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Higher Margins with Optimized Assortments: Stimulate Sell-through, Reduce Returns, Cleverly Implement Channel Distribution

Returns continue to be a problem that burns a hole in almost every online retailer‘s pocket. On the other hand, high margins are an outstanding source of leverage to make profits increase significantly. The question is: Which products or product groups record high returns or contribution margins? Do these metrics turn out to be channel specific or do they affect all channels? Where do I have to adjust assortments to open up unexploited profit potentials? By asking these questions, simple contribution margin accounting can offer crucial insights. A minubo customer happened to experience this just recently.*

*assortment and numbers edited

First analytical steps

According to order values, Jackets were especially successful in the product assortment – so why not invest more budget in their sales? By using minubo, the shop was able to calculate the actual profits before further decisions on investment. The result was surprising.

eCommerce identify gross order value
contribution margin per product group

Going deeper: contribution margin accounting per product group

Against all expectations, Jackets performed much worse than the less focused product group of Socks: Despite order values being twice as high, jackets recorded contribution margins that were 10% lower than they were with socks – due to high cancellations, sales costs and, above all, return rates.

From where do high return rates originate? Drill-down the level of detail

Narrowing the assortments to just socks obviously cannot be the action taken, so it is important to reduce the return rates of the problematic product groups identified. Therefore, they are drilled-down to sales channel level:

Reduce return rates eCommerce

High margins: promote sales

As shown in the figure above, contribution margin accounting not only reveals product groups causing high return rates, but also, those recording high margins. Due to the high potential for increasing profits, targeted sales promotion is the right action to take now:

Reduce return rates

Evidentially, the high return rates of the three product groups originate from specific sales channels. For successfully minimizing these rates, targeted actions have to be taken:

 

ACTION RECOMMENDATION
FOR PROMOTING SALES

– Prominent placement in the shop
– Intensified product promotion
– Benefit from cross-selling-potentials: Recommendation of related products

Further possible steps of analysis:

– Reveal contribution margins on product level and focus primarily on sales
activities for best performing products
– Analyze further product attributes to identify high margin brands, colors,
sizes etc. to focus on their promotion next

ACTION RECOMMENDATION TO
REDUCE RETURN RATES

Optimization of product sites in the respective sales channel

– Better product pictures
– Better product descriptions
– Better descriptions of clothes sizes and fit

Further possible steps of analysis:

– Identify most returned products on the analytical level of single products: Enormously high return rates (in this case Jacket orders on Amazon) might be an indicator that sales via the respective channels are simply not working. The placement of single articles causing rates may be ceased here.
– Return rates per sales channel and payment method – especially purchases on account increase return rates

These measures lead to results that significantly effect business performance:

Taking the right actions can actively reduce return rates – this not only prevents sales losses, but also, minimizes high return costs.

minubo increase profits promoted sales
eCommerce lower return rates

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