Scaling an ecommerce business can be a complex journey filled with unique challenges. Gary, the owner of a Dublin-based women’s apparel brand, experienced firsthand the obstacles of scaling his business since its inception in 2020. As Gary’s business flourished, he found himself grappling with maintaining a high return on ad spend (ROAS) and making data-driven decisions to continue growing his business.
Like many ecommerce businesses, the cost of advertising on Facebook and Google had become much more expensive, making it increasingly difficult for Gary to make a profit. He wanted to focus on running his business without constantly worrying about changing algorithms from Facebook and Google. Gary frequently came across the importance of being data-driven in the online world, but as he was focused on running the business, he didn’t have the expertise or the time to dive in and truly understand the data.
Running an ecommerce company today means navigating 10+ platforms that are all working for the same business but are operating in siloes. Gary found it difficult to get a single source of truth from these platforms. This challenge was compounded by the fact that he didn’t have the resources to hire a data analyst, and he admitted that he was mainly making decisions based on gut feeling rather than data. For financial advice, Gary relied on his accountant, who unfortunately lacked expertise in ecommerce, resulting in a limited understanding of key ecommerce and marketing metrics. This oversight turned out to be a significant problem in retrospect.
In January 2023, Gary turned to StoreHero, a powerful tool specifically designed for ecommerce companies. Over the course of our collaboration, Gary not only gained a comprehensive understanding of his business’s unit economics but also experienced phenomenal growth, increasing his net profit by 324% and sales by 39% compared to March 2022. This case study delves into the challenges Gary faced throughout his ecommerce journey, the transformative solutions StoreHero provided, and the valuable insights he gained to propel his business to new heights.
Gary’s women’s apparel brand had been operating since 2020, selling directly to consumers through their online store. During 2020-2021, the business experienced impressive returns on their advertising investments. However, they faced challenges in maintaining the same ROAS and grew increasingly hesitant to increase their digital advertising budget. Gary primarily relied on Facebook & Google ads for customer acquisition, yet, like many other ecommerce brands, his understanding of the unit economics contributing to its success remained unclear.
The Solution: StoreHero Integration
Upon integrating Gary’s business with StoreHero, we discovered that while he had achieved a remarkable ROAS of over 10x during the Covid period, it had now dwindled to around 4.5x to 5x on a weekly basis. Consequently, the business began to reduce their paid advertising, concerned that the diminishing returns on ad spend would render their marketing efforts unprofitable.
However, when Gary studied the product section in StoreHero, he discovered that the break-even point (BEP) ROAS for their top two sellers was merely 1.64x. Despite the decline in ROAS from 10x to 5x, cutting back on ad spend inadvertently led to a decrease in the number of profitable customers visiting the store.
Overcoming Hesitation: Boosting the Advertising Budget
In March 2023, Gary decided to take a bold step and more than doubled his advertising budget, resulting in a 117% increase in ad spend compared to the previous year. The impact on the business was outstanding! He spent €7,571 on advertising, generated €76,541 in sales (a 39% increase), and saw the net profit soar to €7,325, marking an impressive 324% growth.
The Key to Success: Consolidating Data and Gaining Insights
StoreHero’s ability to consolidate data from multiple sources provided Gary with valuable insights into his business. Gary utilised the insights and recommendations section in StoreHero to quickly understand his ad performance and make changes to his paid marketing setup accordingly. Prior to using StoreHero, Gary was often overwhelmed by the various ad manager platforms. StoreHero explained to him in plain English what was working and what could be improved, simplifying the process and making it much more manageable. With this newfound clarity, Gary was able to make data-driven decisions that optimized his ad campaigns, driving better results for his business.
One of the most alarming discoveries was the amount of discounts he was giving out relative to his bottom line. Upon examining the finance page on StoreHero, Gary realized the negative impact of his discounting strategy. Consequently, he discontinued the Welcome10 discount offered upon email signup. While this led to a slight decrease in email signups, it had a minimal impact on the conversion rate. Yet, the impact on the bottom line was huge.
In March 2022, the value of discounts surpassed the company’s net profit, with discounts making up 2.78% of total sales. However, by March 2023, the discounts accounted for only 0.55% of the total sales, showcasing a significant improvement. This strategic decision, backed by data from StoreHero, allowed Gary to maintain a healthy bottom line while continuing to grow his business.
Efficient Use of Resources: Understanding Operational Expenses and Labour Costs
Although the increased advertising budget led to a slight decrease in ROAS, the higher sales volume ultimately improved the efficiency of the business’s operational expenses. StoreHero allowed Gary to enter all of his operational expense data, which amounted to €15,979 per month and included staff salaries, rent, software, and agency fees. By boosting the sales volume, Gary was able to maximize the value of these expenses and enhance overall business efficiency.
In fact, the increased ad spend not only increased sales but also made the fixed operational expenses of labour and rent much more efficient. Labour as a percentage of sales improved by a staggering 28%, which in turn meant that the business was operating on a much leaner basis and therefore generated more profits.
Gary had never considered analysing labour costs as a percentage of sales, but StoreHero enabled him to do so, leading to better decisions regarding workforce planning. He admits that previously, there was no clear strategy for determining the number of staff needed to fulfill orders. Fortunately, as the business continues to grow, monitoring labour costs as a percentage of sales has provided Gary with a metric to evaluate labour efficiency. This insight allows him to plan effectively for hiring additional staff, ensuring that the business maintains its upward trajectory & profitability as it enters the busy season later this year.
In conclusion, Gary’s ecommerce business faced difficulties in maintaining a high ROAS and making well-informed decisions due to a lack of clarity of his unit economics, which was exacerbated by relying on an accountant who was not well-versed in ecommerce and its unique reliance on paid marketing. StoreHero provided the comprehensive platform he needed to consolidate his e-commerce, marketing, and finance data, enabling him to make data-driven decisions and effectively scale his ad spend. By leveraging StoreHero, Gary was able to more than double his advertising budget and achieve a massive 324% growth in net profit, along with a 39% increase in sales.
StoreHero’s ability to integrate various aspects of an ecommerce business into a single, platform allows for a holistic understanding of the relationship between ad spend, sales volume, operational expenses and ultimately net profit. This bird’s-eye view of the business not only benefits individual store owners like Gary but also has the potential to revolutionise the way ecommerce companies approach marketing and decision-making.
As a result of using StoreHero, Gary has gained newfound confidence in managing his marketing budgets and making informed decisions about his business’s growth. He now has the tools and knowledge necessary to ensure that his marketing efforts are strategic and focused on driving profitability and growth.
Ecommerce businesses looking to gain control over their decision-making process, enhance net profit, and drive growth can greatly benefit from StoreHero’s comprehensive platform.
Don’t miss the opportunity to revolutionise your business – explore StoreHero today and unlock your ecommerce potential.