Two ways to reduce your Lost Sales

Lost Sales is a bit of an enigma for every company. How can you know for sure how much revenue did you lose due to uncompetitive pricing and operational inefficiency. I want to share our way of addressing both issues.

Uncompetitive pricing.
COGS and Shipping cost reconciliation will equip you with data necessary to optimize your pricing. In another article on my blog I spoke about some of the secrets behind 10X sales increase for managed stores.

The recipe was simple. We updated shipping costs, recalculated margins on the products and reduced prices whenever possible to beat the lowest price by $5. Practically overnight, sales went up. Despite price reduction total margin for the managed stores increased significantly.

Shoppers coming through price comparison engines are extremely sensitive to the price and retailer with the lowest price gets 80 % of the clicks. Get your costs accurate, re-price and convert.

Operational inefficiency.
In my experience, retailers lose 7-10 % of Net Revenue due to different kinds of order issues. To name a few:
  • Customer Remorse,
  • Damage in transit,
  • Orders shipped after cancellation,
  • Out of Stock or Discontinued product,
  • Fraud etc.
Most of these issues can be prevented/ resolved through order policies and proactive customer service. General advice – give customers every reason to keep the product and discount if necessary. Frequently, you are better off giving 30 % discount than dealing with the return. Know the numbers and train your customer service folks to calculate discounts on the fly.

Let's take a return of a $999 platform bed as an example. Wholesale price is $500 and shipping cost is $100 each way. Your gross margin is $350. Can you convince customer to keep the order?

Your policy says – if customer wants to return the product he is liable for 2 way shipping and 20 % restocking fee. Walk the customer through refund calculation:
  • Retail price $999
  • Shipping, both ways (-$100 x 2) = (-$200)
  • Restocking fee (-$999 x 20 %) = (-$199.8)
  • Customer refund ($999 - $200 - $199.8) = $599.2
Most of the customers do not realize that their refund will be significantly less then the price they paid. Frequently, just doing this calculation with a customer on the phone is enough to save an order. In case he still wants to return – offer a discount. Remember, your gross margin is $350 and it is better to earn some then nothing.

Conclusion.
Accurate cost information is the universal key. It helps you experiment with pricing, catapult sales and reduce operational costs. Define a scalable process to maintain accurate information for tens of thousands of your products and your lost sales will go down.

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