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3 Ways to Increase Ecommerce Profit, and The One That Matters

By Jon MacDonald
4 minute read | Last Updated: May 23, 2016

Most agencies have it all wrong. They focus on traffic, not revenue. Improving your site’s economics is all that matters.

Most agencies focus on the wrong goals to increase ecommerce profit. They focus on driving traffic, not revenue.

Increasing your revenue, at the end of the day, is all that matters.

At The Good, we don’t prioritize search engine rankings, general brand awareness, driving traffic, or anything over improving a site’s economics. Put simply, we judge our success on how much return on investment we deliver our clients. With this singular focus we’ve been able to optimize our process and recognize patterns to find what creates sizable revenue increases.

Our experience has proven there are only three productive methods to increase online sales and profits. And only one that really matters.

Method 1: Drive more online traffic

Spending budget to drive traffic to a site that isn’t converting is a waste of money. So driving traffic only becomes important after you are sure your site is converting at, or near, its potential.

Brands often produce content with the goal of driving traffic. But what do you want that traffic to do once they arrive on your site? Once the customer follows you on social or watches that video on your homepage, then what? You want them to buy your products, or at least show intent to purchase through targeted actions.

If you feel you must focus on driving traffic, pay attention to acquisition costs. Any budget spend must then be accompanied by an understanding of your channel efficiency. Otherwise, you are wasting your brand’s hard earned revenue. Channel efficiency reporting utilizes your site’s data to understand which inbound channels are leading to the most revenue.

Method 2: Improve site conversion rate

Improving conversion rates is an industry all in itself. But focusing just on increasing your conversion rates can be futile.

If you want improve your conversion rate right now, just lower your prices. I promise you it’ll work. But it doesn’t make much sense and it isn’t sustainable. This metric is meaningless unless it is actually boosting the overall economics of your site.

Additionally, this line of thinking creates a clear disregard for your consumer’s goals and sends even the best of brands down a path of navel gazing. Instead, you should focus on creating compelling content, simplifying your site organization, and providing good search results. This will create a site where customers convert with higher average order values, thus improving your site economics.

Method 3: Improve site economics

Improving site economics is a common sense approach to increasing e-commerce profit. It involves increasing site revenues, increasing site profits, and improving the return on your marketing and advisory budget spend.

The best place to start is by increasing profits per customer, which can be accomplished through several tactics, a couple of which are increasing the average order value, increasing the lifetime value of a customer, and increasing prices.

Increase the average order value

Add-ons and bundles will almost always increase the average order value.

Increase the lifetime value of a customer

Getting your customers to spend more money with you, capturing more return customers, or getting customers to refer their friends to you after their initial purchase are all great examples. All have the effect of decreasing your acquisition costs while improving your site economics.

Increase prices

The quickest way to improve your economics is to increase your prices. While this might decrease your conversion rates, sometimes a conversion decrease is a good thing.

For example, if you sold or marketed popcorn online and converted 3% of your 1000 visitors into paying customers. At $15 per tin of popcorn, you end up making $450 in revenue per 1000 visitors.

By increasing your price to $25 per tin of popcorn, you’ll likely reduce your conversion rate to only 2% of every 1000 visitors. But you’ll make $500 in revenue. Despite the loss of 1% conversion, you were able to make more money by increasing your prices.

The one that matters

Out of driving traffic, improving your conversion rate, and improving your economics, our research and experience in doubling online sales has shown that in the end only improving economics matters.

Why?

If your brand focuses all of its efforts on improving its economics, your brand will make more money per customer. Once your brand is making more money per customer, you can then start to focus on converting more customers (and improving the overall conversion rate), once the site is converting well, your brand can spend more efficiently when driving targeted traffic to your well performing site.

Most people focus on these methods in the wrong order: drive more traffic, increase overall conversion rate, and then focusing on improving economics. This is backwards.

Prove it

To help, we’ve created a simple calculator explore the bottom line difference between traffic generation and conversion for your website.

What gets measured gets improved

If you want to improve your online sales, overall revenues, and profits, it is imperative you pay attention to the right metrics. And improving your economics, at the end of the day, is all that matters. Focus on optimizing your revenue, not your conversion rates or driving traffic, and be on your way to increased profits.