Five eCommerce profit drains that threaten your bottom line.

In this article Inventory costs Fulfillment and shipping Marketing and advertising Returns and refunds Customer acquisition and retention

For many traditional brands, eCommerce profitability is a growing area of importance. That’s not to say that profitability wasn’t important before, but as people increasingly do their shopping online, eCommerce is growing its share of sales and that means profitability is higher up on the agenda for many CEOs.

And while eCommerce offers brands a variety of new channels to reach their audiences, it can be more expensive. In a traditional brick-and-mortar store, a customer need only arrive at a store, pick up an item, pay for it and take it home.

With eCommerce, brands need to reach their audience through advertising, ensure there is enough inventory to sell, ship the product to the customer’s home or a nearby location and effectively process returns.

Below are some of the key profit drains brands must address to boost their eCommerce profitability.

Inventory costs

Maintaining a large inventory can tie up a significant amount of capital. If the inventory is not managed efficiently, businesses may face losses due to excess stock, obsolescence, or shrinkage (theft, damage, or spoilage).

Similarly, having an inventory that is too small can lead brands to lose out on sales and negatively impact customer satisfaction. Thankfully, advancements in inventory management, powered by AI, are helping brands keep the right inventory levels for various online sales channels.

Fulfillment and shipping

Fulfillment costs, including warehousing, packaging, and shipping, can be a major expense for eCommerce businesses. If not optimized, inefficient fulfillment processes or unexpected shipping costs can eat into profits.

For traditional brick-and-mortar brands, it’s important to consider digital costs such as shipping as part of the wider pricing strategy. Traditional brands can learn from Digitally Native Vertical Brands (DNVBs) that typically own the entire value chain, which can reduce costs significantly.

Marketing and advertising

Acquiring customers in the competitive eCommerce space often requires significant investments in marketing and advertising. Ineffective campaigns or improper targeting can lead to wasted spending without generating sufficient sales.

Choosing the right agency partner for your brand can help to minimize waste. Retail media ad verification is a great example of how brands can save money and avoid wasting dollars on unseen ads. By monitoring whether an advert is seen by a human, not a bot, and ensuring the ad is visible on the page for long enough, retail media ad verification can save brands thousands of dollars.

Product feeds are a similarly important facet of eCommerce profitability. They connect content, ads and experiences with the ability to shop seamlessly. Having great feed data is crucial to ensuring customer satisfaction through online channels.

Returns and refunds

eCommerce businesses need to handle product returns and refunds, which can be costly. Returns may result in additional shipping fees, restocking costs, or loss of inventory value if items cannot be resold.

However, a recent study conducted by Snap, MAGNA and Reprise Commerce found that 66% of shoppers believe introducing AR (Augmented Reality) features to shopping platforms would bring the fun of instore shopping online.

The upside for brands is that this kind of technology may well reduce return rates by allowing customers to try out products in the comfort of their own home before purchasing.

Customer acquisition and retention

It can be costly to acquire new customers through advertising or promotions. Additionally, businesses may lose money if they fail to retain customers, resulting in reduced customer lifetime value and the need for continuous marketing efforts.

A key profit drain for brands is paying for traffic which doesn’t convert to sales. Thankfully, we put together a paper explaining the importance of great eCommerce content – particularly on Product Detail Pages (PDPs) and Brand Stores.

Enhancing your brands’ PDPs can help with converting customers, ensuring marketing dollars aren’t wasted and boosting sales in the process.

How can Reprise Commerce help?

As a specialist commerce agency, Reprise Commerce draws on the expertise of more than 350 commerce experts around the world. If you’d like to know more about how we can help to address your brands’ profit drains and help boost your eCommerce profitability, please get in touch.

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