Scaling your eCommerce business is exciting, but it comes with challenges.
How do you grow without stretching your resources too thin?
In our recent webinar, Rok Hrastnik, a seasoned eCommerce expert, shares his proven methods for achieving sustainable growth.
In this article, we’ll dive into his key strategies from the session, including:
- The role of contribution margins: Why contribution margin, not revenue, is the key to profitability.
- Striking the right balance: How to maximize lifetime value by keeping loyal customers engaged.
- Investing for growth with purpose: The importance of reinvesting wisely and scaling strategically.
- Building a lasting brand identity: Why distinct branding is essential for long-term survival in a competitive market.
If you’re ready to build a profitable eCommerce business that can withstand the challenges of growth, keep reading.
Understand Your Margins
Rok emphasizes that not all growth is created equal. Chasing revenue without understanding your costs can hurt your business in the long run. The key lies in shifting your focus from revenue alone to sustainable profitability.
He advises to:
- Focus on contribution margin. This metric shows how much profit you’re making after covering variable costs. Unlike revenue, it gives you a clear picture of what’s actually driving profitability.
The contribution margin is calculated as Net Sales minus Cost of Sales (all variable costs, such as shipping, packaging, and platform fees) minus Marketing Costs.
Regularly check how your profits are performing across brands and products, and make adjustments as needed.
Rok also highlights the importance of breaking down variable costs in detail and optimizing them wherever possible to maximize profitability.
- Use data to guide decisions. Make sure to track key metrics like customer acquisition costs (CAC) and lifetime value (LTV) to ensure you’re spending efficiently.
Balance Acquisition and Retention
It’s easy to get caught up in acquiring new customers, but Rok highlights the importance of keeping the ones you already have. Loyal customers are more cost-effective to serve and tend to spend more over time.
His tips include:
- Retain your best customers. Build strategies to keep existing customers engaged, as they provide consistent value to your bottom line.
- Balance new vs. repeat customers. Regularly evaluate how much each group contributes to revenue to ensure sustainable growth.
- Use retention cohorts and forecasting. Tools like Shopify, Storehero, and BeProfit provide insights into customer retention trends, allowing businesses to forecast the value of repeat customers and determine how much they can afford to invest in new customer acquisition.
Rok also suggests tracking contribution margin for new and repeat customers separately. This helps you see where your growth is coming from and decide if you need to focus more on acquiring new customers or keeping existing ones.
Plan for Smart Growth
As Rok puts it, scaling too quickly without a solid plan can lead to cash flow problems or operational bottlenecks.
To avoid this:
- Reinvest wisely. Put profits into areas that drive long-term growth, like improving your technology stack or expanding into new markets. Predictive tools that use machine learning and AI, for instance, can help businesses identify where to focus their investments by analyzing trends and forecasting the highest-impact opportunities.
- Test new channels carefully. Start small with new products or marketing channels to see what works before scaling up.
Understand Your Growth Model
Rok goes on to introduce three growth models that align with different stages of business growth:
- Acquire at Profit: This model is ideal for businesses that generate a positive contribution margin per order. Rok explains that the key challenge is maintaining profitability as you scale.
He recommends optimizing acquisition strategies, including refining creatives, improving landing pages, and testing offers, to sustain profitability even with increased spending.
- Acquire and Retain: Businesses in this model may experience a negative contribution margin during customer acquisition but rely on repeat customers to generate long-term profitability.
Rok says it’s important to forecast future contributions from repeat customers and manage acquisition spending accordingly.
- Multiplication: Once a brand is well-established, businesses can expand into new channels, such as Amazon, wholesale, or other marketplaces. Rok noted that while these channels can amplify growth, they often depend on demand created through direct-to-consumer marketing efforts.
Strategic planning is essential to ensure these channels contribute positively to overall profitability.
Wrapping Up
As Rok puts it, growing your business isn’t just about selling more, it’s about making sure every sale contributes to your bottom line.
By focusing on margins, balancing customer acquisition and retention, and planning for sustainable growth, you can grow with confidence and profitability.
Looking for more actionable advice? Dive deeper into Rok’s expertise by watching the full webinar and discover how to take your eCommerce business to the next level.
