Running A Business

5 Revenue Growth and Measurement Tips for Small e-Commerce Retail

Sep 18, 2015 • 8 min read
Table of Contents

      In 2009 I ventured in to the world of e-commerce retail for the first time. With a limited budget, but a good product, I wanted to see how lucrative an online store would be. It was a one man start up in the board game industry.

      Every year since the first, I experienced around 33% growth. Not bad given that I had never dabbled in e-commerce. Not bad considering the competitive nature of the market. I learned a lot along the way and have been able to encourage a number of one man start ups to position themselves for the best chance at financial success in a crowded market.

      If you are wondering if it’s still possible to make it on your own, to build a successful e-commerce business online, the answer is yes. But it doesn’t usually happen with a good idea alone. You might have a great product, but not only do you need good web marketing, you need good management.

      Yes, you can succeed in e-Commerce. You can succeed on your own, with a limited budget and limited time. You can make a good living online provided you have the right tools in place and the right targets in mind.

      Here are five things I learned to do in managing for revenue growth in my first four years in e-commerce. Things which I am now able to train others in through my own web marketing company for small business, Mallee Blue Media.

      Take these tips, apply them, and give yourself a fighting chance in the busy online world of e-commerce.

      1443670966_bar_chart1. Aim High

      My initial thinking with the business was, make the products as accessible as possible, and use pricing to do it. I made the products relatively cheap. But I found early on, that as a one man (or small) start up, that the higher priced items not only sold better and returned better profits, it was also a more economical use of my time.

      I could pack 20 Monopolies, one at a time and make a profit of $100.00 or I could pack one good quality chess set and make the same $100.00.

      This not only affected my product strategy over time, it also impacted my target market.

      In my case, one of my target markets was families. I was hesitant to price above their means. But, a moments thought reminded me that this was just a matter of tightening my niche. There were a lot of families out there for whom money was no problem.

      Take Away ~ Focus on a narrow niche at the higher end of the market you are serving.

      In many ways, this is the only way to go in e-Commerce. You can’t really compete in the book market with a $9.99 book while ever Amazon exists. But you could become the expert in full volume, higher priced deluxe editions of a Chess Strategy Book written by Kasparov.

      1443671037_mind_map2. Set ROIC Targets

      ROIC (Return on Initial Investment). After the first 12 months I began setting targets on my ROIC. If you are confident in the research you have available, or your experience in the industry, you may be able to set your ROIC targets from the beginning. Since this was a new market for me and since I was totally green to e-commerce, I decided not to lean to heavily on industry figures.

      I knew that the industry was profitable and I knew I was offering something a bit different (Fair Trade and Hand Crafted Traditional Board Games from all over the World).

      So, for me, there was no point trying to set a realistic ROIC target until I had first experienced the market for myself. Risky? No. Not if you keep your budget tight – especially your stock inventory levels, which I will get to in a moment. Every business is different. The important thing is to set the target and make it reachable.

      Once you are getting a good feel for your sales statistics it is time to set targets for your ROIC. Apart from anything else, setting ROIC targets can give you confidence and encouragement as you see them coming to pass.

      After 12 months trading, we looked at what our ROIC actually was, and then set a reachable target.

      Based on the first 12 months of business, I decided to aim for a 10% ROIC. Now I had a target. Something to really aim for and it gave me confidence. Here was the result six months later.

      As you can see, I surpassed the 10% target by quite a bit. Nice. Measuring your ROIC creates provides you with an opportunity to look at business and finiancial growth.

      Take Away ~ You want the money you invested back. How is that going for you? Setting ROIC targets not only gives you information about viability but is also a confidence booster when set realistically.

      In my second year I increased the ROIC target to 20% and surpassed it by around 95% (meaning we had an ROIC of around 40%.

      1443670987_fine_print3. Set Profit Margin Targets

      The principles and motives for setting your ROIC targets also applies to your Profit Margins. You may only be getting a 10% return on investment per annum, but if your profit margins are 200%, well, you are heading somewhere good.

      If you invested $100.00 and your ROIC after one year was not 100% (i.e, you didn’t get your money back) you might look for something else to do.

      Profit margin analysis and target setting allows you to start digging in to individual products on your site. Are they profitable or not? using the example of Monopoly and a Chess set above, i soon stopped selling the lower priced items or else I encouraged customers to bundle them. The reward might be free shipping or something.

      We set our first years profit margin target at 20% (see above). We met that and so we raised it to 30% in the following year.

      Apart from the obvious budgeting reasons of knowing your break even point, setting PM targets allows you to measure growth and deliberately work toward growth. It’s perfect is physiological as much as it is wisdom. Everything you can do to improve profit margin, while still maintaining a high standard in all things is just good business.

      Take Away ~ Measuring the profitability of each product takes time, but it allows you to weed out the runts, refine your niche and better target your market. 

      1443671060_positive_dynamic4. Build for Product Growth

      McDonalds started out with a hamburger. Apple’s first product was an assembled circuit board. Google, Amazon and Mattel started in a garage -and so did I. Today’s young entrepreneur is not unlike today’s first home buyer. They want the complete, white-goods-and-all, finished show, pre-packaged and ready to roll.

      As a result, many go in to big debt with no customer base or historical growth. While business debt is sometimes necessary and even wise, it is not always the best way to begin.

      Financial outfits like Lendio can be invaluable resources to small business, but you should not think of business loans and business debt as the only – or even wisest – beginning steps for a business – if the only purpose of the debt is so that you can have a shiny office chair. Capital can be essential, but use it wisely.

      We started with quite a stash of board games, not really sure what would work. But, we started with a limited budget and bought carefully within our means. This often meant small quantities at higher prices for stock, but, as our ROIC and PM show, that changed over time.

      After 12 months I was were able to slowly increase our inventory. I started out with five board games and after 3 years I had around 100. Each one was carefully picked based on what I had now learned about each products profitability, sales, customer profile and supply certainty.

      Take Away ~ Start slow. Start small. Everything about successful business over the long haul points to starting out small. Don’t try and provide everything possible in one go.

      Having a thousand furbies in a box in your garage and no sales is not very much fun. You may pay a little more early on for inventory but that cost is offset by having a minimal amount of on costs and product loses.

      1443671436_doughnut_chart5. Monitor Your Expenses

      My Grandmother used to say, “Every Mickle makes a Muckle”. Meaning, every cent adds up. We think of revenue growth as often only product sales. Not true. One of the ways to increase Profit margin and grow your Revenue is to monitor and take the pruning sheers to your costs.

      How much did you pay for shipping last year above what your customers gave you? Are there alternative shipping methods? Do you need to charge the customer more? We started out with a flat $5.00 fee for shipping thinking it would encourage sales. It didn’t. And so in the second financial year we lifted all shipping prices so that they reflected true shipping costs.

      Did sales drop off? No, they grew by another 33%. Not only that but we also reduced our costs by 52% for the same period in the following year.

      A quick look at the above shows what costs we were able to reduce.

      • I found better stationary and packaging supplies and reduced my per parcel costs.
      • I introduced and promoted Bank Transfer options alongside Paypal and so reduced Paypal fees
      • I packaged out products better to reduce dimensions and switched couriers.

      Over a year, the savings were considerable for me as a small retail business online

      Take Away ~ Creating Revenue Growth is not just about charging more or even selling more. It’s also about constant pruning and refining of your budgets. Spend equal time on both sides of the equation.

      Putting performance measurement systems in place can be an important way of keeping track on the progress of your business. It gives you vital information about what’s happening now and it also provides the starting point for a system of target-setting that will help you implement your strategies for growth.

      Performance measurement and target-setting are important to the growth process. While many small businesses can run themselves quite comfortably without much formal measurement or target-setting, for growing businesses the control these processes offer can be indispensable.

      David Trounce is the Owner of Mallee Blue Media, a Content and SEO Marketing Service for Small Business. David lives with his wife and four kids in Port Stephens Australia.

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