How to Avoid Sabotaging Cyber Week Profitability
Black Friday and Cyber Monday are the e-commerce Super Bowl. A large chunk of revenue is generated in a very short period of time. Preparing ads, crafting promotions, gauging inventory levels, gearing up customer service staff – it all needs to come together perfectly. The difference between a good weekend and a bad weekend could be the difference between meeting or missing your goals for the year.
The Cyber Week blitz can be dangerous because its very easy to crush your top line revenue goals, yet be entirely unsuccessful. Sounds crazy, right? How could that be? Well, the measure of a truly successful business is not solely a measure of the top line, but rather how much of your revenue also falls to your bottom line (PROFIT!). If I ran a sale and I was selling the newest iPhone for $50 – think I could generate revenue of $1 million in a weekend? Damn right I could! However, that would be a woefully unsuccessful weekend and I’d probably go out of business.
That’s clearly an extreme example, but it illustrates a point. There are deceptive ways to measure success, especially during a time like Cyber Week when everyone has crazy deals going on. Here are the 3 biggest places that can turn your sale sour:
Its tempting – really tempting - to throw out massive discounts to generate revenue and bring customers in the door. Your competitors are doing it and you will be left out if you don’t too. Don’t forget, as you look down your P&L, the discount you give is the first of many places you will be eating away at your profit this week. For some companies, you may not actually even be tracking and reporting on how much discount you’ve given. Many companies just record their sales net of the discount. This is a major problem because you truly have no idea what you are giving away and where its coming from. To understand the full picture, you need to record your sale at the list price or MSRP and then take out the discount. This is the technically correct way to handle it and will go a very long way in helping you understand how much discount you’re giving and what works and what doesn’t.
Unless you have an insanely engaged social media following and an amazing email list, the odds are you will be buying ads of some sort somewhere. Whether its TV, radio, print, social media or influencers, you’re likely to have ad spend of decent amount. Since everybody who has anything to sell wants to get in on the Cyber Week frenzy, the increased demand for a relatively fixed amount of ad space causes the cost to skyrocket. According to Salesforce, in 2014 and 2015 the Cyber Week CPM for Facebook ads rose 70% and 98% respectively (when compared to the beginning of November). Its safe to say that trend will continue and you should anticipate either spending more on advertising or getting fewer impressions/clicks for your ad spend. We certainly aren’t ad gurus, but the point here is to maximize the profit that you generate from the ads you run. In order to do that, you should be looking at the most successful ad campaigns you’ve had through the rest of the year and seeing what’s had the most success. In this case, success isn’t measured by clicks or simple conversions. Not all conversions are created equal. As you chip away with discounts and free shipping, you begin to lose a lot of that top line. What you want to do is target customers using promotions or ads that have a track record for performing the best at the bottom line. That will ensure that you are getting the most return on your ad spend.
Free shipping has become a mainstay in Cyber Week sales and promotions. Luring buyers in with free shipping can be a really great way to convert browsers into buyers. If your competitors are offering free shipping and you’re not, it can often be an instant deal breaker. However, you need to be careful about how much that free shipping will cost you. UPS announced that this year they will be adding a shipping surcharge to ground shipments sent to residential addresses in the weeks surrounding Black Friday and Cyber Monday. This new surcharge is likely the beginning of a new trend. As Cyber Week sales increase, the shipping costs are getting more expensive. If you don’t plan to pass these along to your shoppers directly, you need to have a plan in place to mitigate its effects on your bottom line. There are a few ways to handle the increased cost, but it’s a burden nonetheless. In order to begin the process of mitigating the loss on shipping, you need to understand what you’re spending on shipping at the most granular level possible.
Any one of the three areas could be enough to hurt you Cyber Week profitability. A combination of the three, could eat away any profit you hoped for. When planning Cyber Week sales, it helps to understand what your gross margins are by product. That should be a good starting point to determine how much you can afford to spend to acquire a paying customer, what you’d be willing to discount each product, and what your shipping policy will be. If you are tracking and monitoring these costs in detail throughout the year, it will give an even better basis to inform your decision for Cyber Week. Even better is to compare to last year’s Cyber Week performance. For most small-midsize e-commerce companies, having the appropriate systems and processes in place to get all of the relevant data tracked and ready for analysis is a massive undertaking and can often be cost prohibitive.
At Lumiola, we’re solving that problem every day. We bring the trained people, the software, and the proven processes to ensure that decision makers are empowered with great insights.