Offering replacements for defective items
- Giving our partial refunds for expensive items a customer isn’t satisfied with
Simple acts of compromise like these will increase customer loyalty and send free referrals to your store.
2. Improve your inventory visibility with a centralized solution
Finding a centralized inventory management solution that’s visible to both you and your customers is a great step towards increasing profit.
Product markdown significantly reduces profits. Without a centralized solution for inventory management, you’d encounter sales issues like:
- Underselling overstocked items
- Overselling available inventory
- Causing delays in shipping orders
- A high volume of customer complaints and recorded tickets
Issues like this will always affect customer satisfaction. In fact, 34% of businesses have shipped an order late because they sold a product that was not in stock. Imagine being on the receiving end of this.
An inventory solution can also help you make data-driven improvements across your store. For example, you can;
- Easily identify the slow-moving products and know how best to bundle them for more sales
- Find fast-moving products and make more profits by restocking these items regularly
- Identify consumer trends and interests for subsequent campaigns
Do all of this and more. Start by finding an effective inventory management system to track all product details.
3. Avoid supply chain inefficiencies with strategic partnerships
Supply chains are only as strong as the people propelling them. This is why you need professional freight forwarders who have expert knowledge of supply chain protocols and navigation. Especially since international shipping logistics can get quite complicated.
When you partner with freight forwarders, you can optimize your order fulfillment process and reduce shipping delay thereby increasing profit margins across future purchases.
44% of people who use freight forwarders say they particularly value the trade expertise of the provider.
Here are a few ways freight forwarders can help increase your eCommerce store profits:
- They ensure your store is compliant with all shipping regulations
- They help you choose the most beneficial shipping methods for your business
- They help you track your shipments from pickup to delivery so you can deliver reliable timelines to your customers
- You have time to focus on other important aspects of your business
Large eCommerce companies like Amazon and Walmart also use strategic partnerships like this to facilitate their 2-day shipping period.
4. Prioritize your high-value products
At this point, you should know what sells fast in your store and what doesn’t.
To increase your profit rates, you should focus on increasing the sales you get from your best-selling products. Since they bring the highest profits, you’d want to double down on the returns you get from them.
Here are a few ways you can prioritize high-value products:
- Increase your stock by shipping more of these products
- Add popularity badges like ‘popular’ or ‘best-selling’ across your product pages
- Place these best-selling products as top recommendations
- Offer discounts on them during seasonal sales
- Collect enough reviews about these products and use them for ads or other promotions
5. Eliminate the 8 sources of waste
Sometimes, the fastest way to increase your profit margins is not by increasing profits. You can do this by cutting down on certain operational costs and expenses.
Currently, there are leakages in your eCommerce store. These leakages can be in any one of these eight areas:
- (D) Defects: The number of defective products you receive per shipment and how often you send them out.
- (O) Overproduction: Ask yourself how fast does your stock sell out? Have you ever considered that you might be producing more than you sell within a period?
- (W) Waiting: What are the waiting periods in between shipment and customer delivery? Do you usually have to account for extra time before receiving your goods?
- (N) Not utilizing talent: Think about your human resources. Is everyone on your team using every skill they have? Do you really need to hire one more person to fill in for a role?
- (T) Transportation: How effective is your logistics department when it comes to customer delivery and wait time? Is there a cheaper and better alternative?
- (I) Inventory excess: It’s time you ensure that your demand matches your supply
- (M) Motion waste: Are your workers really productive during work hours? You should ensure that you maximize work hours to get the best output
- (E) Excess processing: Stop wasting resources on the packaging that has no value. Like painting a part that’ll be susceptible to rust or overpackaging an item.
Take time to analyze your time, human and production resources. Find ways to maximize them and cut down on what’s expensive but doesn’t yield any extra profits or customer satisfaction.
6. Base pricing strategies on cognitive commerce
60% of customers say that eCommerce pricing is the first thing they look out for before deciding to make a purchase.
This is why you should always avoid benchmarking your pricing against the competitors. Because if your store isn’t different from the competition, why should they patronize you?
Instead, focus on dynamic pricing through cognitive commerce. With cognitive pricing, you can:
- Segment your customers based on certain behavioral attributes that encourage profits
- Design discount strategies tailored for each of these customer segments
- Increase prices during high-demand and low-supply periods to maximize profits
- Predict demand for products based on the past season so you can use this to determine production
- Show pricing dynamically based on purchasing power in locations
When your pricing model is personalized to suit your customers, you’d increase the average order value and record profit in return.
Hey, you'll love this: Pick the right product price: 8 eCommerce pricing best practices
7. Rather than competing, create unique offerings
Many eCommerce stores tend to focus on competing with big brands including retailers like Amazon, Walmart, etc.
Sadly, competing with the monopoly of biggies will lead to losses because not only are they better experienced at marketing strategies, they have customers who are loyal to their brand. So you’d just repeat the unending bid war whilst burning up advertising resources.
To stand out, you have to create a niche space for your products through strategic innovation and a unique product offering. So in summary, what difference are you bringing to the market?
Sometimes, it doesn’t even have to be a specific product you have. It could be:
- High priority customer support
- Faster delivery time
- More discounts or free shipping
- Your brand values and commitments
Find what is lacking in the current market, curate a unique story and sell it to your leads.
8. Boost the perceived value of your brand and products
When building a community, eCommerce brands tend to make their products aspirational.
However, that isn’t the only time you should do this as a brand. When you align with the values your customers identify with, you increase the value your brand has to offer. In the long run, your sales and profit margin.
For example, a brand that emphasizes recycling shows that they care for the planet. And so, customers who share these similar values will be inclined to be loyal to these brands.
We’ve also seen instances where the public boycotts a brand because it doesn’t share similar values.
So when improving or creating brand values, here are a few tips to keep in mind:
- Research about the values your customers align with. This could be through surveys, calls, reviews, etc.
- Optimize your website for a good user experience
- Maximize your social media for a wider reach
- Share your brand story: Tell it in a way that builds trust. Talk about what you care about, what you stand for etc.
9. Increase the average order value of returning customers
One of the best ways to increase the gross profit you record from your customers is to increase the average order value.
You can make your repeat buyers purchase larger quantities through:
- Upsells: Offer more expensive products by positioning them as a better value purchase
- Cross-sells: Suggest complementary products and convey the value they’d add to their initial purchase
- Bundles: Bundle up products and encourage customers who are interested in one part to make a complete (more expensive) purchase
- Free shipping: Introduce a minimum order for customers to qualify for free shipping
Once you identify the fast and slow-moving products, you can effectively increase your sales revenue by combining these products and positioning them better.
10. Reduce cart abandonment with smart reminders
It’s time to take your cart abandonment reminders up a notch. Consider using smart reminders to nudge customers to complete their orders. You can send:
- Timely personalized emails based on behavioral triggers
- A web dropdown notification with a CTA that redirects users to their cart
- A live chatbot offering further assistance with their checkout
- Pop-ups with incentives for completing an order within a specific time frame
Whatever type of reminder you choose to send, ensure it is timely and that prospective customers receive it on a channel they can’t miss.
Also, make your copy interesting and compelling so they can be inclined to actually complete the order.
11. Avoid common personalization mistakes
While we all know how important personalization is, we sometimes fail to acknowledge just how much personalization errors can affect the user experience and sales.
Some common personalization mistakes include:
- Not using customer data to understand and segment your contacts
- Assuming all devices work the same: personalization should include a seamless user experience across all screen types
- Not optimizing your automated messaging with the insights gotten
- Not having a fallback phrase for the ‘Hello [first name]’ tag
When designing a personalization strategy, ensure you run A/B tests to get insights on what works best for your customers. With this information, you can always optimize your personalization for more sales.
12. Boost sales margin by offering bundles
Bundling is summing up certain products together to sell as a single unit. It’s a great way to increase your overall profit margin as well.
However, as simple as it seems, bundling is beyond merging products together and expecting your customers to see the value you’re offering. You need a more strategic approach in getting returns from your bundles.
To make your product bundles work, ensure you:
- Price anchor: compare prices side by side to show how much a customer will save when they choose the bundled offer
- Rather than highlighting only the monetary savings it’ll cost, focus on the benefits of the bundled-up products.
- Study customer interests and show them bundles based on their expectations
13. Increase high purchase intent with trust signals
One of the major reasons your visitors don’t convert or make a high purchase on their first order is because they don’t trust your eCommerce store. 17% of customers have abandoned an order because they didn’t trust the website with their information.
This is why using social proof and trust badges across your site helps improve the trust and boost sales acquired on your eCommerce store.
Some trust badges you can include in your store include:
- A security badge that guarantees safe checkout and protects your customer’s sensitive details like credit cards etc.
- Free return badge: This assures your customers that if there are any issues with an order, they can immediately return the said item and receive a replacement
- Accepted payments badge: This helps because payment processors are known brands. And so, these logos can help instill the confidence a customer has in purchasing an item
When using trust badges, ensure you place them on high-conversion areas of your eCommerce store like product pages, the checkout page, and even the home page.
14. Consistently optimize for the checkout experience
The average checkout rate for eCommerce websites is 2.12%. This means that no matter how great your checkout experience is, you need to consistently optimize it to make a high-profit margin.
Some tips for optimizing your eCommerce checkout experience are;
- Curate a personalized copy that emphasizes the need to purchase that product
- Offer multiple support channels for inquiries
- Provide a guest checkout option for customers who might not want to commit
- Set up auto-fill forms to reduce the checkout time
- Surprise your customer with a discount at the checkout page
In the end, you’d also need to judiciously study your analytics to collect insights on areas of your checkout that require changes. You can use CRO360 to get started
15. When essential, offer only smart discounts
Discounts are essential for eCommerce sales. In fact, high costs are the top reason customers abandon their carts. So, if you’re interested in racking up sales from all customer segments, introduce a discount. However, don’t let your discounts mark down your profits.
To run discounts and still make a significant profit margin from it, you should:
- Introduce discounts sparingly to maintain the brand value
- Instead of slashing prices, offer additional value. It could be an eBook, free shipping, consultation, etc.
- Use discounts as a reward for high purchase orders
A discount shouldn’t always be the go-to strategy. But since they help with retaining existing users, these tips will help you rack up high-profit sales while still running your discounts.
16. Optimize all pages of your website
The average conversion rate for eCommerce stores is less than 3%. This is why you should consistently optimize conversion points for more sales.
Some areas of your website you should optimize include:
- Homepages: This is the first impression of your website. Include trust symbols and ensure navigation to other pages are seamless.
- Product pages: Your product page is where most of the deliberation happens. Add reviews, a compelling copy, and nudges to help your customers click on the CTA. You can also upsell and cross-sell at this stage.
- Thank you pages: This is where the post-purchase experience for customers begins. Are you making good use of this real estate? Show more recommendations, offer tracking links, and give an estimated delivery time. You should also add customer support lines for further inquiries
17. Adopt data-driven acquisition strategies
Customer acquisition channels can sometimes change and you need to be on top of your company data to maximize your available channels.
If the return from referrals is higher than what you get from running ads, you should be able to switch your acquisition strategy to a more profitable one. So be flexible with your acquisition channels. Here are a few tips:
- Identify and segment your acquisition channels in your data analysis tool
- Create funnels for each of these channels in order to effectively track the customer journey
- Match the right channel to the right product type. For instance, if customers from Facebook retargeting interact with clothing items, continue showing them similar products in recommendations and offers.
- Continuously monitor the data to know what changes and when
- Identify drop-off points across your store and optimize for more sales
18. Nudge for customer retention with personalized rewards
Introducing a personalized reward system is one way to increase your profit margins. You’d get returning customers as well as referrals.
Over 70% of consumers are more likely to recommend a brand if it has a good loyalty program. However, this only works when it's tailored to their interests and values.
So to build a good customer loyalty reward system:
- Track and analyze customer data. From navigation to their search history, previous purchases, and saved items. This will give you insights into what they are interested in
- Segment these customers based on their interests
- Offer personalized benefits through categorized loyalty programs and build long term relationships
Gather customer data such as purchase history, search history and offer personalized benefits through loyalty programs + build long-term relationships
19. Invest in quality customer support
93% of consumers are more likely to make repeat purchases at companies with excellent customer service. So your customer support experience is directly tied to your profit margin.
When optimizing for bigger sales and returns, invest in creating a superior customer shopping experience. This could be as big as having a new support channel or as little as being considerate during a transaction.
A few ways you can turn around your customer service for high profits include:
- Intensify your social media efforts. Social media is a PR channel you can spin to your advantage. Reduce the negative reviews and solve the problems as they arise.
- Add a live chat option to your website. Customers can directly talk about their experience with your website and get personalized feedback
- Take time out to create a knowledge base of FAQ’s and help guides for complex matters like return policy
- Creating a post-purchase experience for customers by offering assistance, tracking, and asking them to review your products after.
20. Automate as much as possible
Automation is a great way to reduce costs and boost the overall sales you record on your eCommerce store. You’d be saving operational costs and other resources.
You should automate:
- Ways they can activate their warranty
- Request and process a refund
- Track their orders
- Make purchases
- Your customer support by offering a chatbot
Find the important areas of your website and ensure that your customers don’t have to contact a live agent to figure things out.
Frequently asked questions
1. What is a profit margin?
A profit margin is how well a company makes its revenue from sales after settling essential costs. It is a calculation model used to calculate how well a business makes money
2. How to calculate profit margin?
To find your profit margin, simply divide your profit by your revenue.
Your gross profit margin is what is left when you deduct all production costs from the revenue. This could include your labor capital, materials, resources, etc.
A formula you can use to calculate the gross margin is
(Revenue - the cost of goods sold) / Revenue
3. What is a good profit margin?
A good profit margin is entirely dependent on your location and industry.
If you’re in the retail industry, the average profit margin is anywhere around 45%. For a small business, 10% is a healthy margin. So you’d want to aim for margins higher than that.
You can also compare your profit margin with the industry standard here.