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The 4 Main E-commerce Business Models for Building a Successful Online Store
Running your own online business can be highly profitable, but it is not as simple as building a store and hoping for the best. You still need to have a set of business goals that will make your e-commerce store successful. That's why, in this post, we will cover the four main types of e-business models and how they can help you build a successful e-commerce business. What Is an E-Commerce Business Model? An e-commerce business model is a company's plan for how it will monetize selling products or services online. There are many ways to do this, but some common e-commerce business models include selling goods directly to consumers, selling goods to other businesses, or providing digital services. The defining difference between e-commerce and digital marketing is that digital commerce includes all forms of electronic communication, such as social media, text messages, emails, etc., whereas e-commerce only includes transactions that take place on websites. In addition to understanding the basics of an e-commerce business model, it is also essential to familiarize yourself with the available development platforms. Read the following comparisons to learn more about the three most popular e-commerce platforms: Wix vs. ShopifyWix vs. WooCommerceWooCommerce vs. Shopify Maintain a Profitable Edge You can now automatically calculate profits from multiple sources, saving time and effort. Analyzes results to ensure consistent, accurate profits.Keep track of data points from multiple sources at once.Both desktop and smartphone versions are available. Regardless of the e-commerce business model you adopt, the BeProfit analysis dashboard was designed specifically with the goal of making your life easier. The 4 Major E-Commerce Business Models There are many types of e-commerce business models. With examples, we cover the most popular ones here. 1. Business-To-Consumer (B2C) Business-to-consumer refers to transactions in which a business sells its products or services to consumers. B2C is the most common e-commerce business model, and, therefore, many online niches fall into this category. They often use digital marketing for their e-commerce business success. Example of B2C Think of a clothing, entertainment, and household supplies retailer like Walmart, which sells products to individual consumers online. The main advantages of B2C include: Potentially endless customer base.Greater potential for sales and profits. The disadvantages of B2C include: Competitive business niches.Difficulties presented by customer service and return policies. 2. Business-To-Business (B2B) A business-to-business e-commerce model is one where a business sells its products or services to other businesses rather than to consumers. This model is generally associated with high-end, high-priced products or services in industries in which the bulk of the revenue is generated by business purchases. The business-to-business model generally ends at the purchase stage—the company sells its product to another company, which then sells it to its customers. Another subsection of B2B is business-to-government (B2G) Although business-to-government e-commerce models are often grouped together with the B2B business model, instead of a business supplying another private business, they sell goods and services to government organizations. This can include anything from office supplies and technology products to complex consulting services. The B2G e-commerce model has become increasingly popular in recent years as governments seek to find ways to reduce costs and streamline operations. There are several benefits that businesses can experience when selling to governments through the B2G e-commerce model. First, businesses can enjoy increased visibility and access to decision-makers within government organizations. Additionally, businesses can benefit from cost savings associated with streamlined procurement processes. Finally, businesses can also benefit from opportunities to build long-term partnerships with government organizations. Example of B2B and B2G Think of an online retailer like Amazon that uses the B2B and B2G e-commerce business model. Amazon.com sells various products and services to businesses, including books, software, and electronics. In addition, Amazon has developed several web-based applications specifically for government entities, such as Amazon's Web Services (AWS), GovCloud. The main advantages of B2B or B2G include: Larger orders.Fewer transactions.Shorter cycle times. The disadvantages of B2B or B2G include: Limited customer base compared to B2C.Potentially higher customer demands, like product customization and pricing options. 3. Consumer-To-Business (C2B) A slightly less common but no less effective strategy is the consumer-to-business e-commerce model. C2B involves a consumer selling their products or exchanging their services directly with businesses. This generally occurs without the need for a middleman, such as a manufacturer or a wholesaler. Example of C2B Think of an online review website like Yelp or a social media platform like Facebook where consumers leave customer reviews, participate in company surveys, or even share product-focused social media content as an influencer. This is done in exchange for some kind of perk like the chance to win a prize, receive a discount, or be awarded a free product. The main advantages of C2B include: Affordable or free advertising.Potentially limitless brand awareness. The disadvantages of C2B include: Unpredictable outcomes.The potential for negative responses. 4. Consumer-To-Consumer (C2C) C2C, also referred to as peer-to-peer (P2P), is an e-commerce business model where a consumer sells their products or services directly to other consumers. It contrasts with business-to-consumer, where the focus of the business is selling products or services to consumers. C2C is a very popular e-commerce model as it allows business owners to broaden their customer base and reach a larger audience. Example of C2C C2C websites are often referred to as P2P selling platforms. The concept is very similar to classified ads, which are often posted locally at a neighborhood or community level. Think of something like Facebook Marketplace, which is essentially a sub-platform of Facebook's main platform—a place that connects consumers with other consumers. Facebook makes money from the buyers and sellers viewing on-site ads, and the consumer gets the benefit of connecting to another consumer who either wants to buy or sell secondhand goods. Leveraging this business model is a great way for businesses to increase their profit margins by growing their brand awareness. The main advantages of C2C include: Potential for high margins.Low to zero manufacturing costs. The disadvantages of C2C include: Highly competitive market.Increased potential for scams. Another "Fast-Growing" Business Model Direct-To-Consumer (D2C) In this post, we've outlined the four most common and most successful e-commerce business models—but know that there are more than just four. For instance, D2C, or direct-to-consumer, is now becoming a very broadly used e-commerce business model. D2C cuts out the middleman and allows a manufacturer to sell directly to a consumer. Regardless of which e-commerce model you choose to roll with, just be sure to clearly understand your business goals and which direction you'd like your online store to be heading. You should also take into consideration that you will have to address some of the challenges associated with e-commerce. Example of D2C D2C brands like Warby Parker and Harry's have disrupted the traditional eyewear and razor markets by cutting out the retail middleman and selling products directly to consumers online. The main advantages of D2C include: Control over brand messaging.Direct access to customers and their buying behaviors. The disadvantages of D2C include: Increased liability.Complex internal management. A great way to boost direct-to-consumer profits is through the use of advertisement. » Need help with ad management? Read our beginner's guide to effective advertising in e-commerce Selecting the Best E-Commerce Business Model There are a few key things to keep in mind when selecting the right e-commerce business model for your company. The first is deciding if you want to sell directly to consumers, businesses, or governments. Each e-commerce model has its own set of pros and cons, so it's essential to select the right model for your business. Here are a few things to consider when choosing an e-commerce model: What are your business goals? Analyze the market to better understand which e-commerce business model suits your business best. What is your target market? Define who they are, what they want, and how to reach them.What products or services do you offer? Decide this early on and market it appropriately.What is your budget? Set realistic budget goals, and stick to them as closely as possible.What is your level of technical expertise? Decide where your specialties lie, what you'd like to tackle yourself, and what work would be better outsourced to outside contractors. Once you've landed on a decision for each of these key considerations, you'll need to decide how you're going to reach them by choosing the correct e-commerce business revenue model. Is your new business model going to use an existing platform like Amazon or eBay, or are you going to build your own website? If you're going the self-hosted route, make sure to have a solid understanding of web development and e-commerce platforms. That way, you can create a site that's both user-friendly and profitable.
Business metricsBoosting Shopify Sales: 7 Proven Tips You Should Try in 2023The e-commerce landscape is growing increasingly competitive. Shopify alone supports no less than 4.1 million stores in more than 175 countries around the world. However, while the competition levels in this landscape are high, there are amazing opportunities available to business owners too. As the world continues to transform digitally, consumers spend increasingly more time shopping online. If you can find a way of separating yourself from the other market-leading stores in your industry, you can benefit from significant sales and incredible growth. The good news? Small changes can make all the difference to your bottom line. » Struggling to track your Shopify sales? Read this essential guide to Shopify sales reports 1. Ensure Your Site is Mobile Friendly Around 53% of all orders placed in 2020 were from smartphone devices. If your site isn’t mobile-friendly, you risk losing the attention of your target audience. Responsive Shopify theme: Ensure your Shopify theme is responsive and optimized for mobile devices. User-friendly design: Consider that most mobile devices are touchscreen, therefore your design shouldn't frustrate the user when they tap a button or try to swipe.Simple navigation: Use the limited screen space of a mobile device wisely with a fixed navigation bar and don't nest too many levels in navigation. Users will give up their search if they don't find what they want quickly.Optimized text: Ensure the screen doesn't get overwhelmed by minimizing the amount of text and considering your font type and size.Site loading speed: Ensure each page loads quickly on a mobile device as users get impatient with slow site loading speeds 2. Pay Attention to Product Page Optimization Shopify store owners often spend a significant amount of time optimizing their checkout page design and other store elements, but they forget to enhance their product pages. Online shoppers can’t interact with these items in person. Instead, they rely on your product information to help them decide whether to convert. Make sure your product pages include: Excellent product descriptions: Write focused product descriptions that are to the point, but information-rich. Address the user's needs by highlighting how your product will help solve their problem. Refer to your product's features, benefits, and any unique features. Finally, ensure the text is easy to read by using the right font type and size.Multiple product media types: Use different media to help your customer envision how the product will fit into their lives. Photos from multiple angles will provide an overview of the construction and features of the product while a video can demonstrate how to use the product. Ensure that all media has the best production quality to lend credibility.Extra details: Consider using reviews and customer ratings for social proof to help boost your chances of conversion. 3. Optimize Your Shopify Store for SEO Approximately 92.96% of all global traffic for e-commerce stores comes from a Google search. Optimizing your store for SEO is an excellent way to reach more potential buyers and prospects. There are various ways you can enhance your e-commerce SEO including: Adding a sitemap to Google Search ConsoleCreating unique product pages, product titles, and keyword-rich meta descriptionsCreating a site hierarchy that makes your site easy to navigateEnsuring product images are high-quality, load quickly, and use alt-textCreating quality blog content to encourage more traffic 4. Employ Cross-Sell & Upsell Practices Cross-sell and up-sell techniques can inspire customers to buy as much as possible. With cross-selling, you suggest more relevant products your customer can add to their cart based on their current or previous purchases. Consider using carousels, recommendations, or bundle deals to highlight complementary items. By default, Shopify displays a ‘recommended products’ section at the bottom of product pages. This is a great starting point, however, we’d recommend using a Cross Sell Shopify app to add more advanced widgets to your storefront that can help boost engagement with your cross sell products. Here’s a few common examples of how stores use cross-selling to sell more: Cosmetics: Buy a cleanser, cross-sell a moisturizer or toner. Fashion: Buy the look, promote all items your model is wearing along with the primary product. Gadgets: Buying a digital product? Stockup on batteries, chargers, ect. With up-selling, you encourage your customers to purchase a better version of your product that includes extra features, thereby increasing the value the customer will receive. Another great way to upsell is by encouraging users to buy more for increased savings, this is commonly called tiered or quantity discounts. This is a great win-win for both merchants and customers alike, helping to move more units and conveniently rewarding customers when they spend more. Once again, you can easily add this functionality to your store by installing a volume discounts Shopify app. Here’s a few examples of how stores use up-selling to sell more: Volume discounts: Buy 2 get a 5% discount, buy 4 get a 15% discount, ect.Buy one, get one free (or at a discount).Mix and Match discount: Offer discounts if select products are ordered together. » Trading on WooCommerce instead? Follow these WooCommerce upsell and cross-sell tips 5. Advertise Strategically on Social Media Platforms Social media marketing has a range of great tools for helping you target specific audience groups with different kinds of content, thereby increasing store traffic and generating conversions. You can: Use shoppable posts on Instagram: Highlight your products on Instagram with high-quality images and allow customers to buy your items within the platform. Social commerce is a great way to increase sales by making customer purchases easier. Leverage Facebook retargeting ads: Boost your chances of attracting customers back to your store after they abandon their carts by targeting them with specific campaigns. Collaborate with influencers: Increase your credibility and your brand reach by using influencer marketing to drive e-commerce sales. Partner with an influencer with a strong connection to your target audience to grab the most attention. 6. Offer Discounts & Free Shipping to Convert Customers Customers are always looking for the best possible deal and a good discount can be the perfect thing to sway undecided customers. If items stay in a customer's cart for some time without being bought, encourage them to take action with a special discount. This can help to generate more revenue. Or you can offer free shipping when customers purchase a certain amount to increase the average order value. » Preparing for the holiday season? Boost your e-commerce sales during the holiday season 7. Leverage Email Marketing to Capture Lost Sales Running an online store means not interacting with customers face-to-face. Therefore, you need a communication channel that's quick, easy, and versatile—i.e., email. Apart from informing customers of any new products or sales, you can also: Follow up on abandoned carts: Remind customers of the items they have yet to purchase and highlight their value so they’re more likely to return to your store.Send back-in-stock alerts: Let your customers know when the items they want to buy are available, so you don’t miss out when customers see an “out of stock” message. Increase Your Shopify Store Sales By following these tips, you can increase your Shopify store sales in no time and generate more loyal customers. Remember to track which campaigns deliver the best results so that you can double down on your efforts in specific areas. The innovative profit tracking and calculating app from BeProfit can help you determine where your profits are coming from. » Curious to see the BeProfit app in action? Test a demo of the app
Business managementPerpetual vs Periodic Inventory Systems: Which Is Best for Your E-commerce Business?In e-commerce, your inventory refers to the materials used to purchase goods or merchandise you sell to earn a profit. Because inventory is a core foundation of your business, an effective inventory management system can help you track it better. Though there are no standard inventory system requirements, Generally Accepted Accounting Principles (GAAP) require inventory systems to abide by regular accounting periods. So, the system you choose should be based on what works for your business. What is a Periodic Inventory System? A periodic inventory system is a valuation method where physical inventory counts are done at specified intervals (monthly, quarterly, or yearly). Businesses using this method do not update their records in real time to account for every sale or purchase. Instead, the periodic system calculates the cost of goods sold (COGS) only at the end of each regular interval and then deduces a gross profit. COGS = Beginning Inventory + Purchases - Ending Inventory This system can be most suitable for smaller businesses since they won't have to invest revenue into robust management software or larger workforces. Depending on the ratio of COGS to gross profit, the periodic system can highlight whether you're making a sufficient ROI or if your inventory management is wasteful. What is a Perpetual Inventory System? A perpetual inventory system uses sophisticated software to automatically track every inventory transaction, such as incoming and outgoing shipments, returns, and adjustments. Here, businesses have a more accurate and up-to-date view of inventory levels, so they can quickly reorder products when necessary and prevent stockouts or overstocks. This system is highly suitable for businesses with high transaction volumes and large inventories, such as grocery chains. Although the system calculates COGS with the same formula as the periodic system, it continuously updates the COGS based on any inventory modifications. This constant tracking of every sale detail can impact profits by lowering wasted revenue through improved stock estimates. » Are your COGS high? Check out these insights on how to reduce your COGS Track Your COGS Without Hassle Save time and effort with customizable expense tracking and reporting. Available on desktop and mobile devices.Allows you to pull custom expense data from multiple sources at once.Offers up-to-date COGS reports. BeProfit can help you keep tabs on your COGS and track revenue data for one or multiple stores in an all-in-one, intuitive dashboard. Advantages To Enjoy PeriodicPerpetualLower technology costs: You only need basic tools like a calculator and a spreadsheet to keep track of inventory.Manage multiple locations easily: Real-time inventory tracking ensures that all locations are up to date and can coordinate to fulfill orders more effectively.Simple process: You don't need to track every individual sale, purchase, or refund in real time.Allows more informed stock forecasting: Real-time data on inventory levels and movements allows businesses to better predict future stock needs.More cost-effective: With no special software or specialized employees required, businesses can save costs.Lower inventory management costs: Better forecasting helps address stockout and overstocking issues, reducing excess inventory costs.Minimal experience required: Basic experience in inventory valuation is sufficient since it involves simpler calculations than other methods.Accurate, real-time data: Automatic updates to inventory levels provide businesses with a more accurate instant view of their stock. » Discover the best Wix inventory management apps Disadvantages To Consider PeriodicPerpetualPotential revenue loss: You may run out of stock and not realize it until the next inventory count, leading to lost sales and revenue. Scanning issues: Incorrect data entry and discrepancies can occur due to barcode malfunctions or human error.Poor stock tracking: This can result from the reliance on manual counts, which has the potential for human error.Needs increased monitoring: Frequent audits and checks are necessary in case of theft or misplacement, which can require more time and resources.More time-consuming: Physical inventory counts can disrupt operations, diverting resources from other business activities. Expensive: Significant investment in training, hardware, and software may be required. Inventory Systems in Practice Although both periodic and perpetual inventory systems have setbacks, they can work efficiently for different businesses and industries. Example of a Periodic Inventory System A toy business uses a periodic inventory system where the owner and staff manually count and record the toy quantities on paper every quarter. The system works at first, but their substantial product offerings lead to misplacement and overstocking. To help improve this, the business can change the frequency of the periodic intake to monthly. This could ultimately help by: Saving time and money by lowering reactive purchasing.Reducing the risk of overstocking by analyzing which items are popular.Improving inventory visibility so low-selling items aren't restocked. Perpetual Inventory System in Use The same toy business opens two other branches and switches to a perpetual inventory system where they use barcode scanners to track the movement of each toy in and out of their stores. They hire and train more staff to manage and troubleshoot when issues come up. Despite additional investments, this system works effectively for the toy business because: Automatic up-to-date data helps identify which toys sell well and which don't. Allows for more informed decisions about ordering and restocking, reducing the risk of stock shortages and potential revenue loss.The more trained staff helps achieve a significant return through better stock visibility and increased profits. » Learn more about keeping track of your e-commerce business expenses Which System Is Best For Your Business? When choosing the right inventory system for your business, you should prioritize your unique situation and needs. You may have less inventory and benefit from the simplicity of a periodic system, or you may have a multi-location franchise and do better with a perpetual system. You could even hybridize for increased efficiency that drives sales and profits. Once your inventory system is in place, platforms like BeProfit can help make your COGS and profit tracking seamless with data integration, custom reports, and real-time monitoring.
Business metricsCPC Industry Benchmarks: Are You Spending Too Much?In online marketing, success often depends on getting the most out of your advertising budget. One of the metrics to assess is cost-per-click (CPC). This average can vary drastically from below 1% to 8-9%, depending on your industry. Monitoring your CPC and using applicable benchmarks can help you manage your ad spend more efficiently. What is CPC? Cost-per-click (CPC) refers to the price a business pays whenever someone clicks on one of their ads. You can calculate your CPC as follows: CPC ($) = Advertising Campaign Costs / Number of Clicks CPC is best tracked alongside other advertising metrics, like click-through rate (CTR), for more accurate insights into your advertising efficiency. Generally, a low CPC is desirable because it means that your ad is cost-effective, while a high CPC might indicate that your ad isn't reaching the intended audience or the messaging isn't resonating. » High costs? Learn the most common e-commerce expenses and how to reduce them Why is CPC Important? Tracking your CPC can inform you about performance so you can make tweaks for better conversions and profit margins. Optimizing CPC can help achieve these for the following reasons: Better cost control - Advertisers only pay when someone clicks on their ad and not every impression like CPM (cost per thousand impressions).Allows performance tracking - CPC can help advertisers see how much they're paying to acquire site traffic.Encourages relevancy and ad strength - Paying per click incentivizes advertisers to make ads more relevant, which provides users with targeted ads that are more likely to generate conversions. Make Tracking Costs and Sales Simpler Save time by monitoring your ad metrics and profits in one place. Allows auto-sync with top ad platforms.Connects multiple shops to get an aggregated view of your business performance.Offers customizable profit calculation and expense tracking. BeProfit provides an intuitive dashboard to help you manage your expenses and ad metrics. CPC E-commerce Benchmarks CPC for the type of ad and platform you advertise on can differ. So, regular monitoring can help ensure you're spending optimally, utilizing the best platforms for your business, and seeing positive conversions and ROAS. Your CPC may be higher or lower depending on factors like: Quality of your adTargeting options you chooseCompetition for ad placement in your specific product category The benchmarks below act as a guide and can vary from one campaign to another. Meta/Facebook Ads The average CPC for Meta Ads (previously known as Facebook Ads) is around $0.98. Meta Ads use what they call "link clicks," which can result in higher ROAS since engagement clicks, such as comments, aren't factored in. Monitoring results from the bidding and ad auction features can help identify: An optimal bidding amountWhich types of ads are most successfulThe target audiences that resonate with your products The ad placement can also impact CPC, with feed ads generally having a higher CPC than those shown on the right-hand column or story feeds. Google Ads According to Wordstream, the average CPC across all industries on Google Ads is $2.69 for search and $0.63 for display. Google Ads uses keywords in user searches to identify relevant ads. So, applicable ads are entered into an ads auction, which compares ads for ranking and position so that users receive the most relevant results first. To optimize your ads for higher ranking that can improve conversions, you can: Conduct keyword research to make sure you use the most high-ranking ones applicable to your industry or products.Use A/B testing to see which ads your desired target audience responds most positively to.Update your landing and product pages for more relevancy so that clicks aren't wasted on unrelated searches. » Learn how to set up Google Ads conversion tracking for e-commerce stores LinkedIn Ads The average CPC for LinkedIn Ads is generally higher than other platforms, with an average CPC of $5.58 across all industries. Because LinkedIn assigns a quality score to your ad campaigns based on success, a low score can result in a higher CPC. Some aspects that impact the score are: Engagement rates, like comments and sharesClick-through rateAd types used, for example, sponsored content or messaging and dynamic ads LinkedIn Ads are typically geared towards business-to-business audiences, which are also the industries traditionally with higher CPC rates. By leveraging features like conversion ads, spotlight ads, and more, you can increase brand awareness and engagement to achieve higher conversions. Amazon Ads According to a Statista report, the average CPC for Amazon's sponsored product ads is $0.98. Placement of your ads and other related products or brands, product types, and bidding determines your CPC. Some ways to get the most out of Amazon Ads include: Keyword research - This can highlight suitable keywords and give you multiple options for bidding to increase your chances of higher ad ranking.Automatic targeting - This just requires you to set your CPC budget and products, and Amazon handles the targeting.Improved management of multiple ads - Tracking your performance efficiently can help identify where you may need to adjust strategies to help lower your CPC, improve engagement, and boost sales. » Find out the top Amazon marketing metrics you should be tracking Make The Most Of Your Advertising Budget Tracking your CPC and utilizing benchmarks can help you manage your ad spend. Understanding whether you're overspending on advertising can help improve growth, identify new strategies for better conversions, and keep you up-to-date on your competitors' ad rankings and effectiveness. To help with data tracking, BeProfit offers a one-stop platform to monitor expenses and ad and sales data. You can assess the results in real time with custom reports, so you can make informed strategy changes to lower your CPC and amp up profits.
Profit optimizationRevenue Analysis in E-Commerce: Benefits and DifficultiesWhether you’re an established online business or new to the space, it is essential to perform financial analyses to determine whether the venture is feasible or will continue to be. This analysis should include an evaluation of the company's assets, liabilities, and cash flow. By doing this, business owners can get a clear picture of a business's financial status and make informed decisions about how to move forward. Most importantly, though, a financial analysis can help identify areas that may need improvement and how to go about rectifying them. What Is a Revenue Analysis in E-Commerce? In the context of e-commerce, a revenue analysis is a way to measure and track the amount of money a business makes from its online sales. This information can be used to help make decisions about pricing, marketing, and product development. The revenue analysis can also show how well a company's e-commerce strategy is working and identify areas where improvements should be made. By understanding how a company's revenue is generated and what influences it, businesses can make more informed decisions about where to focus their efforts to grow their business. A revenue analysis is important for all businesses, regardless of size, as it helps them to understand their sales and profits over a given period. By analyzing revenue, a company can identify trends and make changes to increase sales and profits. Additionally, a profit/revenue analysis tool can help a business determine its overall financial health. Benefits of a Revenue Analysis A revenue analysis report can help you in the following ways: Benchmark your company alongside industry peers to identify opportunities and threatsPerform competitor analysis and discover which markets are the most lucrative for your business.Identify the optimal pricing strategies for your business.Recognize which products or services are most profitable, and which need to be improved or discontinued. Difficulties Associated With a Revenue Analysis Revenue analyses aren't without their difficulties, including the following: Accurate revenue analysis can be very time-dependent if conducted manually. Thankfully, an online tool like BeProfit will significantly cut time through automated functions and outputs.Revenue analyses are not always feasible if the company follows no standardization in the revenue recognition process and the basic accounting policies.For a revenue analysis to be accurate and effective, appropriate segregation of the revenue from different sources along with the different classifications of revenue are vital.Revenue analyses are complex if the revenue is derived from numerous sources, leading to variable results. Implementing Strategies From Your Analysis Revenue growth analysis is important for e-commerce businesses because it can help them predict future trends and plan ahead. By looking at past sales data, businesses can identify patterns and forecast future sales. This information can help businesses make decisions about inventory, pricing, and marketing, while a revenue trend analysis can also help them track their success and make changes to their business strategy as required. » If you're interested in learning how to calculate monthly revenue in Excel, check out our revenue calculation templates
Profit optimizationWays to Increase Your Profit Margin in E-CommerceProfit margin is a measure of financial performance that shows how much profit a business makes for each dollar of revenue, calculated by dividing net income by revenue. In the e-commerce space, due to the low margins typically associated with this type of business, a high profit margin is essential for profitability. An online company must be able to sell its products and services at a price that covers costs and generates a healthy profit. Ultimately, if an online entity isn't profitable, it will eventually go out of business. To help you avoid this, this article will explain why it’s important to improve profit margins and discuss strategies for doing so. 3 Types of Profit Margins There are 3 types of profit margins: Net profit margin The percentage of revenue remaining after all expenses have been paid, including interest and income tax.Gross profit margin The percentage of revenue remaining after deducting the cost of goods sold from total revenue. Operating profit margin The percentage of revenue remaining after deducting all other operating expenses from total revenue. An effective method of determining whether your profit margins are sustainable is to use a customer profitability analysis. 3 Strategies for Increasing Profit Margins 1. How to Improve Net Profit Margin (NPM) To improve your net profit margin, you'll need to focus on 3 key factors: Review your expenses and reduce them Can you negotiate a lower rate with your suppliers? Can you cut back on some of your advertising or marketing expenses? Are there any unnecessary or duplicate services you can cancel?Increase your revenue by finding new customers This can also be achieved by selling more products and services to your current customers. Can you increase your prices without causing too much backlash? Can you cross-sell additional products or services to existing customers?Track your net profit margin regularly and make adjustments as needed Change your business strategy in order to improve profitability. Don't be afraid to make tough decisions in order to protect your bottom line. A high net profit margin is a good thing—it means the company is doing well financially. » Learn how to calculate net profit margin 2. How to Improve Gross Profit Margin (GPM) There are a few key ways to improve your company's gross profit margin: Increase the price of the products or services that you sell This can be done by conducting a market analysis to ensure that your prices align with those of your competitors. You may also want to consider raising your prices if you have not done so recently.Reduce the cost of goods sold (COGS) This can be done by producing or purchasing products and services more efficiently. You may also want to explore alternate suppliers who can offer lower prices for the same quality product.Keep track of business expenses Keeping track of business expenses can help you ensure they are in line with your overall business strategy. Reviewing your overhead costs regularly can help you reduce them without sacrificing quality or service. A high gross profit margin means that a company sells its products or services at a higher price than it costs to produce them. » Learn how to calculate gross profit margin 3. How to Improve Operating Profit Margin (OPM) Operating profit margin is a key metric for any business. By understanding how to improve your company's operating profit margin, you can ensure that your business runs efficiently and makes the most money possible. There are several ways to improve your operating profit margin: Look for ways to reduce spending This applies to all areas of your business, which may include renegotiating contracts with suppliers, streamlining processes, and reducing headcount.Raise prices If demand for your products or services is high, consider raising prices to increase revenue. However, be sure to do so in a way that does not alienate customers or hurt sales. Optimize processes Make sure your business is running as smoothly as possible by optimizing processes and eliminating waste. A high OPM means a company is making money on its core operations. What Is Considered a Good Profit Margin? When running an online business, there is no magic number for what is considered a good profit margin. The amount of profit that a company makes on each sale can vary depending on the industry, the products or services being offered, and the company's overhead costs. However, most businesses would like to see a profit margin of at least 10-15%.
Business metricsAOV Beginner's Guide: What Does It Mean For Your E-commerce Business?For an e-commerce business, conversion rates and average order value (AOV) go hand in hand. While these can differ between industries and market sizes, recent statistics show that the average conversion rate for e-commerce businesses is around 1.72%, while the average AOV sits at around $116.72. So, consistent conversions can help increase AOV because it means more people are completing purchases while maximized AOV can improve revenue and profit margins. » Want to know more? Learn the best conversion rate metrics for e-commerce startups What is Average Order Value? AOV calculates the average amount of money spent by a customer per order over a certain period. This metric directly impacts profits because if an e-commerce business doesn't make enough sales or only makes low-value sales, it may turn a low profit or no profit after expenses are paid. How to Calculate it? AOV ($) = Total Revenue / Number of Orders Received Let's look at an example. An online clothing store received 200 orders and made $10,000 in a month. AOV ($) = Total Revenue / Number of Orders Received= $10,000 / 200= $50 A lower AOV, like this, may imply that customers are spending less per order, which can hamper profitability. But a high AOV indicates that customers are willing to spend more money on the business. So, let's say the same online store made $20,000 and received 200 orders in a month. AOV ($) = Total Revenue / Number of Orders Received= $20,000 / 200= $100 This higher AOV can enhance profitability and highlights positive customer engagement with the store. Why Should You Calculate it? Calculating and monitoring AOV can help businesses understand their sales strengths and weaknesses and their customers' buying habits. Some ways include: Tracking revenue and sales metrics to identify areas where they can cut costs.Businesses can make data-driven decisions to improve sales and revenue.Analyzing AOV can help identify techniques that need improvement to increase customer loyalty and drive sales. Seamlessly Monitor Your Sales Data Make sales data and revenue metrics easy to digest with an intuitive one-stop platform. Use cutting-edge analysis for insights into marketing performance.Access the app using desktop or mobile devices.Create and export custom data reports to assess revenue and profits. BeProfit offers a user-friendly platform to make conversion, profit, and sales data easy to monitor and comprehend. Understanding Average Order Value's Impact Customer retention can lead to a high AOV because when customers are loyal to a brand, they tend to make repeat purchases. The trust and loyalty the business has built with its customers can increase the likelihood of higher-value purchases. Poor customer retention can negatively impact revenues and profits and can indicate a business is not appealing to customer needs. For example, this happened when I first started in e-commerce and spent a significant amount on marketing but failed to convert those leads into conversions. The AOV and profits increased through employing effective sales techniques, like web personalization, because costs were optimized. How to Improve Average Order Value Finding the best techniques to improve conversion and increase AOV is essential to improve a business's bottom line. Here are a few to help your business achieve this: Upselling and cross-selling: By suggesting related or complementary products to customers based on their browsing preferences or past purchases, businesses can encourage them to add more items to their cart.Customer support: Various channels such as live chats, phone calls, and personalized emails can enhance customer satisfaction, leading to repeat purchases.Digital marketing: Using various digital marketing techniques such as email marketing, social commerce, and other targeted advertising can attract more customers and encourage them to spend more.Product bundling: Offering products in bundles based on customer interests can encourage customers to buy more as it offers them more value for their money, resulting in a higher AOV.Loyalty programs: Rewarding customers for their repeat business through loyalty programs such as points, discounts, and exclusive offers can incentivize them to spend more. » Find out ways to boost product profitability for your e-commerce store Track Average Order Value To Help Your Business Tracking AOV can help businesses identify opportunities to reallocate funds or cut unnecessary marketing costs, plus assist them in making informed decisions about pricing, advertising strategies, and promotions. With BeProfit, you can track your revenue-based metrics, retention rates, and profitability in an integrated platform. This way, you can identify your sales trends and make data-driven decisions about your marketing strategies to help increase AOV.
Business metrics5 Expert Ways to Lower Your CPA Through Ad SpendWith global ad expenditure at $822,756 million, digital advertising is at the forefront of businesses' strategies. Specifically, cost per acquisition (CPA) can make or break your profitability. The lower your CPA, the more revenue you'll be able to generate from your ad spend. But achieving a low CPA isn't always easy—it takes a strategic approach to optimize your ad campaigns and make the most of your budget. Understanding CPA CPA is used as a metric to measure how much it costs for each successful acquisition or conversion. CPA ($) = Total Advertising Costs / Number of Conversions A successful acquisition from an online advertisement could be: A signupPurchaseSubscription to a newsletterAnother goal that you want customers to complete Monitoring CPA in conjunction with other metrics, like marketing ROI or customer conversion rates, can provide a more complete overview of how successful your campaigns are at obtaining and converting customers. Good ad spend can differ depending on the industry, target audience, and desired ROAS. The higher the CPA, the more expensive it is to acquire each customer, so lowering this number, typically, should be a top priority. Using CPA data to adjust advertising tactics and budget allocation can help drive profits and minimize overspending. Monitor Your Ad Data Easily Simplify your performance and profit tracking with integrated data. Pull and optimize ad data from various platforms in one intuitive dashboard.Access custom reports in real time.Pinpoint ROAS and conversion rates per platform. BeProfit provides a hassle-free platform to help you assess your ad metrics and identify your most profitable products or services. » Discover the ROI and ROAS differences How to Lower Your CPA Making the most of your ad spend with data-driven strategies can include a number of techniques based on your marketing goals. 1. Personalization Personalized ads are a cost-effective technique to avoid irrelevant advertising that doesn't turn into conversions. Personalization AI can produce tailored advertising by using data about: Customer preferences and interestsBrowsing historyGeographic locationSales data Personalized ads can help increase engagement and conversions, which can decrease your overall CPA. Additionally, personalizing ads gives customers the feeling that they are being seen as individuals rather than just another face in the crowd. This can inspire trust and encourage better customer retention. 2. Targeting and Retargeting Targeting involves ads tailored toward specific groups or demographics of people based on their interests or location. For example, Facebook Ads allows for keyword targeting and tailored audiences so that there's less wasted ad spend on uninterested audiences. Retargeting allows you to serve specific ads only to those customers who have already interacted with your website in some way, such as clicking on an ad or making a purchase. By appealing to specific interests and demographics, advertisers can make strategic budget decisions and increase the likelihood of customer acquisition through less costly means. » Using Facebook? Learn how to advertise on facebook like an e-commerce pro 3. Optimize Paid Campaigns With paid campaigns, you can use audience segmentation based on different criteria like age, gender, interests, location, and more, and performance metrics to analyze efficiency. Then, specific methods can use this data to maximize engagement, including: Changing when an ad runs based on higher site or page traffic timesLimiting geographic locations where certain ads run based on demographicsTargeting the ads to specific devicesImproving keywords and copy based on relevancyOptimizing landing pages Additionally, monitoring performance metrics such as click-through rate (CTR), conversion rates, and cost per click (CPC) regularly can help identify any underperforming campaigns that need adjustment. It can also highlight if an ineffective campaign should be paused entirely to minimize wasted ad spend. 4. Leverage Video Marketing Research from Wyzowl shows that 89% of consumers have been convinced to purchase a product or service after watching a video, and 51% are more likely to share video content than any other online content. This can lead to a higher click-through rate and more chance of lowering CPA. Advertisers have various options, like: Banner videosIn-feed videosCross-platform social media videosInteractive videos Incorporating videos in your e-commerce marketing can help prospective customers understand your offerings and provide interactivity, which is useful in increasing engagement and retention. Because customer retention is cheaper than acquiring new customers, this can also help lower ad spend. 5. Analyze Your Strategies But let's not forget about analytics. Performance metrics, such as CTR, CPC, and sales conversion rates, can help you assess campaign success. Using tools like Google Analytics is one great way to pinpoint areas for improvement. By monitoring any underperforming campaigns closely to determine why they aren’t performing well, you can implement new ad spend and optimization strategies. For example, if a strategy gets the customer to click on your page, but they don't convert. This could mean you need to revamp your page copy or change ad redirection with more fine-tuned personalization. Regularly tracking and adjusting your ad strategies and performance can help improve conversion by streamlining or retargeting rather than increasing CPA. » Check out the ultimate guide to effective e-commerce ads Optimize Your Ad Strategies for a Lower CPA Optimizing ad spend shouldn't stop after initial implementation. By adopting omnichannel strategies like expanding reach across various platforms using different paid social types, you can curate customer experience based on location, interests, or channel. To help, BeProfit provides an all-in-one platform to monitor advertising metrics and profits with ease. This way, you can focus on reducing ad spend waste and optimizing tactics to help keep your CPA low, your conversion rates up, and improve your ROI and profits.
MarketingClick Through Rate: Best Platforms to Advertise in 2023In the world of digital marketing, the ultimate goal is to drive traffic to your website, boost sales, and increase brand awareness. One of the most important metrics to measure the success of a business's advertising efforts and budget allocation is click-through rate (CTR). While this metric cannot be generalized since it can differ based on industry or platform, it can be leveraged to improve strategies, like where and how a business advertises its products or services. Understanding Click-Through Rate Click-through rate (CTR) is the ratio between people who click on an ad compared to the number of times the ad is shown (impressions). CTR (%) = Number of Ad Clicks / Impressions A higher CTR indicates that your ads resonate well with your target audience, which could positively influence sales conversions or other desired actions, such as signing up for a newsletter. CTR can be negatively impacted by poor keyword usage or site navigation and weak ad copy. So, analyzing your CTR allows you to make necessary adjustments, like improving headlines or implementing visual media. This, in turn, can help garner improved profit-driving conversions. Track Your Advertising Data Without Hassle Save time and effort by pulling your ad data from various platforms into one dashboard. Auto-sync with top ad platforms.Analyze and optimize all of your social media and online ad traffic.View your data from mobile or desktop devices with ease. BeProfit offers an intuitive platform to make tracking and monitoring your ad metrics and profit conversions easy. Where Should You Advertise? The platform you choose to advertise on depends on various factors, including your audience demographics, the type of content you're promoting, and your marketing objectives. Other means of targeting can also impact your CTR, such as optimized search engine ranking, or multi-channeling. To achieve the best conversions from your advertising campaigns, it's crucial to use platforms that can most appeal to your target audience. 1. Web Banners and Display Ads Web banners and display ads have long been a part of digital marketing strategies and usually contain concise and easily understandable information. These banners and display ads can be embedded on various websites and typically are designed to grab users' attention visually, either by placement on the webpage or design. Display ads can help maximize conversions through insight into user behavior, interests, and demographics. Implementing personalization AI into marketing can allow marketers to reach their ideal audiences and appeal to them with compelling visuals. 2. TikTok Ads As one of the fastest-growing social media platforms, boasting 834.3 million monthly users, TikTok particularly resonates with Gen Z and millennial audiences. This platform provides an excellent opportunity for businesses to engage with users through interactive, short-form video content. TikTok ads come in various formats, such as: In-feed personalized adsBranded hashtagsBranded effectsBanners With high engagement levels and multi-channel options, TikTok has become a dynamic platform to consider for facilitating more clicks, especially if you're targeting younger audiences. » Check out these TikTok ad metrics e-commerce sellers should keep an eye on 3. YouTube With 868.4 million users worldwide, YouTube offers a diverse range of formats, like: Skippable and non-skippable video adsBumper adsDisplay adsIn-stream video and banner ads Unlike other paid social media campaigns, YouTube ads need to follow a set of specific guidelines, prohibiting anything deemed harmful, such as imagery of blood or weapons. YouTube advertising allows you to reach a broad audience with precise targeting options based on location, age, gender, interests, and more. The platform also supports advanced tracking and analytics features that help you monitor your ad performance and optimize your campaigns to connect with your target audience. 4. LinkedIn For business-to-business marketers, LinkedIn is an ideal platform to reach their target audiences, given its focus on professional networking. With LinkedIn ads, businesses can run sponsored feed and InMail content or display ads to reach decision-makers and potential buyers. LinkedIn provides valuable relevant targeting options by using job titles, company sizes, industries, and more. This helps them connect with the users most closely aligned with their business offerings. 5. Pinterest Ads Pinterest is a visual platform that attracts users seeking creative inspiration and discovering new products or services. With 450 million monthly active users, Pinterest offers a customizable and cost-effective opportunity for businesses to showcase their products or services through various ad formats, such as: Promoted idea pinsCollection adsShopping adsCarousel ads Pinterest ad strategies let businesses target users based on keywords, niche interests, location, and more, thus helping you reach an audience that's more likely to engage with your content and convert. » Need more information? Check out the ultimate guide to effective e-commerce ads Leverage Your Advertising For Higher Click-Through Rates As digital marketing advances, it's beneficial to stay informed about the best platforms and approaches for driving clicks and conversions. Utilizing omnichannel strategies can also be a game-changer as it allows for broader reach and a variety of ad types. Tracking and understanding your CTR is essential to evaluate your advertising success and optimizing where needed. And with BeProfit, you can consolidate your advertising data into an easy-to-use dashboard for quick analysis. Plus, BeProfit offers seamless conversion and profit tracking, so you can assess how effectively your CTR translates to revenue.
Profit calculationHow to Calculate Revenue in Excel (Simple Formulas + Templates)Every seasoned business owner knows the value of revenue calculation as it helps them assess their profit, perform financial analysis, and do forecasting. So, how is sales revenue calculated? This article offers start-ups and established businesses alike straightforward Excel revenue calculation templates. » Book a demo with BeProfit to learn more about the advantages of our revenue calculation solutions 5 Types of Revenue and Their Exemplified Calculations This post will address the following revenue categories and provide a revenue formula in Excel for each: Incremental revenueAverage revenueGross revenueQuarterly revenueMarginal revenue Calculate Your Revenue Effectively Save time and effort by having your revenue calculated automatically. Analyzes data to guarantee constant, precise revenues.Integrates your stores into a single management system.Compatible with both desktop and mobile devices. BeProfit offers an accurate and easy-to-use tool that will eliminate all the stress and strain associated with performing revenue calculations on your own. 1. Incremental Revenue Incremental revenue is the profit a business receives from a certain increase in sales. This can refer to the additional revenue received from releasing a new product or service or trying new marketing strategies. Therefore, the original revenue that would have been generated before the additional product or service was introduced in that period must be subtracted from the adjusted revenue that includes the new product or service. Formula A formula can therefore be constructed as follows: Adjusted Revenue - Original RevenueAdjusted Revenue = adjusted number of units sold x adjusted selling priceOriginal Revenue = original number of units sold x original selling price When using Excel, the calculation can be set up as follows: Original Revenue and Adjusted Revenue are listed separately.Incremental Revenue is calculated by subtracting the totals (=D3-D2). 2. Average Revenue Average revenue is earned for each unit, product, or service you sell. People also refer to it as average revenue per unit or per user (ARPU). Formula Average Revenue (AR) is calculated by dividing the Total Revenue (TR) by the Quantity sold (Q): AR = TR / Q So, if a company's total revenue is $5 000 and the quantity sold is 1 000, then the average revenue per unit is $5 000 ÷ 1 000 = $5. In Excel, the calculation can be set up as follows: 3. Gross Revenue Your gross revenue is the total amount of money your company makes before expenses are deducted. This includes the sale of shares, property, and equipment, as well as interest and exchange rates. Knowing your gross revenue will help you analyze your financial statements, track your sales volumes, and identify high-impact revenue channels to understand how well your business is doing. Formula There are two types of gross revenue, each calculated as follows: Product Revenue = the number of units sold x average priceService Revenue = the number of customers x average price of service In Excel, the calculation can be set up as follows: Products and Services are listed separately.Quantities sold, Prices, and any Discounts provided are used to calculate the final total selling price of each product and service.Total Revenue is calculated by adding the final totals of products and services (=E6+E10). 4. Quarterly Revenue Quarterly revenue measures the increase in your sales from one quarter to the next. You would use it to review the sales of successive quarterly periods or compare the sales of the same quarter in different years. It's important to note that quarterly revenue can be influenced by seasonal sales. For example, if the Olympics is hosted in a certain country, it may skew quarterly results and give you an inaccurate view of your company's quarterly revenue. Formula You can calculate quarterly revenue growth as follows: [(Q2 - Q1) / Q1] x 100 In Excel, the calculation can be set up as follows: Q1 and Q2 sales are listed separately.The formula is applied at the bottom before it's converted to a percentage. 5. Marginal Revenue Marginal revenue is the increase in revenue that you get from the sale of each extra unit of output. While marginal revenue can stay constant over a specific output level, it follows the law of diminishing returns and will eventually slow down as your output level increases. As a business owner, you can use historical marginal revenue data to analyze customer demand for your products and determine your most efficient and effective prices. Finally, this calculation helps you to understand your forecasts because it determines future production planning and schedules. Formula This is the formula you can use to calculate your marginal revenue: Change in Revenue / Change in Quantity=(Total Revenue - Old Revenue) / (Total Quantity - Old Quantity) Let's look at a quick example: Your company sells its first 100 products for $1 000. You sell the next products for $8. This means that your marginal revenue for product number 101 is $8. It's important to note that marginal revenue disregards the previous average price of $10. This is because it only analyzes incremental change. If you sell 115 units for $1 100, your marginal revenue for products 101 through 115 is $100, or $6.67 per unit. In Excel, the calculation can be set up as follows: Save Time With Precise Tools There are profit calculation mistakes to avoid if you use the formulas and spreadsheets provided in this article. If you're not confident about how to calculate monthly revenue in Excel on your own, using the Profit Analysis Dashboard by BeProfit can save you time while ensuring your results' accuracy. Once the revenue has been calculated, the next step is to analyze and measure it using metrics such as net, gross, and operating profit margins. Knowing how to calculate net profit margins is essential because it provides insight into how effectively your business is running overall. » Want to know how profitable your store is? Learn how to perform an e-commerce profitability analysis