As we head into 2023 there are several head winds looming for e-commerce businesses globally. After 2 years of boom the e-commerce industry is bracing for change. Demand is down year on year, consumer confidence is low and stock levels are at an all time high. So what can we do to prepare ourselves to thrive in this macro environment? Let's take a look! 1. Get really clear on your unit economics
The basis for any successful marketing is having the right goals and KPIs in place. As we head into the new year its more important than ever to know what ROAS you have to hit in order to be profitable on your first sale.
Costs have changed a lot this year from shipping to product cost, to return rates. All this affects how much you can afford to pay for a new customer. Optimising your COGS can be key to success as it unlocks room for customer acquisition spend.
For instance, can you negotiate better shipping rates with your distribution partner? Or can you look at your service levels for shipping and returns to optimise for profit?
Once you are really clear on this its crucial to communicate this with partners to align their strategies to your inputs. So you are working in the same direction. Our new customer ROAS goals tend to range from 1.6 - 15x. This will vary strongly based on industry, product and market. 2. Optimise your product portfolio and align your marketing spend
How profitable are your products and product categories? Is there room to simplify the portfolio and reduce costs? There might be scope to cut certain products that are not performing. This will lighten the load on merchandising, design and marketing teams. Clarifying the product strategy will also simplify your approach to marketing. Your ad spend should be aligned to the most profitable acquisition products. This guarantees your activities are driving the right product sales and keeps your inventory in sync with sales. If you are launching new products then it's crucial to have spend dedicated to those launches. Then form a strong GTM plan that enables these products to be successful. Here, it's key that your brand, product and performance teams are speaking the same language and are driving towards the same goals.
3. Set up your content creation processes for rapid iteration
Process is the least sexy part of business. But in many cases it's the key to a successful programme. Today's platforms consume content at an increasingly rapid pace.
That's why it's crucial to have a system in place to regularly produce, edit and test new marketing content. You need to build a system where you can churn out new content on a weekly basis to be tested on paid and owned channels. This should be a mix of UGC, and studio produced content. UGC relies heavily on customer produced content as well as creators that are aligned with your brand and values. Studio content is more polished and requires a bit more planning to get the right shots that can be used as marketing material. Performance teams need to be heavily involved in inspiring and directing this content creation. As they will be the ones ultimately using it and know what works for each channel. 4. Double down on owned channels such as Email and SMS
The times where you could grow an e-commerce business solely relying on paid media are over. CPCs are too high these days and performance is not stable enough. That's why it's imperative that you invest as much as possible in owned marketing channels. With channels such as Email and SMS there are usually 3 levers for growth: 1. Opt-in rates 2. Flow coverage. 3. Campaign frequency. Firstly its critical that you optimise opt-in rates to your owned channels. This ensures you can speak to the customers you need to speak in order to animate them to buy again. The aim is to get opt-in from at least 40% of customers. The second lever is making sure you have all your flows built out. These are 1. Welcome Series 2. Abandoned Cart Series 3. Cross-sell Series. Each business is unique in its customer behaviour so using insights around customer behaviour is key in building out the right messaging here. Finally you want to be staying top of mind with customers by sending regular comms about new products, features or seasonal changes. A frequency of 2x / week is usually right for e-commerce businesses. Although there is no golden rule and you have to figure out how much is just right by testing different approaches. Once your revenue per send declines that's a good sign that your frequency is getting too high. With SMS the frequency should be a little lower as its a more intrusive format. 5. Focus on improving your AOV and Revenue per Session Profitability is key in today's climate. The way to drive up profit per order is by increasing your AOV which will in turn increase your revenue per session. Your business model will get more solid as you increase the gap between CPC and the revenue per session your website is creating.
Bundling is a common way of improving AOVs across the site. Taking popular products and bundling them together, baking in a small discount for the customer is a great way to upsell customers. Another way is to use gamification tools to upsell customers into more products. For instance buy 3 get the 4th product free can work well for low AOV products. Using progress bars and other gamification elements can improve uptake. For fashion a free shipping threshold can help push up the order value. Understanding current customer behaviour is the basis for building incentives to shift behaviour to higher price points or bigger baskets.
Summary
So to recap, the first step is getting a full view of KPIs and re-setting your ROAS targets and overall goals. Then communicating these clearly with your partner orgs so they can drive towards the right targets. Looking at your product portfolio and cutting your losses here and focusing on winners will be key in improving efficiency and reducing complexity. Marketing spend needs to be aligned to the right products across the year. Your content creation process needs to be set up so you can churn out a high volume of content on a regular basis. This will increase the payback of your marketing overall. Having a mix of UGC and studio content is a must. Earned / owned channels will become ever more important in the quest for profitability. Doubling down here is a given. Finally having a strong focus on AOV improvements is going to be crucial in improving profitability per customer. Only through consistent testing and iterating you will be able to make those gains.
If you are thinking about and resourcing for all of these levers you should be in a strong position to weather the storm. If not feel free to reach out and we might be able to help!
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