The costs of advertising are going to go up and up.
Is your business going to survive?
Just like real estate, there will never be a time when ads will become cheaper, hence the brands that do not know how to evolve and stretch that Lifetime value and Average order values will die just because the cost per acquisition will slowly creep up to the point where there is no more profit in the business.
When the online world is going to get tougher and tougher because the billion dollar brands are going to pour money into advertising – how will you survive the next wave?
Why you should read this article
How average order value increases your bottom line and profits
How to bundle and upsell your products
What types of apps do you use for shopify
AVERAGE ORDER VALUE
Although we are in the advertising business and run ads for a living – We’re a big fan of making more money without spending more on ads. Facebook and google have a lot of money already and it’s time to claw back some of them so that you can either 1. Spend more on advertising to grow faster or 2. Keep it in your pocket.
Let me break it down to you why it is increasingly more difficult than ever to advertise and make profit for your ecommerce business.
Imagine you were selling a skin care product costing $40 each. 1 tub of – let’s say argan oil for example. Let’s breakdown where the costs go to.
Product price: $40
Product Cost + Packaging + Shipping: $10
Profit margin: $25
Because google and facebook ads are not an even playing field – the advertising space is determined by how much real estate and how much ad inventory there is.
Brands who are selling the same $1000 product could be competing for the same attention as the brands in the $40 price range.
Although this discrepancy is not fair, we are all competing for the attention of the same audiences, hence the difference.
This also means that if I drive traffic from the social networks through a standard ecommerce funnel:
Ad → Product page → add to cart → checkout → purchase
I would only be able to spend up to $25 per purchase to acquire a customer.
Compared to another business who can spend up to $400-500 to acquire the same customer. At that point, it’s not even fair.
So if you think about it – that profit margin is going to get eaten alive over time, preventing you – as the business owner – from even thinking about making a living as all your costs are going to go to facebook and google eventually.
Thus – how do the smartest marketers in the world mitigate this? They extend the lifetime value (LTV) of the customer or they increase the average order value – so people are not necessarily taking profit on their first customer interaction.
Instead – they are delaying payment but building a longer relationship with the customer.
HOW TO BUNDLE AND UPSELL YOUR PRODUCTS
You can do a few things to increase the AOV.
First, it is to bundle your products together. You know what amazon does? They are super good at increasing the customer AOV because they implement an average order value feature below all the products.
Imagine I was buying a set of headphones at $100. If amazon bundled it together with a headset cover at $40, I would have x1.4 the AOV without paying an additional cent of advertising.
It is because I was merely offering the customer an option to do so and they took it.
Although not every customer takes this option, the option of a bundle increases the perceived value of the product. And based on a % of people taking up the bundle deal the AOV will increase too.
Upselling is the act of selling something additional to the customer after they have already made the decision to purchase the product.
A very popular method of that is called the 1-click upsell that is popularised by apps like zipify by ezra firestone. A real example would be Mcdonalds, imagine you bought a happy meal set. The waiter asks you ‘would you like to upsize your fries’? That’s an upsell.
With a minimal ‘ask’ or small offer to the customer, Mcdonald’s would have made more money selling more to the customer. A 1-click upsell is very powerful because the customer has already checked out and made the purchase. Their credit card info is already stored in the database.
WHAT TYPES OF APPS YOU SHOULD USE
There are many applications in the Shopify app store that already do this and you can check out the various options according to the star reviews system for their reliability.
A few of the options that we may recommend for bundling include:
A few of the options that we may recommend for Upsell include:
Zipify 1 click upsell
WHAT TO UPSELL?
Lastly, you might be asking what do I upsell? If you are selling a physical product, a very popular thing to do is to literally sell the exact same thing that the customer was buying. Imagine I sold health supplements.
WHAT TO BUNDLE?
This is easy – just upsell other things that you think your customer may be interested in. If they bought a cooking pot, do they need a spatula or another wok? Alternatively, you could also always search amazon for ideas on what to upsell. Amazon already has so much data on its customers and its AI is so smart.
Implement these things today and start making more profit!