7 Key Ways To Maximise Profits For Your Ecommerce Business
Maximising profits is often the key focus for savvy e-commerce entrepreneurs who realise that only focussing on their turnover isn’t enough.
Some products or services simply aren’t profitable, so selling more of them is detrimental to profit.
Now there are many, many actions that you could take and dozens and dozens of tips that I could give you that will help to increase profits. Here though, I’ll show you something more important and more fundamental – the principles behind profit and the 7 key growth drivers that will maximise your profits.
Looking at these you’ll be able to identify for yourself some of the main things that you can action right away in your own business.
Before I go through these 7 key profit drivers let me explain a little bit more.
Business is made up of numbers.
Your sales, margins, customer base, costs, profit, cashflow – they’re all driven by numbers.
Often when e-commerce entrepreneurs want to grow significantly what do you think they focus on? A sophisticated new website? The latest advertising and marketing campaigns? Market research? Launching new products and services?
These are all completely valid ways to grow your business, but if you don’t understand the numbers behind these activities and the impact they have on your business model, the results can be catastrophic.
You see, there’s a mathematical model which sits behind every business, and when you understand this model, you start to truly understand what drives your sales – and what drives your profit.
Here’s the big secret – you can make a massive difference to your profit line just by understanding and deploying these 7 simple but powerful growth drivers.
To illustrate, let me explain this with a really simple version of the mathematical model using some very simple numbers:
Imagine a business that has 10 customers. Each customer spends £10 each time they buy, and each customer buys from the business 10 times per year. Bear with me on the simplicity – this isn’t a maths test!
So here we have 3 growth drivers:
- Number of customers
- How much they spend on average each time
- How often they spend
When you multiply these 3 elements you get total sales, so total sales here is 10 x 10 x 10= £1,000.
So if this was your business, you could undertake some sales and marketing activities to improve any of those numbers. Let’s imagine you are able to increase the number of customers by 10%. So you’d have 11 customers rather than 10, so total sales now would be 11 x 10 x 10 = £1,100.
Maybe you decide instead to focus on increasing how much they spend by 10%. So they spend £11 each time they buy rather than £10. Total sales now 10 x 11 x 10 = £1,100.
No big surprise there.
Similarly, if you focus your efforts on getting your customers to increase how often they buy from you by 10% – so they buy 11 times a year rather than 10 – then again, your sales increase by 10%.
So here’s the basic rule: If you increase any single key growth driver by 10% your total sales will increase by 10%.
Let’s take it up a level.
So, what happens if you increase all 3 of the sales drivers by 10% at the same time? In other words customer numbers go up from 10 to 11, each spending £11 rather than £10, and now buying 11 times a year rather than 10 times a year. What do you think total sales would become? What percentage increase?
The answer is that sales will grow from £1,000 to £1,331 which is a 33.1% improvement. (11 x 11 x 11 = £1,331).
Did you expect it to be 30%? – lots of people do (some people even think 10%) – but they are not factoring in the power of synergy.
So we can see that the effect of the whole is greater than the sum of it’s parts.
So what we can take from this is that:
Making a lot of small improvements here is better than making one big improvement.
This is just a very simple example looking at sales only and just to make it clear that numbers matter!
You can’t just look at sales though – we need a real model for profits that is still simple. So you need to understand the impact that everything has on your business profit, not just on sales.
In this example we just looked at 3 drivers affecting sales – but there are 7. Plus, since each one of these 7 has a profoundly different impact on your bottom line profit, it’s this profit impact that you need to focus on, not just your top line sales.
So then , what are these 7 key drivers that will maximise your profit?
- Getting more customers (more sales leads)
- Converting your sales leads into sales
- Getting customers to spend more
- Getting customers to spend more often
- Getting customers to remain customers for longer
- Pricing for maximum profit
- Systemising everything
So pretty simple stuff right?
There are many different strategies and actions that you could employ within each of these 7 growth strategies and I cover this in much greater depth in my book: How To Improve Your Business And Make It More Profitable that you can download here.
If you’d like a hardback copy posted out to you then just reply to the email with PROFITS BOOK in the subject line along with your address.
The most important thing, as ever, is don’t just read about it, ACTION IT!…….
……and remember, in this case, it’s far more effective to spend a bit of time making small improvements in each of the growth drivers rather than to focus on getting big results in just one area.
Running your e-commerce business you are in a sector where the software that you are able to use will enable you to track these key metrics clearly once you have made the improvements, so there’s no good excuse for not doing it.
Remember, the best time to take action is now!