E-Commerce Profit Margin: 5 Things That Are Hampering Your Profitability

Have you ever heard of the butterfly effect?

The idea is that a single flap of a butterfly’s wing in one place can have a ripple effect that causes a huge storm somewhere else.

The point? What might seem like just a small difference at first-glance may turn out to have a much bigger impact further down the line. The same can be true for your e-commerce profit margin.

While there are lots of potential e-commerce challenges you may face, below we’ll discuss the top 5 “butterfly wings” that could be leading to problematic e-commerce profit margins for your business – and how to get your e-commerce profit back on track too! Let’s get right to it.

1. Bad budgeting

It’s no secret that running an e-commerce business means dealing with a lot of different expenses. Sure, you may be avoiding certain overhead costs that traditional offline businesses pay like rent and utilities. But at the end of the day, it can still be difficult to keep track of the various costs your online business pays.

E-commerce expenses include:

• Business licenses/permits
• Platform listing fees (more on that just below)
• Payment gateway fees
• Website development
• Third-party apps
• Production
• Marketing
• Shipping
• Etc.

When you have so many costs to cover, sometimes they can start slipping through the cracks or – worse yet – getting altogether out of control. Wherever and whenever possible, you should seek to cut your e-commerce operating costs in order to optimize your e-commerce profits. If you can get rid of apps that aren’t showing a positive ROI, do it. If you can find a cheaper way to produce your goods without sacrificing quality, go for it. If you can ship your products for less through a different company, make the switch.

Even if it’s just small reductions being made to some of your operating expenses, they will add up over time and the difference will show in your e-commerce profit margins. Remember the butterfly effect? It can work in a positive direction also!

2. Using the wrong platform

To put it simply, the perfect e-commerce platform doesn’t exist. The ‘right’ answer for you really depends on what you’re looking for when establishing your online business. That said, there are some website builders that offer more (and arguably better) features than others and, as a result, have larger numbers of e-commerce merchants using their services.

The goal in choosing the ‘right’ e-commerce platform for your business is to get the most bang for your buck. Spending less isn’t necessarily the right answer if your profit margins aren’t growing.

The classic saying still applies: sometimes you need to spend money to make money!

Shopify

Out of all e-commerce platforms, Shopify ranks as #1 in the United States and has more than one million businesses operating through them in over 175 different countries around the world. In fact, Shopify controls roughly 18% of the world’s e-commerce market, second only to WooCommerce.

Advantages to using Shopify include:

• Easy setup for beginners, no coding needed
• Top-notch customer service
• Sell through multiple channels (Facebook, Pinterest, Amazon, etc.)

One of the biggest perks of using Shopify: having access to BeProfit – Profit Tracker, the only expense tracking app of its kind that turns your store’s complex data into an easy-to-understand and customizable dashboard. The app isn’t available on any other e-commerce platforms, it’s a Shopify profit calculator through-and-through (for now, at least). If optimizing profit margins is your goal, Shopify (and BeProfit) could be the right choice for you.

WooCommerce

WooCommerce is another great choice for e-commerce business owners, but is shaped a bit differently than Shopify (and doesn’t give you access to a Shopify profit calculator like BeProfit!). WooCommerce actually controls the largest percentage of the e-commerce market, holding out as the #1 most popular e-commerce technology and dominating 30% of the market.

Advantages to using WooCommerce include:

• Ability for complete customization
• It’s free to install and plugins/extension are fairly priced
• No transaction fees

To reiterate what we said earlier, saving money on the front-end of things doesn’t always translate into bigger e-commerce profit margins when push comes to shove. Sometimes, cutting back on costs can end up hurting your revenues and doing more harm than good. With WooCommerce specifically, the money you’re saving on accessing the technology may need to be reinvested in either learning how to write custom code or paying an expert to do it for you.

Magento

In the list of top e-commerce technologies in the world, Magento ranks third with 10% of the market using their technology. It’s similar to WooCommerce in that it’s an open-source e-commerce platform that allows you to write your own code to customize your website much more than you can on other platforms like Shopify, but (clearly) not as popular yet.

Advantages to using Magento include:

• Advanced customizability
• Free to download
• Strong marketing features

We hate to sound like a broken record, but once again – flexibility comes with a price, even if the technology is free on the face of it. If you go with Magento, you’ll need to invest a fair amount of time and/or money into designing and developing the type of e-commerce website you want. In the end, you may wind up paying as much or even more than you would if you went with Shopify.

Of course, the ‘right’ e-commerce platform for your business will boil down to what it is you want to get out of your online store. If building a unique website is very important to you, then Magento or WooCommerce may be the choice for you. If factors like ease of use and security take priority, then Shopify could be the better option.

3. Keeping too many tools

With so many plugins, extensions, apps (or whatever you want to call them!) available, it’s no wonder that so many e-commerce business owners find themselves awe-struck when the bills come in at the end of the month. That’s why the third point on this list of e-commerce profit hurters is keeping too many tools.

Now, we don’t want to sound too much like your grandma when we say this, but stop spending so much money on fancy little gadgets and gizmos! They may be flashy and cool, but we got by just fine without them back in our day.

In all seriousness, if you want to see an increase in your e-commerce profit margins, you need to start running an audit of your digital tools on a regular basis. Some of them simply won’t be bringing back enough money to make it worth the cost. Yes, there will always be those select apps that truly do add great value to your business and help you do things like:

• Increase e-commerce conversion rates
• Create a strong landing page
• Reduce shopping cart abandonment
• Provide premium customer support
• And more

The only way to ensure that you aren’t getting carried away with the number of digital tools your e-commerce business is paying for is to differentiate those that add value from those that are just nice to have. Set yourself a monthly budget for apps so you can protect your e-commerce profits from any unnecessary spending.

4. Going overboard with packaging materials

You probably already know that the shipping cost that an online merchant pays can be determined in several ways. On one hand, shipping cost is typically correlated to the weight of an order – that is, the heavier the order, the more it will cost to ship it. On the other hand, you’ll also need to consider other factors like where the package is shipping from and to, if there are flat fees that the shipping service charges, and so on.

We mention those details to make the point that some shipping cost factors can be controlled, but others cannot. Probably the easiest factor for you to get a hold of is the packaging material you use.

Now, there’s no doubt that using branded packaging can have an awesome impact on your customer experience. Consider the fact that one study found that 40% of customers are likely to purchase again from an online merchant that uses ‘premium packaging’. But those upscale customized boxes and protective packaging materials can take a hefty cut out of your e-commerce profit margins. Beyond the cost of actually having the boxes designed, those custom-made packaging materials may also weigh more than the cheaper (or even free) alternatives that exist out there.

One alternative you can use to protect your e-commerce profits is to set different packaging methods for different products. For example, a padded envelope may be sufficient to protect a certain product being shipped out, so you can save yourself money by avoiding packaging that product in a cardboard box that weighs more.

Some carriers even offer free packaging materials – so be sure to do your due diligence and compare shipping methods before you decide to go with one.

5. Paying a middleman

Last but not least, the final e-commerce profit hurter you should be avoiding is paying middlemen. What are middlemen? A middleman is essentially any third party that stands between you and your manufacturer, you and your carrier, or you and your clients. We’re not here to knock on every middleman out there – far from it. Many are downright helpful. But their services can still be adding unnecessary costs to your budget and chipping away at your e-commerce profit margin.

As with the earlier e-commerce profit hurters, the solution is to run an audit of the middlemen that exist in your business model. Which of them are bringing real value and which are dispensable? Which of them is doing a job that you could potentially get done at a cheaper cost or even on your own?

The bottom line: Cutting out middlemen will give you more opportunities to raise your profit margins.

Start growing your profits

We promised to show you the top 5 things that are hampering your e-commerce profits along with ways to avoid them – and we’ve delivered. Now the ball is in your court. But there’s no need to rush and try to hit all 5 points on this list in one go. Take your time and use this guide to make the improvements you need to make to grow your business’s profitability.