4 Reasons Your Ecommerce Profit Margins are Shrinking
Tools & Tips
Fondue Team
November 7, 2022
Ditch the discount codes. Drive profitable growth with CashBack.
brands@getfondue.com
Brought to you in partnership with Extend, whose digitally-native solution provides a better product protection experience that is a win for both merchants and their customers
The game of online retail is a little out of balance, to say the least.
According to Statista, U.S. retail ecommerce revenue was $768 billion in 2021 — and about a third of that went to Amazon. The rest belongs to Target, Walmart, and thousands of smaller ecommerce business owners striving to keep pace.
Merchants are in a constant tug between meeting customers’ expectations as set by Amazon and keeping costs low enough to make a profit, and this is squeezing profit margins tight.
“Unfortunately, a lot of retailers out there, their stocks dropped 70-80% in a matter of a quarter or a quarter and a half,” said Rohan Shah, Extend co-founder and CRO. “The instant thought process starts to become, ‘How do we drive bottom line growth?’”
To increase ecommerce profit margins in today’s environment, you need to combine cutting costs, driving revenue, and delivering an excellent customer experience. If your strategy is solely cutting operating expenses, you’re bound to end up in a race to the bottom.
The industry experts at Extend and Fondue collaborated to determine four things that might be standing in the way of improving your ecommerce profit margins today:
There are a number of factors that drive customer acquisition, but emotion may be the most powerful. In a 2020 study, the XM Institute found that emotion in the customer experience had the greatest impact on whether consumers made a purchase and recommended the brand.
According to a still-relevant 2015 Harvard Business Review study, there are a few key emotional motivators that spur a customer to buy something. The good news? As a store owner, you don’t need to break the bank to take advantage of these drivers and encourage more purchases.
One of these motivators is “a sense of thrill.” Brands that excel here create feelings of excitement and anticipation for customers. Evolve taps into this emotion by welcoming its online store visitors with the chance to win an electric skateboard in exchange for an email address.
If even a handful of prospects opt in, the cost of acquiring those customers is the COGS (cost of goods sold) of a single skateboard. Evolve can nurture these prospects with emails afterward to nudge them toward an order.
Another motivator is “a sense of belonging.” Make people feel they’re a valued part of your company, and you’re bound to see a boost in orders. Sustainable seafood purveyor Wild Alaskan Company, for example, takes every new subscriber to a thank-you page with a three-minute video from the founder.
This simple personal touch could be just the push new customers need to shop from Wild Alaskan instead of another seafood provider.
Statista estimates that 69.8% of global online shopping carts were abandoned in 2020.
To boost your revenue and ecommerce profit margins, bring shoppers back to their carts. Two shopping cart abandonment solutions are email and social media retargeting.
Marketing automation platform Klaviyo estimates that abandoned cart emails see an open rate of 41.18%, a click rate of 9.50%, and revenue per recipient of $5.81.
Facebook and Instagram retargeting ads generally see more engagement because the user has already interacted with the brand.
Custom business pin retailer WizardPins sends a cart recovery email about an hour after the abandonment to remind the customer about their forgotten items. The next day, they send another email to let the customer know their cart will expire without immediate action — creating a sense of urgency. WizardPins also uses a Facebook retargeting ad for good measure.
Peter Morrell, Head of Growth at WizardPins, calls email “the main lever for our retention efforts.” He states that their ability to send highly relevant messages to engaged email audiences at the right time and frequency — including abandoned carts — has enabled them to boost profit margins while keeping costs low.
Combining product and shipping protection can help improve your ecommerce profit margins by increasing revenue and reducing costs. Here’s how:
First, customers feel more confident in their purchase when they know that if something happens, they’ll have a quick and easy resolution. That helps drive incremental revenue and increase conversion.
“We’ve found that Extend works like a trust badge that instills consumer confidence and drives more sales,” said Ryan Pamplin, CEO and founder of BlendJet.
Next, merchants get a percentage of the revenue from each product and shipping protection plan sold, which can help nudge your AOV even higher.
Plus, Extend reduces necessary overhead for claim intake and eliminates the need to absorb replacement or repair costs for approved claims. Merchants who sell high-value items at a high volume can see these replacement costs add up quickly.
Finally, since customers can file claims 24/7 using Extend’s automated digital chatbot, Kaley, giving valuable time back to your support teams.
Our merchant partner SoClean saw a 167% increase in revenue two weeks after optimizing our plan placements in their ecommerce platform. The popup below only appears if the customer clicks a link on SoClean’s product page.
Keep your customer experience smooth by choosing product protection providers with a hassle-free claims process. Customers who need plan support are probably already on edge, so you want to resolve their issue as quickly as possible.
Here at Extend, we adjudicate most claims online in a matter of seconds and send a voucher right away to customers approved for a replacement. The voucher drives customers back to your business, where you can customize their return experience and encourage brand loyalty.
Coupon codes are ubiquitous on the web. But too often, brands lose more money on the deal than it’s worth.
It’s the ever-present question: is it worth the margin trade-off if it increases our GMV? Does every shopper who gets a coupon code need it to convert? Is the risk of the codes leaking onto Rakuten, Honey and RetailMeNot worth it?
On top of that (but also good news): coupon codes are not necessarily key to customers converting.
Take, for example, an email marketing campaign. A shopper receives your beautiful email with compelling copy and enticing images and … a coupon code that will likely be used whether it was impactful to the purchase decision or not. Coupon codes require little to no effort so the shopper will copy and paste it even if they are not compelled by the savings opportunity.
That’s why we created CashBack.
CashBack by Fondue gives shoppers the option of claiming CashBack on the tail end of their purchase, rather than entering a coupon code ahead of time. If savings is a big driver for that shopper’s purchase, they’ll take the opportunity to claim their CashBack. And if not — you pocket the revenue you were previously losing to coupon codes. And for shoppers keen on savings and for those who love the brand, they can redeem their CashBack as site credit back to the brand (often listed at higher value than the cash option).
On average, brands see 30% more revenue and 52% fewer discounts paid out where they swap coupon codes for CashBack. Instead of discounting up front, you’re giving your shopper an incentive to return to your site later and redeem the CashBack.
Interested in learning more about how Extend and Fondue can work together to increase your ecommerce profit margins? Get in touch with the Extend and Fondue teams.
