In e-commerce, you don’t have to pay the $83 per square foot in rent, or for the lights and payroll, not to mention the chaotic fees when a pipe bursts in the bathroom or if the fire extinguishers slip out of code. But that doesn’t mean profit margins are automatically higher. There are still fees from shipping, websites and logistics that aren’t as intense for brick and mortars, not to mention the increased pressure on marketing.
E-commerce retail is still retail, and not the magical goose with the golden eggs. It’s captured just over 12% of retail sales as of this year. That’s rising at about one point per year. And major e-commerce retailers like Amazon are now opening brick and mortar locations to exercise the best of both worlds. If you’re trying to keep your e-commerce operations healthy and thriving, it’s going to take some work. Here are a few strategies that are working to keep the profit margins worth your while.
Simplify An Existing Product And Pass Along The Savings
Sometimes a popular product with an established market simply needs an update. There are already lots of tech companies selling home security systems online, but every year the IoT gets more advanced, creating room for simpler and less expensive designs.
“Our investors responded because we simplified the conventional home security system to make it more affordable,” says Maximus Yaney, CEO of Kangaroo. He says the company works on a decentralized system, powered by wifi instead of relying on a central hub. Fewer parts means savings to the consumer, which is part of their marketing angle. “Technological innovation has led directly to greater market reach,” Yaney adds.
“We’re getting to people who normally wouldn’t be in the market for a home security system, because they would’ve considered it too expensive.” Don’t forget that price point can be a powerful differentiator, and can open your brand to a customer base for whom your competitors aren’t competing.
Trim Your Marketing To Be Leaner, Meaner And More Focused
Dealing in inexpensive products often means low profit margins. To increase profits, you need to get creative. Tagpop, the e-commerce world’s answer to the thrift store, had success with increasing the efficiency of their marketing efforts to offset narrow profit margins on low-cost items.
“We tested audiences on social media and used the data to target a high-converting segment of users,” says Ilan Nass, whose marketing agency Taktical Digital ran the campaign for Tagpop. He says they doubled down on the new segment of social media users, and it paid off. The company was able to increase their profits, for the same amount of marketing spend and the same $5 thrifted tees.
Give Your Customers A Break By Limiting Choices
With every new sprawling Etsy shop and busy-busy e-commerce brand, over-choice becomes more paralyzing. Limited choices can be a welcome relief in a glut of confusing options. Consider the marketing wonder-kids at Casper, who disrupted the mattress industry with only a single design available for purchase. In two short years, Casper had sold $100 million of their one mattress. Why? Because parsing through mattress options is a headache, and mattress customers obviously just want to rest.
Bonobos started off on a similar beat with a single pair of pants. Allbirds replicated this less-is-more approach with one simple shoe design. “The insight that kicked this whole journey off was, ‘Could you make a very, very simple sneaker that wasn’t adorned with branding?’” says co-founder Tim Brown. “It felt like it was very, very hard to find.” By limiting options to a few colors, in simple, unbranded designs, Allbirds is replicating the pattern set by successful brands like Casper.
Success in e-commerce isn’t all about finding the next fidget spinner, or trying to outsmart heavyweight Amazon. A healthy business operation is lean, focused, and uses simplicity to its advantage. These examples prove that by simplifying, you can turn a decent profit even selling low ticket items, or marketing established products in competitive markets.
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