In a recent post, we explored how there has been a shift in the economic landscape over the past year, leading to an environment where ecommerce businesses need to focus on profitability rather than growth. In this post, we build off this principle by exploring the three key investments merchants are making to drive ecommerce profitability. For a deep dive into what’s causing the move to these investments, we invite you to read our recently published whitepaper: Three Investments to Drive Ecommerce Growth.
The paper is based on interviews with dozens of VTEX merchants and industry experts to pinpoint three under-prioritized yet critical investment areas on which every retailer and brand should focus to drive profitably now.
- Double down on existing customers.
- Make inventory and fulfillment your strength.
- Engage with customers in new ways.
Let’s explore what’s happening in our industry that makes these investments so urgent.
Investment #1: Double down on existing customers
Retail and brand marketers devote most of their budgets to customer acquisition. However, 80% of profits come from 20% of the most loyal customers. A recent analysis by SimplictyDX revealed that sales among new customers lose an average of USD 29 per order, an increase greater than 300% in the last decade. Meanwhile, sales among repeat customers gain an average of USD 38 per order and have become 36% more profitable over the past decade.
As we enter an economic cycle where every online merchant’s goal is profitability, savvy brands and retailers focus on driving business among existing customers, emphasizing these three actions. Learn more about these actions by reading our whitepaper.
Investment #2: Make inventory and fulfillment your strength
Fulfillment and inventory can make or break a brand’s profit margins. Failures like stockouts, shipping the wrong orders, long delivery times, poor inventory visibility, and inability to process returns can quickly put retailers out of business. On the other hand, by syncing physical locations with ecommerce, retailers can boost profits.
According to our research, 55% of brands are still in the early stages of the omnichannel maturity curve and have a long way to go before they can claim inventory and fulfillment are a “strength.”
To help your business evaluate inventory and fulfillment capabilities to gauge your maturity levels, we developed an “omnichannel maturity model” that defines five stages of omnichannel maturity. Find how to advance along the maturity curve in the paper.
Investment #3: Engage with customers in new ways
There are more ecommerce sites than ever before, but they all look pretty much the same. Innovative brands and retailers are starting to differentiate themselves by employing new engagement models, which has resulted in a 40%+ improvement in conversion rates.
Every merchant wants to differentiate from their competition, but few do. Rather than spending millions of dollars on fancy website designs, merchants must stand out by reinventing how they engage with customers online.
Investing in new engagement models should be regarded as a long-term approach to boost conversion rates and profit margins. There are six new engagement models outlined in the paper that brands and retailers are experimenting with today. Each of these models is being brought to market in a mobile-first manner.
The time to focus on ecommerce profitability is now!
The next one to two years will be challenging for ecommerce merchants, and you have an important decision to make. Do you invest in the old way of doing business, or do you reinvent your ecommerce strategy?
Whether you go all in or devote 10% of your budget to any of the three investments outlined, the most important message is to make some of these investments now—because your competition certainly will. Don’t lose any more time, find out the best ecommerce investment for driving ecommerce profitability by clicking here.
