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15 Strategies to Improve your eCommerce Store's Profit Margin

W Lawrence
VP Sales and Business Development
eCommerce profit margin
Tags :
5 min

If the world could be a rendition of Charlie and the Chocolate Factory, profit would be the highly sought-after golden ticket. 

In its simplest form, profit is represented as the difference between total sales and expenses. Then, on the other hand, you have the profit margin - a percentage value arrived at by dividing a company’s profit with its overall revenue. It is a marker of profitability and financial health as it compares the profit to sale ratio. It also lends insight into whether you are pricing your products correctly and making money. And for this reason, businesses of all shapes and sizes chase profit margins - so why should eCommerce be left behind.

In this pursuit of appreciable profit margins, the following are 15 tried and tested strategies:

Have a Clear Definition of “Profits”

eCommerce stores hate to lose money on an order. We get it, after all, every order is some part of your bread and butter.

Multiple people buying on eCommerce platforms

However, some businesses are so heavily obsessed with their per order profits that they riddle customer-facing policies with incomprehensible fine print and terms and conditions that virtually render them spineless. While this penny-pinching technique can enhance eCommerce profitability and profit margins to some degree, the trade-off is quite high as it births disgruntled customers. Or worse, it causes you to lose customers! And in this highly connected buyer’s market where customer experience reigns supreme, a single negative review can drive away nearly 40% of prospects and customers! In other words, you are effectively eroding your profit margins in an attempt to improve them!

Formulae for different types of profit margin

So, rather than viewing profits as mere figures, try to envision them more holistically while factoring in tangible and intangible benefits for your customers to cultivate long-term loyalty.

Improve Brand Perception and Product Value

Your brand is as valuable as you make it to be. Hence, it should come as no surprise that the profit margin for the jewelry and cosmetics industry stands at 62.53% and 58.14%, respectively, seeing that these are businesses that hold themselves in high esteem. On the other hand, retail stores selling sporting goods and electronics register profit margins of 41.46% and 43.29%, respectively - putting them in an “out of sight, out of mind,” state. 

This difference highlights how the perceived product value influences profit margins. 

Illustration of perceived value

Companies selling jewelry and cosmetics resonate with buyers on a personal level. They are marketed as products that can make you “better.” Plus, exquisite packaging or maintaining transparency in ingredients elevates the brand experience and makes them even more lucrative. After all, the exclusiveness or heightened status attached to a brand will boost its demand and, by extension, its profitability.

Brand identity prism of cosmetic brand L'Oreal

You can follow a similar approach to market your product to improve brand perception and the perceived value of the product. The focus on upscale brand positioning will directly or indirectly increase profit margins.

Make Personalized Recommendations

It is no secret that eCommerce personalization boosts profitability in several ways. 

Infographic on the importance of personalization

As a culmination of these benefits - be it through loyalty stemming from one-on-one customer relationships or greater customer acquisition through higher conversion rates - every $1 spent on personalization compounds into $20 returns! Accordingly, AI-powered recommender systems like Argoid could be the key to laying a well-rounded strategy to fatter profit margins.

Audit Your Waste

When thinking of eCommerce and waste, one may imagine piles and piles of packaging material. However, the scope of waste far exceeds this imagery. 

As an example, the Toyota Production System (TPS) followed the 3M approach to waste - Muda (non-value activity), Mura (overburden), and Muri (unevenness). Along the same lines, “Waste” can take many forms in the eCommerce ecosystem. Some of the commonest kinds include:

  • Overproduction - producing items before they are required.
  • Wait times - delays between processes resulting from workflow inefficiencies.
  • Transportation - unwarranted movement of products increasing delays or costs.
  • Excessive processing - unnecessary processing of goods without any value-addition.
  • Extra inventory - storing or managing excessive inventory.
  • Underutilization of resources - inability to make optimum use of tools, technologies, or human resources.
  • Defects - quality issues that reduce product value.

Different types of lean manufacturing wastes

Such wastes often go unnoticed and eat into your profit margins by pushing for profit-killing measures like markdowns. Therefore, identifying and minimizing these wastes can be an excellent technique to increase eCommerce profit margins.

Create Brand Awareness

It is no rocket science - Someone can buy from you only if they know about you! 

And how can you make that happen? The answer lies in brand awareness.

Various brand awareness sources

Branding has become a competitive differentiator at a time when eCommerce is burgeoning at nearly 25% of global retail sales. As such, the sooner you invest in a fail proof branding strategy, the better would be your chances of standing out from all the noise. And sure, a memorable logo and a catchy tagline are the foundational pillars of your eCommerce brand. However, branding is a lot more than just visual elements.

The branding iceberg

It is the driving force behind your eCommerce business. It is the voice representing your eCommerce business across various channels, it is the hashtags that you use while engaging customers, the script followed by your customer service agents - and beyond. 

And at the core of it all, branding is this intangible entity that makes your target audience feel something. So, harness it to increase profits!

Improve Your Strategy With Data

Allow us to sound a little cliched when we state that data is the fuel for digital businesses, and eCommerce is no exception to this rule. 

The availability of large volumes of data has birthed eCommerce analytics and reporting - an intelligent approach to store management.

Google trends on eCommerce activities

The insights churned out therein allow businesses to comprehend and predict shifts in online shopping trends or customer behavior. The dynamic modulation of end-to-end business processes - from lead generation to post-sales support - can improve profit margins. As a result, eCommerce stores can make smarter, quicker, and more effective decisions that allow them to adapt to such changing requirements.

Make Shipping a Competitive Strategy

Imagine that you have played all your cards right - established a branded presence, marketed to the right set of audiences, personalized the buyer’s journey, and engaged the prospects until they are ready to check out. And just when the soon-to-be customer whips out their card to make a payment, the total cost increases to accommodate shipping costs. The buyer shakes their head and closes the tab - an abrupt end to a long-standing dance between the customer and your eCommerce store! 

Sounds like a familiar story?

Well, you are not alone!

Vector for product shipping

About 68% of shoppers in the US would walk away from an eCommerce store if it does not offer free shipping. Additionally, fast shipping has also become a pressing concern seeing that 44% of buyers have not continued with a purchase as the order will not be delivered on time.

Order fulfillment cycle

On the flip side, free and fast shipping is found to increase the average order volume by 97% and boost sales by a staggering 276%! In simpler words, leverage shipping and order fulfillment for improving profit margins.

Implement Customer Loyalty Programs

eCommerce businesses are well aware of the fact that customer retention is cheaper than acquisition. And this deduction excludes the value that repeat customers bring to the table. Going by the Pareto Principle, 80% of your eCommerce sales will originate from 20% of your brand advocates. 

In short, you need to acknowledge, value, and reward your existing customers in order to keep the momentum going. 

Pacifica loyalty program

Given that 58.7% of users consider earning rewards or loyalty points as one of the most valued aspects of online shopping, kicking off a customer loyalty program can be an excellent way to increase eCommerce profit margins. Such a move can cultivate loyalty in nearly 84% of shoppers, thereby keeping the initiative true to its name.

Companies like Sephora, The North Face, and Starbucks are living examples of how treating your loyal customers as royal customers can elevate a business to the coveted brand status.

Sephora loyalty program

Strategize Cross-Selling and Upselling

Cross-selling involves selling products closely related to items that the shopper has already purchased or is in the midst of purchasing. Upselling propositions the sale of a superior and pricier version of the product that the customer intends to buy.

Illustration of cross-selling and upselling

Product bundling is another technique along similar lines where complementary products are clubbed together and put on sale. 

Apple product bundle

Such tried-and-tested strategies increase the average order value, improving eCommerce profit margins. Their impact is attested to by eCommerce giant, Amazon, which reported that 35% of its revenue is a direct result of cross-selling and upselling - and this was way back in 2006! 

As modern-day product recommenders turn smarter and customer-centric, they can effortlessly deploy various strategies to increase profit and account for 10 to 30% of an eCommerce store’s revenue.

Prioritize Customer Service

Excellent customer service is the heart of every successful business - eCommerce or otherwise. About 89% of businesses try to outdo each other with proactive customer service as their competitive differentiator.

Proactive email informing about delayed shipping

A customer is 4x more likely to choose your competitor if they experience service-based issues on your eCommerce store. In other words, if you fail to take care of your customers - your competitors will. 

Launch Affiliate Programs

Affiliate marketing involves the active participation of third parties, like customers, influencers, and brand affiliates to champion your eCommerce store or its products. In return, they can draw benefits in the form of a commission for their successful efforts.

Affiliate marketing explained

Keeping in view that more than 84% of publishers sign up for an affiliate program, you already have several stakeholders ready to participate eagerly in this initiative. However, the trick to maximizing eCommerce profit margins using this approach lies in lending adequate support to the publishers.

Amazon's Affiliate marketing program

Share valuable data, relevant resources, and marketing assets to enable them to maintain brand consistency. At the same time, grant them creative freedom so that they can bring forth fresh ideas and inject innovation into your strategies. Walking this fine line can truly unlock the value and benefits associated with affiliate programs.

Address Cart Abandonment Issues

For every 10 items that get added to the cart, only three make it past checkout. The remaining seven fall prey to cart abandonment.

The message is loud and clear - cart abandonment is the greatest drain on eCommerce profits. 

cart abandonment timeline

As such, addressing cart abandonment issues can be a step toward increasing eCommerce profit margins. Start by analyzing your store to identify the root cause behind cart abandonment.

Different cart abandonment causes

Typically, customers abandon their carts due to long or complicated checkout processes, unexpected shipping costs, mandatory account creation requests, security concerns, lack of payment options, unclear returns and refund policies, or site performance issues. In most cases, automated intervention can retarget and re-engage customers before they result in churn. Devise strategies that can mitigate cart abandonment so that you can improve profit margins.

Leverage Dynamic Pricing

In its simplest form, dynamic pricing is an intelligent strategy that regulates the cost of a product based on multiple factors. 

Pricing vs revenue graph

For instance, the dynamic pricing algorithm can decrease the price of an item if it senses that the customer is balking at the prospect of going through with the purchase since the cost acts as a barrier. Similarly, it can hike up the cost of a product during a certain time of the day or year to increase profit margins.

In such cases, price sensitivity and time are characteristics that impact product pricing. Such a derivative of personalization can boost earnings by 4.7% and accelerate return on sales by 3%. Further, basing it on behavioral inputs can also establish the perception of price fairness, which could enhance customer satisfaction.

Notable retailers using dynamic pricing

That being said, dynamic pricing can prove to be a double-edged sword as it can do quite the opposite - alienate customers. So, use it wisely.

Simplify Product Discovery

In the age of instant gratification and an abundance of options, captivating and engaging your audiences is a feat on its own - let alone leveraging it to increase eCommerce sales. And even though strategies like the three-click rule may appear arbitrary, they emphasize the urgency to capitalize on dwindling attention spans. 

Accordingly, you need to front-load value by making your star products visible to get the most of whatever little you have.

Begin with personalizing the homepage such that it caters to the customer’s immediate needs. For instance, shoppers can pick up from where they last left off in the previous browsing session. Additionally, you can segment your catalog in informative categories and display them prominently on the homepage to simplify store navigation. Round it up with a powerful and intuitive search engine that can fetch accurate and relevant products while also allowing shoppers to filter or sort through the results.

Losses due to poor search engines

Easy sales will make sales easy.

Eliminate Cost Overheads

While most of the strategies to increase profit deal with increasing sales and revenue, this one focuses on reducing operational costs. After all, your profit margins are a function of your income and outflow. 

fixed cost and variable cost of eCommerce stores

As an example, we have already talked about the different kinds of waste. Perform an audit on the overall performance of your eCommerce store to identify bottlenecks and leakages that may be contributing to overheads. Also, take a long hard look at your infrastructural costs, rent, utilities, salaries, maintenance, etc., and see where you can save without compromising on efficiency or quality.

Final Thoughts

Personalization is a common theme that frequently crops up amongst the various strategies to increase profit. As such, it can be an excellent starting point to check off multiple strategies from the list shared above. Also, remember that you don’t have to incorporate all these strategies at once as it may sound overwhelming, especially for new eCommerce stores. You can start with one strategy at a time, see the results and plan the next. 

A starting point can be to get a recommendation engine that displays personalized product recommendations for your customers. Wondering how to start? 

Get in touch with our experts to know how you can get started!

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