How e-Commerce Audits Should Be Conducted
We believe that when auditing an e-commerce business as a growth partner, it is important to do our best to understand the other bottlenecks that may be facing a business to better give advice on when growth services make sense. We’ve compiled some considerations for you whether you are considering an outside firm or in-house team to help scale your business.
At the end of the day, there are only two ways to make more money as an e-commerce business
- Acquire customers for less
- Make customers worth more to you over time
Having said this, there are non-paid acquisition and email/SMS marketing variables that can sometimes prevent the above from happening.
- Ads or Email/SMS
- Supply chain
- Financial management
- Among others
For example, let’s say a business’ gross margins are 60%, and new customer roas (new customer revenue/ad spend) is 2.0. This store would functionally be acquiring customers at a profit since at 60% gross margins a store breaks even at a new customer roas of 1.66. But perhaps the store has little to no LTV due to a lack of email/SMS strategy. If identified, by using email/SMS to improve LTV alongside ideally some developments on the product and offer side the business has the opportunity to improve profit. The reason being, that if this problem is not solved, the business will be running very tight net margins and will be greatly impacted by any short-term fluctuations in advertising costs. Furthermore, by while improving LTV and ideally increasing volume, the store can also continue to try and optimize for better ROAS/CPA metrics. All in all a store like this that has already shown promise is a prime candidate for growth.
On the other hand, an example of where a growth team may not make as much sense is when the supply chain is not sufficiently built out. Perhaps there is difficulty in getting the desired inventory quantities to scale. For smaller businesses when bringing on a growth team it is often true that the only way to see a healthy yield is to increase volume, if this is not an option then it may be worth minimizing fixed costs to ensure that the contribution margin (profit pre opex/fixed costs) can focus on growing cash reserves or be reinvested into growth instead of covering more overhead. The point is, when starting from a small revenue size bringing on a scaling team can be worthwhile but it often has to be aligned with the desire to increase volume to reach economies of scale and more profitability.
There are many scenarios where it does make sense and does not make sense to bring on an agency, we will always give our transparent opinion on these types of decisions. Check out the video above to learn more about some of these variables and how you should be thinking about them.
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