Maximize Profits In Your Financials
Mindset: Adopt a data-driven mindset. This means making decisions based on actual data rather than assumptions. It will give you the confidence that your business is heading in the right direction. Imagine your ecommerce business as a ship sailing through the ocean of business finance. Just like a captain needs to understand the ocean's currents, you too need to understand how money flows within your business.
WHY: Your pricing strategy directly impacts your bottom line. A robust pricing strategy allows for healthy profit margins and sustainable growth. It's not just about covering costs; it's about valuing your offering & products appropriately and reflecting that value in your price.
For your front end offers and products, maintain a Gross Profit margin of at least 45% per product. The higher the gross profit, the better and helps counter new customer acquisition costs. Also, MORE PROFIT.
EXAMPLE: Suppose you're selling a premium, eco-friendly yoga mat. Your cost price is $30. To cover your expenses and get a good profit margin, you decide to sell it at $70. But, given the eco-friendly and premium nature of the mat, your customers are willing to pay up to $90, recognizing the value and quality of your product. This gives you a gross profit margin of around 63%.
New Customer Acquisition Cost (nCAC) & Return on Ad Spend (ROAS)
WHY: Understanding nCAC and ROAS allows you to measure the effectiveness of your marketing efforts. If the cost of acquiring a customer is less than the value they bring, you're on the right track.
EXAMPLE: You price the Yoga mat at $90, your Gross Profit Margin is 63%. You have $1000 to spend on Facebook ads. The goal is to acquire a new customer at $57 to Break Even or have a ROAS of 1.6. Acquire them for less, be profitable on the front end acquisition OR increase AOV for a higher ROAS and be profitable on the front end acquisition. Know these numbers, maximize profit on front end!
Contribution Margin (CM)
Contribution margin is Revenue minus Cost of Delivery* minus Ad Spend.
Cost of delivery is everything included to get product delivered. This includes, COGS, Processor Fee, Merchant Fee, Shipping Fee, Pick & Pack fee (if using 3PL).
WHY: We track CM because it is the closest metric to profit with marketing without operating expenses. We track this as a number, not a percentage. You can track this product specific but also it must be tracked overall for your store.
Our Yoga Brand
Cost Of Delivery: $24,000
Ad Spend: $7,000
=$19,000 CONTRIBUTION MARGIN
Building the Offer Ladder
WHY: By providing a range of offerings, you give your customers options to suit their needs and budget. This approach increases customer satisfaction and opens up opportunities for upselling and cross-selling. High-priced, high-margin products can boost profitability significantly.
EXAMPLE: For our yoga brand, the offer ladder might start with affordable basics like T-shirts and yoga pants, then move up to premium items like yoga mat and bags, and finally to high-ticket items like limited-edition designer collaborations, yoga certifications, online yoga class membership etc...
Average Order Value (AOV) & Funnels
WHY: Increasing AOV means more revenue per transaction. By optimizing your sales funnel(s), you encourage customers to add more to their cart, thus boosting profitability.
A simple yet effective sales funnel includes:
1) Front End Offer
2) One Click Upsell (OCU) Offer that can't be found anywhere else on the site.
3) Profit Maximizer OFFER that is 2X-3X the cost of the front end offer.
EXAMPLE: Our Yoga brand. To increase the AOV, you offer a 10% discount on purchases over $100. Customers who were planning to spend $90, might add an extra product to their cart to avail the discount. As they checkout, you offer a Yoga block that goes along with the yoga mat at a price of $20 ($30 normally on site) and then after they complete their check out you offer a Yoga Clothing bundle for $250 (normally $350) for 3 pairs of yoga pants and 3 shirts.
Your break even nCAC is $57 and ROAS of 1.6, yet you acquire this customer for $55 and their AOV is $360 which your ROAS is 6.5. You've hit profitability on the first offer and the profit margins on the upsells pile on the total order profit.
60D/90D Lifetime Value
WHY: Knowing your customer's lifetime value helps you determine how much you can afford to spend on acquiring and retaining them. It enables more informed decision-making around marketing spend and strategy.
EXAMPLE: Let's say you don't Break Even on the front end acquisition for our Yoga brand and you acquire a customer for $65. Their Month 1 Value is $90. Yet you know the average customer comes back and buys two more times over the next 90 days and their LTV increases to $200. You know they break even and become profitable on their second order and their third order and on is all profit depending on the margin of the offers you make and product(s) they buy. Knowing this allows you to spend that extra on the front end because you know your backend marketing increases the LTV and profit on the customer.
Maximize Profit In Marketing Strategies
WHY: Paid ads can instantly boost your store's visibility and reach. They allow you to target specific demographics, helping you attract the right people to your store.
EXAMPLE: Let your New Customer Acquisition Cost & Product/Offer specific ROAS goals be your guiding light for campaign success. To maximize 60D/90D LTV, set up a Cash Multiplier campaign that retargets customers in their first 90 days. This helps bring customers back to the store as your present you cross sell offerings to them. I like to set up different carousel ads that highlight different offers/products at each price level of the offer ladder.
Email & SMS Marketing
WHY: These direct channels allow you to build personal relationships with your customers. They are excellent for delivering tailored content, fostering loyalty, and encouraging repeat purchases. Direct communication channels are perfect for nurturing relationships with your customers.
EXAMPLE: After you acquire a new customer set up a 60D/90D Post-Purchase flow both in email and SMS. Highlight different offers/products at each price level of the offer ladder here as well. Also ethically entice the customer to leave a photo or video review for a special offer. You can send 1-2 emails a week to current customers but only send 1-2 SMS messages a month to current customers - UNLESS you have a big sale or new launch.
WHY: Organic traffic is a sustainable way to attract potential customers. It's about creating valuable content that attracts and engages your audience. You don't need to have a Call To Action or Sales pitch on every organic post. Use the framework Inspire, Educate, Convert as you make content. This way you are creating content at each level of the funnel as your guide them from prospect to customer. This also leads to filling your funnel in healthy prospects which helps them convert at a lower cost into a customer.
EXAMPLE: You create reels that inspire prospects. Next, you create videos and blog posts that educate prospects about your offers/products or niche in general. Lastly, you create Call To Action posts to convert prospects into customers.
For our Example Yoga Brand.
INSPIRE: A reel about customer and their transformation through yoga.
EDUCATE: A long for video about "How to remove lower back pain with these 3 yoga stretches."
CONVERT: A reel/post about your ultra premium Yoga mat that is back in stock for a limited time along with 3 free online classes. Buy yours today and transform your body through the practice of Yoga.
The Customer Experience & Word of Mouth Marketing
WHY: Happy customers become your best marketing team for your brand, spreading the word to their friends and followers. Provide excellent customer service, solicit customer feedback, and foster a community around your brand to encourage positive word-of-mouth. If you invest heavily into improving
EXAMPLE: A customer buys the yoga mat from your store and loves it. You follow up with an email with a Thank You Video from YOU (the CEO) or a direct mail flyer with a QR Code to a video of YOU (the CEO) thanking them for their purchases, sharing your mission as a brand and how the incredibly grateful you are for their purchase - while also making another offer 🙂. Then asking them to leave a review and make sure they join the online group where your community is. They gives you a glowing review and also tells their friends about her new favorite online store.
Remember that behind every strategy is a human customer, people do business with people. Understanding their needs and exceeding their expectations is at the heart of every successful ecommerce business. Keep that in mind, and you're on your way to ecommerce success!
Remember, growing an ecommerce store isn't a sprint; it's a marathon. It takes time, persistence, and continuous learning. With the right mindset, the right strategies in place, and an unflinching commitment to delivering value to your customers, you're well on your way to running a highly profitable ecommerce store.
If you want to continue to learn more about how we grow Ecommerce stores, make sure you download our Vertex Blueprint! You'll get all our working documents and strategy we use in our RISE process to grow brands to 7 figures and beyond!