In the following article, we are going to share our approach to dealing with an issue that almost every eCommerce website deals with, driving customers to the store for the first time. No matter how high quality the products being sold are, getting them in front of the eye of customers is both difficult and costly, often resulting in high costs for customers who order little and never come back again.
Customers who do not order much, or customers who order once and then are never seen again create a true burden on the average eCommerce site. These customers cost more to bring in than they spend, with each new customer costing seven times more than retaining a current customer. Each new, one-time customer was costing the site money and dramatically lowering the profit margin.
Enter our client, Jim. As the owner of an eCommerce site that had been selling natural cosmetics successfully for a few years, Jim wasn’t entirely happy with how things were going. While his website worked well and he was making sales, his profits were lower than he had wanted. He decided to do something and turned things around by contacting us to help him improve his bottom line. Today, his profits are soaring.
What changed? Read on to learn how we managed to drive a 40% increase in profits by doing a few simple things that anyone can do with their store – all without increasing the marketing budget or making any other financial investments in driving traffic!
One Hit Wonder Customers, and the High Cost of Getting Them
We all know it costs a lot to get people to visit any given online store. The market is truly flooded, so an eCommerce site must stand out and work hard to bring the customers to their page. This process is where most of the marketing budget is spent, and even then, only a small fraction of those who visit will stick around and make a purchase.
For all that work, only about 30% of those actual customers will make a repeat purchase, meaning all the work and funding that went into bringing customers to the website must be repeated again and again to bring new customers to the site. Of course, this is far from the most profitable or desirable way to go, but for many eCommerce websites, it is all they can do to stay afloat.
The bottom line: customers who only visit a website and purchase something one time are not profitable for the site.
We’ve seen this play out over and over, pulling even some of the most promising websites down with it. Unfortunately, this is par for the course and most definitely what you can expect for the average eCommerce site. But being average doesn’t bring in the profits that site owners like Jim want. So, we set out to change the landscape.
The Setup: Nailing Down What “Average” Is
We started with an understanding of what we had and what the end goal was. In our case, we know that the end goal is to increase the profit margin for Jim. To figure out what we had, we looked at two groups of customers – those who made a single purchase and those who have returned to make at least one other additional purchase.
Since it is those customers who make only a single purchase that present the biggest possibility to capitalize on what is already being done to market the website, that is the group we focused on for this study. What follows outlines these customers and the actions that we took to turn Jim’s website around.
Jim’s average customer was only spending about $55. This number represents how much a one-time customer spent, on average, having considered all of the one-time customer data we gathered.
For each one of those ‘average’ sales, Jim was spending $15 to acquire the products (cost of goods), $9 for free shipping, first time customer discounts, and a special discount for joining the mailing list just to entice a first time customer into buying something, and $20 for marketing that brought the customer to the website to begin with. As you can see, not counting any overhead Jim has, there isn’t much left over.
Each month, the site saw about 950 of these types of orders. This resulted in a total revenue of $52,250.
The product cost, plus the discounts, free shipping, and marketing all cost $41,800.
That means for the month, Jim’s profit was only $10,450.
Increasing Profits without Spending More in Marketing
Numbers don’t lie, and in this case, they were telling a dire story of a business in peril. Our customer, Jim, made very little from the hard work he was putting in and it seemed like he was not getting anywhere. Seeing the data set out in front of us, we hypothesized that working on improving two things could have a dramatic and rapid impact on the store’s profit.
1. Increasing the average order value.
2. Increasing the lifetime user value.
By working to increase these in regard to the pool of one-time buyers that we were looking at, we thought that we could consistently improve the metrics of an otherwise draining customer base.
Increasing the Average Order Value – Upselling
The first thing we wanted to focus on was increasing the average order value because we already had customers coming to the website through the marketing systems that were already in place. It would be easy to see a dramatic improvement in the bottom line if we could get these people who were already going to purchase something to purchase more when they did.
How did we do this? Suggesting additional products or deals to a customer who is already in ‘purchase-mode’ can often be the most successful approach to increasing a purchase amount.
It’s not unlike the impulse purchases you make from the shelves near the registers in your typical brick-and-mortar store. For Jim, we used this upselling tactic in a way that suggested upsells to visitors that just made a purchase in a marketing tactic known as ‘post-purchase upselling’.
In order to implement this, we used InfinityCrowd Platform to help us build an automatic personalized response to each customer who purchased an item from the store. With the built-in AI, infinitycrowd would identify what the visitor purchased, along with the items they looked at and considered during their visit, and other information collected during their shopping trip and then generate limited time deals that the customer could take advantage of for one hour following their initial purchase.
These deals included things on deep discount that were deemed relevant and appealing by the system, which were easily added to the order made previously with a couple of simple clicks.
What the customer will see looks like this:
Through the course of our study, we managed to generate an additional $4,055 in sales for Jim’s site using the upsell method. While this may not look groundbreaking, it is if you look a bit deeper:
The infinitycrowd plugin allowed us to pick and choose which products were offered as upsell options to buyers on Jim’s site. While the revenue increase was only about 8% of the total sales for the month, it was made through the sale of products that had a high profit margin. Even with deep and aggressive upsell discounts of 30-40%, the profit made from each sale was still incredible.
The total cost of the goods that were upsold was only $597.
Adding the pure profit of $3,458 to the total profit for the month, Jim’s site brought in a total of $13,908, or an increase of 33% with just this step alone.
At the end of the day, the low acquisition cost of sales from upselling, and the lack of marketing dollars that go into the process, resulted in a 33% increase in profit from an 8% increase in order value. Add to this the extreme flexibility that high margin products bring to the table, and we can call this approach a success for Jim and his site.
Increasing the Lifetime User Value – Special Offers
Completing the upselling portion of our case study gave us a lot of new information to sift through, including some that pointed to the reality that almost half of the customers who made a purchase completely disregarded the upselling offers presented to them meaning that our last attempt to market to them was ignored.
Why? There were multiple reasons that these customers did not engage in this strategy. Some of the reasoning included the fact that not everyone completed the payment process and some just left the site with items in their shopping cart, some customers paid with PayPal and did not want to return to the website and thus, never saw the offers, and some customers incorrectly assumed that these were not one time offers.
While it might sound like these customers were a loss for us considering this strategy, we chose to look at it from a different point of view. Instead of a loss, these were customers who we could further market to in an attempt to maximize each potential order’s value. To do this, we implemented a special email campaign targeted at first-time customers where we once again offered them one-time special pricing on products that were relevant to them based on metrics related to their shopping habits.
We used KLAVIYO to set up this campaign, but it can also be done using any of the popular email marketing options out there. We knew that repeat customers would likely be back to purchase more products, and we did not want to push them, so we did not target them with emails. We only sent emails with offers to those who were customers purchasing from the site for the first time.
The premise of this approach is to offer a special deal or deals to customers who have purchased something for the first time from the site as a thank you for their business. Like the upselling approach, products are identified, and discounts are applied so that the customer getting the email will have the chance just this once to purchase one of the products in the email at an incredibly low price. Unlike upselling though, only two products are offered so that customers do not get too overwhelmed or confused.
Again, the products chosen were those with high profit margins and that the customer has a limited amount of time to take advantage of the offer. As they may be on the waning side of ‘purchase mode’, they have the option to add these items to their original purchase order.
A Special Offer Results
The campaign to send emails to first-time customers to generate additional orders and get people to purchase more from the site was a success as well. While smaller in number, another $1,120 was made during the month of the case study. Of this, only $190 of it was product cost since offers were for high profit margin products that could be discounted deeply and still bring in quite the profit. A total of $930 in pure profit was added to Jim’s profits for the month.
Remember, there was no cost to acquire these sales as they were generated via customers who already were brought to the website through the marketing process already in place.
All told, the month of our case study showed Jim’s profits increase from $10,450 to an incredible $14,838, a 41% total increase in profit just from one-time customers alone!
Case Study Conclusions
At the end of all our work, it was apparent that our strategies were successful. By increasing the individual customer order value and the customer lifetime value, the profits of any ecommerce site will increase quite dramatically. The key to success here is in the tools that you use to implement these changes and the products that are leveraged to make the biggest impact.
High profit margin products are always the best to discount when using any approach. The infinitycrowd tool helps to make these products and the discounts you attach to them more visible and easier for customers to access and purchase. This resulted in the highest profit gains and stands to do more as more customers visit the site.
Where one-time customers used to be a drain, the study shows that these are the customers that stand to offer the most when it comes to increasing the profits of an ecommerce site like Jim’s. Passing them off because they don’t return is a mistake, as is giving up. With the right strategy, implemented with the right products as seen above, it is far from impossible to see the profits you’ve been hoping for.