Forget the Buy Box and Other Tips from Profitable Merchants
By Greg Holden
Ecommerce isn't as easy as it used to be. Gone are the days when you could simply set a price on an item and expect to get a reasonable profit on it. How can you stay profitable in an era of cutthroat competition, free shipping, sellers who seem to undercut every price you set, and all those marketplace rules and fees?
Two managers of small ecommerce businesses explained how they adjusted their operations in order to stay profitable at the 2016 Internet Retailer Conference & Exhibition in Chicago. Both Brad Rusin, E-Commerce Principal with Phoenix Leather Goods, and Terri Hunsinger, Partner with WebUndies, acknowledged that in recent years it's become more difficult to stay in the black. But the two companies have done so by controlling costs and boosting efficiency.
Rusin's company Phoenix, located in suburban Chicago, sells belts, wallets, suspenders, and headgear through 10 third-party marketplaces under the name BeltOutlet. Founded in 1997, the company started selling at flea markets and eBay. It expanded to Amazon, Sears, FBA, Jet, and Walmart.
"Sales doubled year over year for many years, but as competition grew, we got caught in a race to the bottom. In 2014, sales were flat for the first time," said Rusin.
Hunsinger's site WebUndies.com, a family owned business based in New Jersey, was started in 1999 by Hunsinger and her sisters in the basement of her parents' home. They have always sold online. "We grew from 12 boxers to over 2400 items," she said. "We've been on Amazon since 2003. We just moved into an 18,000 sq. ft. warehouse in New Jersey. We also saw double-digit growth in sales each year and were profitable."
But in 2014, WebUndies.com also experienced its first year of something less than double-digit growth. Both they and Phoenix had to make some adjustments. Here is a Top Ten list of tips they passed along to profit-obsessed small and medium-sized business managers:
1) Slow Down Growth
WebUndies.com decided to slow down the expansion of their product mix. "We moved from men's to women's to kids' items, while learning how to do things efficiently and to control costs," said Hunsinger.
2) Get Flexible With Employees
WebUndies.com employs mothers who need to work on flexible schedules while their kids are in school. During the summer and much of the year, they are able to take leave when needed. But starting October 15 in the run-up to the all-important fourth-quarter sales season, they are required to work evenings and weekends. "That way, we don't need to hire a temporary workforce during the holidays," says Hunsinger. "This helps us to control payroll. Shipping and payroll are our top two expenses."
3) Invest in Infrastructure
WebUndies.com, which started keeping records in 1999 on an Access database, started over with new inventory management systems and customer management systems. This helps them grow and work more efficiently. "By investing in the infrastructure, it gave us control over our data," she says.
4) Fully Understand All Costs
Reining in shipping and other expenses like the cost of inbound freight was key to regaining profitability, she added. "We realized UPS was charging us outrageous relay fees and it was costing a fortune," says Hunsinger. "We found another shipper and save $300 on every shipment that comes to us."
As Rusin of Phoenix Leather Goods observed: "Retail changes quickly. There are about 100K new sellers on Amazon every year. As the number of competitors grew for us and the competitors who would undercut almost every price we put online, we had to make a changes." He presented his suggestions:
5) Walk Away from Amazon's Buy Box
The "Buy Box" is usually seen as a coveted sales tool for merchants who sell on Amazon. But to get the box, you have to ship quickly and for free as well as other requirements. By not worrying about meeting those requirements, Phoenix was able to change its focus.
Hunsinger also mentioned the Buy Box. "We do strategic buying for exclusive products or limited release items that aren't going to have competition. Don't compete for the Buy Box on price. Rather than dilute our spending power by buying 20 things that are competitive, we're going to get exclusives or semi-exclusives."
6) Focus on Profitability
"We focused less on volume and more on profitability," says Rusin. "In our old way of setting prices, if an item cost us $10, we might price it at $19.95. If there was competition, we might bring it down to $17.95. In some cases, maybe $15.95 - that's not good but okay; it doesn't take all our expenses into account, however."
By tracking all the expenses associated with each item, Phoenix is able to set prices in a more nuanced - and profitable way. Those include:
- The shipping cost from their supplier to their warehouse
- The cost to ship the product to the customer
- The cost to receive, stock, pick, and pack the item
- The cost of the box it will be shipped in
- The customer acquisition cost
- The Amazon commission cost
- The cost for other marketplaces
They also calculate based on different marketplaces: Is it more profitable to bring item in house or drop ship an item?
Phoenix created internal reports on costs associated with every SKU on every marketplace. Rusin says the company was able to identify products that act as a "profit center."
"Many items that are small and light might only cost us $2 to ship," he explained. "But umbrellas might cost $8. We decided to charge a standard rate across board. We've raised our standard shipping charge twice in last two years."
7) Don't Be Afraid to Raise Prices
In the rush to make sales and keep up with the competition, businesses can easily forget this maxim. "You have to sell your products at the amount you need to sell them at to keep your business profitable."
8) Find Operational Efficiencies
By reducing costs and working more efficiently, you boost profits. Phoenix was able to add new products online more quickly by removing redundancies in their system, by automating processes, and by reconfiguring their warehouse space.
Hunsinger of WebUndies.com continued with some final observations:
9) Ship for Profitability
"We all feel pressure that people want it fast and they want it free, but that's a huge burden on a small retailer. It's very hard to make that profitable. When they started losing money shipping two-day air, they switched to another method. They are now experimenting with free shipping sitewide on standard orders in the US.
10) Partner with the Right Companies
WebUndies.com abandoned the well-known shopping sites and focused on tools that generated profits. "We could have taken that money and thrown it on the fire, it was never going to be profitable."
At the same time, they are continually evaluating new opportunities: Currently they are investigating Amazon.ca, Seller Fulfilled Prime, and two-day shipping on Amazon. "One out of every three orders online is placed through Amazon. That's a big piece of the pie that we need to look at.
Hunsinger concluded by pointing out that small businesses have an advantage over larger competitors when it comes to making adjustments and reevaluations. "We have the advantage of being nimble, the freedom of being small. It's just my sister and myself making decisions. It's one of the advantages of being small."
About the author:
Greg Holden is EcommerceBytes Contributing Editor. He is a journalist and the author of many books, including "Starting an Online Business For Dummies," "Go Google: 20 Ways to Reach More Customers and Build Revenue with Google Business Tools," and several books about eBay, including "How to Do Everything with Your eBay Business," second edition, and "Secrets of the eBay Millionaires," both published by Osborne-McGraw Hill. Find out more on Greg's website, which includes his blog, a list of his books, and his fiction and biographical writing.
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