A Margin Play to Improve Margins for an eCommerce Brand

A Margin Play to Improve Margins for an eCommerce Brand

Introduction

In the competitive world of eCommerce, maintaining healthy profit margins can be a challenge, especially when dealing with rising acquisition costs. Whether you're already at a comfortable profit level or striving to improve your margins, finding ways to optimise your costs without compromising on growth is crucial. In this blog, we'll explore various strategies to enhance your profit margins, providing specific examples from diverse industries to inspire actionable steps for your business.

Our Challenge: A Small DTC Retailer Didn’t Believe Their Business Could Ever Run at a 20% Profit Margin

We showed them what’s possible within a very short time frame without affecting revenue. That being said, we’ll also explore strategies for the long term.

Strategy 1: Increase Efficiency in Paid Channels

Example: Small DTC Retailer

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Not all revenue is equal; some products have better margins than others. Allbirds found that by analyzing the profitability of individual products, they could identify high-margin items and allocate more budget to promoting those.

Actionable Tip:

• Label Products in Your Feed: Use custom labels to categorize products by margin to identify which items contribute the most to your bottom line.
• Targeted Advertising: Run search ads or dynamic search ads (DSA) focused exclusively on high-margin products, allowing for more aggressive bidding strategies without jeopardizing overall profitability.

Cross-Sell Strategically: Be aware of cross-selling opportunities, where customers might buy lower-margin products alongside higher-margin ones, and use that data to inform future product promotions. If this client was bigger we might explore importing profit data with the help of Profit Metrics.

Strategy 2: Leverage Owned Channels for Higher Margins

Example: Glossier

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Glossier successfully leveraged their email marketing to increase repeat purchases without heavy discounting. By utilizing segmentation and personalized content, such as skincare tips tailored to individual customer needs, they boosted their email revenue by 25%. 

Although we specialize in Google Advertising we are not blind to the fact that each channel has it’s own pros and cons. We have a network of freelancers/agencies we can refer you to and we’ll always consult you on the what works best for your brand even if it’s not Google Ads. 

We’ve seen great success with Email Quizes from Octane AI which is a great way to collect emails from non purchasers without giving first order discounts (which eats into margin). 

Actionable Tip:

• Enhance Email Campaigns: Invest in robust email marketing platforms to automate personalized campaigns and segment audiences based on behaviors and preferences.
• Utilize SMS Marketing: Consider adding SMS marketing to your strategy, allowing for real-time engagement and promotions that can enhance customer loyalty.
• Build Value-Driven Content: Focus on creating content that resonates with your audience, such as educational articles, how-to guides, or quizes, which can drive engagement and repeat purchases without the need for discounts.
• Octane AI

Strategy 3: Improve Repeat Order Rate and Order Frequency

Example: BarkBox

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BarkBox increased their margins by focusing on customer retention through a loyalty program that rewarded customers for sticking with their subscription. This strategy not only improved customer lifetime value (CLTV) but also reduced churn, leading to a 12% increase in profit margins.

Actionable Tip:

• Implement Loyalty Programs: Create tiered loyalty programs that reward customers for their repeat purchases, encouraging higher spending over time.
• Personalize Customer Interactions: Use customer data to personalize interactions and communications, reinforcing the value of their continued loyalty.
• Analyze Churn Factors: Regularly assess why customers leave, and address these pain points to improve retention rates. Even a small increase in customer retention can lead to significant profit increases.

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Strategy 4: Optimize Your Product Mix

Example: Warby Parker

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Warby Parker introduced higher-end products alongside their regular offerings. By successfully upselling premium frames and lens options, they increased their average order value (AOV) by 20%, positively impacting their overall margins.

Actionable Tip:

• Diversify Product Offerings: Introduce higher-priced products or premium versions of existing items, especially during product launches or seasonal promotions.
• Bundle Products: Create bundles that combine lower-margin items with higher-margin products, providing customers with a perceived value while improving overall profitability.
• Customer Feedback: Regularly seek customer feedback on product offerings to identify opportunities for premium products that resonate with your target audience.

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Strategy 5: Leverage Third-Party Logistics (3PL) to Reduce Overheads

Example: Gymshark

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Gymshark faced challenges managing logistics in-house as they rapidly grew. In 2017, they partnered with a 3PL provider to outsource their warehousing and order fulfillment, allowing them to streamline operations, reduce costs, and scale efficiently.

The Impact:

1. Cost Reduction: Outsourcing logistics helped Gymshark avoid high fixed costs associated with maintaining their own distribution centers, freeing up capital for product innovation and marketing.
2. Scalability: The 3PL provider enabled Gymshark to efficiently handle peak order volumes during high-demand periods without significant infrastructure investments.
3. Improved Margins: After integrating a 3PL, Gymshark reported a 40% year-over-year increase in profits, even as they expanded into over 150 countries.
4. Enhanced Customer Experience: The partnership led to faster, more reliable deliveries, improving customer satisfaction and loyalty, which further enhanced profitability.

Actionable Tip:
Evaluate your current logistics model. If you're managing everything in-house, consider partnering with a 3PL to reduce operational costs and improve scalability. This strategy can help you grow faster while maintaining healthy margins, especially if you're expanding into new regions or facing seasonal spikes in demand.

These strategies, when applied together, can significantly impact your bottom line. By taking a holistic approach and continuously optimizing, you can achieve higher margins while scaling your eCommerce brand, just as these leading companies have done.

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