Four advanced solutions to maximising eCommerce business profits

The world of e-commerce continues to represent a lucrative prospect for determined online business owners. According to data published by Statista in 2023, e-commerce sales have grown from 7.4% - 19.5% of total retail sales worldwide in the last 8 years alone, with experts believing e-commerce revenue could equate to a value of over $8 trillion by 2026.

With over five billion consumers now active online (a share that represents as much as 66% of the total global population) it’s simple to forecast that the commonality of online transactions and digital marketplaces will likely continue to have a major impact on general retail sales in the immediate future. However, increasing digital sales may not always equal greater profits.

As the number of e-commerce retailers continues to rise, competition within the marketplace can become increasingly fierce, potentially leading to decreasing profit margins and inflated operating costs. As of 2023, it’s believed that at least 71% of registered businesses have a dedicated website, with over 70% of SMBs expanding their online presence in recent years.

While competition may be fierce, that’s not to say that modern businesses shouldn’t continue to pursue growth in the digital realm, leaders simply need to adjust their operations to ensure they’re operating with optimal efficiency. To help online business owners better navigate the current market, below are four advanced solutions to maximising e-commerce business profits.

Understanding e-commerce profit margins

To begin, it’s wise to briefly cover profit margin calculations to ensure even new e-commerce business owners understand how to appropriately measure commercial profitability. In short, online business profit margins highlight the variance between sales revenue and expenses.

To demonstrate an online business’ profit margin as a percentage, stakeholders simply need to divide gross profits by total revenue on an annual basis, then multiply that value by 100.

To gain a more detailed understanding of an online business’ profitability, stakeholders may wish to calculate multiple types of profit margins. The three most important calculations include:

Gross profit - The % difference between total revenue and the cost of goods sold - [(total revenue - cost of goods sold) / total revenue] x 100

Operating profit - A wider calculation including broader costs like payroll, insurance, rent and advertising - {[total revenue - (cost of goods sold + operating costs)] / total revenue} x 100

NET profit - This calculation includes all business expenses, factoring in elements like taxes and interest payments - [(total revenue - total costs) / total revenue] x 100

Identifying a target profit margin

While a business’ ideal profit margin will vary depending on the size and scope of individual operations, one factor remains constant, a larger profit margin equates to greater profitability.

To simplify matters, most e-commerce businesses should look to achieve a profit margin of between 10% to 20%, with the latter value generally believed to represent great profitability.

Four ways to maximise e-commerce business profits

With a good understanding of how to accurately calculate profit margins, online businesses should be in a position to analyse key operations with an eye to improving profitability. Below are 4 methods teams should consider when making efforts to maximise e-commerce profits.

1. Evaluate operating costs

Before building on existing operations to maximise profits, business owners should evaluate current operating costs to determine whether any savings could be made. Inefficiencies have been known to cost businesses as much as 30% of their total revenue per year, meaning any efforts to locate and address internal oversights may aid teams in improving profitability.

Common areas in which inefficiencies negatively impact e-commerce operations include:

Overproduction - Overproduction of saleable products accounts for over $136 billion worth of commercial losses per year, automating inventory management, production, material procurement and allocation processes using smart solutions such as Katana’s cloud inventory software can help online businesses to optimize production efficiency
Product defects - Defective products represent another major source of profit loss for e-retailers, both via loss of sales and client returns (the latter of which may also impact brand reputation), assess the frequency of defective products received per shipment and evaluate whether a change of supplier may act to improve profitability

Logistics - Ensuring fulfillment processes and customer delivery times are suitably optimized will help e-retailers to maximise total profits, make efforts to consolidate shipments to reduce transit times and use live tracking tools to identify inefficiencies

2. Improve fulfillment efficiency

Streamlining the procurement, production and distribution of saleable inventory is central to maximizing profitability for all e-commerce operations. Implementing systems to consolidate inventory data into a single centralized platform will help teams to better analyze how current fulfillment processes are performed, enabling staff to optimize tasks based on real-time data.

Leaders should consider developing cloud-based inventory management systems, as such solutions will continually analyze live supply chain data to suggest actionable improvements. In addition, stakeholders can access and review real-time inventory information remotely at any time, enabling management teams to adjust operations as and when situations change.

3. Embrace multichannel selling

Online businesses of all sizes can effectively scale core operations by pursuing multichannel selling practices. Website sales can be supplemented on pre-existing channels that already have sizable audiences, enabling retailers to scale ordering and production tasks to leverage a greater deal of purchasing power with suppliers often translating to reduced costs per item.

Additionally, e-commerce businesses should consider the growing popularity of live shopping experiences conducted on social media platforms. Considering around 4.5 billion people use social media worldwide, live shopping platforms have the potential to reach large audiences outside of a brand’s usual clients. Furthermore, studies reveal live shopping conversion rates may be up to 10X higher than those typically observed on traditional e-commerce platforms.

4. AI-powered personalisation

Research suggests that e-commerce consumers respond well to personalised experiences on digital shopping platforms. Data reveals 56% of consumers are more likely to return to a website that offers personalized recommendations, while 74% claim to feel frustrated when an e-commerce platform does not include any prominent user-personalization features.

Integrating AI tools into e-commerce websites enables businesses to analyze user behavior, helping brands connect customers with additional items that are likely to convert into sales. In addition, AI chatbots can be used to optimize customer service functions and reduce labor costs, freeing up human staff to handle complex issues by automating repetitive tasks. All in all, AI integrations within e-commerce have been shown to increase retention by up to 15%.

Summary

With e-commerce sales continuing to rise year-on-year, most modern business owners are well aware of value in digital retail. However, as more businesses adjust their operations to make better use of e-retail platforms, increased competition may begin to affect profitability.

For online retailers to position themselves above their competitors, and ultimately maximise commercial profits, it’s important to promote efficiency across all aspects of their operations. With support from smart technologies, AI software and cloud-based management systems, teams can optimize almost all essential processes in response to live data insights. Making efforts to adjust business practices with these solutions in mind can help to boost profitability.