The Dirty Little Secret of Profitability in eCommerce - Episode 198

DESCRIPTION

This week on the eCommerce Braintrust podcast, we’re sharing with you key points from the report of profitability in eCommerce. Digital has gone from a relatively small percentage of a brand's sales to a larger percentage. While profitability might not have been an issue when the eCommerce channel was small, it most certainly is now back under the microscope as that percentage of sales has increased. Kiri Masters interviewed 10 members of the Digital Shelf Executive Forum for this report. These executive-level digital and eCommerce leaders come from large, multinational brands with annual revenues over $250 million. This report will help you define your profitability metrics, gain internal alignment, scale your program, and separate your sales channels.


Make sure you tune in to find out more!

“We have to look holistically at a product and where it’s sold to be able to get a full picture of how these sales are actually coming about. Did a customer discover the product through one channel and purchase through another, and again repurchase through an entirely separate channel.”
— Kiri Masters

KEY TAKEAWAYS

In this report, we've identified 4 profitability drivers, which we're going to touch on today: 

  • Defining Profitability for Your Brand

First off in the report is a theme around defining profitability and how that's quite inconsistent among the companies. Some companies are identifying profitability from net income from operations and others are defining profitability with contribution margin.  And those are two very different ways of calculating profit. 

Another concept that definitely warrants more exploration is creating a SKU level P&L. This is a way to track each product as its own business and the profitability still might vary from channel to channel. 

  • Product Category and Price Point

In general, the theme we found speaking with different brands of different average selling prices and categories is that these four factors generally drive profitability at a SKU level. A lot of these are pretty innate to the company. So it's worthwhile knowing what might be some pretty hard limitations on your category, that you're going to maybe need to work harder on than a more established, mature category. 

  •  Media Spend and Attribution

This driver is having the largest potential for fast improvement. You can't just change your product category and you can't just change your global accounting policies, but you can take a quick look at media effectiveness and efficiency. A lot of the brands are considering rationalizing their brand and performance marketing spend because they're also realizing that even within a channel, there is a halo effect between above the line spend and below-the-line spend. It is important to know how much to spend on advertising your product and how to improve performance and efficiency.

  • Amazon Relationship

Driver number 4 is the Amazon relationship and this can be a real inflection point for a lot of brands as they're pursuing profitability.  A lot of companies get concerned about situations where they get Amazon and the brand can't realize a profit on certain products and that leads them down the path of considering a hybrid model or a 3P model, or even distributing through resellers, instead of having a 3P account set up. Putting that Amazon relationship under the microscope, looking at chargebacks, what kind of deal you have with Amazon and really trying to push that forward is going to be well worth the time because this is usually such a big percentage of digital sales.

MENTIONED IN THIS EPISODE

Season 3Kiri MastersComment