Profit margins have two components you need to get right to maximize your income: Costs, and price markup.
No matter what your niche, you have competitors. Everyone buys their goods from the same suppliers, everyone has the same risks, and everyone has similar website costs.
It’s a level playing field, like a Fussball table.
You have to tilt the table, so the ball runs in your favor.
If only it were as simple as raising your prices!
Never compete on price alone. That is a race to the bottom that nobody wins. Nobody willingly pays more than they need to. Ever.
Buyers must see your e-commerce store as superior before they will pay more.
Being different is the first step to being better. Aim your store products, photos, descriptions, and design squarely at your ideal buyer. You won’t please everyone, but the visitors who leave without making a purchase are not your target customers.
Being better means responding instantly to questions, getting feedback you can boast about and offering extras like free postage.
You may have the same ‘costs of goods sold’ item in your accounts as other sellers, but there are other costs you can reduce.
Happier customers make fewer chargebacks. When a customer hits you with a chargeback, alleging you have cheated her in some way, your merchant account will get hit for much more than the initial purchase price. The extra fees cover the card supplier’s admin costs and serve as a penalty to sellers who provide poor service.
You can ensure happier customers and fewer chargebacks by selecting drop ship suppliers carefully. Test your suppliers’ delivery options by ordering items for your own use. If you use the items you get for photographs to replace the default suppliers’ pictures, you may be able to claim the purchases as essential costs for tax purposes.
Ordering the goods you intend to sell also lets you check the quality.
Cheap suppliers may well have lower prices because they have compromised on manufacturing quality. Your customers will blame YOU for any disappointment, so never sell items you would not be happy with yourself.
Customer Acquisition Costs
No marketing = no sales, so you cannot remove marketing costs altogether.
However, tighter marketing controls can reduce your customer acquisition costs. Check your analytics for every promotion you put out. Apply split testing to your marketing: Run a campaign on three channels, ditch the channel with the worst results; add a different channel and repeat.
Never run a marketing campaign that fails to incorporate split testing. Run two versions of each post or ad and when the results come in then replace the lower-performing item with something else or change it in some way.
If your store appears higher in Google searches, you will get more visitors. Free.
Most competitors will use the default pictures supplied by the manufacturer. Don’t do that. If you use unique photos of every item in your product range, you will rank higher in Google image searches. Professional images look best, but using your phone camera with a neutral or natural background will still give you a head start on other e-commerce sites.
Increase Customer Lifetime Value
Increasing customer lifetime value will help improve your margins because customer retention costs are typically lower than customer acquisition costs.
Repeat customers are better for your business because they love you, so they tell friends about your products. One recommendation from a friend is worth many marketing campaigns.
Customers only come back if they are ecstatic about your service and products the first time. Moral – Be the best, go the extra mile and only sell goods you have bought and handled yourself.
The Short Version
Do things right from Day 1, that way you are ready for growth.
Serve your buyers the same way you would want to be served. Only stock top quality products and make your store different. Only stock goods your target profile will rave about, use unique pictures of every item you sell, and narrow your marketing until only your ideal buyers see your promotions.
Value Spectrum says
I am agreed with the cost reduction, customer acquisition, and value retentions because these all increase the margins of the company profit margins.