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6 Most Common E-Commerce Expenses (+ How to Reduce Them)
Profit optimization6 Most Common E-Commerce Expenses (+ How to Reduce Them)The old adage goes: it costs money to make money. And if you run an e-commerce store you know how true that is. Keeping expenses down is important for any business, but in e-commerce especially, expenses can quickly grow out of control due to all the demanding aspects of your business, including processing returns, packaging products, and marketing your business. Keeping track of your e-commerce expenses means more profit for you at the end of the day. For example, in my own business, changing the type of packaging used to ship my goods allowed me to save up to $1 per order. Added up over time, that's a huge saving. Below I discuss the 6 most common e-commerce expenses I've come across plus tips to reduce them. 1. Number of Returns A high number of returns can quickly add up. Each return costs you money whether you have to pay for the return shipment or, even worse, the product is damaged and can't be resold. Plus, you have to invest time and resources to contact the customer to sort out the return. Also consider that regardless of the reason for the return, your customer had a bad experience. So, it's unlikely that this customer will buy from you again, which means the money you spent to acquire them is now down the drain. My tips:Reducing the cost of processing returns starts with reducing the number of returns. Make clear product descriptions: Add dimensions, color notes, and multiple, clear photos so the customer knows exactly what to expect.Extend the window for returns: Give customers more time to get to know and potentially keep your products. » Try these strategies to reduce your return rates 2. Product Packaging Packaging is an important part of the customer experience but it's easy to get carried away and spend more than necessary. It's wasteful because the packaging is tossed away at the end of the day. For example, if you include premium tissue paper with every order, that expense is multiplied over every order. My tips:Examine your packaging process: Are there parts that can be removed or changed to a cheaper material?Consider the added benefits: Lighter packaging will reduce your shipping costs and be more environmentally friendly. 3. Holding Extra Inventory It makes sense to hold extra inventory so you never have to worry about a customer trying to order something that's out of stock. But holding too much is like leaving money sitting on the shelf. I once ordered a large amount of a new product because there was a discount—I still have unsold stock that's not moving. My tips:Get an inventory management system to keep expenses in check byTracking your inventory: Only order new stock when you actually need it.Analyzing your sales: Always keep enough of your bestsellers on hand but be more conservative with other products. » Selling your products on Wix? These are the best Wix inventory management apps 4. Marketing Marketing is a vital part of growing your e-commerce business, but it's also very costly. Without a solid marketing strategy, you'll simply be throwing money away with little to no return. The most expensive type of marketing is pay per click (PPC), a type of traditional ad placement. While it can be very effective, there are cheaper ways to market your store. My tips:Use social media posts to increase organic traffic and build your brand.Write or commission SEO-driven blog posts to capture traffic from search results.Work with influencers to promote your brand in exchange for products.Create a referral program that rewards customers for sharing your store with friends and family. » Still prefer using e-commerce ads? Follow this ultimate guide 5. Shipping Shipping is a very costly part of e-commerce businesses, especially if your products are large, heavy, or delicate. Your customers have also learned to expect low or even free shipping costs, so you might feel like you have to absorb shipping costs to keep up appearances. But there are ways you can pass the full cost of shipping on to customers without calls of foul play. My tips:Be transparent with your customers about your shipping options:Offer a choice: Allow your customers to choose between fast but expensive or slow but cheaper shipping options.Push minimum order values: Incentivize your customers to get free shipping by ordering a minimum amount. » Thinking of using flat-rate shipping instead? Here's the best time to use it 6. Negotiate With Your Suppliers As you build your relationship with suppliers, you create opportunities to negotiate better deals, thereby saving money. But remember this is a two-way street. If you prove to be a reliable customer who pays on time and orders consistently, you can get the best deals. My tips:Early bird or prepayment deals: If you pay sooner, the supplier provides a small discount as a thank you.Bulk discounts: Suppliers can provide lower prices if you order larger quantities. Extra Benefits of Reducing Your E-Commerce Costs Reducing the expenses for your e-commerce store has benefits beyond saving a few bucks. Your revenue will be higher.More efficient business practices mean more satisfied customers.You can put that saved money toward growing your brand. Monitor Your E-Commerce Expenses With BeProfit All these extra expenses can add up to huge spending if not kept in check. I've learned from experience that a little trimming here and there adds up to major savings. Keeping an eye on your spending is crucial, and you can do just that with BeProfit, an all-in-one expense-tracking solution for e-commerce businesses. » Book a demo to explore BeProfit's features
How to Calculate Incremental Margin in e-Commerce (Formula + Explanation)
Profit optimizationHow to Calculate Incremental Margin in e-Commerce (Formula + Explanation)Are you new to the big, wide world of e-commerce analytics? Do you find it complicated and overwhelming? Well, you're not alone. Even some of the more experienced sellers are constantly looking for new ways to advance their insights and optimize their decisions. Calculating and understanding incremental margin is a useful metric to help you dig deeper into your profitability and growth. » Worried about your profit margins? Explore how to increase your e-commerce profit margin Understanding Incremental Margin Let's start right at the beginning. Margin is the profit you make from selling your products or services, thereby giving you perspective on the overall financial health of your business. Incremental margin is the profit you make from selling an incremental unit of your product or service. In other words, it measures how your profits change because your sales volume has changed. This feeds directly into the growth of your business, because incremental margin will help you make predictions about your business's future performance. In comparison, margins reflect your business's current performance only. Formula Use this formula to calculate your incremental margin: Incremental Margin =(Ending Profit Metric - Beginning Profit Metric) / (Ending Revenue - Beginning Revenue) Incremental margin can be expressed as a percentage. It measures how a specific profit metric has changed in relation to any changes that occurred in revenue. Therefore, you can customize the formula according to which data you want to analyze (e.g., net profit margin, gross profit margin, EBITDA margin, etc.). The different metrics will have different increments. Common Profit Margin Metrics to Calculate Incrementally Gross Profit Margin Use this formula to calculate your gross profit margin: Gross Profit Margin = Gross Profit / Revenue x 100 Gross profit margin tells you how much profit you've made after you've deducted the cost of goods sold (COGS). This refers to the direct costs that are associated with the production of the products or services you sell. Gross profit margin provides perspective on your business's profitability, but because it focuses on direct costs only, it also comments on the management of these costs. A low gross profit margin may indicate operational changes are necessary. » How do you calculate COGS? Follow this easy guide EBITDA Margin Use this formula to calculate your EBITDA (earnings before interest, taxes, depreciation, and amortization) margin: EBITDA margin = EBITA / Total revenue x 100 EBITDA margin measures how much your business earns before interest, taxes, depreciation, and amortization. Calculate your earnings by deducting operating expenses (COGS, selling, general, and administrative expenses) from your sales revenue. EBITDA margin is also known as a profitability ratio. Specifically, it indicates whether your business has a healthy cash flow because the calculation doesn't take non-cash expenses into consideration. Net Profit Margin Use this formula to calculate your net profit margin: Net Profit Margin = Net Income / Revenue x 100 Unlike your gross profit margin, your net profit margin accounts for all your expenses. Calculate your net profit margin by deducting COGS, interest, taxes, operating, and other expenses. Net profit margin is easily the most important profitability analysis calculation. Ultimately, it tells you whether your current practices are working because it checks that you're generating enough profit while keeping your expenses under control. You can also use this metric to compare your business's performance across different reporting periods, thereby setting benchmarks for yourself. Operating Margin Use this formula to calculate your operating profit margin: Operating Profit Margin =Operating Profit / Revenue x 100 Your operating profit margin is a performance ratio. It tells you the percentage of profit your business makes from sales after paying for production, but before deducting interest and taxes. Operating profit margin, also known as Return on Sales (ROS), checks whether you manage your sales effectively, i.e., can you produce profits just from your core operation? If not, then it means most of your revenue is coming from another source—and not the product or service you're selling. » How do you evaluate profit margins? Find out how to determine high profit margins Best Practices for Interpreting Incremental Margin Make sure you're working with correct and useful data. There's no point in calculating incremental margin if it's going to be incorrect. Consider investing in a profit calculator tool to help you manage your data and calculations. BeProfit allows you to connect all of your e-commerce stores to one platform with an aggregated view of your business performance. Also, realize that calculations can vary, especially if you're in manufacturing and dependent on external factors. View your incremental margin realistically and investigate when it indicates problems. » Need help calculating your profits? Let BeProfit help
Abandoned Carts on WooCommerce: Rates, Recovery, and Plugins
Profit optimizationAbandoned Carts on WooCommerce: Rates, Recovery, and PluginsWhen a customer leaves an online store without checking out, their items are left in an "abandoned cart". This is usually caused by the customer not having time to complete the purchase, being distracted, or encountering an error on the site. While most abandoned carts are never completed, they can still be a major source of lost revenue for online stores. Unfortunately, like any e-commerce store, WooCommerce is not exempt from experiencing online shopping cart abandonment. For WooCommerce, WordPress estimates that the rate of cart abandonment could be as high as 80%. That’s a ton of potential profit left on the table. So, to maximize your sales and keep your business trending in the right direction, getting on top of cart abandonment is a must. Reasons for Abandoned Carts Unfortunately, abandoned carts are a common occurrence in online stores. Why does this happen? There are several reasons shoppers might abandon their carts, including: A loss of interest in the itemsThe customer found a better deal on a competitor's websiteAdditional or unforeseen costs, like shipping rates, taxes, etc.The customer experienced problems with the checkout processA store’s shipping and handling fees are too highThe customer was not sure if the store was trustworthy How to Recover Abandoned Carts When a customer abandons a cart in your WooCommerce store, it’s not the end of the world. In fact, there are several ways you can go about recovering those carts and getting the sale, such as the following: Using a cart recovery plugin, like AddifyA profit/revenue analysis, like that facilitated by BeProfitAn email marketing platform, like Mailchimp The average cart abandonment rate across all sectors is around 69.99%. However, adding plugins and tools to your store can be a good way to reduce this number. Email marketing campaigns and “retargeting” strategies can bring 3 out of 4 customers back to your site, and boost your chances of a conversion. According to WooCommerce, sending a simple follow-up email can help recover up to 30% of lost sales on their platform.Around 45% of cart abandonment messages get opened and 21% of them receive click-throughs taking them back to the site. 50% of users who click on a cart abandonment advertisement or email make a purchase eventually. At the same time, tools for profit and revenue analysis and cart abandonment trackers can help you to pinpoint your most “at risk” customers, and determine which factors in your store may be increasing cart abandonment. How Do Plugins Help Recovery Rates? Specialized cart abandonment plugins can seriously help an online business’s recovery rates. They do this by leveraging these features: Purchase history Plugins provide the ability to react to cart abandonment by recommending items based on previous purchases.Payment portals The best plugins can even provide dynamic payment options, such as a discount coupon or free delivery.Email marketing If a customer is shopping for a specific product and then leaves the store, these plugins can land automated email-based recommendations for the same or similar products straight to a customer’s inbox.CRO optimization Some plugins will optimize your website for conversions, focusing on conversion rate optimization (CRO) best practices.Profit/revenue analysis The best digital shopping cart abandonment plugins will feature profit/revenue analysis capabilities. This allows online store owners access to valuable shopping cart abandonment statistics that can be used to reduce cart abandonment. Best Abandoned Cart Plugins for Woocommerce If you run a WooCommerce store, there are several abandoned cart plugins that can help you recover lost sales. The best of these include: Abandoned Cart Pro For WooCommerce WooCommerce Abandoned Cart Pro plugin is the ultimate solution to recover abandoned carts and increase your overall sales. It will automatically email your customers and remind them about their abandoned cart, giving you the opportunity to convert a sale that would have otherwise been lost forever and features a fully interactive dashboard and WordPress widget. Plus, it will automatically delete abandoned orders after a specified number of days to prevent your dashboard from becoming cluttered. Abandoned Cart Lite For WooCommerce Abandoned Carts Lite is lightweight, easy to use, and will help you boost your sales and profits. Unlike the Pro version, this plugin is limited to a few features. However, it will still send an email to the admin when an order is recovered and collects basic abandoned and recovered statistics that can be later viewed by the user. Although, the Lite version doesn’t collect customer emails, won’t automatically send recovery emails, nor allow users to access a full WordPress dashboard area. If you can afford the Pro version, opt for it over the Lite one. Use WooCommerce Plugins to Mitigate Cart Abandonments WooCommerce cart abandonment plugins are a behind-the-scenes remedy that will work to improve your online business’ recovery rates. Such plugins can help keep customers onsite and reduce the likelihood of them abandoning their carts - cart abandonment emails being a prime example. The best plugins for WooCommerce will also eliminate the chance of human error, making your online business more resilient to cart abandonment and profit loss than ever before.
How to Bundle WooCommerce Products to Maximize Your Profits
Profit optimizationHow to Bundle WooCommerce Products to Maximize Your ProfitsNot only do WooCommerce product bundles offer a great way for e-commerce sellers to sell their products—they also drive sales and increase a company's bottom line. If you haven't ventured into the world of personalized WooCommerce product bundles yet, keep reading, and use product bundles to boost your WooCommerce sales with upselling and cross-selling. It's easy and it's profoundly effective! » Selling your products on Amazon too? Follow these simple steps to product bundling on Amazon FBA WooCommerce Product Bundles The WooCommerce Product Bundles plugin enables you to display bundles of multiple products on a single product page. There are two ways to enable this: An add-to-cart button: This enables your clients to buy all the products at fixed or separate prices.Mix and match functionality: There are quantity boxes for the product that's featured in the bundle, allowing customers to mix and match their purchase. The good news is that there are additional WooCommerce plugins available that will help you to develop effective bundles and maximize your profits. Let's get started with the two most relevant plugins: WooCommerce Product Table Purpose: The product table offers a searchable table layout with filters for suggesting product combinations to customers and selling different products. Best suited: For example, course bookings, restaurant order systems, online music, and selling books. WooCommerce Bulk Variations Purpose: Bulk variations allow your customers to choose how much of each product they want to add to their bundle (with multiple variations of a product) using one single form. Best suited: For example, clothing or shoes, mobile phones, and fitness equipment. » What other plugins does WooCommerce offer? Browse the best plugins to enhance your WooCommerce store How to Create Profitable Product Bundles in WooCommerce There are many different ways to create profitable product bundles in WooCommerce. Below we've compiled a simple and easy-to-understand 4-step guide for you to follow. 1. Install the WooCommerce Product Bundle Plugin on Your Site You'll need a WordPress website to get started. Once you have your WordPress site, you'll need to navigate to your website dashboard. Go to Plugins > Add new. Source: https://litextension.com/blog/set-up-woocommerce-tutorial/ Now go to the search bar and enter WooCommerce. The plugin will be your first result. Choose Install now and then Activate to turn the plugin on. 2. Create a New Product Before you create a new product, you'll need to configure all your settings. To do this, go to the Settings tab and add your settings: general, products, tax, shipping, payments, payments, etc. If you're not sure what to add, you can hover your mouse over the question mark icons for further details. Now you're ready to add your products and start selling. Go to Products > Add new on your dashboard. You'll have to give each product a name and description. Source: https://www.inmotionhosting.com/support/edu/wordpress/woocommerce/managing-woocommerce-products/ 3. Select "Product Bundle" in the "Product Data" Section Now it's time to develop your bundles. First, you need to select the Product Bundle type. You'll find this in the Product Data panel. From there, navigate to the Bundle Products tab. At this point, you must use the search field to find and then add your chosen products to your bundle. You can add as many as you need, and then click on Publish to save. Source: https://woocommerce.com/products/smart-bundle-product-for-woocommerce/ 4. Configure the Product Data in the "Bundled Products" Tab What is product data? It's the core information that's associated with your product, including product name, price, description, and images. It's critical information that can help you to boost sales and profits. It also helps you to keep track of your inventory. If the product data has not been added with enough detail, your customers will struggle to find what they're looking for. Source: https://happyaddons.com/how-to-add-products-in-woocommerce/ Pro tip: It's so important to remember that your customers won’t be able to "see" your product's weight, size, taste, and accurate color if they're just looking at an image that's been uploaded. The tabs marked off on the above image will let you add all the important attributes of your product to make it more sellable. This is probably the most important step in the process. You also need to make sure your shipping methods are clear and comprehensive—customers want to know how long it will take to arrive at their door and how it will get there. In Closing... Now that you're well on your way to boosting your e-commerce sales over the holiday season, let me leave you with one final important thought. Once you start generating results and making a profit from your bundles, you'll need to calculate your success rate. BeProfit is the perfect solution for this. It's easy to use and will take the blood, sweat, and tears out of keeping your finger on the pulse of your business. » Curious about BeProfit? Schedule a demo
5 Simple Steps to Profitable Product Bundling on Amazon FBA
Profit optimization5 Simple Steps to Profitable Product Bundling on Amazon FBACustomers are always on the hunt for amazing deals, whether they’re shopping online or in person. Bundling certain items together can be an excellent way to convince your customers to purchase more with unique offers on related items. Amazon FBA gives merchants a convenient way to bundle their items in a couple of seconds, letting them drive conversions and increase average order value. Learning how to use the bundling process correctly ensures you not only attract and convert the right audience, but boost their chances of sharing your offers with their friends. This blog covers everything you need to know about creating a profitable product bundle from your Amazon Seller Central Account. » Planning to capitalize on the festive season? Discover how to boost your e-commerce sales during the holiday season 1. Select Your Bundle Items First, you’ll need to decide which items you’re going to include in your bundles. Bundles can include a range of 2 to 5 related items that must be identified by a unique ASIN/UPC. So, even if you’re offering individual goods in several categories, you can only sell the bundle in one category. The number of bundles you can sell also can’t exceed the lowest available quantity of any contained product you have. There are various specific rules associated with bundling laid out in the Amazon FBA product bundling guidelines. For instance, you can’t bundle items with a primary product from the Video Games category, or Books, Music, Video, and DVD (MBVD) products. While these items can be added as a secondary item, they need to be related specifically to the primary product in the bundle. 2. Upload Your Product Images Your images will make a huge difference to whether or not your bundles are profitable. Images are among the first thing your customers will see when they’re browsing through their Amazon search results. You can upload up to 9 images for your listing, and it’s a good idea to upload at least one image which shows the bundled items together, as well as various high-quality shots of the individual products. Make sure your images look as professional as possible, with plenty of lighting. 3. Add Your Title Alongside your images, your Amazon bundle product title will be the other key factor helping to draw customers to your items. Ensure to optimize your bundle for Amazon’s proprietary search algorithm. Here are some quick tips to help: Use numerals instead of writing out numbers (5 instead of five)Use title case to capitalize the first letter of each word, except conjunctionsFor products with ASIN variations, specify sizes and colorsInclude the brand name, quantity, and keywords you want to rank for. Although it might be tempting to fill your titles with plenty of information, try not to make them too long, complex, or keyword-stuffed. 4. Define the Price Buyers are price sensitive, and it may be the determining factor in them not buying your bundle. So, the price of the bundled items should be lower than the cost of buying everything separately. You can decide for yourself how much of a discount you want to offer. A good way to start defining potential prices is to look at what bundles of similar products are selling for, but ensure your discount still gives you plenty of room to make a profit. 5. Include Key Product Information Finally, you’ll need to populate your bundle with key product information: SKU This is the stock-keeping unit, the product identifier Amazon needs to keep track of the inventory of each product in your bundle. Make sure you enter the correct SKUs for your products. Bullet points This appears just underneath the price on your product listing. It should outline exactly what your customers are going to receive in the bundle and highlight the key benefits and features of each item. Keep your bullet points concise, and easy to read. Description Your description provides additional information about your bundled items that's not in your bullet points. You’ll need to include a description for each item, highlighting their unique benefits, features, and capabilities. Expert Tips to Boost the Profitability of Your Product Bundles Once you know how to create a product bundle on Amazon FBA, the next step is ensuring it’s as profitable as possible. Here are some quick tips to help: Choose complementary items Ensure your bundles make sense to your target audience. Pick items that are regularly bought together. Choose evergreen products A bundle can’t be changed without creating a new product listing, so it’s best to choose evergreen products over seasonal items. Consider wholesale bundling Instead of creating a new private label product, identify brands that are already selling well on Amazon, open a wholesale account with them, and resell those items as Amazon bundles. Use keyword research Leverage keyword research to improve your chances of good Amazon marketplace SEO. This should boost your click rates. Keep an eye on stock If you run out of stock in one of your items, you’ll need to stop selling your entire bundle, so make sure you set up stock alerts. » Planning to sell on WooCommerce too? Learn how to bundle WooCommerce products Conclusion Amazon bundles can be a fantastic way to increase your sales, and even generate brand loyalty through the world’s favorite marketplace. You can use bundles to reach a wider audience, increase the sales of under-selling products, and strengthen your position on the Amazon search pages. To ensure you’re getting the best return on your bundles, use a tool like BeProfit to measure your profit potential for each value-adding bundle. » Want to start optimizing your profits? Register with BeProfit
One-Click Upselling to Boost WooCommerce Sales
Profit optimizationOne-Click Upselling to Boost WooCommerce SalesLearning how to create an upsell strategy in WooCommerce means you can instantly encourage your customers to purchase more items from your store. It’s a great way to increase revenue by tempting your customers before they convert or just after they’ve made a purchase. With upselling, you offer a related product or service alongside the main product the customer has purchased from your store. Since the item is already related to what your customer is buying, they’re more likely to consider purchasing it. How One-Click Upselling Works One-click upselling is a common strategy for any business looking to boost sales for WooCommerce. Through WooCommerce, the easiest way to implement an upselling strategy is to simply use a plugin to offer your customers something through a pop-up or recommendation on the cart page. You can also provide additional post-purchase offers on the thank-you page. When your customer goes through the checkout, they’re offered something else to accompany the items in their basket by your plugin. This item will be related to the existing products your customer is already buying to ensure they’re more likely to buy. With “one-click” upsells, your customer can simply press one button to add the item to their basket without having to go back through multiple pages on your website. Upselling is considered to be an easy tactic for Shopify or WooCommerce sellers because it takes advantage of the fact your customer is already in the latest stages of their buying journey. How to Create an Upsell Strategy in WooCommerce Creating an upselling strategy in WooCommerce is simpler than it seems, thanks to the wide range of plugins available to help you. Simply search for an “upsell” plugin in the WooCommerce app store and install the one you want to use, then follow these steps: Create a funnel Decide whether you’re going to offer your upsell before or after the purchase and what the offer is going to look like in order to design your WooCommerce sales funnel. In some cases, you can even provide a series of different offers with the same app, but be careful not to overwhelm your customer.Add your upsell offer Link in your upsell offer. For instance, you might suggest specific products to go with certain items in your product catalog or certain items from a list of items commonly bought together. To help you decide, learn about the best products to sell online.Test and evaluate Constantly test the performance of your upsell offer, and determine whether you might need to make changes. A/B testing different offers and strategies can improve your profit levels significantly. Within three simple steps, you’ll have everything you need to start upselling to your audience. Why Should You Use a One-Click Upsell Strategy? An upselling strategy is a valuable tool to increase your website orders and boost the value of your online store. There are many reasons why you might choose to embrace the one-click upsell, but some of the most common include: Higher average order value Upsells can help you increase the average order value for every customer who checks out through your website. You can check your WooCommerce sales report plugins to see just how much each average order increases in size.Increased revenue The more your customers purchase, the higher your revenue will be. With one-click upsell strategies, you don’t need to constantly worry as much about finding new customers. Customer satisfaction With the right upsell strategy, you can provide access to additional products and deals your customer wouldn’t want to miss out on. You can even offer bundle deals to make your customer feel like they’re getting a better offer. Plus, adding upsells to your store is straightforward, and often a lot easier than investing in extra sales and marketing tactics to increase your sales. Benefits of Post Purchase vs. Pre Purchase Upselling One of the biggest challenges of implementing upsells into your WooCommerce store is figuring out when to offer your customer an additional product. Timing is everything with this sales strategy, and the two most prominent options are “pre-sale” or “post-sale”. Pre-purchase With a pre-purchase upsell, you offer your customer the extra product, deal, or bundle while they’re still on the checkout page. This means they can simply add the item to their cart before finishing their purchase, without having to worry about going through the checkout again. The key to success here is ensuring you offer the right products and don’t overwhelm your customers with too many suggestions. If you’re too pushy, you could drive your customer away. Post-purchase The post-purchase upsell allows you to offer something to your customer after they’ve finished their purchase and left your WooCommerce payment gateway. You can still allow your customer to take advantage of the same checkout form they’ve just completed, so they don’t have to pay for additional shipping costs or enter details again. The benefit of this strategy is your customer has already made a purchase, so you don’t risk losing out on anything. However, your customers may not pay as much attention to offers after the purchase is completed. You can check analytics on WooCommerce profit analysis plugins, or other WooCommerce analytics, to see which methods work best for your brand.
Using Amazon ROI to Maximize Profit Margins
Profit optimizationUsing Amazon ROI to Maximize Profit MarginsReturn on investment (ROI) is a measure of the efficiency of an investment, usually expressed as a percentage of the investment's original cost. It compares the amount of money gained or lost on an investment relative to the amount of money invested. The higher the ROI, the more efficient the investment. Difference Between ROI and Profit Margin One of the most important distinctions in business is the difference between ROI and profit margin. They may sound similar, but these two concepts are actually quite different. ROI measures how much money you make on your investment, while profit margin measures how much you make on each dollar of sales. In other words, ROI tells you how efficient your investment is, while profit margin tells you how efficiently your company converts revenue into profits. COGS, or the costs of goods sold, is another important metric that Amazon merchants should keep their eyes on. Check out this guide to see how to calculate cogs for your Amazon business. How to Calculate ROI and Profit Margin Calculating ROI and profit margin are essential for all businesses, regardless of their size or industry. The first step is to calculate your ROI, which is expressed as a percentage of the profit you earn on your investment. This is calculated by subtracting the initial value of an investment from the final value of an investment. For example, let's say your business invested $2,000 in advertising. One year later, the advertisement campaign generated $10,000 in profits. Therefore, the net profit was +$8,000. With these numbers, the ROI calculation would be: (8,000/2,000) x 100 = 400 This means that the initial investment in the advertisement campaign generated a 400% return on investment. Once you have your ROI, you can then calculate your profit margin, which is the percentage of each dollar earned that results in profit. This can be calculated by dividing net profit by net sales. For example, let's say a business generated a profit of $10,000 from $25,000 of net sales. The ROI calculation for this would be: (10,000/25,000) x 100 = 40 In other words, the business has generated a 40% profit from $25,000 in sales. Knowing these two numbers will give you a clear picture of how efficiently your business is running and where it could improve. It will also help you make more informed decisions about where to allocate your resources. If this looks too complicated, time-consuming, or both, there is an easier way to calculate profit for Amazon merchants. To do so, check out the best profit calculators for Amazon here. Healthy ROI for Amazon FBA Sellers For Amazon FBA sellers, a healthy ROI is essential for the success of their business. Sellers need to keep track of their expenses to minimize these as much as possible and boost sales through effective marketing to ensure that their profits exceed their costs. There are a number of considerations that factor into calculating a seller's ROI, including the cost of inventory, shipping costs, and Amazon fees. So what is a good ROI for Amazon FBA sellers? An ROI of around 100% is considered sustainable. Anything lower than this is working on profit margins that are too tight, putting a business at risk. For further reading, see how to track and calculate profit on Amazon here. Amazon ROI Strategies to Maximize Profit Sellers who want a healthy ROI should focus on keeping their costs as low as possible. Sourcing products from wholesalers or manufacturers can reduce inventory acquisition costs, and shipping costs can be reduced by using a fulfillment company like Fulfillment by Amazon (FBA). Amazon fees can also be minimized by using the right selling plan and taking advantage of promotional opportunities. If you'd like further insight into how to maximize e-commerce profits, see our guide on ways to improve profit here. Or, to kick-start your earning potential, check out the best products to sell online in 2022 here.
Ways to Increase Your Profit Margin in E-Commerce
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. 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. 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%.
How to Use Snapchat Ads to Boost Your E-Commerce Store
Profit optimizationHow to Use Snapchat Ads to Boost Your E-Commerce StoreDid you know that nearly 75% of Gen Z and millennials use Snapchat for at least 30 minutes every single day? With statistics like that, it goes without saying that, if you are looking for an effective advertising channel for your e-commerce business that targets younger generations, Snapchat may serve as your pot of gold at the end of the advertising rainbow. Effectiveness of Snapchat Ads Snapchat adverts are effective for many reasons, one being economies of scale. Think about the exposure your brand or product will get through a social media platform that: Is still (over 10 years after its launch) one of the top 15 most-used social media platforms in the worldHas well over 300 million active users daily Another good reason why Snapchat adverts may be beneficial to your e-commerce business is that the platform's advertising uptake has been slower than other social media platforms—making it an essentially untapped market in the bigger scheme of things. Because the uptake has been slower, Snapchat ads are also relatively cheaper than other platforms, such as advertising on TikTok. How Do Snapchat Ads Work? In short, a Snapchat advert is a vertical, full-screen video, gif, image, or cinemagraph that pops up in between a viewer's friends' stories in an attempt to acquire new customers without spending too much. If the viewer swipes up, they can interact with the ad by, for example, downloading an app. Snapchat ads are most effective when they are quirky and stylishly unpolished to reach the targeted younger audience. Cost of Snapchat Ads The good news is that you can control your Snapchat ad spend. As a result, the exact costs of advertising are difficult to bed down. It all depends on your bid amount and goal, your objectives and budget, as well as the duration of your campaign. Snapchat has a nifty ad manager tool that bases the cost of an advert on how you structure your campaign. The platform charges a cost for every 1,000 impressions (CPM) with goals-based bidding on a self-serve platform. With goals-based bidding, it's up to you to set up a maximum price for every time one of your viewers initiates an action that you've optimized your ad for. The bottom line is that you can advertise your products or services to a youth market for an estimated cost of $5 a day! Did you know that ads are not included when calculating your cost of goods sold (COGS)? Read How to Calculate COGS for Your Amazon Business to learn more. Snapchat Ad Analytics The Snapchat Insights tool tracks the number of story views your brand gets weekly and monthly, as well as how long you keep your users transfixed to your ad! You'll soon be able to see what your viewers like, and what type of ads inspire conversions from brand awareness to product sales. Statistics like these can guide your campaigns until your goals and objectives are reached. Here's what a good click-through or swipe-up rate looks like. Snapchat Pixel Snapchat Pixel—otherwise known as the Snap Pixel—is JavaScript code that will help you to measure the cross-device impact of your ad campaigns. This means that you'll be able to get exact numbers of how many of your viewers take action on your website after seeing one of your ads. In other words, Snap Pixel works really well when it comes to driving subscriptions, leads, and sales because you see beyond a single viewer's session and a single device. Snapchat is gaining momentum as the new e-commerce ad kid on the block. It is very easy to sign up and navigate, cost-effective to use and a pretty good match for your business if you are targeting younger customers. General Snapchat Ad Strategies The platform is highly flexible, giving you a wide range of advert types to choose from including collection ads, story ads, creative filters and lenses, commercials, and dynamic ads. You need to find the strategy that works best for your brand, which can be achieved by using Snapchat Insights. This tool tracks the number of story views your brand gets weekly and monthly, as well as how long you keep your users transfixed on your ad!