Irrespective of whether you’re selling earphones, books, or bubble gum, customers tend not to be too pleased when you increase your prices. But to keep your ecommerce business afloat, you need to make a profit. So, how do you find a balance between making more profit and keeping your prices competitive?
In this article, I’ll share three top tips for generating more profit without increasing your prices.
1. Analyze your customer data
Analyzing your customer data can help you sell more of your products by determining which customers are buying a lot from you – and which customers you may be missing the mark on. Once you’ve identified the customers who are most loyal to you, you can investigate what’s working with them so you can replicate this with other customers.
By broadening your customer base and expanding into new markets, you can generate more profit without raising your prices. As Tim Murphy writes for Tech Target:
“The goal of customer analytics is to create a single, accurate view of an organization’s customer base, which can inform decisions about how to best acquire and retain future customers. It can also identify high-value customers and suggest proactive ways to interact with them.”
A good place to start when analyzing customer data is to compare your best and worst performing customers. This doesn’t necessarily mean you investigate individual customers, which you are unlikely to do with a big online store, but it can mean analyzing the demographics and different regions in which your customers are based.
For example, if you notice that a large number of your customers are on the West Coast but very few on the East Coast, you may want to investigate your marketing channels and see whether you are advertising sufficiently on the East Coast or whether you perhaps offer better online support on the West Coast.
Customer metrics to analyze
Some metrics worth considering include:
- Growth in sales for certain regions or demographics: investigate why these sales grew so you can replicate elsewhere.
- Outliers: identifying these can prevent you from having false expectations in terms of customer behavior.
- Unique customers: determine how your customers are spread out and how you can replicate success across different regions or markets; and
- Customer dependency: figure out if you are dependent on specific customers and how you can make your base broader so that you don’t suffer if these few sticky customers stop buying from you.
This can help with marketing decisions as well as considerations in terms of expanding your product offering.
How do you conduct this analysis?
By using the data, you have in Stripe, Shopify, Square, or your accounting software, you can begin to understand your customers’ spending habits, the customers who are the biggest movers or shakers, and customers who are receiving excessive discounts or refunds (more on this later).
To add another layer of complexity, you can use software such as Syft Analytics to quickly identify significant customer metrics such as the number of distinct purchases, the average revenue per sales, growth in sales, and growth in revenue, while examining how different customers compare to each other. And you can drill down into the details of each customer’s purchases to uncover every invoice, purchase, and refund relating to them.
Additionally, it may be constructive to use marketing and CRM tools, such as Google Analytics or Hotjar, to assess the web and social media activity of your customers, their interactions with customer service, and their response to advertisements.
Once you’ve analyzed your data, you can start investigating how you achieved your results, so you can start making the data driven business decisions needed to take your sales to the next level.
2. Analyze your product data
Another way in which you can generate more profit without increasing your prices is by making more profitable sales. This sounds simple in theory, but in practice, it’s a bit more complicated than you may think. To do this, you need to establish which products make you the most profit and then work to sell more of those products.
Next, it’s worth reviewing the cost of those products so you can assess whether there are ways in which you can reduce costs or become more cost-effective. You may consider looking into different suppliers for instance, to see if other suppliers can offer you a better deal.
It’s also important to establish which products are selling the most and whether you have any product dependencies. Will your ecommerce store still be profitable if you run out of stock of your most popular protein powder? If not, then perhaps you should consider other complementary products that might sell well to the same target market.
Equally, you want to ensure that you aren’t overly reliant on a handful of suppliers, or you could run into major issues, as was the case with the baby formula shortage earlier this year.
Product metrics to analyze
Here are a few examples of metrics that it’s useful to analyze:
- Quantity sold compared to product gross profit (which is sales – direct cost of sales of the product): this analysis helps you to identify popular and profitable products. This allows you to focus on identifying low performing products so that you can determine whether it’s worth discontinuing the sale of these products or finding ways to improve the sales or profitability of these items.
- Quantity sold: this analysis helps you establish how certain products’ sales are growing and whether this is related to certain marketing campaigns or a new sales team, for example. You can then try to replicate your marketing and sales tactics for other products that are currently less profitable.
- Quantity sold compared to net revenue: this is useful when it comes to assessing whether you are making money on each product and which of your products is the most profitable.
How do you conduct this analysis?
Once again, you can use ecommerce software to dive into your numbers and then use tools like Syft to analyze your sales by product. For instance, in Syft, you can identify the quantity sold, unique customers who have purchased this product, net revenue per product, tax, discounts, purchase cost, gross profit, growth in quantity sold, and growth in revenue and you can monitor these figures across multiple periods.
Additionally, you can use Google Ads or Facebook Ads to review the different products your advertisements have focused on and then determine which adverts worked effectively and which products may have been neglected.
Pro tip: make your products “sticky”
Put simply, a “sticky” product is one that builds a stronger bond with a customer over time, motivating them to use your products more frequently and make further purchases.
A sticky product offers the following benefits:
- It’s quick and easy to determine the product’s value (whether that be in advertisements or from sales calls);
- It solves a problem or answers a need that people often have; and
- It creates habits that keep your customers hooked.
When analyzing your products, you should be able to identify sticky products and then you can look into the way in which you market and sell these so you can rinse and repeat with other products.
3. Investigate discounts and returns
While analyzing discounts and returns will not immediately translate into improved profitability, this is a vital part of the process as these serve as early warning signs of sales issues. Being aware of issues with products or customer support can help you protect your profit and avoid churn (i.e. the loss of existing customers).
Pro tip: You want to keep your existing customers happy as they may well become repeat customers and it’s easier to sell products to an existing customer than it is to acquire new customers.
A high number of discounts, returns, or refunds could indicate a number of things, such as:
- Defective or otherwise poor-quality products; or
- Overpriced products.
If your products are defective or of poor quality, you may consider changing suppliers to find better quality products to sell. Similarly, you may consider finding a less expensive supplier if your products are too expensive to be appealing.
It may seem counterintuitive to decrease prices to make more profit, but this can be a fruitful tactic in certain instances. For instance, say you decrease your profit per product from 15% to 5%. This looks like it will result in a loss, at first glance. However, if this results in you selling more of these products, then the profit you make overall will be greater than it would be if you only sold a few products at the higher price.
No matter what your ecommerce business sells, you want to be able to make more profit and it would be great if you could do so without increasing prices and upsetting budget-conscious customers or prospective customers.
By analyzing your customer and product data and investigating unusual numbers of discounts and returns, you can increase your profit, retain customers, and grow your business without charging a cent more. Using software like Syft can help you to maximize your profits, reduce costs, and pinpoint where to focus your marketing and sales efforts the most.
Ultimately, the decisions that you make in your business cannot rely on gut instinct alone. With so much data available, it would be a missed opportunity not to make the most of it.