This Year’s Black Friday & Cyber Monday Events will be like no Other
E-commerce analysts are predicting this year’s Black Friday and Cyber Monday (BFCM) to be the most significant events in online retail history. This comes as research into the post-pandemic economy reveals record trends in consumer spending, seeing the highest e-commerce penetration of any quarter, or year, on record.
So what does this mean for your Business?
Businesses will be seeing these changes continue well into the holiday season and beyond. For this reason, it’s critical that your financial strategy is optimised for this surge in e-commerce demand. With this in mind, we’ve compiled a short list of key points that can guarantee your financial strategy’s success. But first, let’s explore why most BFCM campaigns fail.
Why do most BFCM Campaigns Fail?
- Focus is often directed towards creative marketing, operations, warehouse management and other key areas in preparation for BFCM, with less attention on one critical factor: financial strategy.
- Top-line revenue and sales figures inform e-commerce operators’ campaign-creation, instead of gross profit margins. These metrics provide little visibility into whether your products and sales channels are actually profitable.
- Little reflection is done after the campaign to understand whether it was worthwhile. Did you actually make a profit?
Where are Businesses Going Wrong with Discount Strategies?
Businesses often see discount strategies as a form of customer acquisition cost. This tradeoff works on the assumption that a customer’s lifetime value offsets the loss incurred through sales discounts. But if you’re knocking 25% off your retail price, there’s a good chance you’re losing money. In reality, unless your business model is subscription-based, you have no way of knowing what the lifetime value of your customer really is… and your e-commerce business might die before you figure it out. So bottom line: eliminate the risk altogether and make a profit on every sale.
Key Tip #1: Focus on Gross Profit NOT revenue.
Not all revenue dollars are created equal… but all gross profit dollars are. Top-line metrics provide little visibility into the quality of your sales and the profitability of your campaigns. Your gross profit margins, on the other hand, determine how many sales you need to make in order to break even and achieve strong returns. Look at your accounts on Xero, rather than your sales dashboards.
Key Tip #2: Don’t Compare Apples to Oranges.
Sales campaigns are often guided by the basic economic theory that reduced pricing should result in increased demand. However, if you’re not generating an additional volume of sales in your discount campaign, you are losing money. This is why you can’t compare apples with oranges when it comes to revenue growth and top-line sales.
Key Tip #3: Don’t Engage in a race to the Bottom. You Might Win.
When designing sales campaigns, we tend to let the market decide if our discount offer is good enough to drive sales. This can quickly become a race to the bottom. Instead, make your customers work for these rewards by establishing discount hurdles so your business can meet its AOV threshold and guarantee a profit across your sales.
Key Tip #4: Set a Discount Budget for your BFCM Campaign Using a Spend & Save Strategy
Spend and save strategies protect your business against the downside scenario by capping your risk. Instead of setting storewide discounting sales, or letting the market decide whether or not you make a profit this BFCM, incentivise your customers to spend enough money so that you hit your target order volume. Important questions to ask yourself are:
- How many extra orders do I need to make to cover the discount that I am giving away to customers?
- How many extra sales do I need to make for every 1 per cent discount?
We can help you calculate your gross profit on your sales so that you can prevent strategically avoid eroding valuable profits. Ask us how.
