4 Tips for Building a Profitable Ecommerce Business

With rising inflation, manufacturing costs increasing and changes in online advertising efficiency, it’s more challenging than ever to build, grow and scale an ecommerce business. It wasn’t too long ago that the mindset within the ecommerce community was “growth at all costs.” That mindset has quickly transitioned to “profitability at all costs” due to challenges outlined above.

The go-to move for ecommerce brands used to be to pour thousands of dollars into advertising on Facebook and Instagram to get almost instant results. But that has changed. It’s estimated that online advertising costs have increased more than 222% over the past eight years. As a result of this, more and more businesses are cutting back or stopping advertising on these platforms all together because brands are no longer seeing a positive ROI by doing this.

The focus on profitable growth vs. “growth” for ecommerce brands is a new mindset. And just like anything new, it can take time to learn and get comfortable with implementing tactics and strategies on how to grow profitably. Knowing this, we have put together 4 tips that you should consider implementing while you are trying to increase your profit.

Focus on building your email list

Since advertising costs have increased so dramatically, it’s important that you put emphasis on making the most of the traffic that is coming to your site by trying to convert them into email subscribers. While you obviously want to convert as many site visitors into customers as possible, only between 2.5%-3% of site visitors will convert into paying customers. This leaves a tremendous opportunity for you to try to convert the remaining 97%+ of the site visitors that do not make a purchase off of your website into email subscribers.

Once you have built out your email list, you can market to your subscribers when you want, however you’d like to, at no cost by sending an email. Of course since marketing to your email subscribers does not cost you anything, any sales that you drive from your efforts will boost your profitability because you are not paying anything to reach them. Knowing this, it’s acceptable to offer an aggressive incentive (i.e. take $ off your first order) to get more site visitors to sign-up for your email list with the hopes that they take that offer and become loyal, profitable customers.

Offer subscriptions

Upscribe offers Shopify businesses the opportunity to turn any product on their website into a subscription product. And the great trait about subscriptions is that they are a predictable form of revenue. Traditional ecommerce businesses can be a bit unpredictable month-to-month given the fluctuations in traffic and conversion which can put stress on new customer acquisition which is a large cost. However, when you enable subscriptions for your ecommerce business you are able to more accurately forecast and understand how much revenue you will be capturing each month. Therefore, you will be able to make stronger business decisions and will be less likely to need to spend on acquiring new customers to move your products or services.

By adding subscriptions to your ecommerce business, you will be adding a new, more predictable revenue stream to your business that will drive greater brand loyalty and a more efficient business operation. A recent report by ecommerce Fuel showed that brands that offer subscriptions see about 30% of their monthly income derived from subscriptions and grew 26% faster and were 14% more profitable than those brands that didn’t offer subscriptions.

Make it simple for previous customers to reorder from you

Generating reorders for your business is one of the healthiest metrics that you can pay attention to as an ecommerce operator. If you are capturing reorders at a high and sustained rate, it is a sign that consumers are valuing your product/service and it puts less stress on the rest of your organization. Upscribe makes it seamless for your business to be able to capture reorders in as little as a single click.

Reorders increase profitability. Instead of constantly spending budget on acquiring new customers which is more expensive than ever as we detail above, when you generate reorders you are able to leverage your existing customers to generate more revenue. You are not as reliant on spending time (and resources) on acquiring new customers which leads to an increase in profitability on your bottom line. Put simply, less money is being spent on customer acquisition and more money is being generated from reorders.

When you are capturing more reorders it puts less stress on your customer acquisition funnel which allows you to conserve valuable “runway” for your business and allows you to strategically invest in areas that will put your company in the best position to succeed in the long term.

Understand your costs per channel

Having a firm understanding of the revenue and costs associated with each and everyone of your sales channels is important. If you only look at the revenue brought in by each channel, you will not be able to see the full picture. Just because a particular channel may be bringing in the most revenue does not mean that this is your healthiest channel. Perhaps you are spending the most money on the channel that is driving the most revenue for your business which is actually costing your business money.

It’s essential that you calculate your gross profit per channel so you gain an understanding of the channels that are driving the most profit for you. After you have completed this exercise, you must optimize your business around your profitable channels and scale back, adjust or in some cases cut your least profitable channels. This is an exercise that should be completed on a monthly basis so you can firmly understand your business and make changes and adjustments to your business on the fly.

Following the above suggestions can help you run a more lean, focused and profit oriented business that will arm your ecommerce business for sustained growth. If you are interested in learning more about how Upscribe can help grow your subscription or reorder business, please schedule a demo with our team here.