As an e-commerce founder, how to maximize profitsTo succeed in the e-commerce industry, it is essential to construct a business model through clever profit and loss design to reduce costs, improve profit margins, and operate efficiently.
As a business owner, you may already know what gives your products a competitive advantage. But have you considered the competitive advantages inherent in your company’s business model?Andrew Faris, an expert with over a decade of e-commerce experience, states that the untapped potential for most e-commerce founders lies in profit and loss strategies. “What makes your business structure unique, enabling you to create extraordinary value?” he asks. For instance, businesses with low logistics and shipping costs or a large base of subscription users hold significant value.
Through rational profit and loss statement design, various strategies can be adopted to boost corporate profits. Throughout his career, as the founder of boutique consulting firm AJF Growth, Andrew has helped numerous brands—both large and small—increase their e-commerce sales. Below are his recommendations on how to maximize profit margins.
Understand your fixed and variable costs
“Higher profit margins are the secret to e-commerce success,” Andrew says. To make adjustments, you first need to carefully review your profit and loss statement regularly. Calculate your fixed costs (such as employee salaries, office space, etc.) and variable costs (such as shipping, packaging, credit card fees, etc.). Then, check how much you are investing in advertising and marketing.
Andrew believes that excellent Direct-to-Consumer (DTC) businesses should achieve a profit margin of 60% to 70% after deducting fixed and variable costs. “Your forecasts and profit and loss statement are like treasure maps, showing you where the gold is. My most successful clients treat this document as their bible,” Andrew notes.
Compare prices when sourcing suppliers
To reduce costs, start from the source. Andrew advises shopping around for suitable manufacturers and suppliers to minimize product production costs. He shares that when sourcing products for his upcoming consumer brand, he collaborated with a company specializing in finding production partners. This firm contacted approximately 45 manufacturers (down from an initial list of 60).
If you don’t have sufficient funds to outsource this research, you can still accomplish much of the preliminary work yourself by comparing prices and negotiating deals. “Understanding the manufacturer’s business interests… is ultimately key,” Andrew emphasizes. By exploring options such as bulk discounts and more favorable terms, founders can lower production costs and increase profit margins.
Maximize advertising purchasing efficiency
In an era of rapidly changing digital advertising landscapes, Andrew advises against blindly chasing every new trend. Instead, he suggests focusing on advertising principles that have proven effective.
Most of Andrew’s ad campaigns use manual bidding, such as setting cost caps, bid caps, and Target Return on Ad Spend (ROAS) campaigns. “This ultimately allocates your advertising budget most efficiently,” he explains. “This way, they can reduce spending on the poorest-performing ads and more effectively increase investment in the best-performing ones.” These campaign types ensure efficient budget allocation, rather than allowing ad platforms to automatically deplete your budget daily, thereby helping to cut costs.
Leverage AI to iterate creatives
You can also use AI tools to save on advertising costs. “AI is reducing the cost of many things… especially the cost of creative production,” Andrew says. For example, he uses AI to condense existing scripts into shorter versions, allowing him to create multiple iterations of the same creative. This makes testing different creatives in advertising environments faster, saving both time and money.