Retail Growth

How to Increase Profit Margins by Improving Customer Experience

Aaron Sullivan
February 23, 2022

The game of online retail is a little out of balance, to say the least.

According to Statista, U.S. retail ecommerce revenue was $768 billion in 2021 — and about a third of that went to Amazon. The rest belongs to Target, Walmart, and thousands of smaller ecommerce business owners striving to keep pace with the big boys.

How can you increase your small business’ ecommerce profit margins in this environment? You’re in a constant tug between meeting customers’ expectations as set by Amazon and keeping costs low enough to make a profit.

What are ecommerce profit margins?

There's gross profit margin, which you compute by subtracting COGS (cost of goods sold) from total revenue and then dividing by revenue. Then there's net profit margin, which you find by subtracting total expenses from total revenue, then dividing by revenue. If you increase revenue without drastically increasing costs, you'll keep more money from each sale and generally see improvements in both profit margin metrics.

How to Increase Your Ecommerce Profit Margins

If your strategy is solely cutting operating expenses, you’re bound to end up in a race to the bottom with Amazon. Along with cost cutting, drive ecommerce store margins by improving your customer experience, too. Here are five ways to do just that.

1. Tap into customer emotions

There are a number of factors that drive customer acquisition, but emotion may be the most powerful. In a 2020 study, the XM Institute found that emotion in the customer experience had the greatest impact on whether consumers made a purchase and recommended the brand.

According to a still-relevant 2015 Harvard Business Review study, there are a few key emotional motivators that spur a customer to buy something. The good news? As a store owner, you don’t need to break the bank to take advantage of these drivers and encourage more purchases.

One of these motivators is “a sense of thrill.” Brands that excel here create feelings of excitement and anticipation for customers. Evolve taps into this emotion by welcoming its online store visitors with the chance to win an electric skateboard in exchange for an email address.

Evolve Skateboard popup.JPG

If even a handful of prospects opt in, the cost of acquiring those customers is the COGS (cost of goods sold) of a single skateboard. Evolve can nurture these prospects with emails afterward to nudge them toward an order.

Another motivator is “a sense of belonging.” Make people feel they’re a valued part of your company, and you’re bound to see a boost in orders. Sustainable seafood purveyor Wild Alaskan Company, for example, takes every new subscriber to a thank-you page with a three-minute video from the founder.


This simple personal touch could be just the push new customers need to shop from Wild Alaskan instead of another seafood provider.

2. Build a customer loyalty program

Revenue is rarely spread evenly across customers. According to the Pareto principle, 80% of a business’s bottom line comes from just 20% of its customers. At the same time, acquisition isn’t cheap and cuts into your margins.

Maximize your revenue by rewarding that top 20% of your business with a loyalty program. Once you show your top customers you value them, they’ll be more likely to stay with your online business.

The tough part is often setting your loyalty program apart, especially in extremely competitive niches such as health and beauty. Customers who opt into loyalty programs expect discounts from these initiatives, so try to think of additional offers.

The brand Jewlr awards “Jewls” with each purchase for customers in their free-to-join VIP Rewards program. Members redeem Jewls for dollars and get early access to new products on top of shipping incentives.

Another route is allowing any customer to join your loyalty program by paying a fee. Paid loyalty programs like Amazon Prime tend to generate more revenue than free ones, according to McKinsey. Their 2020 survey found that members of paid loyalty programs are 60% more likely to spend more on the brand after subscribing, while free loyalty programs only increase that likelihood by 30%.

3. Experiment with upselling, cross-selling, and bundling

Upselling, cross-selling, and bundling all boost your ecommerce profit margins by generating more revenue from a sale.

Upselling refers to a customer buying a more expensive version of the product they were originally going to purchase while cross-selling is when customers add similar items to their cart.

Say a customer at the Apple store is planning to buy the iPhone 13, but after talking to a rep at the Genius bar, they change their mind. The rep tells them about the Pro’s advanced camera setup, and the customer decides to go with that model instead. Apple just won an upsell.

Apple iPhone.JPG

Just as the customer is about to check out, the rep suggests they look at cases and screen protectors. The customer doesn’t want to damage such a major investment, so they add both items to their purchase. Boom — Apple just won a cross sell.

Bundling refers to selling several products together. Though the bundle is typically sold at a discount, it’s still a win for your ecommerce store. Why? Because the customer might not have bought all of the products individually without the discount, and the bundle revenue is greater than just one item’s price.

Home security retailer Lorex does a great job of clearly indicating their bundle discounts with red text on each product page.

Lorex Upselling.JPG

Thanks to ecommerce platforms like Shopify, you can set up your online store to encourage upsell, cross-sell, and bundle purchases without any assistance from a rep. 

But don’t discount the power of your support and sales team! Encourage them to nurture customers toward these orders through calls and live chat conversations. In Zendesk’s 2022 Customer Experience Trends benchmark report, 47% of business leaders say that customer service increases their ability to “cross-sell.”

4. Keep customers from abandoning their carts

Bundling and upselling won’t matter if customers abandon their shopping carts. Statista estimates that 69.8% of global online shopping carts were abandoned in 2020.

To boost your revenue and ecommerce profit margins, bring shoppers back to their carts. Two shopping cart abandonment solutions are email and social media retargeting. Marketing automation platform Klaviyo estimates that abandoned cart emails see an open rate of 41.18%, a click rate of 9.50%, and revenue per recipient of $5.81. Facebook and Instagram retargeting ads generally see more engagement because the user has already interacted with the brand.

Custom business pin retailer WizardPins sends a cart recovery email about an hour after the abandonment to remind the customer about their forgotten items. The next day, they send another email to let the customer know their cart will expire without immediate action — creating a sense of urgency. WizardPins also uses a Facebook retargeting ad for good measure.


Peter Morrell, Head of Growth at WizardPins, calls email “the main lever for our retention efforts.” He states that their ability to send highly relevant messages to engaged email audiences at the right time and frequency — including abandoned carts — has enabled them to boost profit margins while keeping costs low.

5. Offer product protection plans

Even if you handle product protection through a separate provider, the plan still helps you boost your revenue and margins in a few ways.

First and foremost, it makes the checkout experience more comfortable for customers. The plan boosts their confidence in the purchase, so the customer is more likely to click “buy now” than shoppers who aren’t offered protection.

Merchants also get a percentage of the revenue from the plan’s purchase price, alongside the plan provider. It’s like selling a $3,000 set of Adirondack chairs for $3,200.

For product protection to increase your margins, customers, of course, need to buy your plans. Encourage them to buy protection by reducing any friction around these plans. Our merchant partner SoClean saw a 167% increase in revenue two weeks after optimizing our plan placements in their ecommerce platform. The popup below only appears if the customer clicks a link on SoClean’s product page.


Keep your customer experience smooth by choosing product protection providers with a hassle-free claims process. Customers who need plan support are probably already on edge, so you want to resolve their issue as quickly as possible.

Here at Extend, we adjudicate most claims online in a matter of seconds and send a voucher right away to customers approved for a replacement. The voucher drives customers back to your business, where you can customize their return experience and encourage brand loyalty.

Boost your ecommerce profit margins by improving your CX

Improving ecommerce profit margins over time requires more than a solid pricing strategy and a handle on operating costs. You also need to add value to as many aspects of the customer experience as you can, both before and after the sale.

Product protection helps optimize the post-purchase experience, and it’s often the deciding factor in turning a newly acquired customer into a loyal one.

To learn how Extend’s product protection plans can help improve your profit margins, schedule a demo here.

Aaron Sullivan
Aaron Sullivan is senior content marketing manager at Extend. He specializes in writing about e-commerce, finance, entertainment, and beer.

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