Making Smart Ecommerce Decisions: Using the 8-Lever Model in Real Scenarios

Ever feel like you're drowning in options when it comes to making big ecommerce decisions? You're not alone. I've been there too, and I've found a way to cut through the noise and focus on what really matters.

Remember that 8-lever model I talked about in my last article? Today, we're going to put it to work. We'll look at three common scenarios where ecommerce folks often struggle to make the right call. I'll show you how this model can help you see the bigger picture and make choices that truly drive your business forward. Just a quick refresher - there's three levers that control revenue for an ecommerce business (traffic, conversion rate, average order value) and five levers that control expenses (technology costs, operating costs, fulfillment costs, customer acquisition costs and cost of goods sold). Push the revenue levers up or the expense levers down and you move towards more profit.

Ready to become an ecommerce decision-making pro? Let's get started.

Scenario 1: To Replatform or Not to Replatform?

I can't tell you how many times I've heard this question: "Should we stick with our current ecommerce platform or make the switch?" It's a tough one, and it's easy to get stuck looking at just the price tag.

But here's the thing - focusing only on the immediate costs is like trying to drive a car while looking only at the gas gauge. You're missing the whole road ahead of you.

Let's break it down using our 8-lever model:

Revenue Levers:

1. Traffic: A new platform might give your SEO a boost. Faster loading times and better mobile optimization could bump you up in search rankings. More visibility = more traffic.
2. Conversion Rate: Ever abandoned a purchase because a site was clunky or confusing? Yeah, me too. A sleek, user-friendly platform could turn more of your visitors into buyers.
3. Average Order Value (AOV): Smart features like product recommendations or easy bundling options might encourage customers to spend a bit more each time they shop.

Expense Levers:

1. Technology Costs: Yes, a fancier platform might cost more up front. But what about the long-term picture?
2. Operating Costs: Better tools often mean less time fixing tech hiccups and more time growing your business.
3. Fulfillment Costs: Improved inventory management could help you keep just the right amount of stock on hand, saving on storage costs.
4. Customer Acquisition Costs (CAC): If your new platform plays nice with your marketing tools, you might be able to target your ads more effectively.
5. Cost of Goods Sold (COGS): This might not change directly, but better inventory management could reduce waste for certain types of products.

Here's a real-world example. Imagine you run an online boutique called "Chic Styles." Your current platform costs $500 a month, but you're eyeing a new one that's $1,000 a month.

Sounds pricey, right? But let's run the numbers:

• You're currently making $100,000 a month in revenue.
• The new platform could bump your conversion rate from 2% to 2.5% (thanks to a smoother shopping experience) and your AOV from $80 to $85 (with smart product recommendations).
• These improvements could boost your monthly revenue to $132,812.
• Even with the extra $500 a month in platform costs, you're looking at an additional $32,312 in monthly revenue.

Suddenly, that pricier platform is looking like a pretty smart investment, isn't it?

The takeaway? When you're thinking about switching platforms, don't just look at the price tag. Think about how it might impact all your levers, especially on the revenue side.

Scenario 2: Adding New Products to Your Line-Up

Expanding your product range can be an exciting way to grow your business. But it's not as simple as picking items you think will sell well.

I've seen plenty of ecommerce businesses focus heavily on the cost of goods sold (COGS) when evaluating new products. While that's important, it's just one piece of the puzzle. Let's see how our 8-lever model can give us a fuller picture:

Revenue Levers:

1. AOV: Will these new products have a higher price point? Could they encourage customers to buy more items together?
2. Conversion Rate: How appealing are these products to your existing customer base? Will they turn browsers into buyers?
3. Traffic: Do these new products open up opportunities to rank for new keywords and attract more organic search traffic?

Expense Levers:

1. COGS: Of course, we need to consider the direct costs of the new products.
2. CAC: Will you need to reach new customer segments? How competitive is the market for these products?
3. Fulfillment Costs: How will these products impact your storage and shipping costs?
4. Operating Costs: Will you need additional staff or resources to support these new product lines?
5. Technology Costs: Do you need any new tools or integrations to sell and manage these products effectively?

Let's look at a real-world example. Say you run an online store called "Green Thumb Gardening." You're considering adding two new product lines: premium plant food and budget-friendly gardening tools.

At first glance, the plant food looks great. It has a higher profit margin per unit than your current products. But let's dig deeper:

• The plant food might increase your AOV, but it's a niche product that might not appeal to all your customers.
• It requires special storage conditions, increasing your fulfillment costs.
• You'll need to educate customers about its benefits, potentially increasing your CAC.

On the other hand, the budget-friendly tools:

• Have a lower profit margin per unit but could appeal to a broader customer base.
• Might lower your overall AOV but could increase conversion rates.
• Open up new keyword opportunities, potentially driving more organic traffic.
• Are easy to store and ship, keeping fulfillment costs low.
• Align well with your existing customer base, keeping CAC in check.

When you consider all these factors, the budget-friendly tools might actually be the better choice for overall business growth, despite the lower per-unit profit margin.

The lesson? When evaluating new products, consider how they'll impact all your levers, not just your COGS or profit margins.

Scenario 3: Choosing Your Influencer Marketing Strategy

Influencer marketing can be a powerful tool in your ecommerce toolkit. But choosing the right approach isn't always straightforward.

I've seen many businesses focus primarily on an influencer's follower count and estimated reach. While these are important factors, they don't tell the whole story. Let's apply our 8-lever model to get a more comprehensive view:

Revenue Levers:

1. Traffic: Yes, an influencer's audience size matters. But also consider engagement rates and how well their audience aligns with your target market.
2. Conversion Rate: An influencer's credibility and how well they align with your brand can significantly impact how many of their followers actually buy from you.
3. AOV: Can the influencer effectively showcase your higher-value items or encourage bundled purchases?

Expense Levers:

1. CAC: Consider not just the immediate cost of working with the influencer, but the potential lifetime value of the customers they bring in.
2. Operating Costs: Managing influencer relationships takes time and resources. How will this impact your team's workload?
3. Technology Costs: Do you need special tools to track and manage your influencer campaigns?
4. COGS and Fulfillment Costs: These might not change directly, but a sudden influx of orders from a successful campaign could impact your operations.

Let's compare two approaches: partnering with a celebrity influencer versus a group of micro-influencers in the beauty niche.

The celebrity influencer:

• Has a massive following, promising high traffic.
• Charges a hefty fee, significantly increasing your CAC.
• May not align perfectly with your brand, potentially impacting conversion rates.
• Could drive a lot of one-time purchasers rather than loyal customers.

The micro-influencers:

• Have smaller but highly engaged audiences.
• Charge less individually, allowing you to spread your budget across multiple partnerships.
• Align closely with your niche, potentially driving higher conversion rates.
• May be more effective at showcasing your product range, positively impacting AOV.
• Could bring in customers more likely to make repeat purchases, improving long-term CAC.

When you consider all these factors, the micro-influencer approach might offer better overall value, even if it doesn't promise the same immediate traffic boost as the celebrity option.

The key takeaway? When planning your influencer strategy, look beyond just reach and immediate CAC. Consider how different approaches will impact all your levers in both the short and long term.

Putting the 8-Lever Model into Practice

As we've seen, applying the 8-lever model to your decision-making process can reveal insights you might otherwise miss. It encourages you to think holistically about your business and consider both short-term impacts and long-term strategic fit.

Next time you're facing a big ecommerce decision, try this approach:

1. Write out (digitally or on paper) all 8 levers.
2. For each option you're considering, think through how it might impact each lever. Use data where you have it, and make educated guesses where you don't. Write the expected impact on each lever.
3. Consider both short-term and long-term impacts.
4. As best you can, sum up the impact to each of the 8 levers to your overall profits.

Remember, you're not looking for an option that positively impacts all 8 levers. That's rarely possible. Instead, use this model to make more informed trade-offs and understand the full implications of your choices.

By consistently applying this framework, you'll make more balanced, strategic decisions that drive real growth for your ecommerce business.

What big decision are you facing in your ecommerce business right now? Try applying the 8-lever model and see what insights you uncover. I'd love to hear how it goes!