Online shops bring not just revenue

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Profitability Online shops bring not just revenue

Published on 06.05.2020 by Philippe Mettler, Digital Commerce Consultant, Post CH Ltd

In addition to opening a channel to the customer, operating an online shop offers the retailer numerous other advantages. Different units within a company benefit from this activity. A cost-efficiency analysis must take the sum of the advantages into account.

Without major investment, it is impossible to implement digital commerce projects. This raises the question of profitability. Is a shop worth the investment? How long will it take for the money invested to pay off? Such questions are difficult to answer for retailers who have not previously used digital sales channels.

Is an online shop worthwhile?

Before making a larger investment, every company undertakes a cost-efficiency review. This is also the case when launching an online retail activity. However, simply breaking even with an online shop is not always easy. Lower margins on products, pronounced price sensitivity among customers and high logistics costs reduce profits. It is therefore not uncommon for the result to be negative if the shop is evaluated on its own. And putting a gloss on the figures with unrealistic assumptions is not the answer.

When checking profitability, examining shop revenues nevertheless often falls short of the mark. This is because the shop often has a positive impact on other sectors and can be beneficial to in-store retailing.

Numerous benefits

Operating your own online shop offers you the opportunity to list the products you sell on platforms such as Google Shopping. This increases customer awareness of brands and products. This in turn is reflected not only in the online shop revenues but also in the offer as a whole as many customers search for information online before buying a product in a store. Anyone who is invisible online simply doesn’t exist in the customer’s eyes.

With this in mind, it is essential to assess the impact of the online shop on the company’s total revenue. Let’s take a look at the following example: if a company records total annual revenue of 20 million and the online shop accounts for only 1% of this (either directly or indirectly), this alone represents a revenue of 200,000. This is a key factor that should appear in the income statement. Determining this contribution precisely is not always easy, but it is there.

An online shop is also frequently used to attract new customers. Online marketing can be used in a much more targeted manner for this purpose. Permanent success monitoring means that the measures adopted can constantly be improved. Costs are consequently often lower for a new customer online. This is another factor that must also be considered when examining profitability.

An additional advantage of online shops lies in the fact that they foster direct customer contact. This not only provides information and insights relating to the individual customers. Direct dialogue also offers an opportunity to enhance customer loyalty. Insights into consumer behaviour and sovereignty over customer data will become increasingly important to companies in the future. This knowledge can be shared with other distribution partners, third-party providers and marketplaces. It is not a question of deferring revenues but of growing together.

Joining the world of digital commerce offers another “soft” advantage. This is particularly the case for companies operating in conventional business segments. They must learn to become more agile. Launching digital sales therefore involves a large-scale, positive change process. Agility, rather than continuity and stability, is the key to success. This is a decisive factor in many business units.

Philippe Mettler, Digital Commerce Consultant, Post CH Ltd

Philippe Mettler has many years of experience in consulting and project implementation, particularly in e-commerce, web and PIM. He has wide range of practical knowledge from customers from various sectors. Using this knowledge, he helps our customers further develop their digital competence and successfully operate in digital commerce.

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