This year's Black Friday & Cyber Monday events will be like no others.
E-commerce analysts predict this year's Black Friday and Cyber Monday (BFCM) as the most significant online retail events. 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.
Businesses will see these changes continue well into the holiday season and beyond. For this reason, your financial strategy must be optimised for this surge in e-commerce demand. But first, let's explore why 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 — metrics that provide little visibility into whether your products and sales channels are actually profitable. And little reflection is done after the campaign to understand whether it was worthwhile. Did you actually make a profit?
Businesses often see discount strategies as a form of customer acquisition cost. This tradeoff assumes 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. Unless your business model is subscription-based, you have no way of knowing what the lifetime value of your customer really is. So, the bottom line: eliminate the risk and profit from every sale.
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. Your gross profit margins, on the other hand, determine how many sales you need to make to break even and achieve strong returns. Look at your accounts on Xero rather than your sales dashboards.
Don't compare apples to oranges. Sales campaigns are often guided by the basic economic assumption that reduced pricing should increase demand. However, if you're not generating an additional volume of sales in your discount campaign, you are losing money. You can't compare revenue growth and top-line sales as equivalent metrics.
Don't engage in a race to the bottom. You might win. When designing sales campaigns, we 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.
Set a discount budget 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 from this BFCM, incentivise your customers to spend enough money so that you hit your target order volume. Ask yourself: how many extra orders do I need to cover the discount I give customers? How many extra sales do I need for every 1 per cent discount?