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[00:004] I don't know where these 260 million came from – so good is not going in INEVO either. But I'm going to talk about profitable online commerce today, and the reason was really a little random: I just came back from six months in Dad's Perm, and just before I went to Perm I was told that I could give talks on E-commerce Day. So I had to be a little bit of a puzzle: what am I going to talk about? Until not so long ago it was very obvious to me – I have to talk about AI. That's what everyone's going to talk about. Having a talk without AI, I thought that was a bad idea.
[00:0043] But I've landed on dropping AI and rather go for something fundamental that I think is quite important: profitability. I took a look at the numbers. I am not a financial analyst, but I can go into Proff and share operating results on trading and get operating margin. For those engaged in the trade in goods, the median operating margin is 3.5 per cent. So if we just look at online commerce, it's 4.8. That means we're in a low-margin business -- we don't have much room to make mistakes. We need to be nice to actually be left with money.
[01:31] I haven't always been the best at this, and over the ten years I've had in INEVO – and a few years before that – I have learned that not so many people are necessarily very good at this either. At least not very conscious. And there I think there's a great potential for very many. Most online stores don't make money at all: almost 2 out of 3 have profitability of less than 5 percent. 1 out of 5 loses money on driving. It's not very nice numbers, so I hope there's something we can all work on -- and that when we're standing here next year, the graphs might have changed a little bit. My name is Even, and I've been working online for a little over ten years.
[02:22] I have made 200 episodes of the Marketing Code and I have probably written 150 editions of the EFFECT newsletter, which I know many here subscribe to. I'm not just employed – I think this is very fun to be doing in my spare time too. I've tried to condense it down to six tips. The program says seven, but I had to cut one – it must be my secret tip that people can come and ask for. The most important thing, and maybe what's missing most places, is having a good culture of profitability. Building a culture of profitability is not really so difficult – it is a lot about competence and information flows in the organisation. When I was 19, I worked at a technology magazine store in Sandefjord, and we often compared ourselves to the technology magazine in Porsgrund.
[03:15] About the same size city, about the same turnover. I had a widget in a box so I could see how much they sold and how much we sold. One day, colleagues showed us that we could also see how much the store was left with, versus how much they were left in Porsgrund. And then we got a little revelation -- they always left us more money than we did, even though we sold it for the same thing. One day, one from Porsgrund-store was a quirk with us, and I asked him, why are you always left with so much more money? And he said, "I'm only selling the brands that have a high margin.
[03:51] If customers don't know exactly what they want, you might as well sell what we make the most of selling. For 19 years, it was just: it was the fair me. Why didn't my boss tell me? Why hasn't everyone been told about it? If a customer wants a headset for $2,000, we're going to make 100 more dollars on every Sennheiser we sell instead of a Bose headset. I think everyone should know. Now the tech magazine has gone bankrupt, so they probably didn't find out. But I'm experiencing the same many places when I talk to people: what is it that you really make money to sell?
[04:27] Not many people know that and can answer it well. To build a culture of profitability, I think it's important to talk as much about the bottom line as the top line. My experience is an extreme top line focus – and the top line is what's fun. It's fun to say that you're translating for a lot of money, but it's fun to make money. And there's fun for those who don't own too, because that gives the company more opportunities for fun and exciting projects. Talking more about bottom line is very simple – it's just starting at the Monday or the department meeting. You can start with that immediately. Another thing is that numbers are shared open throughout the organisation.
[05:13] Many I'm talking to find out how their company went about one and a half years later, when they look at Proff. And they might check that before they negotiate pay, because it's good to know if there's money to go on. But it's a great advantage if everyone is regularly updated and has access to that information. Why should it be a good secret? It should be available to everyone. Another thing is that everyone has to understand what's profitable or not. Do you not know what margins you have – how can you make a good campaign?
[05:47] Suddenly you have sold everything with losses – and maybe that was the plan, but usually that's not what you want. I also think that having profitability and margin as part of the objectives is quite important. It's about raising awareness and talking about it regularly, so it's an integral part of everyday life. And always have a profit and margin in your head when you make decisions: what is this going to cost us? What can we earn? What are we left with? Not just how much top line it's driving. I went to the College of Market Sciences at the University of Kristiania, solely because there was little money in the curriculum when I looked at what market education I was going to take.
[06:34] And I think many of my fellow students also felt that way. But that means that there are a lot of marketers out there who are not interested in business economy and quite bad in math. A few years ago I posted this on LinkedIn: Say you have to run a 20% discount campaign, and you have a 30% margin in the store – quite a poor store. How much do you have to increase your sales by to be left with the same amount of money? Many of you realize that it is 200 %, but 40 % answered errors. And if the 40 percent is sitting in your market department and raining on the campaign, it's a little scary. At least there's a big potential for spending money on the table.
[07:24] So having a good culture to talk about profitability, making sure that everyone has the skills and learn how to count on the margins -- that's luckily a 15-minute course and maybe an Excel-formal people don't know in their heads. I think that's the best investment you can do. The next is costs — and cutting the right costs. I have a framework I have stolen from a man named Bob Fifer, who is about strategic and non-strategic costs. Many people think that costs are not so important to those who do not own a chip – but here too it is a lot about time. Time is a very big cost. How can I use my working time as efficiently as possible?
[08:11] For an online store, strategic costs are essentially all about creating sales – what the customer can see and do. It can be investing in traffic, converting optimisation, getting better on purchases – incredibly important – customer experience, repurchase and so on. These are things you should generally always be able to invest in. And then you have the non-strategic costs: everything that is needed to run a business, but try to spend as little money on it as possible. In many organisations, this is about unnecessary time use: a lot of meetings, a lot of processes, and things take a very long time.
[08:58] An important element is having a culture that allows you to do things only – get things started and run on. A typical thing many people should do just, but for which many people need to have lots of committee meetings, is to try to increase the prices a little bit. We talk a lot about where we can put down the prices – we have to get cheaper so the customer chooses us – but rarely about which products we can turn up the price. Need free shipping? Can shipping cost 59? If it costs 79 -- does the customer care about 59 or 79? In many cases it doesn't really.
[09:45] Take an example of a typical calculation: you sell a product at 800 kroner that you buy for 300. Then you have payment fees, fees, marketing and the whole thing - and you're left with $ 169. If we increase the price of that product by 5%, we get a huge estimate of the coverage of that order. Suddenly you are over 20% more profitable – you are spending 20% more money on very small changes. So you could say, well, what can we apply that to? Well, maybe you can take an aquisition cost of $150 instead of $125. What does that mean for us?
[10]:29] Or you can use it on other things -- or sell a little less and sit back with the same amount of money. A very simple implementation: In all the online store systems I have been to, it is easy to turn up the price. Choose five products that sell well, so you get good data. Select something that has not been on the campaign. Increase the price by five percent. Wait 1-2 weeks - are you complete, maybe one day, depending on your volume. And then you run a simple before/after-evaluation: what has the outcome been?
[11] I think most of them will be positively surprised at that test. It can also be done on cargo: Try to turn up shipping prices for 1-2 weeks and see what happens. A big margin thief at a lot of people is discounts. Les Binet says it very well: ‘Prime promotions are the crack coke of marketing’. Now I have never tried crack, but I see that it feels pretty good – and I think it feels incredibly good to put on a good campaign and watch the sale shoot in the weather. Because that's very often what you see: the sale is going to start right away.
[11]:55] If you had shown graphs on the margins, it would not have looked as good – and often you get a after-effect where the sales dope, because you have picked up a lot of demand from the future. Discounts cost a lot of money. If you take the same product to 800 kroner and you run the same calculation at a 20 percent discount - a very common discount rate, 20 percent is almost conservative - you kill the coverage grant right away. You're very close to zero: 73 percent of the money you left with, gone right away. It's a huge difference, and you need a violent sales gap to pick it up.
[12] So I recommend everyone to make up a set of bills you can use if you're not so good at calculating-- so you can compare, depending on the margins, how much discount you want to give and what the sale really has to increase by. If you have a 40% margin and you run a 20% campaign without selling up 100%, you have made a pretty bad choice. Another way many give away a lot of margin, pop-ups are with discounts. Here you have to test other things: lower discounts, GWP – gift with purchases – or competitions, which also work very well. There's a lot of ways to think about it.
[13]:31] To give away a gift can be much cheaper than to give 10 percent discount. Loyalty programs are also very popular – this is from the Digital Commerce Report to Epinova that just arrived. What does everybody get when they join a customer club? Lots of discounts. And a lot of discounts cost a lot of money – and it might be difficult to get your customers off with it. Suddenly you have customers who have learned that they should always trade at discounts, and then you have a challenge in the future. There are good reasons to use discounts too: the range, for example – something you might just have to get rid of. And liquidity. The most important thing is that the business survives.
[14:22] It doesn't help to have high margins if you don't sell anything. So liquidity is of course a good reason. And if you have good data on that customers you get in with discounts have high lifetime value over time. Some simple things to test on next campaign: lower discounts. You use 70%, try 50. GWP was involved – the value of a product may be at purchase price a few dollars, but for the customer it is extremely valuable.
[15:08] It may be much cheaper to give away something with a purchase price of $20-30 than to give a 20% discount of something to 2000 kroner. Competitions are good alternatives. And not least discount ladders – very little widespread after my experience: Start with lower discounts and increase them on winback. Do not give 20% discount immediately if the customer might have jumped on 10. If they don't jump on 10, wait a minute and use 20. It could be an effective way to do it. And then it's this with customers: you have to have customers into the store, and there are new customers that create growth. We must not forget that.
[15:56] A exciting finding from the Epinova report is that the few have plans to focus on getting new customers. Interesting if that's true – and good opportunities for us in the room that know that new customers are extremely important. Look at the purchase distribution in your online store - an analysis everyone can do. You often see a distribution where most people act once or twice, and very few act very much. You can become insanely angry about hitting those who act often and get them to trade more – but you get those who shop 6 times a year to buy 7 times, but there's still very little money in the big sums.
[16:50] We have to get those who act once to act two -- and not least all who act zero times to act one. That's the most important thing for most people. We've been in the branding element earlier today. We are an agency with a lot of competence in performance, and I'm very happy in performance marketing. But there's a big risk of being all-in on performance -- you can get into this trap: when you start it's often quite expensive to advertise, because you don't know exactly what you're doing. After every finer model, you get better at the tactical grips, and you get a custom aquisition cost that's getting pretty good.
[17:32] And then you say, "Big, that's just scaling." But what you often see is that the aquisition diet just increases and increases – because there is not enough demand in the market, and everyone is hunting for those who are in the market right now. Everyone hits the people who are going to buy mascara today — but it might be better to work with those who are going to buy mascara tomorrow, so they'll get right at your place. Four focus areas for long-term growth: reaching as much as possible. Make sure to be an easy choice for the customer – by working with mental and physical availability, if you want to use that framework.
[1:22] It's about being easy to remember, being preferred and working to become a destination for the customer. In addition, have dedicated budget to brand. It doesn't mean you should run fire ads on Meta with traffic targets instead of conversion. But working with brand-building activities — live shopping, building community, building the impression of the brand in the market in general — is very important. And you don't see that on the math today. That's something you have to get the organization to believe in as a long-term project. But it carries fruits and is marginally driven in the long run: the greater the preference people have for you, the less price sensitive they get.
[19:19] The last tip is very performance-oriented: if you can, work to get profit into all performance marketing. ROAS is the most common control parameter for Norwegian online shops – and ROAS may be relatively misleading. The budgets often go to the most expensive products, not necessarily the ones you make the most. You can lose money on orders with low margins even if the ROAS looks good. It's easy to manipulate a high ROAS. And it's hard to know what's profitable, because you often have different margins across the range. Unless you have a very narrow range, it's hard to control the ROAS.
[20:18] You can sell bags that need quite high ROAS to make money, while you're doing quite low ROAS on scarf. With profit tracking, you will make all these costs – it can be done in many ways. In many projects we work with, we use ProfitMetrics, mostly because it's relatively good to set up – you can probably decode this yourself. So this gives us real-time margin data on how it goes. It's easy for everyone to log into a dashboard and see how it goes right now.
[21:03] You can also send this data to the advertising platforms, so the platforms can optimise on what actually serves us money — not what just gives higher peaks. One example of why it is important, from a project I have done: after connecting up such a system, we saw that we spent half our budget on our most inprofitable products. It might not be that smart. This will allow priority making — it will open up opportunities and make it easier to prioritise. So to sum up what I think is important to be more profitable in the next year: build a culture of profitability.
[22:00] Cut the right costs – and dare push back on heavy processes and think about what we spend our time on. Work on increasing prices — all of your suppliers are increasing prices, so it is important that you do so too. Work smarter with discounts. Don't forget that growth comes from new customers. And in performance marketing: try to get profit tracking in, and build availability of profit data across the entire organisation.