You must have witnessed scenarios either in your own case or through other campaigners where the seller ends up in loss even after being able to sell their products.
Well, the aim of this blog is to make you aware of the possible pitfalls that are associated with the campaigns when it comes to the profitability aspect so that you can plan carefully when investing your time and money on campaigns.
Even the good selling campaigners miss the point that they are spending some money in the form of Facebook advertisements and don’t track the returns properly. In order to be profitable, make sure that the margin/profit per product is sufficient enough to beat the returns deductions and ad amount spent.
The basic equation for your profit comes down to this:
Profit = Net Margin- Ad spent- Return deductions +Returns reuse margin
Net margin= Margin gained from all successful orders
Ad spent= Money spent on Facebook/online advertisements
Return deductions= The amount that will be deducted from payout due to returns(Sum of base prices of returns)
Returns reuse margin= Margin gained from returns reuse
You need to take care of the following factors so that profitability is met i.e profit is positive.
Design- The first and foremost prerequisite for a successful campaign, the design should be good and also relatable enough to your target audience. It’s better to keep a particular type of audience in mind and proceed with designing which will help you in targeting also.
Ad copy- This should be attractive enough to convert the potential buyers into actual buyers.
Target Audience- Do some research on the target audience and how they can be targeted on Facebook using Age, Location, Gender and Detailed targeting tools.
Facebook Ads- Your Facebook ad is like your pet, you should be tracking the ad continuously so that you won’t waste the money invested in Facebook ads.Cut off the placements(Geography/Age/Gender) where the ad is performing poorly and you may scale up in the placements where the ad is performing well. As per our data, one suggestion we can give is to remove the states of Bihar, Nagaland, Mizoram in your ad placements; they have a high cost per conversion and high return rate.
Returns rate- This has been a headache point for the entire e-commerce industry. Sometimes people place the order just for the sake of placing it, this is called Impulse purchase behavior which is very common in India.Returns are due to – both logistics in India as such/ longer delivery schedules/ buyer psychology.And major returns come from Tier 2 & Tier 3 cities Other niches & metros attract minimal returns. Going by our data, the maximum tolerable returns percentage is 25-35%.
Type of buyers(COD vs Prepaid)- In India 65%-70% people shop online with COD and very less percent with prepaid (Card, Net Banking).And going by our data the majority of returns come from COD buyers which can be avoided to a certain extent by incentivizing the Prepaid buyers which we are already been doing. If you are facing the issue of very high COD orders and therefore high returns, it’s better to go with only prepaid campaigns with a design for a highly passionate audience.
And finally Margin Per product– The above-mentioned factors are somewhat interrelated except for this one. You can choose you margin per product when launching the campaign irrespective of any factor. But the trick to profitability lies in choosing the margin carefully and using the other factors mentioned to full advantage.
Let’s take an example of a campaigner A with the total number of t-shirt sales as 10 out of which 3 are returned and 7 are successful deliveries, Zero are reused. Let’s say cost per conversion on Facebook ads is 100 per Tee(the maximum advisable cost per conversion for campaigners is 150)
So in order to be profitable, the margin per product should be:
Margin > (10*100+3*295)/7 i.e Margin should be greater than approximately 270, so the selling price should be greater than 599.
This example is to show how anticipating your return rate and cost per conversion and fixing your margin accordingly can land you on the profitable side.
So next time when you are launching a campaign, please keep the factors mentioned above in mind so that profitability is achieved.