5 Simple Advertising Techniques to Increase Shopify Incremental Profit Margins
Updated May 4, 2023.
Shopify 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
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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 purchases
- Attracting new customers and retaining existing ones by offering exclusive promotions and discounts
- Strengthening 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 loyalty
- Retarget customers with personalized experiences and maximize customer satisfaction
- Increase 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 reach
- Drive traffic to their business
- Improve profit margins
- Engage 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 revenue
- Optimize 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 costs
- Building customer loyalty and engagement since customers who participate in the program may feel more invested in the brand
- Helping 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.
