analysis
Comment and analysis online
Online
How to turn online
sales into a profit
Selling online is one thing, making money from it is quite another.
Charlotte Hardie reveals how to convert clicks into profit
W
hat a beautiful thing online
retail is. A growing customer
base, soaring sales even dur-
ing the bleakest times on the UK high
street... ecommerce is a virtual, hal-
cyon world of opportunity. It’s a
sure thing, right?
Well no, actually. Looks can be
deceiving. Stellar online
retailers such as Amazon,
Asos and Net a Porter are in
a minority. Turning clicks
into a decent profit is sur-
prisingly difficult, and many
of those that are profitable
are unsure of how to grow
and stay that way.
However, research published
next Monday by online services
supplier eCommera – Balancing
the online highwire: how to grow
and make money – highlights the
reasons why many retailers are strug-
gling to make cash from – and,
equally crucially – grow their ecom-
merce businesses.
Michael Ross, eCommera co-
founder, says the importance of online
How to be a Successful
online retailer
n Understand product profitability; the
key is to understand which products
make money, which lose money and
which make nothing
n Identify appropriate actions that
distinguish between different zones
of profitability. Marking down product
can either be pointless – if customers
aren’t viewing it – or expensive – if,
for instance, a targeted marketing
campaign has been employed
n Organise to take action: ensure that
budgets, processes and decision
making result in the right trading
decisions
Source: eCommera, ‘Balancing the online highwire,
how to grow and make money’
32 Retail Week November 5, 2010
the big issues
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growth is being overlooked by many of
the larger brands in particular. Many, he
says, are flattered by their volume of
sales and overlook profitability. As such
some big retailers’ online businesses
are simply maintaining the equilib-
rium. If you’re a household name
then it’s reasonably easy to achieve a
steady stream of online traffic and
maintain decent sales figures. The
hard work is constantly looking at
ways to boost trade. “You need to
understand
The online challenge on a weekly
Part of the challenge lies in the basis what is
adolescence of online com- making you
pared with the centuries-old money”
tradition of good old-fashioned Michael Ross, eCommera
bricks-and -mortar shopkeep-
ing. Ross says: “With physical
retail, the model is mature, but
with online it’s very early days.
There aren’t any benchmarks and
you end up with a huge divergence
in what people are doing.”
The way in which retailers make
money also differs vastly
between online and offline. In
the latter, it’s about the rela-
tionship between gross margin,
rent and staff that drive an individual
store’s profitability. Online economics
are driven by profit per order and the
volume of orders. Spend more on driv-
ing people to your site to buy a product
than the gross margin that product
makes, and it’s easy to see how quickly
your profitability can disappear in a
puff of smoke.
But the world of trading online is
vastly complicated. If you think of a
physical store portfolio, a retailer will
know precisely from one week to
another which stores are performing
and which are not. From there you can
drill a little deeper and find out why.
No such luck in cyberspace. As
TM Lewin home shopping director
Andrew Mossman says: “It’s challeng-
ing. Compare it to a shop – for me
www.retail-week.com
 The countdown to
Christmas begins
In business, p36
Asos is an expert on the
day-to-day turning of
stock into cash; retailers
should be moving into
m-commerce as part of
their online growth
analysis
Online
online, I have to spend all my money price and availability, marketing cost
upfront to get people through the data and in-house data on sales and
equivalent of our door. You have to margin. By tying in multiple sources of
have good data and know exactly what data into one view, the business can
is happening and when.” make vital decisions quickly and effi-
Tim Woollias, ecommerce and mar- ciently. “For instance we know when
keting director at online photographic and if we don’t need to react, if we see
retailer Warehouse Express, agrees: that a competitor hasn’t got a product
“It is getting more complex and there is in stock,” he explains.
an increasing requirement to be sharp Proper measurement is critical to
on analysing performance in as broad a drive profitability and growth online.
way as you can.” Another issue is the Part of eCommera’s report comprises
sheer amount of information that etail- research results from interviews with
ers have at their fingertips. “The avail- 101 ecommerce directors. The results
ability of data has probably developed showed a surprising lack of awareness
faster than people’s ability to best use from some about the importance of
that data,” says Woollias. measurement – be it marketing per-
formance, marketing channel
A question profitability, product profit-
of profit ability, customer profitabil-
To under- ity or even overall online
stand how profitability.
to be prof- Of those surveyed, 16%
itable, never review customer sat-
retailers isfaction and 18% do not
really need analyse marketing per-
to get down formance. In terms of
into the overall profitability, 12%
detail. Space only reviewed it annu-
NK head of ally while 6% never
ecommerce reviewed it at all. Ross
Nadine says: “You need to
Sharara says: understand on a
“The challenges weekly basis what is
are about using making you money.”
all those pieces
of information to Made to
give you a holis- measure
tic view of how But even among
your business is those who do
performing. We measure profitabil-
believe in doing the ity regularly and
basics right down across their online
to product level. We businesses, there is
get down to the nuts and still a lack of certainty about
bolts of the marketing costs per chan- exactly what should be measured and
nels and this helps inform where we go what the best overall indicators of
for customer acquisition.” online profitability are.
Woollias says that Warehouse “Measurement needs to be done in a
Express focuses on four key areas of way that drives action,” explains Ross.
data at once: site analytics, competitor “There is a lot of measurement for the

growth online Three steps to cracking it

1 Marketing profitability understand the profitability of
each keyword, affiliate, banner and email, as well as
the sensitivity of profitability to different attribution
windows (time periods where you measure the
effectiveness of different marketing activities given
that a user will interact with multiple marketing
channels over a 14-day period before purchase)
2 Customer economics understand the lifetime value of
a customer by analysing repeat purchases. Translate
this into a customer-driven business plan that
exposes the trade-off of growth versus profitability
3 Customer-product economics understanding the
roles of products in the customer lifecycle is also
critical. Products may have low sales but could be key
to acquiring high-value customers. Other products
may look unprofitable but are great add-on purchases.
Analyse on-site and off-site search to identify adjacent
categories that can drive customer acquisition
and retention
Source: eCommera, ‘Balancing the online highwire, how to grow and make money’
➤

www.retail-week.com November 5, 2010 Retail Week 33

 analysis
Online
➤ those who are growing online sales the
Online retailers such as Amazon and Net a Porter make online look easy, but there’s a lot to making it work well
sake of it.” He advises retailers to dis-
tinguish between the “inputs” – those
factors that can be controlled such as
price competitiveness, availability and
so on – and the “outputs” – those fac-
tors that are consequences, such as the
conversion rate or the order value.
“You need to be clear about what you
can influence and measure that rather
than sit around talking about the stuff
you can’t,” says Ross.
Equally important in boosting over-
all ecommerce profitability is to under-
stand how customers are behaving.
What are they buying? How often are
they visiting without buying? What is
their average spend? How many times
do they view a product before buying?
PricewaterhouseCoopers retail and
consumer leader Mark Hudson says
online success has a lot to do with cus-
tomer targeting. “The more successful
online retailers are doing more of that
and those are the ones that are growing
sales. There is a correlation between
34 Retail Week November 5, 2010
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how to maximise online profit
n Get the digital basics right and develop a truly integrated
multichannel approach. Ensure you have the best site usability
and the highest speed of website loading. Multichannel shoppers
are the most profitable, so culture them by developing seamless
and engaging online offerings that connect with your high
street brand
n Combine assets and focus on strategy to increase international
sales. Carefully assess the worth of each market. The ideal model
is a fast and efficient site, incorporating local language and style,
plus the timely fulfilment of orders
n Invest in real-time testing and insight so that marketers can react
to change instantly, and base their decisions on up to the hour
information. Analytics is critical
n Embrace mobile and m-commerce as part of your online strategy.
Ensure your site can be easily found and used on mobiles, and
optimise your campaigns for m-commerce
Source: Peter Fitzgerald, Google UK
fastest and those that are investing in
understanding how to reduce the cost
of getting customers to their sites and
increasing conversion rates when they
get there.”
That’s not to say any of this is easy.
Woollias says that despite the work the
retailer has done on RFM (a marketing
analysis technique that analyses cus-
tomers’ specific activities when they
shop online), “we still have work to do
in understanding customer behaviour
within specific segments”.
A dark art
The trouble is, those with the very best
practice are inclined – unsurprisingly
– to keep their art to themselves. “Peo-
ple do keep quiet about it,” says Hud-
son. “It’s a bit of a black art and a source
of competitive advantage.” Ross agrees:
“You would need to be Hercule Poirot
to be able to unpick what Asos are
really doing.”
Asos is one of a handful of retailers
that are taking the online world by
storm. When asked to pinpoint what it
is that makes this particular brand so
successful, Ross refers to three key
points: “Firstly it has a real command
of profit and loss and what drives it.
Secondly, it understands factors that
drive growth such as continuous cus-
tomer acquisition and retention and
range expansion, and thirdly, it’s about
trading; it’s an expert on the day-to-day
turning of stock into cash and how to
make money and grow without ending
up on the stockpile.”
But it’s also important to remember
the significant progress that has been
made throughout the online sector in a
comparatively short space of time.
Woollias thinks back to as recently as
five years ago in his previous role at
Comet. “Back then we weren’t looking
at product level profitability with a full
data set. The ability to tie in multiple
sources of data into one view has been
the biggest development.”
Sharara agrees: “Traditionally, infor-
mation came from different systems.
You had different departments with
different KPIs and different metrics.
Now the tools we have mean it is
becoming easier.”
Despite this and countless other
examples of how online has developed,
Ross warns there are still many retailers
that are trundling along, blinded by the
strong sales ecommerce has enjoyed to
date. “It’s time for a wake-up call. Those
with a lazy proposition without a clear
point of difference will start disappear-
ing and we will see a real reshaping of
the landscape,” he warns.
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