Ecommerce Profitability: Minimizing Spend While Maximizing Revenue



Running an ecommerce company means upholding the delicate balance between what you spend and what you earn—always trying to optimize your income while reducing inefficiencies elsewhere. In other words, ecommerce profitability is a matter of minimizing spending while maximizing revenue.

This means retailers can approach bolstering their bottom lines from two angles: Cutting costs and boosting profit margins.

Here are some strategies for both approaches.

Tips for Reducing Operating Costs

Ecommerce has leveled the playing field by eliminating many of the classic barriers to entry in retail. You can start a business without having to rent a physical space. You can launch a fully featured ecommerce store without an extensive background in web design. You can reach online users near and far through digital marketing. You can even drop-ship products via third-party manufacturers without even having to warehouse your own inventory.

The name of the game is streamlining. Taking a straightforward approach to all your ecommerce endeavors will help you reduce overall operating costs, meaning you’ll need less overhead to float your dealings.

Take a step back. First make sure you truly understand the niche your store is targeting. What are you selling? To whom? What’s the appeal of your products to these buyers? Instead of trying to sell everything and market to everyone, keep it simple. Sell a streamlined lineup of products to a highly targeted audience using cost-effective tactics.

Some marketing strategies are more cost-effective than others, too. Email marketing is consistently one of the savviest ways to reach people without breaking the bank. Paid ads across popular social media platforms will cost more, so make sure you’re optimizing every campaign. Another cost-conscious way to market your store is incentivizing customers to refer people they know for a small reward. All in all, a lower marketing price tag will help you keep your operating margin reasonable.

Make use of free web templates to design your store and host it using an all-inclusive ecommerce platform instead of building your own store from the ground up—something that’s both time consuming and potentially expensive.

Strategies for Increasing Revenue

Start with the basics. What is ecommerce? Shopify describes it as “the transaction of goods and services” through the internet. Your store has products people want. They’ll pay a certain price for them. Your website facilitates this exchange of money for goods. It makes sense to use profitability as a big-picture metric to measure the success of your store, then. Besides reducing operational costs, the other way to improve profitability is to, well, make more money.

A good place to start is with a concerted effort to retain existing customers. As Harvard Business Review outlines, keeping the right customers is of immense value to your bottom line. In fact, increasing customer retention rates by five percent increases profits by 25 to 95 percent.

Loyal customers are more likely to buy than new ones—plus it’s cheaper to market to existing customers than to convince new ones to get on board. Make it worth your existing customers’ whiles to buy again and develop loyalty to your brand. You’ll see the dividends in your bottom line.

Aim to increase your average order value. How? To start, offer free shipping over a certain threshold. People will often spend more to unlock the perk of free delivery. The same principle applies for discounts: “You’re just $25 away from earning a 10 percent off coupon on your next purchase.” Capitalize on cross-selling, also known as suggesting complementary items to “bundle” with products already in a shopper’s cart. People are already on your site, so it’s opportune to convince them to spend more to gain more.

When you’re striving for ecommerce profitability, focus on minimizing spend and maximizing revenue. Running a sustainable online store depends on balancing these two forces.