This blog post will delve into data analysis and strategic decision-making, unveiling how e-commerce businesses can optimize their international market choices. This in-depth examination will go through the most essential things in a data-driven approach step by step, revealing how it can lead your business on the path to greater profitability. If you get this process right, this could be a game-changer in your e-commerce journey.
Identify your core markets
While most businesses are aware of their core markets in terms of top-line revenue, it's more important to assess them based on deeper metrics. Evaluating profitability and future potential is crucial. However, data on profitability and future potential per country can be challenging to find if you have yet to invest in a proper setup. The following paragraphs provide some more guidance.
Your core markets should be the primary focus of your marketing, shipping, and customer service efforts. This approach ensures establishing an appealing brand, keeping customer acquisition costs low and retention high during scaling without sacrificing your profitability. Trying to target too many markets simultaneously is a common mistake that you should avoid.
Unit economics
- do you make money on your orders?
The simplest way to get a high-level understanding of what drives your business is to look at all direct costs affiliated with an order. Just go through this formula on a country-by-country level:
Gross Sales - Returns - COGS - Shipping, Fulfilment, and Transaction costs - Cost of Returns - Customer Acquisition Cost (CAC)
You then get two outcomes, either a positive or a negative contribution.
Markets with unfavorable unit economics and a great LTV to CAC ratio?
One of the most critical factors in deciding on a country's future growth potential is understanding the customer acquisition cost (CAC) ratio against the customers's lifetime value (LTV). As a rule of thumb, the LTV should be at least three times higher than the CAC, but the higher, the better. If this ratio is not met, it might not be financially viable to accept investing in a market with negative unit economics on the first order. This ratio and the unit economics should be the two guiding stars when deciding where to invest less or more resources.
Consider the time and effort needed to ensure a satisfying service level
The general service level and, more specifically, the logistics whole journey can significantly impact an e-commerce company´s profitability. It can both kill loyalty and enhance it. Therefore, make sure that the countries you ship to satisfy the level of service you want to associate your brand with and that your customers expect. If there is a mismatch, you risk wasting precious time and money on this market until you find out why it is not delivering the proper returns. Consider how long it will take for products to arrive, how easy it is for customers to track their orders, how reliable the shipping provider is in that country, and what customer service you can provide.
All this boils down to understanding the alternative cost of the time and effort invested in making this great for each market, something often overlooked when looking at unit economics and future potential for a market.
Don't be afraid to pivot
Even with the best forecasts and strategies, entering a new market can still be unpredictable. There are just so many things that affect the outcome. Instead of over-planning and experimenting for too long with many markets, adopt a ruthless investment or divest strategy. Be ready to pivot and adjust your approach if the market isn't performing as expected. Be open-minded to customer feedback and insights, and use that information to make tactical decisions.
Summary
Effectively targeting countries for e-commerce profitability requires a comprehensive approach. Key considerations include:
- Understanding your core markets further down in the P&L
- Evaluating unit economics, including all direct costs
- Assess the time and effort needed to provide quality service to ensure long-term growth
It is crucial to remain flexible and adaptable throughout this journey. If a specific market falls short of expectations, adjust your strategy accordingly. Remember, decisions should be based on concrete data rather than the fear of missing out. Also, remember that if you decline a market today, it does not mean you cannot return in the future. Ensure your choices are data-driven, not based on FOMO. By adhering to these principles, you can make informed decisions that drive both growth and profitability in the ever-changing e-commerce landscape.