Black Friday’s Margin Menace: Don’t Sell Your Way to a Loss!

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Margins are a nightmare in eCommerce – and Black Friday is when nightmares can come true.

For most traders, Black Friday is a welcome shot in the arm; a time when consumers come hunting for deals, and can be enticed to spend up large. Yet lurking amidst the promise of higher sales volumes lies a serious risk. Without a razor-sharp view of your profit margins, you run the risk of Black Friday being all bang and no buck.

Worst-case scenario? A promotion can be so successful it ends up costing you money.

Here’s how that happens – and how to avoid it.

The ‘Free Delivery’ trap

Stella sells avocados. Which aren’t your typical Black Friday product, but bear with me. They’re good avocados, and because she grows them herself on her organic orchard she can command a handsome price. Stella sets up an eCommerce store and starts selling direct to consumer, which teaches her an important lesson:

“Free Delivery” is simply what the majority of online shoppers expect these days. That’s okay with Stella: she just prices in her average cost of shipping, like everyone else – until a few months later Stella gets an unpleasant shock.

Stella’s Facebook ads are way more successful in remote parts of the country than they are close to home. And no wonder – all those consumers out in the sticks have been paying double the normal prices for avocados at the supermarket, so they order from Stella in bulk. Someone even posts a link on a community forum and she’s flooded with orders – plus subscriptions, which lock in her low price-point for the entire season.

So even though everything looks great in her Commerce software, when the freight bill turns up at the end of the month the additional cost of shipping to the far end of the country means she’s made a loss – with more to come thanks to all those eager subscribers who can’t believe their luck.

What went wrong? The lesson for Black Friday

Naturally, everything in the scenario above was avoidable. With a track record of sales all over the country, Stella (name changed to protect the innocent) had the data available to work out that when she sold in the regions she was trading at a loss. But without any built-in way to spot it, she only realised after a higher volume of sales exposed the flaws in her strategy.

Now, you’re unlikely to be selling avocados this Black Friday. But you are likely to see higher sales volumes of other products – and without the tools to spot variable costs like freight, you run the risk of doing a Stella: seeing your profits eroded, or even posting a loss.

Thankfully, Unleashed tools like Business Intelligence Vision let you drill down into your margins by geographic region or even warehouse to spot where you’re making the most – and least – money, and adjust your strategy before it’s too late.

“That’s one of my favourite things about Unleashed in general,” says Ben Shouler of UK firm Living Planet Distribution, which runs on Unleashed software. “Being able to see really accurate margins for products. And that really helps with making decisions about promotions that you run.”

eCommerce sales

eCommerce sales can be a minefield for traders that lose sight of their margins.

The supplier price trap

With this year’s supply chain crisis dominating Black Friday headlines many ecommerce stores will be concentrating on simply being able to fulfil demand – which raises another margin menace of its own.

With so much pressure on freight space, costs have skyrocketed as much as 246% year on year, with these being either absorbed by consumers, by vendors, or both.

Whether you pass these costs on to your customers is up to you – and the expectations within your industry – but’s what’s certain is that you need to have a razor-sharp view of which suppliers and which product lines are costing more, so you can adjust your strategy accordingly.

Again, this is where the right software is invaluable. With up-to-date supplier pricing (and lead times) visible in Unleashed you’re able to make informed decisions, quickly, on who you buy from – and how that affects your margins.

Do you know your margin by sales channel – and by individual SKU?

The final piece of the eCommerce margin puzzle is getting to grips with how your profit margins vary by sales channel – and then right down to the individual product level, or SKU.

With limited advertising spend available, you need to direct your efforts where they’ll yield the best results – not just in sales numbers, but also in profit margin made. And that requires clear oversight of each channel and what it earns you.

This is where a centralised sales order management system is critical. With Unleashed, all your sales arrive into the same order system, whether they were booked in over the phone, out on the road via the built-in sales app, through an online B2B portal, via a point-of-sale integration in a physical shop – or via your Shopify, Amazon, or Magento online store.

It’s a level of oversight that lets you get smart about how to prioritise your promotional spend. And if you know which specific products earn you the most margin, you can get even more strategic about, for example, making additional offers at check-out, or even after the sale via your promotional emails.

sales order management webinar

Locking in a Black Friday boost

In short, the more you know – and the better your tools – the more strategic you’re able to be about making the most out of Black Friday and other high-volume sales occasions.

And with an accurate overview of your margins you’re much less likely to waste your precious ad spend focussing on the wrong regions, products or sales channels. Or, perish the thought, accidentally selling products for more than what it costs to get them to your customers!

More about the author:

Greg Roughan - Unleashed Software
Greg Roughan

Article by Greg Roughan in collaboration with our team of inventory management and business specialists. Greg has been writing, publishing and working with content for more than 20 years. His writing motto is 'don't be boring'. His outdoors motto is ''I wish I hadn't brought my headtorch', said nobody, ever'. He lives in Auckland, New Zealand, with his family.

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