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6 ways to increase eCommerce profitability and grow your profit margins

Updated: Nov 28, 2023

Increase eCommerce revenue growth

Let's face it, eCommerce can be a tough nut to crack. With increasing competition, rising customer acquisition costs, and ever-changing consumer demands, keeping up and staying profitable can be challenging. But with the right strategies, these challenges are possible to overcome.

In this blog, we'll be diving into six ways you can optimise your eCommerce business to increase profitability and grow your margins. Look for actionable tips to implement today to start seeing results.

1. Increase basket size and Average Order Value

Let's start with the basics. Basket size and average order value (AOV) are critical factors that impact your eCommerce profitability. In simpler terms, the more customers add to their baskets, the higher the average order value, the more revenue you generate per order. AOV also has a direct impact on revenue generated through ad spends- if a customer were to order more at the same time, that’s more revenue generated for the same acquisition cost.

So, how do you increase basket size and AOV?

The answer lies in cross-selling, upselling, and bundling products.

  • Cross-selling involves offering products that complement the customer's purchase. For instance, you can cross-sell a laptop bag or mouse if someone buys a laptop.

  • Upselling, on the other hand, involves offering premium or upgraded versions of the same product.

  • Finally, bundling involves combining multiple products into a single package, often at a discounted rate.

And don't forget the power of free shipping! By offering free shipping at a minimum order value, you can incentivize customers to add more items to their baskets to reach the free shipping threshold.

In fact, a study by McKinsey found that offering cross-selling can increase the average order value by up to 30%, while comScore noted a 15% to 20% increase in cart value for orders with free shipping.

2. Reduce Customer Acquisition Costs

It is time to rethink how you optimize your customer acquisition strategy. By reducing customer acquisition costs, you can significantly increase your eCommerce profitability, and here are some ways you can do it.

  1. Focus on your existing customers: Repeat customers are more valuable to a brand as they represent loyalty, and the cost of acquiring them is minimal, so do keep your current customers happy and engaged. You can offer them loyalty points, rewards, referral discounts, or personalised recommendations to keep them coming back.

A study conducted by Bain & Company in collaboration with the Harvard Business Review revealed that increasing the retention rate by 5% can boost profits by 25% to 95% for eCommerce businesses.

  1. Focus on organic traffic: Instead of relying solely on paid advertising, drive organic traffic through SEO and content marketing. This will reduce your customer acquisition costs and help you build a loyal customer base.

  2. Leverage email marketing: Email marketing is a highly effective way to nurture leads and convert them into customers. You can use email marketing to share valuable content, special offers, and personalised recommendations.

  3. Depend on social media: Social media is a powerful tool for eCommerce businesses. Instead of spending money on traditional advertising, use social media to reach your target audience.

3. Reduce PRR (Product Returns Ratio)

Product returns can be a nightmare for eCommerce businesses. They not only impact your bottom line but also lead to unhappy customers. Consequently, PRR becomes a key metric for businesses to track. The ratio is a percentage figure representing the number of orders returned out of the total orders shipped by the company– a higher PRR means a greater percentage of products are being returned by customers, which is worrisome.

  1. Improve product descriptions: Ensure your product descriptions are accurate and detailed and provide enough information for customers to make an informed purchase decision. It also helps to represent the most important information in bulleted lists, and to add internationally recognized size charts for categories like apparel and footwear. This will reduce the likelihood of returns due to misunderstandings about the product.

  2. Provide excellent customer service: Make it easy for customers to contact you promptly and address their concerns. Respond to emails and messages quickly and politely. A happy customer is less likely to return a product.

Here are more ways to reduce PRR.

4. Manage Media Spending and Attribution

Are you spending money on advertising without knowing which channels drive the most sales? If so, it's time to optimise your media spending and attribution and get the most out of your advertising budget.

  1. Track your results: Use analytics tools to track your advertising performance and identify which channels drive the most sales through accurate attribution. This will help you optimise your media spending and invest in the channels that provide the best ROI.

  2. Use a multi-channel approach: Instead of relying on one or two channels, use a multi-channel approach to reach your target audience. This includes social media advertising, email marketing, and content marketing. By diversifying your advertising channels, you can reduce your risk and reach a wider audience.

  3. Experiment and test: Feel free to experiment and test different advertising strategies. Try A/B testing your ad copy, targeting different audiences, and adjusting your bidding strategy. You can find what works best for your eCommerce store by testing and optimising your advertising.

5. Optimize your supply chain and order fulfilment

Have you ever received a shipment that was delayed or damaged? If so, you know how frustrating it can be for you and your customers. Optimising your supply chain can improve customer satisfaction and increase your eCommerce profitability.

  1. Choose the right suppliers: Research and select suppliers who offer competitive pricing, quality products, and reliable delivery times. Work with them to establish a good working relationship and set clear expectations.

  2. Streamline your inventory management: Use inventory management software to track stock levels, forecast demand, and optimise inventory. This will help you avoid stockouts or overstocking, which can lead to lost sales and increased costs.

  3. Improve your shipping process: Use a reliable carrier to negotiate lower rates. Consider offering multiple shipping options, such as expedited or standard, to meet your customers' needs.

Research shows that reducing supply chain costs from 9% to 4%, can increase the margins by up to 100%.

6. Let AI take over

Artificial intelligence (AI) has taken over the world, and eCommerce is no exception. Particularly when it comes to processing vast swathes of data to arrive at sound business decisions, predictive analytics may just be what a growing eCommerce business needs. Enter – Graas Turbocharger – a next-gen product suite enabling businesses to utilise AI in their eCommerce ventures, taking advantage of the technology's ability to pick up on correlations that can easily miss the human eye.

It offers flexible frameworks you can customize for both large-data and small-data requirements. The platform enables companies to determine what is and is not working so they can adjust their tactics accordingly.

It efficiently drives outcomes, enabling eCommerce businesses to operate more quickly, intelligently, and effectively.

Parting thoughts

The eCommerce industry is full of competition with whales swallowing smaller fish left and right. The only way to sustain in this competitive market is to optimise for costs and achieve profitability at the earliest. As the internet becomes more accessible and more players enter the market, profitability and margins are going to be the final nail in the coffin that determine who shall remain when all the dust has settled.


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