eCommerce platforms are expected to account for one-third of all retail sales by 2022. This is great news for brands looking to sell direct to consumer online, but venturing into this world can be difficult and complex. There are countless factors to consider, and master, to increase profitability. We’re here to help. From costs to minimize (or avoid if possible) to tips for increasing revenue, here are a few of the best ways to boost your brand’s eCommerce profitability.
Factor #1: Shipping is one of the biggest fixed costs associated with selling online.
Other than the cost of goods sold (COGS), the largest cost associated with selling online is often shipping. Two factors that can rack up your bill: Using the wrong shipping carrier & additional fees charged by the carriers.
First up: Choosing the Right Carrier. For low average selling price products (ASP), the difference between First Class Mail and Priority Mail can be a significant difference in profitability. For example, if you’re shipping a $20, 15 oz. product via USPS First Class, it is around 15% more profitable compared to a 1 lb. 1 oz. product (17oz) at the same price. At 15 oz. you can ship utilizing USPS First Class, but at 1 lb. 1 oz. you have to use a different service. The difference between these two services can be over 100%. It always makes sense to sell items that weigh less – but that is not always possible. If you have heavier items, then consider bundling or upselling to increase average order value and decrease shipping cost as a percentage of total revenue.
Next note: Residential Surcharges, Extended Area Surcharges, Additional Handling Surcharges, and so many more! Know what triggers these additional surcharges, and negotiate with your carrier on the ones that you are hit with most often. Large package surcharges can cost up to $90! If your products require large packages, consider negotiating directly with your carrier for better pricing, or a discount on other shipping sizes. Ally has partnerships with shipping providers for better shipping rates, and we’ve negotiated those prices with a number of shipping providers, so we know how helpful this can be to improving your bottom line. You can also consider repackaging or redesigning your product to an ecommerce friendly shape & size.
Factor #2: Your returns process can be expensive — especially if it’s not optimized.
Managing returns is often a very involved and costly process. Consider all of these costs and touches associated with returning a product:
- Coordinating the return with the customer
- Shipping the product back
- Validating that the product was returned and in the appropriate condition
- Issuing a refund
- Paying return administration fees to marketplaces
- Assessing the product to see if it can be resold
- Refurbishing it if necessary
- Relisting it or destroying it
In addition to the money lost on that return, an unoptimized process could affect future sales. The customer may already have a bad taste in their mouth from their initial experience, reducing their lifetime value. They could also leave negative reviews, dissuading others from purchasing from you.
Here are some ways to optimize the returns process for the best results possible:
- Focus on great customer service. Make sure that your customers feel that they’re taken care of. Speed is key when answering customer return inquiries.
- Try to replace the sale. If the reason for the return was that the product wasn’t exactly what the customer was looking for, recommend a similar product that may be more along the lines of what they wanted. Consider offering credit (rather than a complete refund). You can also experiment with widgets on your online return portal to encourage customers to not return the product with incentives like coupon codes or money off their next purchase.
- Look for areas to improve and ways to solve any recurring problems. Gather information on the reasons for returns, and see if any of these can be fixed.
Factor #3: Are third-party marketplaces worth the fees?
We all know the logistics of selling on third-party marketplaces: they come with set fees that are impossible to get around. Amazon fees are usually 15% (with some exceptions) and payment processing fees are included. eBay fees are generally between 10% (with some exceptions), but payment processing fees are not included in their fees (so we recommend adding 2.9% for a general price). With this additional pricing as a factor, does it make sense to stop selling on a third-party like Amazon or eBay? Not necessarily.
Amazon is a huge market dominator, and working with them can be an incredible boost to your business – especially when it comes to traffic and brand awareness. However, if you’re a first-party seller on an outlet like Amazon, they can get aggressive on pricing and fees. We suggest considering your own options and shifting your focus to third-party selling. It still gives you access to Amazon customers, but it gives you more flexibility to influence pricing and build your company’s brand.
Factor #4: Fraud Protection is not an option — it’s a must.
If you’re not up to date on your security, you’re putting yourself at risk for a major loss. Fraud rates range from 2 – 12%, and eCommerce fraud is on the rise.
It’s also a time inhibitor. If you don’t have fraud protection, you could be spending hours figuring out if an order is a fraud or not. Additionally, if you decide not to fill an order because you think it’s fraud, and it’s not that’s a sale that you’re missing out on. There are softwares out there that do this, from monitoring purchaser IP addresses to verifying that the billing and shipping addresses match. Ally’s process is to catch fraud immediately before it impacts your business or profitability by absorbing the cost of fraud. You don’t have to factor it in and you don’t have to worry about it — we take on all of the risk to protect your gains.
Factor #5: Increase your average order value (AOV).
Pricing your product correctly is imperative to making a good sale, and while we recommend maintaining pricing that is competitive to your market, sometimes slashing prices in a race to the bottom can end up hurting everyone. We often see brands get into trouble when they have partners that are trying to win sales based on price, and the only person that wins in those situations is the customer. Instead, consider other factors that will increase your AOV, including the following:
- Implement free shipping for your customers at the threshold just over your AOV.
- Upsell by bundling like-products together, and cross-sell by showing similar products at higher price points.
- Optimize your site for conversion by decreasing the number of “Out of Stock” items you have on your site.
- Decrease the number of clicks between your consumer and their desired product to increase conversion rates.
Looking for more ways to increase revenue and reduce costs? Check out our eBook on The Economics Behind a Profitable Direct to Consumer Sales Engine.
