“Profitability is coming from productivity, efficiency, management, austerity, and the way to manage the business.” - Carlos Slim

Introduction:

Without profit, eCommerce businesses simply can't stay in business. Profit impacts whether a business can secure financing from a bank or investors and ultimately whether a business can grow. eCommerce businesses currently face challenges against profitability including inflation-triggered product costs, increasing operational costs as well as the threat of declining sales with economic uncertainty.

Next, we will provide ways you can increase your business' profitability despite these challenges.

1. MAXIMIZE PROFIT WITH PRICING STRATEGIES

It's critical to know and understand all of your costs when creating your pricing strategy. In order to accurately calculate the cost of your products, you will want to include both direct and indirect costs of the business. Direct costs are expenses that are incurred to produce the product. Examples include the cost of materials used to create a product or the shipping costs associated with the product. Indirect costs are often called overhead costs. Examples of indirect costs include rent, insurance, software and research and development expenses. The indirect costs will need to be applied to each product by allocating the indirect cost based on each product's consumption of these resources. For example, if 80% of your customer service hours are spent on helping customers with Product Y, you will allocate 80% of the customer service costs (such as their wages and software costs) to Product Y.

Once you've determined the cost per product, you will want to set your profit margin target and then the product sales price. You can determine the profit margin by looking at industry standards, product demands, and overall business goals. Your profit margin should cover all direct and indirect costs and provide a profit for the business. Once you know how much you want to make as profit for each product, you will add the cost plus the profit amount to get the per product sales price. Make sure this aligns with similar products in the marketplace. Monitor the pricing on an ongoing basis to ensure you aren't losing money on any product sales.

eCommerce can often be seasonal or have periods of higher demand. This should be factored into your pricing strategy. In the industry, this is often called dynamic pricing. It's important to monitor sales for trends so you can adjust pricing based on demand. Another helpful strategy is to run promotions during slower sales times or during a product launch to help attract new customers.

2. OPTIMIZE OPERATIONAL COSTS

One of the most important aspects to an eCommerce business is the proper management of inventory. Your inventory could be the biggest asset on your business' balance sheet. Properly managing the inventory can mean the difference between growing or declining profits. The longer the inventory sits unsold, the harder it is on your business cash flow and the more likely you are paying higher fees (such as storage fees). Ways to optimize your inventory management include using just-in-time inventory, drop shipping and other third party logistics (3PL) providers. In addition, there are several inventory management software companies that assist with inventory management. We can help you find the ideal inventory management software for your business' needs.

Another way to reduce operational costs is to find ways to automate processes. There are so many software companies out there that can help with business automation and now that AI is unfolding across the globe, there's yet another channel to help with these operational costs. Utilize our experience and expertise to let us help you find the right automation tools for your business.

Finally, there can be cost reductions available with your shipping and fulfillment costs. Don't be afraid to negotiate with your shipping carriers. If you haven't already, consider using a third-party logistics partner (3PL).3. Become an authority.

3. MAXIMIZE SALES CHANNELS

It may be beneficial to sell on multiple online marketplaces and platforms to cast a wider net of potential customers. One strategy is to utilize some of the larger and more popular marketplaces, such as Amazon, to attract customers that you can then lead over to a more profitable platform or marketplace for their future purchases. As you add sales channels, be sure to monitor profitability for each. Tracking Return on Ad Spend (ROAS) can help you determine which marketplace and platform to prioritize for advertising.

The more repeat customers and repeat purchases your business can secure, the greater your profitability. Loyal customer bases not only buy more product and more often, but they are also most likely to refer additional customers. The power of a loyal customer base is exponential. Using personalized marketing, creating rewards programs and providing top notch customer service are great ways to build a loyal customer base.

SO...

Are you ready to unlock the full potential of your eCommerce business and boost profitability? Cloud Bookkeep specializes in helping eCommerce businesses like yours achieve their financial goals.

Take the first step towards financial success by booking an online meeting with Cloud Bookkeep. Simply click the button below and schedule a time that works best for you. We look forward to helping your eCommerce business thrive!

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