Are you making money from your website?

In the much-celebrated circuit of D2C brands, it appears fancy to splash your brand all over digital media. There are an estimated 800 D2C brands ranging from small to massive ones. Since the entry barriers are far too few, many D2C brands are getting created to replicate some Outlier success stories (MamaEarth, Boat, Atomberg). Its tempting to see other D2C brands shouting out loud with influencer videos, elegant photoshoots and stunning visual layouts in Social media. But the eventual fallout of all these efforts is simple business. Hard reality to be tested here is: Are we making money?

If you are a D2C brand and if you wish to keep a track on making money thru website, following aspects need to be gauged on a periodic basis:

Cost of Advertising –

Advertising in digital media (Facebook, Instagram, Google) is again comprised of 2 parts – Direct & Indirect. Direct efforts could be the Traffic & Conversion campaigns that are being run on digital media channels. Many a time, Performance Mktg agencies or Inhouse team gives only a mapping Direct Spends vs Total Website sales. Indirect efforts could be your brand awareness campaigns, Influencer promotional campaigns etc., Total Cost of Advertising must include Direct & Indirect spends.

Cancellation Rate –

D2C consumers are a pampered lot in India. For want of brand trust, every brand offers CoD on website. Cancellation Rates are so high in certain categories like Electronics & Fashion (upto 30%) and is prevalent in all other categories too. An effective measurement of Actual Sales is after deduction of all order cancellations. Eventually a brand paid X for acquiring 100 Customers but if only 80 orders are received, then technical spend for acquiring 80 Customers is X.

Shipping Charges –

A holistic measurement of ideal RoI on website has to deduct this significant cost factor – Shipping Charges. While Shipping charges may have been factored in onward shipping, there is an additional component to this – Reverse Shipping. Again CoD is a killer here where most cancellation happens. When a Customer order is RTO (Return to Origin), Reverse Shipment charges apply which includes pickup charges at customer place (significantly higher than onward). Add to this, the Shipping aggregator (ShipRocket, ShipTurtle) commission charges.

Cost of Goods Sold –

This is ofcourse the first level cost of the product. A product cost must be meticulously added up without missing out on any constituents. If the product is imported, add up the FoB Cost, Shipping, Duty, Warehousing, Warehouse staffing, Value addition cost etc., If the product is sourced or made in India, include the ex-factory cost, shipping, value addition, warehousing etc., Every minor attribute has to be added to consider the final CoGS.

Team’s Cost –

Performance Marketing could be outsourced to external agencies. There might be 2 part engagement cost to this – Fixed & Variable charges. Variable charges are typically a commission that is paid based on the total sales generated. Ensure to include both these cost components to the agency cost while computing RoI. If you have your own team to manage Performance Mktg, their direct manpower cost (Team lead, PPC expert, Graphic Designer, SEO expert, Interns, Warehouse Staff) must be added up here.

Technology Cost –

This is an often-forgotten attribute in RoI computation. Platforms like Shopify charges a variable commission on fulfilled orders apart from standard monthly fee. There might be several plug-ins and apps that are enabled on the website (Live videos, Google maps, BNPL, Payment Gateways). Ensure to add up every single part’s charge to the Technology cost. There might be a website maintenance cost charged, do include that as well.

Long Term Value (LTV) –

Having looked at all cost aspects, LTV is a critical component on the Revenue side. LTV of a consumer in few segments like BPC, Fashion can be significantly higher (30-50%). Hence, a spend in M1 for acquiring that customer might continue to yield results over the next few months (some even for years). While Inorganic sales happen from direct ad efforts, Organic sales would be accrued from LTV consumers. Higher the LTV, it is better for a brand. Measure the LTV revenue separately and keep a track of its trendline.

If you sum up all Revenues and deduct all the Spends, you will get to see your RoI on website. There could be a rub-off of Website ads to your Platform sales as well. Consumer who doesn’t trust the brand website might go to Amazon/Flipkart to purchase your brand. (There cannot be a direct measure of this).

Rest assured, most of the brands won’t be making NET PROFITS on website with the above computation. But a brand must measure this diligently to ensure that certain tweaks are experimented to help them tread the path-to-profitability. A failure to do so will impact your Cashburns and your effective bottomline numbers!

Keep a target timeline for turning profits and stick to that plan! If that isn’t happening, shut down your website for Sales strategy.