Profit margins can vary widely, especially among online retailers. Some businesses are seeing margins as low as 0.5% to 4.5%, and some of the most efficient is making nearly six times as much.
Any business will find it hard to grow without the cash flow to invest in new products, staff, and resources. Some of the most successful e-commerce businesses may have a profit margin of around 20% — double the average. With that kind of margin, you can do a lot more with the money you already make. This efficiency can open a lot of opportunities, helping you reach new markets and grow your customer base more quickly.
These five techniques will allow you to grow your online business’s profit margins and see a bigger return on investment across your company’s e-commerce operations:
1. Increase Your Average Order Size
Higher average order size can improve profit margins by driving up average order value without increasing expenses — like the cost of shipping per order or the cost to acquire a new sale.
You can boost the value of your average orders by promoting relevant offerings and deals, helping customers find products they may have missed while filling up their cart. For example, when patrons are checking out, serve them links to relevant add-ons and value-adds. These can be insurance policies, warranties, accessories, and products that other users with similar orders bought.
You may also invest in a recommendations engine that offers links to related products when a customer is looking at a specific product page, or when they add an item to their cart.
Offering free shipping at a certain order value threshold can also encourage larger orders — but it may cut into the shipping costs you saved by driving up order sizes.
2. Focus on Your Return Customers
For most online businesses, return customers make up the foundation of their income. According to data from Adobe, repeat shoppers generate 41% of a retailer’s revenue on average, despite making up just 8% of the total number of customers.
You can use certain strategies to encourage repeat shoppers. Retargeting, customer loyalty programs, and personalized marketing — like targeted emails that highlight discounts, deals, and product updates — help you encourage customers to keep coming back. High-quality customer service can also go a long way. Satisfied patrons often return and might be better at recalling your brand later on. Shoppers who remember you may recommend your company to their friends and families, helping you acquire additional customers with little extra spending.
3. Offer Personalization and Customization
Small differences in packaging, product design, and branding can make a big difference in profit margins over time.
Customized packaging, for example, can be a valuable opportunity to improve brand awareness and provide a better customer experience. Packaging made with your chosen materials and your logo printed on top can help your brand stick in customers’ minds. If they like your product, they may be more likely to remember your brand and come back for another purchase the next time they need something you offer.
This effort may help you bring in more return customers — especially if you’re already following the advice from the last list item — and grow your profit margin over time.
4. Optimize for Customer Experience
Whenever your customers interact with your brand, you want to make sure they have the best experience possible. Customer experience can significantly impact spending. According to research from American Express, consumers in the U.S. are willing to spend 17% more on average for good customer service. At the same time, 52% will ditch a transaction due to bad service.
There are many small tweaks you can make to your online presence, sales funnel and customer service operations to improve customer experience.
Fast page speeds can also speak to your site’s professionalism and trustworthiness, making it easier for customers to trust your brand.
A clear sales funnel and web design that makes essential information easy to access — with pages like contact information, hours, and FAQs easy to reach from anywhere on your site — can also provide significantly enhanced customer experiences.
5. Audit Your Operating Expenses
A cost audit may be a tedious process, but having a full, organized list of your business’s operating expenses can be extraordinarily valuable in helping you figure out which costs provide value to your business. You might break down your marketing budget to see which campaigns have yielded the most return on investment. Doing this can help you find better data on why some campaigns work better than others for your company.
You may also catch overlooked expenses and find opportunities to make your business’s shipping or fulfillment operations even more efficient.
Getting the Most Profit From Your Business’s Budget
Without cash, you’ll have a hard time growing your business. Boosting your profit margin will help you make more money without a significant increase in your company’s budget, which helps you make the most of the capital you already have on hand.
Simple practices — like product personalization, customer experience optimization, and cost auditing — can go a long way in making your spending more efficient. Over time, your growth in profits will help you keep your business competitive.
Lexie is a digital nomad and graphic designer. If she’s not traveling to various parts of the country, you can find her at the local flea markets or hiking with her goldendoodle. Check out her design blog, Design Roast, and connect with her on Twitter @lexieludesigner.