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Jana Pfeiffer December 22, 2020 3 Minutes
Categories: Ecommerce | Ecommerce Guide

In order to operate successfully in the market and be profitable in the long term, companies need to have a good overview of their income and expenses, as well as know and constantly optimize the company's own key figures that are important for profitability. Therefore, we have summarized the six most important success factors in e-commerce for more profitability below.

The six most important success factors in e-commerce for more profitability

Increase turnover through cost-efficient measure

In order to sustainably increase sales, the focus should be on cost-efficient measures to increase sales. On the one hand, this includes investing in efficient, proven marketing measures that have already led to a significant increase in sales in the past. In this way, costs for testing measures as well as possible unprofitable expenses can be saved. Marketing measures are always cost-efficient if they lead to the highest possible increase in sales at the lowest possible cost. Those who sell products in their own shop should therefore focus on measures such as improving user-friendliness, increasing visibility by means of search engine optimisation or optimising service quality. In the case of marketplace use, attention should be paid to achieving better product placement, for example by optimising product images and product descriptions, free advertising measures and improving ranking results through SEO measures. 

minimize spending

An important factor in making an e-commerce business more profitable is minimizing expenses. Therefore, it is advisable to constantly monitor the COGS (Costs of Goods Sold). Between the competitive product price and the production price, there should be a corresponding profitable margin for the company. If the margins are too low, they should be optimized accordingly. In addition, revenue-generating costs, especially advertising costs in e-commerce, should be kept in mind and constantly optimized. Expenditures for advertising costs are only profitable if they can be proven to increase sales and are included in the respective product price. Finally, operating costs should be kept as low as possible in order to minimize expenses overall. For example, selected processes can be outsourced to external service providers in order to increase flexibility and avoid long commitments. 

Optimize inventory

Another factor that should be considered in increasing the profitability of an e-commerce business is the Optimization of the stock. For this purpose, an analysis of the reorder frequency of all products should be carried out regularly in order to minimize the inventory time and at the same time keep the inventory costs as low as possible. In addition, possible savings opportunities can be discussed in cooperation with the supplier. Better conditions or the use of discounts are conceivable here, for example.

Know and optimize KPIs

Every company has its own KPIs (Key Performance Indicator) that provide information about profitability. In order to define meaningful KPIs, it is necessary to determine goals in advance, which should be controlled by means of key figures. These can vary depending on the business model. The most relevant KPIs for most companies are as follows: Customer Acquisition Cost (CAC), Customer Lifetime Value (CLV), Conversions Rate (CR), Average Order Value (AOV), and Return Rate. The specifically defined KPIs should be carefully monitored in order to provide an accurate statement on which levers an e-commerce company can turn in order to increase profitability. 

Goal-oriented controlling

While shop statistics can vary greatly in their informative value with regard to profitability, it also requires its own goal-oriented controlling process that takes all cost factors into account. One of the most important e-commerce success factors is the identification of the most profitable sales channel; this can have an impact on the choice of the right marketplace (e.g. own shop, Amazon, Ebay, etc.). The basis for identifying the most profitable sales channel is the turnover generated via a specific sales channel. The turnover is then divided by the number of orders in order to determine the average shopping basket value and, at the same time, to be able to optimise the processing costs. In addition, fees that are due for external sales channels and the return rate must be taken into account.

Effective financing

Since the cost of purchasing goods is one of the largest expense items, it is also important to manage effectively in the context of financing in order to be profitable in the long term. With the help of merchandise financing (e.g. fulfillment financing), it is possible to react flexibly to developments and trends, to place larger merchandise orders, which can lead to better conditions and/or to use the liquidity gained for further optimization measures, which can contribute to increasing profitability in the long term..  

Conclusion:

In order to operate successfully in the market and be profitable in the long term, companies need to have a good overview of their income and expenses, as well as know and constantly optimize the company's own key figures that are important for profitability. Therefore, we have summarized the six most important success factors in e-commerce for more profitability below. In addition to increasing sales, effective financing is also one of the most important success factors. 
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