top of page
Search

Lesson 1: Why it is essential to increase your Gross Profit Margin and what is it?


Best practices on how to increase your eCommerce Gross profit margin Hello there!

It’s good to see that you have stumbled upon this article. That means that you probably have your own eCommerce shop, and you are either using Nostradamus.cloud to boost your sales, or you are looking for some quality content to gain vital knowledge about running your business and actions. Here I do have to warn you – across the internet, you can find myriads of websites telling you the 10 ABSOLUTELY NECESSARY AND VITAL SECRETS ONLY WE KNOW THAT WILL GET YOUR E-COMMERCE SHOP TO THE MOON AND BEYOND IN LESS THAN TWO HOURS. I have to bring you back to earth – there are no secrets or black-magic techniques that will instantly bring you sales and fortune. Running an eCommerce shop requires patience, diligence, finding a niche, satisfying customers' needs – like in every profitable business. However, there are some techniques that can help you in developing a successful business. Now, you are looking at the free version of the eCommerce coach provided by the Nostradamus.cloud app. It will provide you with some vital information that you need to remember when running an eCommerce shop. At first, I would like to focus on gross margin, a metric that measures your profits as a share of the revenue. It simply is the amount of total revenue subtracted by the cost of your sold goods. I will present the ways to keep your gross margin in control or even to improve it significantly. Have a good read!

Table of Contents Contents:



Chapter 1: Reduce your operational costs

Every company has an ongoing expense associated with everyday maintenance and administration. Every profitably running business has its costs. Good businesses must keep track of their costs to maximize their profit. The costs subtracted from the revenue are decisive in the matters of income. Operating costs mainly include labour and payroll, utility, insurance costs, commissions, amortisation of assets and costs of the order fulfilment (inventory intake, storage and package of orders, return management, abandoned carts management etc.). In addition, we need to take the costs of shipping and advertising into account. Cutting them acutely can reduce the productivity of the company. Cutting them too mildly may cause too much capital outflow. There are times when we fail to align our own spending with our priorities. We spend too much on paid advertising in social media, neglecting the cost of customer service and allowing its quality to drop so that customers attracted by the advertising still bounce because they do not like the product or the website is unsafe or poorly designed. The opposite situation can also happen. Let's imagine that we have a great product and great people in the team who provide top customer service, but practically no one has heard of our shop and the traffic on the website is almost zero. This situation will also be disastrous for us because, in the long run, it will not provide us with a profit. Prioritisation of expenses is crucial for the development and promotion of our eCommerce company. Reduction of the costs is to keep them as low as possible and still have the ability to increase the company's sales. Simply put, reducing costs is spending less to earn more.

  • Try to estimate your revenue and your costs.

  • Identify the costs which are too extensive at your level of business

  • Try to make customers as loyal as possible as they are willing to pay more for your products

  • Avoid unnecessary capital outflows


Chapter 2: Increase Average Order Value (AOV)

Average Order Value (AOV) is the measure that tells you how much money the single customer spends on average. The higher values you reach, the better customers you have. Knowing your average order value will help you to estimate the threshold where you need to start encouraging your customers to buy more and increase average order value by adding more products to the basket, especially when the current order summary is close to the mentioned limit. To encourage your customers to do more shopping, place a counter in the shopping cart indicating how much is missing to get free delivery. Such a simple solution can be very motivating! Intro customers are more likely to leave more money at stores that offer them participation in loyalty programs. This is because they hope for additional discounts and freebies in the future. It is worth considering implementing a loyalty program. To spice up the AOV, you can also consider upselling and cross- selling. Cross-selling will increase the value of the shopping cart and increase customer satisfaction - having learned about additional products; they can purchase them right away, saving time and effort. You're encouraging your existing customers to spend more money - and it doesn't require much effort on your part. The most profitable businesses use free. DO not forget about nurturing the loyalty of existing customers – It will all increase your Average Order Value, and increasing your average order value will increase your overall revenue – easy to learn, hard to master. Try it!

  • Bundle products

  • Create a loyalty program

  • Upsell and cross-sell products where applicable

  • Reduce operating costs where applicable

  • Try to make customers as loyal as possible as they are willing to pay more for your products.


Chapter 3: Building Trust

You can have a decent, good quality product, but it will not be sufficient to gain a satisfying number of orders. People do not buy products from the people they do not trust. Building fruitful relationships with customers makes them loyal. Loyal customers come back and buy more goods. Successful eCommerce shops offer many guarantees of trust – safe websites, positive reviews, money-back guarantees, tracking of the parcels and much more. Also, remember that acquiring a new customer is much harder than gaining the loyalty of an already existing one. To strengthen existing clients' loyalty, brands and social media groups are being created, and social media influencers are hired as ambassadors. Social media ambassadors often get brand products at a substantial discount or for free in exchange for reviewing the product and recommending it to their social media followers. This method is also one of the newest and cheapest forms of marketing and brand building. Observers who are often interested in the brand generate additional traffic, building the popularity of the page and creating a social proof that tells others that your shop is a trustworthy one.

Others set up discount clubs, rewards and loyalty cards. Customers will feel appreciated and come back to your business because there is a greater chance of identifying themselves as "members” of a brand. As loyal members, they will come back, and your customer retention will grow along with your business. Ways to achieve loyalty are limitless, but they have only one goal – increase the revenue from the existing, trustworthy community. Safe and reliable customer service is the crucial way to build trust, and trust is the crucial factor in building profitable eCommerce.

  • Build an attractive loyalty program

  • Create premium products for the most loyal clients

  • Organize reciprocal discounts with other brands

  • Reward your customers

  • Hire influencers or ambassadors


Chapter 4: Raise your prices It may seem counterintuitive, but higher prices attract customers of better quality and solidify the worth of a client, making him more noticeable to the brand. High prices are often the self-proof of a business value. Showing high value is crucial to becoming trustworthy among value-based clients. Premium prices often place the business as respected in the eyes of the clients. Lastly, high prices make clients see themselves as investors, who are more confined to the shopping process because of the needs and results they are willing to pay for. High prices are often associated with premium brands and a select customer segment. This can seem unintuitive and is often misunderstood. To raise prices does not mean to raise them indefinitely by offering a product at a horrendously inflated price. Such a strategy will hardly ever work. You should not set too low a price ceiling for your products. By pricing yourself too low, customers will think that you are just another shop offering average quality products and are unlikely to have anything better to offer. Keep your prices in line with the value of the product. It is often a mistake for beginners in eCommerce to offer low prices because you are not known in the market. Such action is understandable; in some cases, it can be effective, but such a pricing strategy makes little profit. In tougher times and a more difficult economic situation, such a shop will likely fail more quickly.

Furthermore, by pricing too low, you make customers suspicious. Believe in yourself and your products, carefully analyze your competitors and the market situation. You might even consider introducing a premium segment for your products to offer something to more affluent customers and show that you are able to meet the needs of a wide range of customers.

  • Identify your best and worst selling products

  • Create a "premium" branch of your products

  • Make the customers feel special because of buying your product

Chapter 5: Make product bundles


Making product bundles is a well-known eCommerce technique. Product bundling will raise the average order value, resulting in noticeable sales rate and revenue growth. The main surplus of bundling is the release of frozen capital by mixing low selling and high selling items. This is an easy way to combine worst-and best-selling products into one, giving more circulation to the capital. Moreover, customers often see the occasion to use the bundle discount, and they are more willing to pay for the bundle than for the same products being sold as single goods. Selling packages consisting of the smallest and the best- selling product is the most common building practice. Not every product we produce is an instant bestseller, and its production does not always turn out to be a hit. Bundling is salvation for such situations. Instead of freezing capital in poorly selling products, you can push them out at a lower price or even at a cost in order to free up valuable capital to invest in something more likely to succeed. This is not the only way to establish profitable bundles. It is common to bundle products that may interest the same audience. For example, I will bundle a small bottle of another of the wines, new to the shop's range, with a well-selling wine in order to interest my regular customers who would otherwise not look at the other product. 'Buy more - pay less' packages are also created, where we offer related products at a lower price than the same two products bought separately. This "hidden promotion" encourages the customer to buy as a package because it is more advantageous. There are many possibilities, and it's up to you to create packages. Every business offers opportunities to create unique packages that will surprise and satisfy your customers. Bundling gives the sense of purpose to buying more and giving a discount at the same time. That is why it is seen as one of the most efficient eCommerce strategies.

  • Cross-sell least and best-selling products

  • Create bundles for the most loyal clients

  • Create buy-more-pay-fewer bundles

  • Try to create personalized bundles for your target audiences


Chapter 6: Analyze checkout and abandonment behaviour

Customers do abandon their carts and checkouts. A high rate of abandonment rate means that one of the sales funnel stages is not working correctly. Abandoned carts are the customers who add items to the cart to buy but eventually leave without buying. It is an important measure because it shows the rate of people who were initially satisfied and engaged in the sales process but stopped following it for unknown reasons. The reasons for abandonment are vastly varied. The proper analysis of checkouts and carts will give crucial information about the stages where the drop-offs occur. Faulty website, complicated checkout process, lack of customer security assurance. These are some of many factors that can lead to the abandonment of the cart and not closing the sale, which results in a lower conversion rate and lower revenue.


With such a wide range of issues, identifying problems can be difficult. If the problem lies with website security, investigate every aspect of the website. If you're not familiar with it, let an IT specialist handle it for you. HTTPS encryption and SSL certificates, secure ordering process, secure payment process, anti-phishing protection, secure database, password encryption. IT issues are many; it's not easy to grasp it all. If your customer finds the ordering and payment process too difficult, they won't buy anything from your shop and will leave it to your competitors. These processes should be as clear and intuitive as possible. It is best to put the form itself on one page and clearly describe each step from filling in the data to confirming the obligation to pay for the orders. The customer must know what he is doing and how much he is paying. This way, he will be sure that the whole process is safe and fair. Last but not least - do not restrict your users from buying. Today, in every shop, a non- registered user should be able to place an order. In a busy world, not everyone wants to take the time to register with yet another shop and leave their personal information there. Lack of such possibility scares off potential customers. Keeping the above things in mind will make it easier for you to gain the trust of your customers.

  • Invest in the security of your page (SSL certificates, trusted hosting)

  • Invest in secure payment systems with many forms of payment

  • Ensure integration with customer email, parcel shipping

  • Provide a clear call to action during checkout

  • Offer checkout to unregistered users


Chapter 7: Build Reliable Customer Care and Customer service

Paying attention to customer service is a must. Most of the carts are abandoned because of insufficient customer experience. Poor quality of service increases the cost of associated services (re-shipping, returns, paybacks, additional time consumed) etc. The cost of failing the customer expectations is high. It is generating additional operational costs resulting in noticeable losses in the revenue. Except for financial outcomes, the business's reputation can be damaged, and disappointed customers will choose another brand as customers quickly announce their disappointment resulting in more losses to the business. Customer service must be of the highest standard. An investment in improving the quality of service will more than pay for itself. You won't always be able to do it alone. If you feel that customer service takes up too much of your time and is too much of a chore, hire an account manager to look after your customers and help you build quality relationships with them. Customer retention can become higher as your shop grows. Customers make more complaints, claims, requests, compliments. Their activity on social media will increase. The difficulty of embracing all this, depending on the quality of your products and the quality of your business, can increase very quickly. Having said that, customers always expect a quick response to their queries. This trend has become so popular that the algorithms that govern social media consider responses that take more than a day to be unreliable and lower the visibility of your pages. Keep an eye on this. Also, let your customers speak multiple languages. Limit useless spam, but let customers speak. Both 5-star and 1-star reviews often say nothing, but 3 or 4 much more often carry an extra review, scoring what is not working well in your shop. Allow it. It's best when reviews come from all over the world. Listening to them will grow your shop quickly.

  • Hire account managers

  • Answer the customers' requests as soon as possible

  • Provide multilingual customer support

  • Leave the place for feedback from the customers

Chapter 8: Reduce customer acquisition costs are and Customer service

One of the greatest challenges for eCommerce owners is to acquire new customers. To sell something to a customer, you first need to reach them. Reaching customers is one of the most expensive costs of an eCommerce shop. It is much more expensive than retaining an existing customer, so this process needs special attention. Due to the possible multichannel nature, complexity and long duration, the costs generated for customer acquisition can outweigh the initial revenue and cause unnecessary liquidity problems for the company. To operate efficiently, we need to optimize costs. Some of the most costly areas of customer acquisition are SEO and marketing. It is necessary to optimize the website for long and short keywords placed on product pages and blog entries. In addition, we can automate marketing using marketing campaigns sent via email or purchased on social media. The purpose of this is to reach the target group and learn about its needs or, if we do not know the target group, to profile it to sell the product as effectively as possible and achieve constant profits. Costs connected with the acquisition should always be cut to the optimal level, and every insignificant and costly action should be excluded from future processes. For the company to be successful, it needs to maintain a healthy balance between customer acquisition costs and the number of customers it brings to the shop. Approximated costs should be as low as possible while maintaining the rising number of customers acquired.

  • Increase website traffic by optimising pages

  • Automate your marketing processes

  • Get to know what your target audience is like and prioritise them


Chapter 9: Sell more to current customers

The cost of acquiring a new lead is always higher than the cost of maintaining the customer who is already loyal to the brand. Building trustful and reliable relationships with the existing customers will skyrocket the circular, repeated sales, resulting in greater revenue for the business. You can go beyond your imagination, but at the same time, you need to remember about one universal, which is to surprise with gifts or discounts. The customer needs to know that he gets bonuses for his loyalty. Thus, customers will feel appreciated and will come back to your business. Here, too, a good strategy would be the cross-selling, upselling and bundling described earlier in order to build customer trust with premium packages, which will pay off in the future. Invest in your customer to have fruitful relationships and sales.

  • Offer special discounts to the most active clients

  • Boost your customer care strategy

  • Upsell and cross-sell the goods to the existing customers

  • Monitor and understand the needs and requirements of your customers







129 views1 comment
bottom of page