Profit Analytics Blog
Read expert articles with insights about e-commerce profitability from analyzing thousands of e-commerce businesses' data.
Profit optimization5 Simple Advertising Techniques to Increase Shopify Incremental Profit MarginsShopify is a dominant platform in the e-commerce market. It holds 10% of the global e-commerce tech market and, in 2022, had a total revenue of $5.6 billion. But poor advertising can lead to low sales and missed profits. So, Shopify businesses can revamp their advertising strategies to reap their own successful revenues, help boost reach, and increase incremental profit margins.
What Are Incremental Profit Margins?
Incremental profit margins refer to the additional profits earned by increasing sales or changing product offerings.
The incremental margin formula is as follows:
Incremental Profit Margin = (Ending Profit Metric - Beginning Profit Metric) / (Ending Revenue - Beginning Revenue)
Good e-commerce profit margins can vary depending on industry and business size. For instance, Shopify's gross profit margin in 2022 was 49.2%, and the average for online retail is 42.78%.
Let's look at an example. An e-commerce store adjusted its advertising campaign from one quarter to the next and wants to know how its profit margin changed incrementally.
In the first quarter, they earned $6,000 in revenue and $2,000 in gross profit. By the end of the second quarter, their revenue was $24,000 and the gross profit was $10,000.
Incremental Profit Margin = (Ending Profit Metric - Beginning Profit Metric) / (Ending Revenue - Beginning Revenue)= ($10,000 - $2,000) / ($24,000 - $6,000)= $8,000 / $18,000= 44% (rounded down)
The advertising campaign roughly generated a 44% incremental profit margin, which indicates that the ad spend was effective at turning additional profits.
» Find out the mistakes to avoid when calculating profit for your Shopify store
Track Your Store's Profitability Easily
Evaluate complex ad, sales, and profit metrics in real time with intuitive charts and custom reports.
Uses cohort analysis for detailed insight into ad performance.Analyzes and optimizes all social media, online ads, and email campaign traffic.Accessible from anywhere via mobile or desktop devices.
BeProfit can help you monitor your profit margins and discover actionable ways to improve them for all your Shopify stores, all from one dashboard.
Advertising Techniques for Maximal Incremental Profit Margins
Effective advertising can drive incremental profit margins and also increase costs and decrease margins if not targeted well or if the ROI is too low. Different ad metrics, like CTR, CPC, and CPA, can impact how much profit each campaign generates. Some techniques to try and boost profit margins include:
1. Email Marketing
Built-in email marketing tools and native apps allow Shopify store owners to create targeted campaigns and send automated emails based on customer behavior.
Email marketing can help increase incremental profit margins as follows:
By reminding customers of abandoned carts and encouraging them to complete purchasesAttracting new customers and retaining existing ones by offering exclusive promotions and discountsStrengthening customer loyalty to help boost Shopify sales
» Learn about loyalty programs for Shopify to boost sales
2. Interactive Popups
On-site pop-ups can help businesses do the following to improve incremental profit margins:
Grow their email list and help boost customer loyaltyRetarget customers with personalized experiences and maximize customer satisfactionIncrease sales with exclusive customer discounts or incentives
For example, a Shopify activewear store can use pop-ups to offer a 10% discount to those who sign up for a newsletter, as well as introduce personalized product recommendations based on customers' browsing habits.
Tip: Shopify's built-in discount code feature allows for percentage-based discounts or fixed amounts and can be offered through various channels.
3. Engage On Social Media
Social media ads can target specific demographics and interests, so using social commerce can help businesses:
Increase conversion rates, brand awareness, and reachDrive traffic to their businessImprove profit marginsEngage with customers on a more personal level
Let's say a Shopify store sells handmade jewelry. Using targeted social media ads and discount offers on those who previously interacted with the brand on Instagram and Facebook can lead to more sales and increased profit margins.
4. Upselling and Cross-selling
Suggesting complementary items, upgraded products, or product bundles to customers can improve profit margins and customer satisfaction since businesses can:
Encourage additional purchases, resulting in higher order values and increased revenueOptimize the overall shopping experience through personalization and offering relevant recommendations
For example, a Shopify store selling clothing may use upselling to suggest higher-priced items that match a customer's preferences or cross-selling to recommend accessories that complement their purchase.
5. Referral Programs
Referral programs can help boost incremental profit margins by focusing on customer acquisition and incentivizing conversions. Some benefits include:
Having existing customers refer their friends and family, therefore lowering acquisition costsBuilding customer loyalty and engagement since customers who participate in the program may feel more invested in the brandHelping improve customer retention
For example, a Shopify store selling subscription-based meal kits may offer a discount on the next order to both the referring customer and the new customer they referred.
» Want to know more? Check out the ultimate guide to effective e-commerce ads
Leverage Advertising to Improve Your Incremental Profit Margins
Making the most of Shopify's built-in tools and combining them with simple advertising techniques, like economical acquisitions, incentives, and social media interaction, can help up your sales and incremental profit margins.
And monitoring your ad performance can help sustain your positive profit margins. BeProfit offers powerful profit-tracking and can easily integrate with multiple Shopify stores. Staying on top of your data can help you find advertising areas that need reworking so you won't have profits lower than your ad spend.
Profit optimizationRevenue Analysis in E-Commerce: Benefits and DifficultiesWhether you’re an established online business or new to the space, the importance of revenue analysis cannot be understated, as it's used 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.
» Learn about the revenue vs product revenue discrepancy in GA4
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 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.
» Find out 4 ways to increase your marketing ROI with dynamic pricing
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 seeking a way to improve Amazon 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.
Profit optimizationSuccessfully Increase E-commerce Store Revenue With Customer DiscountsDid you know that 92% of US shoppers search for promotions or coupons before shopping online? It can be a powerful way to improve retention. Businesses can leverage this in numerous ways, such as product-specific discounts, free shipping, or rewards. With the right strategies, you can boost customer satisfaction and improve revenue and profits.
How Can Discounts Improve Revenue?
Discounts can help increase sales by reassuring customers that they are saving and products are within their budget.
Abandoned Cart Discounts
Baymard research shows that 48% of customers abandon their carts because of high additional costs, like shipping and taxes. Offering a free shipping discount can help recover abandoned carts and improve your revenue and profit by increasing conversion rates and average order value (AOV).
For example, a business that offers free shipping on orders over $50 can encourage customers to add items to their cart to meet the free shipping threshold, as well as complete their purchases.
Seasonal Discounts
These are offered at certain times of the year, such as holidays. Seasonal discounts can be powerful tools to help businesses increase profit margins and sales by attracting new customers, boosting sales, and clearing out seasonal inventory.
For example, a clothing retailer offering 40% off all winter jackets in February boosts sales and clears inventory by the end of the season, while also attracting customers looking for winter clothing sales.
Businesses can leverage their customers' shopping habits and seasonal festivities for higher AOVs and profits.
» Stuck on marketing? Learn how to increase your marketing ROI with dynamic pricing
Referral or Subscription Discounts
This strategy encourages customers to make repeat purchases or refer new customers to your business, which can lead to increased sales and profits. With 48% of customers saying that exclusive offers would make them purchase items sooner, businesses can utilize personalized and targeted discounts to help convert them.
For example, a meal delivery service that offers discounts based on past purchases to customers who refer a friend can help drive repeat purchases from existing customers while also gaining new customers.
Minimum Spend Discounts
This discount is awarded when a customer meets a certain minimum spend threshold. This type of discount encourages customers to add items to their cart and increase their AOV to receive discounts.
For example, a cosmetics retailer that offers a $10 discount on orders over $50 can encourage customers to purchase more products to meet the minimum spend threshold.
This strategy helps businesses increase sales and profits by increasing AOV. Similarly, discounts for higher quantities are also an option, where customers can enjoy price cuts if they buy in bulk.
Returning Customer Discounts
These discounts can form part of loyalty programs and usually offer percentages or flat rate discounts. The purpose of these is to encourage repeat purchases, increase customer loyalty, and ultimately boost sales and profits.
For example, an online bookstore that offers a 10% discount to customers who have already made a purchase may encourage those customers to come back and buy more, which can increase retention and lower acquisition costs.
Related Product Discounts
This can be done by suggesting similar products of interest or cross-selling products. Highlighting a discount this way can help encourage large purchases since customers can feel you understand their interests and that they're getting higher value for money.
For example, a technology retailer offering discounts on related items bought together, like a laptop, mouse, and laptop bag, can encourage customers to make multiple purchases at once, increasing total order value and revenue.
Take Action With Real-Time Insights
BeProfit offers an intuitive platform to help you monitor your sales data, profits, and revenue metrics.
Uses auto-matching and manual tagging to track revenue metrics and cost per order.Provides an aggregated view of business performance by connecting all shops.Accessible on mobile and desktop devices for easy collaboration with teammates.
Some Tips For An Effective Discount Strategy
Research shows how effective discount strategies can also improve retention and loyalty, stating that 39% of customers are more likely to return for repeat purchases after using discounts. However, ineffective discounting can imply poor value and lead to lower profits and higher cart abandonment rates. Some tips include:
Ensure profitability - Too many or too frequent discounts can reduce profit margins and revenue, so limiting promotional discounts to certain periods or items is suggested.Monitor the market - This can ensure that businesses' rebate strategies remain competitive and relevant. For example, a retailer offering 20% discount during a big sales event when a direct competitor is offering 30% may not be effective.Make sure discounts aren't too frequent - If discounts are frequent, customers will expect them all the time, which can lead to lower perceived value and even cause customer loss when discounts aren't available. Ultimately, this can hamper revenue and profits.Choose discount types strategically - Discount types should match businesses' overall goals and customer preferences. For example, if a business wants to increase AOV, minimum order discounts may be a good option. Discounts for repeat customers can be useful if a business wants to optimize retention.
» Find out how to track revenue like the e-commerce giants with trade secrets
Boost Revenue With Strategic Discounts
By choosing discount types carefully, businesses can encourage customers to purchase more and encourage repeat purchases. This can not only help lower customer acquisition costs but also improve revenues and profitability. And choosing these strategies comes down to efficient performance monitoring. Tools like BeProfit help businesses with an all-in-one dashboard to track profits and monitor real-time sales data. This way, your discount strategies can be data-driven for improved results.
Profit optimizationBest Products to Sell Online in 2022 for Big Profit MarginsIn 2020, more than two billion people bought something online. So, there’s a massive market of potential customers. Though, what products are most profitable to sell?
Your product choices will depend primarily on whether you plan to sell locally or internationally, among other things. If your target audience is local, the top product to sell online will possibly not be the same as what’s trending globally. If you’re wondering what to sell online, here are some niche products for 2022 and other items to sell for profit.
Is Selling Online Profitable?
There are many high markup products to sell online. So, finding items with a high profit margin for businesses to sell is not necessarily the challenge. The trick is to see which products your target audience will like in order to personalize the customer experience. If you crack this code, you can definitely make money online.
How much money?
Well, that depends on several factors, including the type of product you sell, how good you are at marketing it, and how dedicated you are to making sales.
To gain greater insight into how much an online store is likely to make, see our performing product profit analysis for an online store guide to learn more.
Which Products Have the Highest Profit Margins?
According to Shopify, a good margin for selling online products is around 45%, and according to Insider Monkey, the software industry was the most profitable in 2021.
Alongside software, these winning products are also highly profitable:
Jewelry Beauty products Kids' toysWomen’s and men’s apparelDesigner sunglassesEco-friendly products
What Are the Low-Cost High-Profit Products?
On the other hand, products with low margins can also be lucrative products to sell. While hygiene products are inexpensive to produce, there’s almost a daily recurring demand for them, which makes them some of the best consumable products to sell.
On the one hand, offering lower-priced items can attract more buyers, help you stand out from your competition, and make your products available to a wider audience. However, there are also some disadvantages to selling low-cost items. For one, product margins are significantly less. Consequently, you’ll need to sell more products in order to make the same amount of money.
It’s not all bad, though.
To help attain the highest profit margins possible from low-cost items, tracking business expenses is a must. See our guide to optimizing online profit by tracking product expenses to learn more. It's also essential to understand the difference between gross profit and gross margin.
What E-Commerce Products Are Trending in 2022?
In 2021, some of the best things to sell online for profit include activewear, hair accessories, phone cases, and phone tripods. Some of the best consumable products to sell include pet food, quality tea, and craft drinks.
With more people focusing on their health and the environment, you can expect that reusable water bottles will be in demand in 2022. According to Grand View Research, the global reusable water bottle market size is expected to grow at a CAGR (compound annual growth rate) of 4% until 2028. It’s also one of the best products to sell on Shopify.
Grinders, drills, and other power tools commonly needed for home improvement projects are also good products to sell online in 2022. In fact, according to Global Market Insights, it’s expected to generate $1 trillion in sales by 2027.
Which Products Are in High Demand Right Now?
So what products are currently flying off the shelves? Taking a look at the most recent product trends, the following items are being purchased at a high rate:
Pet accessories:
Pet carriesCBD productsDog toothpasteCat treatsPet beds
Lifestyle products:
Decorative drink bottlesBags and totesGardening supplies
Health products:
SupplementsGym equipment and accessoriesTrainers and sports-specific shoes
What Online Services Are in High Demand?
If you’re not searching for just items to sell for profit, you can offer a wide range of online services. Print-on-demand, graphic design, website development, social media management, and app development are just a few of the other things to sell with a high profit margin.
How to Increase Your Profit Margin
There are many things that you can do in order to increase your profit margin while selling online. One of the simplest and most effective ways to do this is by improving your product selection. When you offer a wide variety of quality products, you make it easier for customers to find what they're looking for, and this increases the likelihood that they will make a purchase from your store.
You can also improve your profit margin by increasing your prices. While this may seem like an unpopular suggestion, it's important to remember that customers are often willing to pay more for quality products. By increasing your prices, you can ensure that you're making a healthy profit on each sale.
Finally, check out our guide on how to increase profit margins in e-commerce, where we break down how this can be achieved in more detail.
Profit optimizationCustomer Profitability Analysis: Benefits, Formula, and Step-By-Step GuideCustomer profitability is the difference between the gross profit margin earned on a customer and the cost incurred to acquire them. Most businesses determine customer profitability with the help of a cost and profitability analysis.
This analysis helps prioritize clients, services, and marketing campaigns in order to increase profitability. It considers the costs of servicing each customer and the profits made by maintaining that client. The analysis measures the profitability of new customers versus existing and retained customers.
Step-By-Step Guide to Customer Profitability Analysis
1. Determine Cost of Servicing Customers
A good place to start a customer profitability analysis is by determining the expenses incurred by obtaining and retaining your customers. These costs include:
MarketingCustomer supportStaff wagesTransit and shippingWarehousingTaxes
Once you’ve determined what each customer is costing you, it’s time to designate them into separate groups.
2. Segment Your Customers
Segmenting customers based on their profitability to a business is important to a customer profitability analysis because it allows for the identification of high-profit customers. This information can be used to ascertain what customer segments are worth targeting, how much they are worth, and what they are most likely to buy from you.
There is no definitive way to do this, but you could determine the groups by profit ranges that you define as "worth it" and "not worth it."
3. Track Your Data
Now onto the most important part of any analysis, data tracking. Data tracking is the only way to accurately and consistently quantify outcomes, such as those represented by metrics like ROI (return on investment) and TCO (total cost of ownership).
Customer profitability analyses also help to forecast what will happen in the future. Data can be used to see how customers are behaving now and predict what they will do in the future, which can help a business determine which products they need to focus on and where they need to provide better service.
» Discover how you can increase your profit margin in e-commerce
Advantages of Customer Profitability Analysis
A customer profitability analysis offers businesses substantial advantages. This type of analysis helps:
Optimize customer acquisition strategiesFind new customers with the maximum potential profitIdentify customers that are not profitableReduce customer churn and increase customer retentionCreate segmented customer lists
How to Calculate Customer Profitability
The product profitability calculation looks like this:
Total profit per customer = (total generated revenue) - (total incurred costs)
In a real-life profitability analysis example, the formula looks like this:
Customer A places an order totaling $450, but the cost incurred to the business to entice them to make these purchases was $300. Therefore, the total profit generated from customer A stands at $150.
Customer B places an order totaling $300, but the cost of enticing the purchases they made was only $50. That makes the total profit for customer B $250
Even though the revenue attained from customer A was $450, which was $150 more than customer B, they were not the more profitable customer. The cheaper cost of acquiring customer B made them $100 more profitable than customer A, even though the total order amount was less.
We suggest that you read more about the mistakes to avoid when calculating profitability to ensure that your figure is accurate.
How to Benefit From a Customer Profit Analysis
The data generated by a customer profitability analysis can be used to optimize marketing and sales activities by determining which customers are profitable and which should be prioritized. Once customer profitability has been assessed, it's possible to determine if one customer segment is more profitable than another, or if a certain group of customers has a higher profit margin than expected.
The insights gained from this type of analysis are also perfect for creating marketing strategies that will boost a business’s overall profitability. This may include the following methods:
Customer segmentation strategies
Implementing a customer segmentation strategy to identify consumer groups with maximum profit potential and create a targeted marketing campaign for these segments.
Building brand loyalty
Increasing the number of customers who buy goods at full price by building brand loyalty among shoppers will entice them to become regular shoppers and spenders, increasing the total long-term revenue without spending more on acquiring new customers.
Using discounts sparingly
Discounts can be a great way to acquire new customers or hold on to existing ones but can undermine profits if used too frequently.
If you’re serious about determining the profitability of your customers, use the BeProfit app to easily conduct various profit analyses.
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%.
Profit optimizationEffective Cost Leadership Strategies (With Examples)Business strategy is a critical but subtle aspect of a company's business. The strategy defines a company's long-term goals and should be based on detailed research of its industry niche and the company itself. A well-developed business strategy should be stable enough to be used as a foundation for crucial decisions and should be flexible enough to adapt to emerging changes.
What Is a Cost Leadership Strategy?
Cost leadership is a business-level strategy that aims to establish a company or business as the lowest-cost producer in its industry. This can be accomplished by cutting costs in all areas of operations including:
WagesMarketingProduct developmentBusiness operationsMaterialsTransportation
This approach allows companies to establish an advantage over their competition, which often leads to increases in revenue and overall profit growth.
Additionally, there is also an integrated cost leadership and differentiation strategy, which involves a company selling low-cost, unique products that you can't get elsewhere. A great example of this would be IKEA.
» Optimizing your marketing? Find out how remarketing and retargeting differ
Examples of the Best Cost Leadership Strategies
In a variety of different industries, there are commonalities between companies that have implemented successful cost leadership strategies. With this in mind, know that you can apply the lessons learned from these businesses in order to boost your own successes.
Here’s a look at the best cost leadership strategies commonly implemented:
Bargaining power
Securing low product and manufacturing costs with suppliers will drive down operating costs and improve your fulfillment process. To achieve this, shop around and use the competition between suppliers to your advantage. Compare competitor pricing strategies, approach separate suppliers, and use your bargaining skills to secure the lowest product prices and increase your overall profit margins.Automation
Finding and rectifying inefficiencies and implementing automation and technology to increase productivity and reduce costs. Recurring tasks like data reporting, email marketing, applicant screening during hiring, and many more are all business processes that can be easily automated.Replicable products and services
Offer products or services that are standardized, easy to reproduce, and simple to deliver to customers.Scale operations
Increase profit through economies of scale, where more units produced means lower unit costs.Pricing
Cost leaders often evolve into price leaders as well because of the low prices they can offer their customers.
Pros and Cons of Cost Leadership Strategies
Pros:
Dominate the competition
If a sustainable cost leadership strategy is achieved, a business has the potential to dominate its industry by outperforming its competition through low operating costs, low product and service prices, and high-profit margins.Boost brand reputation
A well-planned cost leadership strategy allows the firm to build its reputation rapidly, which quickly creates demand for the items and services and boosts product profitability.Increase profit
High-profit margins, good market reputation, and low operating costs can significantly improve business stability and boost overall success.
Cons:
Compromised quality of service
A cost leadership strategy may force a company to cut corners and compromise quality in order to keep costs down.Risk inflexibility
A company that's cost-focused has likely minimized all of the costs along the entirety of its supply chain including procurement, logistics, warehousing, and manufacturing. And this can create complications as high-efficiency companies tend to be quite inflexible by nature.
» Discover how to reduce your cost of goods sold (COGS)
Who Benefits the Most From Cost Leadership Business-Level Strategies?
Businesses across the board all benefit from cutting operation costs. But when it comes to cost leadership business-level strategies, who benefits the most?
Small businesses can benefit from cost leadership strategies in a lot of ways. It is quite easy for a small business to gain a competitive advantage through cost leadership strategies as it isn’t that difficult to change, adapt, or rework its business endeavors. Small businesses are quite flexible and can take advantage of market changes, fluctuations, and demand by trying strategies like dynamic pricing.
Not to be left out, large businesses or companies can also benefit from cost leadership strategies. Cost leadership strategies work really well for firms that offer a product or service that can be standardized, is widely available, and is easy to manufacture en masse—something a large business is adept at.
» Want to know trade secrets? Learn how to track revenue like the e-commerce giants
Is a Cost Leadership Strategy Worth It for a Small Business?
Cost leadership is a very powerful strategy, but it's not for every business. Not every business is capable of achieving the advantages of this strategy as it requires a lot of factors to be aligned. One of the most important factors is product differentiation.
If you want to implement a cost leadership strategy, you need to be able to deliver a product or service that is better than the competition. That way you can provide a better quality product for a lower price and still make a profit. Tracking your revenue and profit with platforms like BeProfit's is a great way to monitor your expenses, so you can use these metrics to improve your cost leadership strategy.
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 49% 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.