How To Increase Profit or Why It Is Essential To Look At Profit And Not Turnover
When evaluating the success of your e-shop, do you focus on turnover or profit? While a significant turnover signals buying interest, profit is an indicator that will help you evaluate the success of your business strategy. After all, the magic formula “to make a profit” did not appear in the definition of a business for nothing.
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Turnover vs. profit
At meetings with clients, we sometimes find an exciting finding – the inability to distinguish turnover from profit. And it is precisely in such a case that a frequent business mistake occurs, such as the effort to maximize turnover regardless of the gain achieved.
Do we gain anything by just pouring more marketing money into a product that isn’t making us money? Therefore, it is necessary to distinguish between these two terms before setting up a marketing strategy.
As both definitions imply, a high turnover does not necessarily mean that the company is making a profit, as costs can be pretty high. In such a situation, it is reasonable to think about how to reduce these costs or sell more with the exact prices and thus make a profit. For our clients, we have proven to follow the below points.
- Where there is sufficient margin, there is profit.
- Find out what your customers want and what pays well.
- Not a single step without knowing the competition
- Do you know your typical customer?
- There is no channel like a channel.
Where there is sufficient margin, there is profit
An overview of individual product margins is easy for a small e-shop. But if you own an e-shop that has hundreds or thousands of products, knowing your most profitable products can be a problem. However, a good overview of the profitability of individual products is one of the fundamental pillars of the success of e-shops that remain profitable for a long time.
If you know your essential products, you know what to build on. Evaluating the profit from a marketing campaign looks entirely different for products where you have a margin in tens or at least units of euros than for products where we are talking about cents.
The first step that we implement in cooperation with our clients is, therefore, creating a table with an overview of the margin of individual products. For small e-shops (up to a few hundred products), we determine the margin for each product. For larger e-shops, on average, for each category/subcategory.
For products with a higher margin, we subsequently use higher costs for marketing and vice versa. We promote products with a small margin with minimal or, ideally, zero costs – for example, as recommended products for other products.
Find out what your customers want and what pays well
It is advantageous to offer products with high margins, but what if customers have no interest in them? The second step, therefore, consists of a survey of customer needs and preferences. Using analytical tools such as Google Keyword Planner, Ahrefs, Moz, and the like, we will perform a keyword analysis that will tell us what customers are most interested in from the given area.
Not a single step without knowing the competition
In an ideal world, we would find products in high demand and have a high margin – customers would flock to us all at once, and we would be thousands of euros in profit. Well, we will certainly not be the only ones on the market.
And so, without knowing the competition and evaluating possible oversaturation of the market, it makes no sense to embark on sales and marketing campaigns for products without added value.
Do you know your typical customer?
Much has already been described in marketing circles about the creation of personas, the so-called descriptions of typical customers. Simply put, personas can be defined as fictional models of real people created based on data and detailed research. They show our customers’ goals, preferences, way of thinking, decision-making, and shopping.
Their main goal is to help us better understand the needs of a typical customer and to adapt the form of marketing communication and customer services.
There is no channel like a channel
The last step is choosing the proper communication and marketing channels. And that’s precisely what the identified person we determined in the previous step will help with.
Yes, popular social networks such as TikTok and Instagram are booming. Still, it would be challenging to find a typical customer, for example, for the mentioned premium audio systems, on them. On the contrary, regular customers of CBD products, which enjoy great popularity today, can be found mainly on the aforementioned social networks.
Choosing the right communication channel, adapting the tone of voice to our target group, or knowing the time our target group spends most online may seem like small things at first glance. But they are the ones who decide whether our campaign will be just wasted funds that will not be returned to us in the form of profit, or vice versa – despite the exact costs as in the past, but with a better-targeted campaign, we will get a much higher yield.
Therefore, when choosing communication channels, be bold and take into account, in addition to trends, the facts that have brought you to know your typical fan. A campaign for premium audio systems on the social network TikTok may entertain the public, but it likely will not get you potential clients.
However, a quality billboard in a gated, lucrative neighborhood can bring you plenty of potential customers, even though billboards have long since passed their heyday.
We have managed to explain the difference between turnover and profit sufficiently, and at the same time, we have inspired you with tips on how to maximize the profit of an e-shop. Because sometimes, even a seemingly minor change can bring significant results.
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