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The Complete Guide on How to Maximize Customer Profitability in eCommerce

There are considerable benefits to maximizing the profitability of doing business with new and existing customers when you are involved in the eCommerce space. Reducing business costs and increasing profits from individual customer transactions will fuel the overall business growth.

The eCommerce industry is capital intensive, and to ensure the cash flow, profit, growth, and safety of your business, you need to increase your profit margin.

We will be discussing some effective strategies and concepts that will help you minimize the cost of acquiring and retaining customers while maximizing the net profit from revenue.

Ideas like product selection, pricing and promotion, sales channel optimization, and customer service delivery have been tested and trusted. We will look at how to test them out for your business.

The Importance of Analysis of Customer Profitability in eCommerce

Customer profitability refers to the net profit from offering a product or service to a customer. It is the difference between the revenue and the total cost spent acquiring and maintaining one or more customers over time.

eCommerce is a business with many moving parts crucial for its success. These parts are equally important and capital intensive. There are no 100% guaranteed tricks to maximize customer profitability in an eCommerce business. However, the idea is to reduce the costs of acquiring, maintaining, and retaining a customer; while increasing the profit from individual sales, selling high ticket offers, and increasing the lifetime value of individual customers.

I would assume a few things to provide more value to my reader. Such as:

  • You are involved in the eCommerce business.
  • You are interested in maximizing profits and minimizing costs in your profit. This interest means you are in the growth stage of your business.

It is safe to note that although it is a great idea to maximize customer profitability, it is necessary to sacrifice this to increase the investments made in your business to drive growth.

There are no sure-fire rules or strategies for increasing customer profitability. We should note that Industry, business size, niche type, and nature of product or service also influence the overall profits made from sales to customers over their lifetime.

Hence, this guide will explore strategies that have worked for eCommerce businesses and other related companies. Dedicating time for experimentation with one or more of these tactics to increase profitability will generate results.

Failure to do this will lead to waste - from money spent and those not collected - and, more importantly, stunted business growth will occur when new and existing customers do not get what they want or expect from your business.

Strategies and Tools for Improving Customer Profitability

Before implementing procedures to optimize your customer profitability, you must determine what makes a customer "profitable" and list all the customers you currently serve. Note strategies to acquire more "profitable" customers.

For a customer to be profitable, they have to fulfill one of two criteria;

  • Spend a lot of money with you in the short term
  • Do a lot of business with you over the long term

To maximize the profit from doing business with a customer, a company must also reduce the associated costs, such as marketing and ad costs, shipping and delivery costs, etc.

Many large and small eCommerce businesses deploy one or more strategies to maximize customer profitability. These include;

 a.    Customer Acquisition and Retention

Existing loyal customers are the life-blood of all eCommerce businesses. They provide the much-needed cash flow for running the operations vital to business success. Acquiring and retaining a new digital customer is just as important, though.

Invest in acquiring new customers, retaining old ones, and increasing the sales and marketing channels used to communicate with your target audience.

Exploit different marketing messages and channels to engage customers AND show them your business's value to the marketplace.

Carry out marketing campaigns to discourage inefficient consumer habits and decisions that will make the customer acquisition process costly.

Sell customer personas and data generated to third parties. These campaigns would optimize the investments in technologies and campaigns to acquire customers. This is a key goal over a customer's lifetime with your business.

Traffic and lead generation campaigns should look out to retain and optimize the conversion of your target customers into loyal customers.

b.   Product Selection, Pricing, and Promotions

Create a diverse catalog of products and services and identify the lowest and highest profit items in each catalog category. This catalog should include high and low ticket offers to cater to different customer ranges.

Then refine your pricing strategy to reflect the higher operating costs of an eCommerce business. This pricing strategy should be flexible and dynamic to accommodate the seasonal ebbs and flows in demand.

c.    Supply Chain Optimization (SCO)

SCO involves applying cutting-edge technologies and methods to reduce inefficiency and improve performance and delivery in a supply chain ecosystem.

Technologies used include; blockchain, artificial intelligence, and the internet of things.

Some strategies to improve the manufacture and distribution of goods and services in a supply chain are;

  • Minimizing all operating (manufacturing, transportation, and distribution) costs
  • Use advanced software for tracking, inventory management, and analytics
  • Managing demand and supply using a multi-channeled platform

Individual sales accompanied by a great customer experience works to maximize customer profitability. Providing multiple shipping options will give the customers a wide range of options while increasing the potential profit margin from a sale.

The time gap between a product's demand and supply is made as short as possible. The fast delivery will help minimize costs in running the supply chain while reducing the rate at which customers decline orders and improving their overall business experience.

The need for more accurate results in demand and inventory forecasting is ever-increasing. Advanced technologies such as AI can be used to analyze data from more than one market at a time. This technology results in more accurate trend analysis, helping the business take advantage of emerging opportunities.

d.   IT Modernization and Big Data

Big data refers to an extensive database that can accept data from various sources at an enormous rate and volume. This data variety, volume, and velocity make the processing very complex to handle.

Big data has the potential to be processed into valuable insights used to drive and sustain business growth. Investment in modernizing the information and software technology needed to analyze the big data from your eCommerce business will almost always pay back ten-folds.

Take advantage of insights and patterns from analyzing big data from customer demographics and buying behaviors to craft marketing campaigns and messages that ultimately maximize customer profitability.

Sourcing for data can become a headache for small businesses that can't afford to invest in systems and technologies to handle such data. Access to large stores of proprietary and third-party data can be a reliable and less expensive alternative an e-commerce business can leverage.

Return on IT investment is seen both in the short and long term. In the short term, this can be improved and efficient business processes that reduce the cost of doing business.

In the long term, the reduced cost of doing business will lead to a concurrent increase in the profit margins generated by the company.

Benefits of improved customer profitability to your business

Maximizing customer profitability has shown to be beneficial both in an eCommerce business's short and long-term growth potential.

Improved customer profitability has resulted in;

  • Significantly lower operating costs: increased customer profitability results in higher profit margins and streamlined business processes. This ultimately results in reduced operating costs.

  • Improved audience and market targeting abilities: to determine potential avenues for optimizing customer profitability, we first and foremost have to segment new and existing customers. This segmentation process help improve the quality of our audience and market targeting abilities.

  • Increased communication efficiency: the efficiency with which our marketing messages resonate with our target audience increases.

  • Development of a personalized customer retention strategy: when a segment of our target audience has proven to be increasingly profitable over time, we can better devise strategies to retain these customers with time.

  • Revenue and cost attribution to the proper channels: when the revenue generated by a customer transaction and the cost incurred to get, maintain and retain the customer is properly attributed to a target audience, we can optimize the channels that work best to get better results.This aid in better decision-making processes

Increasing customer profitability in an eCommerce business involves a delicate balancing act between reducing the costs of acquiring, maintaining, and retaining a customer - such as marketing costs, shipping costs, fulfillment costs, customer service costs, and other operating costs - and increasing the profit margins from individual sale - by selling high ticket goods, reducing supply chain disruptions and improved customer targeting.

Maximizing customer profitability is a continuous effort. It will first require that you segment your profitable customers and subsequently dedicate more resources and budget to increase this pool of customers.

This increased budget allows you to improve your sales and marketing processes to deliver value to your target audience better. Improving the overall experience customers have when they transact with your business.

The end goal of deploying these strategies is to convince the customer to spend more money and stay with your business, thus maximizing customer profitability.

Get the maximum possible profit out of your e-commerce business

Customer profitability is a complete "funnel" on its own. It includes all the business strategies and techniques used to attract, engage and convert customers.

eCommerce businesses ought to have a customer profitability strategy in place at all times. This data and information should be available to aid business decision-making and subsequent growth.

Managing marketing campaigns can consume time and resources. As a small and medium-scale eCommerce business, you need all the help you can get to maximize the return on ad spend. To generate more accurate look-alike audiences, automatically set up retargeting options, and better optimize marketing ad campaigns, deploy integrated software to automate your Facebook ad campaigns.

Softwares such as Convertedin segments customer data using artificial intelligence to create look-a-like audiences - to increase your target audiences - allowing you to create ad campaigns and optimize them on autopilot using artificial intelligence.