Running a Shopify store sounds like a good idea for many, but keeping that store profitable is something many newly found (and even seasoned) e-commerce owners struggle with. You see without a proper profitable pricing strategy, your e-commerce store will quickly end up costing you more money than it makes you.
But there are various strategies the best e-commerce owners utilise to ensure their store remains profitable.
In this post, we're going to show you a four-step framework you can use to ensure your new store is profitable, or increase the current profit levels you currently get.
You'll learn:
- Why knowing your outgoings helps you set healthy margins your customers are willing to pay
- How to increase your product's pricing by using clever branding activities
- Why and how you need to drive a significant amount of traffic to your site to increase overall traffic
- The importance of implementing tactics that increase your average order value.
Know your outgoings
Before you even think about your profit, you really need to understand your outgoings. When you have a clear idea of your various e-commerce business expenses, you'll have a much stronger idea of what price point you should price your products at.
Source: https://rebrand.ly/shopify39523
For starters, Shopify offers three different pricing plans for you to choose from.
Most people start off with the basic plan and only move onto the more advanced (and expensive) plans once they start to scale their store.
This strategy makes sense because there is no point paying for additional services and features that you won't ever actually use.
And although Shopify offers all their users a 14-day free trial to help them get started, the first expense you'll have to factor in is the price of your Shopify hosting.
So, as long as your store makes more than $29 a month and you have no other outgoings, you'll run a profitable store.
But you know as well as many, simply using Shopify alone won't translate into a well-formed, e-commerce store and at best, you'll look amateur.
That's why the best e-commerce owners, couple Shopify with a range of different tools to help them market and sell more products.
Inventory
You need to manage your stock somehow and one of the best ways to do this is through an inventory management software. This software will allow you to have a solid idea of what products you have available so you don't end up with unhappy customers.
Source: https://www.veeqo.com/pricing
Veeqo pricing starts from £125 a month, so it's probably an investment you want to make when you're further in your e-commerce journey.
Handy note: If you're just starting out, see if you can handle your stock at home. Yes it'll be a lot more time consuming having to manage and maintain all your stock, but it'll save you money and allow you more room to grow.Shipping, returns and refunds.
If you want to keep your store profitable think seriously about how you plan to ship your products and where to.
It goes without saying that international shipping is a lot more expensive for you than simply domestic shipping options.
And if you want to offer site-wide free shipping you should factor that additional cost into your plan.
You also need to think about how you want to handle refunds. Studies have shown that e-commerce stores who don't offer refunds, exchanges or returns see a lower conversion rate than those that do.
But alongside that, you need to consider the cost of this to you. By offering free refunds, you might find that you also need to increase your prices to support the potential set back for you.
Marketing and design
In an ideal world, you'll have all the necessary skills to run a successful e-commerce store, but in many cases, there are specific tasks that you might need to outsource. Maybe you're not quite qualified in design as you'd like to be. Or perhaps you'd like a custom video made to showcase your product's features.
Other outgoings to consider:
But those aren't the only outgoings you need to consider. Tasks like:
- Choosing an affordable, but secure payment gateway
- Warehousing
- Business insurance
- Taxes
- Salaries for potential staff
- Facebook advertising or google shopping advertising
Set the right margins
The simplest ways to calculate your margins is to take the total cost of you acquiring your products from the cost you sell them at.
If it costs you $5 to manufacture each product and you sell them for $50 a piece, you have really good margins.
Obviously, this doesn't take into account the other ongoing business expenses we mentioned earlier.
For this reason, you should try to make sure your margins take into account the other outgoings you'll have to make.
If it costs you $5 to manufacture your product and you sell it for $10, you might assume that your margins are good because you make $5 for every product sold.
But when you add up the total cost of running your business, you'll quickly realise how easily your margins are eaten up by things you might not have even considered.
When this becomes the case, you have two options:
- Find a way to manufacture your product for less money.
- Improve your businesses brand perception to increase the price of your products.
Increase pricing with branding activities to drive traffic to your store
Some people create general stores when they first start with Shopify. This is fine but the difficulty you'll run into is how to make your store stand out from the rest. How do you show people they should buy from you and not someone else entirely?
That's where branding comes into play. A store with top brand identity is able to charge a premium price compared to a generic store that looks similar to the rest.
This is the perfect example. This store sells eco soil. This product page is actually on their homepage, but because they've gone straight in and tried to convince you to buy, there's no chance to get to know who they are as a company and why you should buy from them.
Source: https://www.monkeysoil.com/en/
Compare that to this other store that also sells eco soil. They've created a very strong brand image that highlights not only who they are but why they're the best to buy from.
Increase average order value
By increasing your average order value, you end up generating more revenue per customer than you normally would. This means you ultimately end up spending less money per dollar earnt.
Think about it like this:
Suppose you use Instagram ads to drive customers directly to one of your product or category pages.
Now let's say it costs you $10 to acquire a customer.
If you get 10 customers and they each spend $100, you've made $1000, now you need to minus the $100 it took for you to acquire them in the first place.
So total profit = $900
Now, imagine if you increased the average order value. In this instance, you get 5 customers coming to your site, and they each spend $300
You've made $1500, and when we minus the $50 it took to acquire those customers, your total profit is $1450.
In the above example, with fewer customers, you've managed to generate more profit.
If you're looking for ways to increase your average order value, think about ways you can show related products people might be interested in.
Amazon does this well by showing you ideas for products that are frequently bought together.
Shopify profitable pricing final thoughts
Whether you're looking to improve your current store, or get started on the right track, if you're not thinking about profit first when it comes to your e-commerce store, you're inevitably going to leave money on the table.
And that money is money you deserve. After all, you've worked hard to make sure you've chosen the right products and set your store up in the right way.
What strategies do you have in place to ensure your Shopify store remains profitable? Leave a comment below.
