As a store owner, or really any business owner in general, the main operational objective is to run a profitable business.
Now, for fast-growing, venture-back companies, sometimes that’s not the objective for several years, but for most small-to-medium-sized online stores, operating on zero profit is a luxury few can afford.
So how can you improve your gross profit? And, what is gross profit to begin with?
Gross profit is the amount of revenue generated minus the cost of goods sold. It’s a very simple formula;
Revenue generated – Cost of goods sold = Gross profit
In this guide, we’re going to discuss,
What’s a Good ecommerce Profit Margin?
Gross margin is the difference between revenues and the cost of goods sold, which leaves a residual margin that is used to pay for selling and administrative expenses.
Net margin is the residual earnings left after all expenses have been deducted from revenues.
A good ecommerce profit margin depends on several factors – the size of your business, the industry it’s in, your locations, it’s marketing channels, and so on.
According to a report by IbisWorld, in 2019 10 most profitable US industries generated an average margin of above 35.0% of revenue.
Online retailers saw a whopping 2.44% net margin in 2019, while general retailers with brick and mortar stores reported 4.57% net margin.
To find out what’s an average gross profit margin and net profit margin in your industry, you can check out this report.
15 Ways to Improve Your Ecommerce Profit Margins
“If your profit margins aren’t rising, chances are your company isn’t thriving.” – Doug Hall
Editor’s Note: Want a quick way to monitor the performance of your eCommerce store? Download this free Google Analytics eCommerce Sales dashboard that analyzes which factors lead to sales for your eCommerce shop.
If you’re wondering how you can improve your store’s profit margin, read on.
40 marketing experts weigh in with these top tips to improve gross profit.
- Increase your average order value
- Reduce operating costs
- Take high quality product pictures
- Up-sell and create bundles
- Track users’ checkout process
- Reward customers
- Pay special attention to customer service
- Introduce subscription services
- Launch affiliate programs
- Optimise your website
- Embrace omni-channel remote selling
- Reduce customer acquisition costs
- Utilise the Thank You page
- Reduce cart abandonment rate
- Sell more to current customers
PRO TIP: Get Useful, Actionable Data on Your Ecommerce Store’s Performance
To improve the performance of your online store, it’s vital to have access to useful and actionable data. But, with so many metrics available to track, it may be hard to determine which ones will actually help you move the needle.
That’s why we have created a concise dashboard template that only tracks the most important metrics for analyzing the core elements of your ecommerce businesses, such as:
- Transactions and orders. How many transactions does your online store process in a day, a week, or a month? How many orders, and how many were placed on the same day of the previous month?
- Sales volume and trends. See how much money has been generated from sales in the current month. Analyze daily trends to compare with your sales goals and take action to reach them.
- Website traffic trends. Track the number of new and returning visitors to your website and the number of individual sessions initiated by these users.
- Conversion to customers. See what percentage of your website visitors convert to customers.
- Revenue per customer. See how much revenue you get from each unique visitor that interacts with your store during a given time period.
- Amount per transaction. Track the average dollar amount each customer spends on a sale.
- Best-selling products. See your most popular products in terms of volume and revenue in a given period.
Now you can benefit from the experience of our Google Analytics experts, who have put together a plug-and-play Databox template showing the most important KPIs for monitoring your online store’s performance. It’s simple to implement and start using as a standalone dashboard or in ecommerce reports, and best of all, it’s free!
You can easily set it up in just a few clicks – no coding required.
To set up the dashboard, follow these 3 simple steps:
Step 1: Get the template
Step 2: Connect your Google Analytics account with Databox.
Step 3: Watch your dashboard populate in seconds.
1. Increase your average order value
One simple and effective tip for improving your store’s gross profit is, “focus on increasing your Average Order Value (AOV). This is the average dollar amount that a customer spends per transaction in your store,” said Jordan McCreery of Ingrained Media.
“When you invest your time, energy, and money on bringing the customers to your site, then your work is not over yet. In the next step, you have to find how the customer once came to your site does not return without shopping, and if they shop they do not leave without buying the maximum things.
One of the best ways to urge customers to spend more and more is to think about which products can be bought together. When the customer goes for any of those products, suggest to them other relevant products. Another way is to showcase the most profitable product in the shop window so that the more people will see the more they will buy it and it will contribute more to the bottom line of your profits. If nothing is working, then put your best sellers and upsells near to the counter of the store so that people can buy more while paying the bills,” said James Walsh of Billions in the bank.
How can you increase your average basket size?
As Buzz Carter of DotcomBlind explains, “Pushing other items at the checkout is an awesome way to push up basket size, by offering small items that are associated with the main product they have brought, you can really maximize basket value and average order value.”
Will Chin of My Wife Quit Her Job gives some tips for increasing AOV and says, “Increase Your Free Shipping Threshold: What this means is, look at how much it costs to offset your free shipping costs and add 10 – 20% more for free shipping. This will raise your average conversion value, thereby increasing gross profit.
Offer An Upsell Before Checkout: Little more self-explanatory. Use a pop-up like Privy or JustUNO to display before checkout to entice users to buy a little more before they checkout.
Bundle Your Products Instead Of Selling Them Individually: Bundle your products together into block pricing. For larger numbers of products, discount them as you go. This works better if you sell in volume (instead of high single product average order value items).”
Bruce Hogan of Software Pundit suggests adding onsite product recommendations to key pages to increase AOV. “These cross-sells will nudge some customers to add an additional item to their shopping carts. As a result, your average order value (AOV) and gross profit will increase.” Explains Hogan.
Vivian Chan of East Meets Dress talks about her own experience and how they increased their average order value. “When we first started our wedding dress business, we only offered dresses, but we’ve since expanded our collection to include groom’s outfits, accessories, wedding favors, etc. and we’ve seen our AOV increase by 30% without having to increase our marketing spend or customer acquisition costs,” said Chan.
2. Reduce operating costs
“One effective tip for improving the gross profit of your ecommerce store is to reduce operating costs.
With a centralized and efficient eCommerce management system, a business can minimize the non-essential operating costs that go into the online shopping and delivery process. An example of reducing operating costs is to move to a more vertical business model, ultimately reducing inventory costs,” said Alex McLaughlin of Digital Marketing Miami.
Greg Bernhardt of Rocket Clicks also suggests reducing your overhead and explains “It’s very easy for e-commerce stores to load up on subscription services. Often times they are left unused, unneeded, or at a paid level higher than you need. Audit your subscription costs and find savings! You can start with your host/platform.”
Authority Daily’s Alejandro Rioja believes that managing operating costs is the quickest way to increase the gross profit of your eCommerce store.
How do you effectively manage your store’s operating costs?
Rioja explains, “Dig in deep and analyze which areas take up a major chunk of your expenses. They could be labor costs, office utilities, maintenance, etc. Reduce wherever you can and increase your profit.”
3. Take high-quality product pictures
“My tip for improving the gross profits of your ecommerce store is investing in professional product photos. Great lighting (even utilizing a ring light with your cell phone) can make a huge difference in showing off your quality and nabbing that sale. When your photos start getting saved on Instagram and Pinterest, that’s where even more engagement can happen.” Explains Susannah Caviness of Tower Press.
Kristel Staci of Blogging tips agrees and adds, “If you want to improve the effectiveness of your site, one of the best ways to do so is to make sure you have high-quality pictures and detailed descriptions. With so many fly by night sites out there, the more professional your site looks, the easier it will be to gain trust from your audience.”
4. Up-sell and create bundles
“Upselling and creating bundles are a great way to increase profit for an eCommerce store because you are potentially getting more revenue per customer. Bundle deals mean selling your items in packs or sets and upselling means offering products that complement the item the person already has in their cart. It’s a great way to pay the same price for acquiring a customer but get more revenue out of each one,” said Alisha Chocha of Your Marketing People.
ClydeBank Media’s Benjamin Sweeney is of the same opinion and says, “An easy way to get more stuff out the door and more money in your pocket is through bundling. Bundling products that are related at a slightly lower cost to the customer might not give you the same gross profit you would have gotten from selling each product individually, but this approach means that you can increase your average cart value and your gross profit per transaction.”
Nate Rodriguez also believes that getting up-sells in place on your eCommerce store will undoubtedly increase the gross profit of your store. “If you’re using Shopify, there are great up-sells apps in their ecosystem that you can use to get started right away,” Rodriguez explains.
Michael Alexis shares a great example of an artist who vastly improved the gross profit of his business by selling packages. “Years ago, I interviewed an artist who had successfully multiplied his eCommerce revenue from $18,000 per year to $80,000+. His approach was switching from one-off sales to packages. The way he was able to do this was by creating a series of his work, which essentially meant three to four pieces of art that were very similar. Then, customers could buy the entire set,” said Alexis.
5. Track users’ checkout process
Tracking your user’s journey is essential.
Mazen Aloul of WebQuests says, “Measuring and tracking every step of the checkout process will lead to insights into what’s working and what’s not, especially when you break it down by device type, resolution, browser, etc. We found insights into issues that we weren’t aware of more times than we imagined with our eCommerce clients.”
6. Reward customers
“Customer loyalty and rewards programs are a surefire way to increase profit margins and improve profitability. Sephora is known for having a strong customer loyalty program. The program has over 17 million members who make up nearly 80% of the company’s sales. You can use this to upsell to existing customers rather than spend more money to acquire new ones. Once your customer feels that you focus and value them, it is guaranteed that they will be loyal to your business. This will make them buy more frequently and make a shift from low margin to a high margin sale,” said Israel Gaudette of Linktracker Pro.
David Eberst of Mustbuy gives an example from their own business model.
“Some of our products include a serial number which customers can register on our website for an extra +6 month guarantee and extra discounts for complimentary products – those products are usually bought on amazon.
For instance, we sell very niche products too, such as nail drills. Those products need bits for different purposes (pedicure, manicure, etc). After the registration, customers will receive an exclusive discount which is solely available for those people who’ve registered. They will get a discount for a complimentary product besides the nail drill which has been registered previously. The complementary product usually needs to be repurchased and customers receive the discount for the first order.
Besides the effect of being a very exclusive discount, this strategy helped to increase gross profit tremendously – especially over the long term because of the LTV,” Explains Eberst.
As a business owner, Her Norm’s Sonya Schwarz shares how you can effectively improve your gross profit with your eCommerce store.
“A custom loyalty program should be created. This way your loyal customers will feel valued and they will become promoters of your company online.
Do not obsess with big orders but do not rely on loyal customers alone. Every customer is important. Cater to their needs and resolve their issues to improve profit.
This tip will signify that your company can be trusted and with word of mouth, with the high- social and connected world that we live in, surely you will gain profit by tending the needs of your customers first,” said Schwarz.
Why is a customer loyalty program important?
As Catriona Jasica of Top Vouchers Code explains, “According to a study, 84% of customers say that they will continue being with a store that provides them with such a program. The rewards and the benefits they get make them stay and buy from the store.”
Andrew Taylor of Net Lawman explains, “I believe one of the best ways to improve gross profits is by targeting those already shopping at your store. You do this with loyalty programs/vouchers or deals such as free shipping if you spend more than $80.
I believe the latter is perhaps the most lucrative, as when they see this and in the first instance choose less product and pay for shipping, they see the shipping cost as lost money. They say to themselves ‘but I could get ‘x’ for that $8!’ so they go and add that to their cart, then they just need to spend another $14 for free shipping!
Great psychology applied here and I fall for it every time.”
Coupons are a great way to reward your loyal customers. John Howard of Coupon Lawn says, “For my coupon company, to indulge and engage customers, we give out coupons which give special discounts on our products and the services we provide. Not only does this give our customers a positive impression of our brand, but it also increases our sales and that outweighs the discounts that we give. It also drives traffic to our website and our social media pages because everyone loves coupons that offer discounts. So the one tip I could offer you is to use coupon marketing to drive your sales up, making your eCommerce store profit with the coupons that you give out to your customers.”
7. Pay special attention to customer service
“Good customer service is paramount to improving sales revenue for an e-commerce store. Being accessible and having an automated process that provides timely support and answers specific questions asked by potential buyers.
One good example of this. After successfully increasing site traffic volume to our website, we implemented a LIVE CHAT feature that was connected to our mobile devices, desktops, email, and Facebook Messenger. This allowed us to promptly respond to customer needs. The Chatbox included offline messaging and autoresponders which either directly answered commonly asked questions or sent new requests to an email for next-day response,” said Justin Staples of JS-Interactive.
Infinity Dish’s Laura Fuentes also believes that providing top-notch customer support is a surefire way to improve gross profit. Fuentes says, “Customers want to feel heard, they want to be treated as individuals, not as a mass, and they want to know they are essential to your company, not just a number. Your e-store and website should have important information clearly visible, including contact information, an FAQ section, and a comment section. Many people want to solve their problems themselves, so including a section that includes articles, tips, and how-to videos will also keep customers sticking around. The main goal is to make your site welcoming, helpful, and informative, so customers don’t feel the need to go elsewhere.”
Muhammad Mateen Khan of PureVPN believes that it’s better to lose money on an order if it means continuing a healthy relationship with your customer.
Khan explains, “If you’re not losing money on orders to quickly and proactively resolve customer problems, you’re missing out on the chance to improve profit margin.
Customers are so accustomed to mediocre service that when a business goes out of its way to proactively resolve a problem—without charging them—they’re blown away. Apart from the life-long value of that customer, you’ll receive referral marketing and recommendations that are impossible to purchase.
If you’re running an ecommerce store, here are four ways you can invest in the future of your business and, ultimately, your long-term bottom line:
Did something inexpensive break? Ship customers a free replacement immediately without requiring them to hassle with the return.
1- If an expensive item needs to be returned, ship them a replacement as soon as they submit tracking confirmation of the return instead of waiting until it hits your warehouse.
2- If a long-time customer needs something ASAP, overnight it to them at no charge.
3- If a customer wasn’t happy with a purchase, proactively issue a partial refund to help compensate him for the disappointment.
4- Serving customers like this will cost a bit more in the short term, but will pay incredible dividends as you build a loyal and highly vocal fan base that results in a very healthy bottom line.”
8. Introduce subscription services
Offering subscription services can boost your gross profit substantially.
George Muharib of IndeJuice explains, “With the largest collection of direct-to-consumer vape juices in the world (over 7,000+ SKUs) we are no strangers to the importance of gross profit.
We have found that a fantastic addition to our gross profit is to offer a subscription service (similar to that of Amazon) granting free next day delivery on all our products with no minimum order for a small sum of £3/month. Whilst this is negligible for the user as standard delivery costs in excess of £4.00, it allows us to have a consistent, strong, and recurring revenue stream that bolsters our gross profit. To put this into context, at 10,000 subscribers, the monthly income from the subscriptions alone would be £30,000/month. At 100,000 subscribers, the recurring revenue equates to £300,000/month (£3,600,000/year).”
9. Launch affiliate programs
Tariehk Geter of OSI Affiliate Software believes, “One of the best ways to increase your profits is by helping others make money. There’s nothing your supporters want to do more than get an incentive for being someone that fits within the mission of the brand. An affiliate program helps your supporters get a piece of the profit by promoting and selling your product. This can be a very effective manner of exposing your brand to different demographics.
You can have a sign up right on your store that makes it easy to help start things off and get them situated with a referral program. It’s important that you pay close attention to the needs of your customers and give them something worthwhile. Whether you give your supporters 20% or 40% of each sale, it’s really up to you to make it work.
Help them with the banners, the affiliate links, and get things started to build more interest in your program. You should know exactly how they could market your product. However, you should give them the creative freedom to take it to another level. At the end of the day, every person in your particular program has a different audience they cater to and will convince to support them.
You can always keep things interesting with a contest. There’s nothing more exciting than the competition. Set a dashboard in each of your supporters’ affiliate programs so they know exactly where they stand. Make sure you have a voting system in place to help decide what should be a prize like a high ticket item, discount on your products, a trip somewhere, or any other item you believe is worthy of competing. The competition puts out the best in each person, and it only helps to have an extra incentive.
10. Optimize your website
An optimised website can make or break your gross profit.
“As a digital marketer, I believe that the eCommerce store entirely depends upon the performance and optimization of the website. The improvement in the product designs and quality could attract more customers and help to increase the gross profit. Therefore introducing the innovative designs and quality products are essential for a profitable online business,” Says CJ Xia of Booster Biological Technology.
Jeev Trika of Top SEOs gives excellent tips on improving your website.
“Be tireless with optimizing your online store and marketing channels for increasing conversion rate. If you’re not achieving the goals you set for yourself, dig into your analytics to figure out where people are dropping off. Next, A/B test different versions of just that one element so that you can truly isolate what’s happening. Make it a habit to regularly test different aspects of your eCommerce website that you know could be improved.” Suggests Trika.
David Williams believes introducing a timer on your website is essential for higher conversions. “My one tip to increase gross profit is to introduce sales deadlines. There’s a reason that high performing websites often have a counter ticking down on any deal they are offering. If your prospect doesn’t buy immediately, there’s a high chance that they won’t. Once they leave, they become a much harder customer to convert. If you want them to take action immediately you need to increase urgency and adding deadlines is a great way to do it,” said Williams.
Ricemedia’s David Pask-Hughes is of the opinion that having your USP and trust signals front and center on your website is crucial to increase gross profit.
“While demand for some products is currently at an all-time high, you still need to make sure that your ecommerce site highlights your USP and – more important than ever – can be trusted. Beyond the obvious tips (like making sure your store is secure), it’s crucial that trust signals like reviews and testimonials stand out so that your business stands the best chance when customers are comparing retailers,” said Pask-Hughes.
Andre Oentoro of BreadnBeyond is of the same opinion.
“When it comes to improving the gross profit of the e-commerce store, I rely heavily on gaining the trustworthiness of my store to generate more sales. Building trust with customers is such a crucial tip, at least for me, as there are endless options to choose from in the eCommerce platforms– and the customers always have another fish to fry. Therefore, I make sure my store stands out with welcoming banners, clear descriptions, positive reviews, and immediate responses. It helps the customers to feel comfortable with buying from my store and, in turn, increase the profit margin,” said Oentoro.
And while you’re optimizing your website, don’t forget to implement a chat tool for real-time engagement. “If someone has a question about your product, a chat tool is a wonderful way to give quick feedback and engage with the customer to drive them to the sale. Wineries are now using chat tools in greater numbers, connecting the tool to their phone, and treating it like a text messaging service with their customers. If you want to convert would-be buyers into lifelong buyers – implement a chat tool on your site and start engaging more with your customers,” said VineSpring’s Chris Towt.
11. Embrace omni-channel remote selling
For retailers with both a brick and mortar presence as well as an online entity, embracing omni-channel remote selling is an excellent way to boost gross profit.
Leigh Sevin of Endear explains, “You have all of this great data from your brick and mortar customer base, but it’s often disconnected from what you’re doing online. Setting aside the fact that many customers prefer a combination of online and offline shopping before making a purchase, you also have high leverage to attract return purchases from your offline customers. Invest in tools like live chat, messaging, SMS, and triggered email automation, and you can increase your customer LTV while maintaining a static acquisition cost.”
12. Reduce customer acquisition cost
“The most profitable brands of today are profitable because they’ve been able to reduce their customer acquisition cost. And forward-thinking marketers are leveraging owned marketing to lower their customer acquisition cost.
Owned marketing is marketing to an audience that you own like an email list or a text list.
A great example of this is Glossier. This brand is valued at 10X revenue. What’s special about them is that they built an owned audience through their blog Into The Gloss prior to launching their eCommerce site.
According to their founder Emily Weiss, early on Glossier acquired around 80% of its customers through their existing audience and word of mouth.
Built a list to market to so you don’t have to buy a customer from Facebook or Google every time.
Owned marketing has proven time and time again to be the best path to profitability for DTC brands,” said Arri Bagah of Conversmart.
13. Utilize the Thank You page
Noman Nalkhande of WP Adventure believes that many businesses fail to understand the importance of a Thank you page.
“Many people think that the customer journey ends when they pay for the items and see a thank-you page. But very few store owners utilize the opportunity that lies on the very ‘Thank-you’ page a customer sees.
Once someone has already purchased a product, he has built trust in your store to some extent. Why not, utilize the ‘Thank-you’ page to upsell something that is relatively inexpensive? After thanking the customer for buying a product, showcase an item that could be a good fit – for example: if someone purchases a fitness tracker, display a product such as a workout water bottle (as it seems reasonable). The price of a water bottle is comparatively low and the customer will not think too hard; effectively increasing your store’s overall gross profit,” said Nalkhande.
14. Reduce cart abandonment rate
“One tip according to me for improving the gross profit of an eCommerce store is to ‘reduce the cart abandonment rate’”. Says Samiksha Rawool of Yummy Tummy Recipes.
And how can you reduce cart abandonment rate?
As Rawool explains, “I use exit pop-ups and it has helped me reduce the cart abandonment rate.”
15. Sell more to current customers
The best way to increase profit is to sell more products to your current customers. You have already put in the work to attract customers so they might be willing to buy again.
As Bruce Harpham explains, “Consider sending a targeted promotion email to past buyers of a certain product (e.g. red t-shirt buyers in the summer) and offer a related product (e.g. red golf shirts for the fall). This strategy means you can save money on advertising for new customers and make more income from those who already know and like your company.”
Another tip is to send out ‘wishlist on sale’ emails.
Reshu Rathi of Lambdatest explains, “Most eCommerce shoppers add products to a wishlist for buying later. Also, most online shoppers are price sensitive and love discounts. So it makes complete sense to tell subscribers when the items they have shown interest in go on sale.
Also, you should email them when the product they’ve liked is about to go out of stock to incite them to buy it.”
Jodie Cook believes another way to tempt current customers into buying again is by leveraging urgency.
“It’s all about the order bumps. Once someone has gone through checkout, show them some incredible offers available only to existing customers and add a timer that counts down, to give them <10 minutes to make a decision. Make it clear that the offer is only available until the clock reaches zero and watch your average order value skyrocket.
People who have bought from you once are far more likely to buy again, so make it easy for them,” said Cook.
As a business owner, there will always come a time when you don’t meet your gross profit goal.
You may feel extremely frustrated and stressed, but that’s alright.
Just till you have a solid plan to consistently increase your gross profit margins and run your business as efficiently as possible, you’ll always be able to bounce back and meet your goals.
Shari Smith of Shari Sells explains, “I’ve been selling on eBay for over 14 years and sell over $ 2.1 Million. I have once sold a Rolls Royce that the Queen of England used on a trip to Sudan.
The best thing that any E-commerce owner can do is to identify waste and eliminate them. This requires you to identify thoroughly processes that your company can survive without and factors that just add to your operation costs. In this way, you can have efficient operation costs and it can help your business save money that you can invest in other things that will convert.”