How to Boost eComm Profit Margins by 1000 Basis Points (Part 3)

Segments and Solutions

Test and Left

Of the three segments, the biggest opportunity is with Test and Left customers.  Let’s understand first how these customers hurt brand profitability.

In a typical eCommerce business, here is how the numbers stack up:

  • Revenues: 100 units
  • Gross Margin: 40
  • General and Admin expenses: 25
  • Marketing: 15
  • Profits: 0

The marketing costs can be further split into:

  • Adtech (acquisition): 12
  • Martech (retention): 3

Here is how the adtech spending can be further broken down:

  • Good Acquisition: 6
  • Bad Acquisition: 6

Of the Bad Acquisition:

  • Wrong Acquisition: 3
  • Reacquisition: 3

The reacquisition spending is happening largely on account of the dormant (Test) and churned (Left) customers.

The solution to eliminating the reacquisition AdWaste of 3 units (3% of revenues) lies with the Email 2.0 Reactivation Progency. Done right, this can also lead to a 10% increase in revenues (implying 4 units increase in profit margins). Taken together, this is an impact of 700 basis points:

  • 300 basis points from eliminating of the reacquisition AdWaste
  • 400 basis points increase in profits from increased revenue

So, how does the Email 2.0 Reactivation Progency make the magic happen? Here’s a summary:

  • Progency is a proposed software and service solution that targets dormant/churned customers that brands currently ignore.
  • Progency uses innovative “Email 2.0” tactics like gamification, AI personalisation, in-email payments, and Action Ads to re-engage these customers profitably.
  • This eliminates wasted ad spend on re-acquiring dormant customers. Progency also drives incremental revenue from this “Blue Ocean” of ignored customers.
  • For brands, there is no risk or upfront cost. Progency only gets paid on successful outcomes through revenue share.

Best and Rest

The combination of Velvet Rope Marketing for Best Customers and a next-gen Profipoly Stack which enables the prediction of the next best action for Rest Customers can help drive more revenues. A 10% increase in revenue can drive a 400 basis points increase in profits.

Next and Guest

The goal here is to eliminate wasteful wrong acquisition and ensure immediate identification of anonymous visitors to add 300 basis to the profit margin. This is done via a set of initiatives which can be clubbed under the broad theme of “near-zero acquisition cost.” For example, brands can use the data from the most valuable customers – Best Customer Genome – to influence the targeting of future customers. They can also drive more referrals from existing customers. They could also use gamification for zero-party data, micro-newsletters, in-store QR codes to maximise identification of anonymous visitors.

Additional Reading

The following essays have more on the ideas discussed:

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.