Operations
08 May
5 key strategies for merchants to reduce costs and drive profitability
Wix Ecommerce Head of Business Development Shelly Cohen offers tips on shipping, pricing and saving time.
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By 2026, 24% of retail purchases are expected to take place online and the eeommerce market is expected to total over $8.1 trillion. This is a golden opportunity for online retailers, but they need to be smart about how they approach it. Unfortunately, many merchants struggle to understand and only track their profit margins. The higher the margin, the better, and in ecommerce, the average net profit margin is 10%. This means that for each $1 of revenue, the business earns $0.10 in net profit. Negative profit margins mean the spending is higher than what’s being made, which is unsustainable and can lead to an eventual doomsday for a business if it can’t get out of the red. The trick is for merchants to solve the paradox of growth and profitability.
Here are 5 strategies merchants can employ to keep their costs down and drive profitability.
1. Understand your operating costs down to the penny.
Operating costs are the day-to-day expenses of keeping things up and running that are not connected directly with the primary activity of the business. These expenses vary by brand, industry and location but you can’t run a business without incurring these costs, even if you don’t have a physical store. The reality is that 43% of small businesses that claim the most prominent financial challenge is paying their operating expenses. Therefore, merchants need to understand the full scope of these costs to evaluate what’s necessary, what can be trimmed back and where there could be potential issues in the budget.
Some common expenses for merchants are:
- Website development and maintenance costs
- Web hosting and SSL certificate fees
- Inventory costs
- Advertising and marketing spending
- Payroll and employee benefits
- Rent and utility expenses (for physical stores)
- Taxes and legal requirements
Understanding and managing your operating expenses is critical. These expenses must be paid, or you won’t be able to survive day-to-day. However, you can try to save money by limiting expenses where possible.
2. Ship smart.
It sounds simple but it’s important to get this element right. More than 90% of consumers believe two- to three-day delivery is standard. The lack of inventory was a top concern for SMBs going into 2023. Inventory management strategies were under pressure at the start of the year and now it’s on the merchants to get their shipping process right.
Some operational shipping details merchants need to think about include:
- The efficiency of shipping goods. Run through some different scenarios such as does it make sense to have free shipping above a certain price point in the cart to encourage more items to be sent in fewer trips (and increase potential revenue at the same time)?
- Be smart about the time of day packages are sent.
- Understand the cost and fees of sending goods domestically and internationally.
Additionally, you need to protect your brand from overselling, late shipments, and other costly mishaps by setting up the proper fulfillment and inventory flows. Dropshipping and print-on-demand are smart options to avoid juggling inventory supply and demand. Dropshipping allows businesses to fulfill orders as they are placed to avoid guessing the amount of inventory to stock, and print-on-demand adds a layer of product customization.
Offering pre-order options lets customers secure anticipated new products, and 28% of all pre-orders are placed on the first day of pre-order availability which is a strategic way to gauge how much inventory is necessary. Allow customers to pre-order out-of-stock items to avoid missing a sale - just don’t forget to notify customers when back-in-stock items are available.
3. Establish your pricing scheme.
Once you understand your total costs, calculate your break-even point, which is the point where your revenue equals your expenses. Additionally, conduct market research to understand what your competitors are charging for similar products. Look at both direct competitors and indirect competitors, and consider factors such as product quality, brand reputation and customer service.
After understanding all the existing data, you can now move to determine your value proposition and prices accordingly. Determine what sets your products apart from the competition and what value they offer to your customers. If your products offer unique features or superior quality, you may be able to charge a premium price.
Some tactics around pricing include:
- Cost-plus pricing - Add a markup to the cost of products to reach the desired price point.
- Keystone pricing - Set the price by simply doubling the wholesale price of the product.
- Competition-based pricing - Keep your prices in line with what your competitors are charging.
- Premium pricing - Charge a price that’s consistently higher than your competition to create the perception that your product is higher quality or better in some way.
- Price skimming - Set the highest price you can reasonably charge for a product when it first launches, then lower the price incrementally over time.
- Discount and sale pricing - Offer customers a temporary discount as an incentive to increase sales and customer loyalty and/or reserve discounts for out-of-season and slow-moving goods.
- Penetration pricing - Set a low initial price for a product to attract customers and gain market share.
- Value-based pricing - Charge a price that reflects the perceived value of your product. This could mean charging higher for products that are high-quality, durable, or created by a notable brand.
- Product bundle pricing - Offer a group of related products as a bundle, where the total bundle price is higher than a single unit, but a single unit included within the bundle is offered at a discount.
It is important to test your pricing on a continual basis. Once you have established your pricing scheme, test it to see how your customers respond. You can experiment with different price points and analyze the impact on your sales and profitability. Monitor your pricing scheme regularly and make adjustments as needed based on changes in the market, customer demand, or other factors.
4. Optimize your personal time investment.
The little things you do every day can add up to a lot of time spent. Merchants typically underestimate the time these things can take. To grow your business, you must develop the discipline to adhere to investing your time in your business in a methodical, regular and disciplined way.
Find ways to make things easier to work more efficiently with goals. To ensure that your objectives are specific and attainable, it's recommended to set measurable goals that include a clear timeframe. While business owners may have a general idea of what they want to achieve, having well-defined goals can help avoid potential distractions and keep them focused on the end goal.
Merchants can also have technology work for them. AI tools, such as an AI Text Creator, can be used to create selections of tailored website headlines, taglines and paragraphs. AI tools can help combat the time-consuming efforts needed to complete a professional-looking website and essential marketing materials including email marketing campaigns and landing pages. Also, there are now tools and applications that can help small business owners create policies, understand taxes, incorporate their business and more without having to jump through hoops to find resources to build these important and necessary elements of the business.
5. Use an omnichannel approach to reach customers.
With the rise of mobile devices and the increasing popularity of social media, consumers are looking for a seamless shopping experience across multiple channels and devices. About 73% of consumers use multiple channels when they shop and 61% of retail traffic comes from mobile devices.
An omnichannel approach seeks to provide customers with a unified brand experience, regardless of which channel they use by integrating the organization's distribution, promotion and communication channels in the backend. This means that regardless of whether the customer is shopping online from a desktop or mobile device, by telephone or in a brick-and-mortar store, their experience will be seamless and consistent. This can increase brand awareness, customer reach and sales.
Merchants can sell their products and sync catalogs across all branded online stores, physical stores, social media, and marketplaces to create a consistent and holistic brand experience. And keep in mind that shoppers who use 4+ channels spend about 9% more than those who use only a single channel. Brands that can deliver a consistent and engaging experience across all touchpoints are likely to be more successful in building brand loyalty and driving sales.
Final thoughts
It’s easy for merchants to obsess over revenue and believe that if they increase the amount of money they bring in, their business is going to be successful. However, businesses can lose money on a sale if merchants haven’t considered all their expenses, miscalculated product pricing or haven’t optimized their sales and efficiency strategies. Merchants need to track their profit margins to understand all their financial figures to strike the right balance between spending and generating revenue to cut down on unnecessary costs and drive profitability.
Shelly Cohen is the head of business development for ecommerce at Wix.
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Operations
03 May
Technology, visibility are key to managing the cold supply chain
Smart Warehousing COO Beth Ward writes about the importance of maintaining the perfect temperature, and compliance in the cold chain.
Photo by Mike Alonzo on Unsplash
As our world becomes increasingly more reliant on ecommerce, the management of temperature-sensitive products has become a critical aspect of supply chain management. Cold supply chain involves the transportation, storage, and handling of perishable goods under controlled temperatures. This sector of the supply chain is so much more than just frozen food. In fact, the pharmaceutical industry is a major contributor to the cold supply chain’s recent success.
With the rise of ecommerce and the demand for faster, more efficient delivery of goods, the management of cold supply chain logistics has become more complex and challenging than ever before. Partners along the cold supply chain need to rethink how to optimize their operations. From groceries to medications, manufacturers need to broaden their idea of what constitutes their supply chain as consumers increasingly expect companies to bring their products along the last mile, directly to consumers’ homes.
Far and away the two most difficult challenges the cold chain faces are maintaining the correct temperature and compliance with regulations. These two aspects of cold chain management are part of what makes this sector of industry challenging and requires different technology and more resources than normal supply chain operations. Despite these challenges, the cold supply chain is proving to be one of the fastest growing sectors of the global supply chain industry and this growth is not showing any signs of slowing any time soon.
Differences in cold supply chain
Cold supply chain requires very specific technology to operate correctly. Facilities must be able to refrigerate, regulate, and safely deliver high-value goods. Regulating temperature is more complicated and consequently makes a cold supply chain more expensive to operate. There’s also a great deal of incremental risk. Companies need to worry about microbial growth, a higher risk of damaged goods, and damaged equipment.
For example, one of the most common challenges is damage to freezer doors. Temperature regulated storage containers are a lot more expensive to operate than your typical box container due to the energy required to power the cooling systems. Even the slightest damage to the door prevents the storage container from properly regulating temperature. This could lead to spoiled products, condensation build up, and bacterial growth.
But with the risk comes great potential reward. The cold supply chain is proving to be a thriving sector to be a part of. In 2022, the value of the global cold chain market was nearly $280 billion and is projected to grow at a compound annual rate of 18.6% through 2030. There are several factors that have contributed to this success, but the biggest was the pandemic. Not only did everyone turn to ecommerce to purchase their food and other essential goods, but there was also a heightened demand for swift vaccine distribution. As a result, large food retailers experienced a dramatic rise in sales somewhere between 20 and 30 percent, while the cold supply chain experienced a large spike in profits.
There has also been a heightened demand from the consumer to deliver healthier food options and fresher cosmetics. This requires companies to use fewer preservatives and, as a result, the goods have a shorter shelf life. This means less time in transportation and storage, which requires a dependency on refrigeration.
Finally, in the wake of the pandemic, there has also been a massive spike in the number of clinical trials taking place, which require the transportation of temperature-sensitive materials. In fact, the number of clinical trials taking place in the U.S. each year has more than tripled in the last decade. Though all of these factors show a strong future for the cold supply industry, there are still some major challenges for those operating in the space.
Maintaining the perfect temperature
Regulating temperature while transporting high-stakes goods is uniquely challenging and one main reason why the cold-supply chain is considered so high-risk. Generally, goods must be kept at a temperature under 40 degrees Fahrenheit or above 135 degrees since bacteria can grow within that range.
However, depending on the type of goods, the temperature may need to be kept within an even more specific range. For example, flammable liquids like alcohols, esters, and ketones have a flash point within the range of 30 to 100 degrees Fahrenheit. Most chemicals on the supply chain come with a material safety data sheet listing the flash point of each element. It’s important that companies make this crucial temperature information available to staff. Utilizing tools like a warehouse management system (WMS) or RFID technology will store this information in a centralized digital location.
RFID technology uses radio signals to transmit crucial information to a central database. RFID is commonly used to track individual items across a regular supply chain, recording information on everything from where an item is stored in a warehouse to when it gets loaded on a truck.
Cold supply chains can also benefit from RFID technology, especially when it’s paired with temperature control technology. Placing temperature sensors in containers, trucks, and storage facilities allows real-time temperature monitoring. So, if the temperature rapidly rises or falls, an alert will go off so that remediation can take place. Not only is this tech great for preventing loss and other mishaps, it also allows management to anticipate vulnerability spots along the supply chain.
Best practices for compliance
When dealing with food and medication, visibility into the cold supply chain is essential because these types of goods are expensive and wasted inventory can severely impact a company’s bottom line. Expired products or damaged goods also open up issues with liability if a company delivers an expired product to a customer who then becomes sick.
There are a number of regulatory agencies that hold companies accountable in the handling of perishable goods. There are rules that cover technology use, environmental impact and storage time. These rules are essential for keeping the goods – and ultimately the customer – safe, especially when it comes to medicine and food.
Among the agencies overseeing the cold supply chain are the Food and Drug Association (FDA), the Parenteral Drug Association (PDA), the International Air Transport Association (IATA), and the American Society for Testing and Materials (ASTM). There are also a number of global regulatory agencies, and these organizations are currently working together to create standardized global regulations, particularly for the pharmaceutical industry.
Compliance is an aspect of operations that can be greatly eased by partnering with a third-party logistics company, or 3PL. These third parties have often worked with the regulations and agencies for decades. But if a 3PL partnership isn’t an option at this time, there are several best practices that cold supply chain managers can follow.
Good compliance always begins with thorough documentation so that a company has proof of compliance throughout its supply chain. This begins with having the right systems in place and maximizing the transparency of the supply chain. Again, RFID and temperature sensors can help significantly here, as can blockchain technology, which provides an immutable chain of information that all parties have access to. Blockchain also helps prevent any changes to information along the way since everyone on the chain can see the changes. When these technologies are paired with a WMS, there is almost complete visibility into supply chain operations.
This level of documentation is particularly helpful during audits. Performing an internal audit at least once a year will ensure that processes are running smoothly, that you’re identifying trouble areas, and that you’re prepared for any formal audits from regulatory agencies.
One important aspect of this level of technological oversight is training. All departments and new hires need to be familiar with both your information systems and the different regulatory guidelines. It’s also helpful for compliance to document your training materials to demonstrate how thoroughly you train your employees.
Final thoughts
The recent uptick in the use of cold supply chains isn't slowing down any time soon. As part of the warehousing industry myself, I know just how overwhelming supply chain logistics can be. Given the complexity and challenges of the cold supply chain, it is essential to prioritize compliance and utilize the aid of the technology available. Having a firm grasp of the best practices will give companies a solid foundation to work on.
Beth Ward is the chief operations officer at Smart Warehousing.
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