To improve the performance of your online business it is essential to carry out studies both internally and on the competition and the market; we must remember the competitiveness in the sports goods sector, in which you are operating. These analyses will mark your competitive position and give you a better understanding of how your rivals operate.
To safeguard your theoretical margin is one of the main objectives, along with increasing the conversion ratio in order for your e-commerce to be successful. In this guide we will give you the necessary clues to identify the factors that may be putting your theoretical margin at risk, and therefore, putting at risk the continuity of your e-commerce of sporting goods.
What is the theoretical margin?
To understand what is the theoretical margin in the context of an e-commerce it is necessary to understand the great metrics that are used to identify the profitability of a business:
Price Index: is a statistic that marks the level of competitiveness of your e-commerce in relation to the competition. It is measured on a scale in which if the index of your sporting goods business is less than 100 it represents a lack of competitiveness, while having a price index figure above 100 means that your e-commerce has a good level of competitiveness.
Profit Margin: It is a metric closely related to the conversion ratio. It is calculated by subtracting the costs of acquisition of the product from the sales revenue.
Conversion Ratio: This metric shows us the capacity of your e-commerce to convert visitors into buyers. It is calculated by dividing the number of people who enter your website by the number of conversions.
So, what is the theoretical margin? It is the expected profit from a commercial activity, taking into account that there are no external inconveniences – unexpected increase in the purchase price from suppliers, problems with storage, etc. – or internal – application of discounts, bulk sales, etc. Knowing the theoretical margin is essential to implement any pricing strategy for your sporting goods catalog.
What elements can affect the theoretical margin?
While for any business the goal is to achieve sales, it would be unwise to force sales without considering the profit margin, since the purpose of sales is to make a profit that will allow your company to be profitable. Therefore, to ensure that there is no difference between the theoretical margin and the final profit margin, you should follow rival stores, as well as study the vertical you operate in.
By studying the competition through Big Data tools that handle the tracking of millions of products and their characteristics, you will be able to know your position in relation to your rivals and identify situations where you are not as competitive in a group of products or a specific brand. There may be scenarios where your product has a significantly higher selling price than the majority of the competition. To avoid that, you should have your purchasing department meet to negotiate better conditions with suppliers.
Another reason for this price dissonance may be due to inefficient inventory management for your products. You have at your disposal inventory management software, using manual stock tracking systems or automated tools.
In order to know the stock of your competitors, price tracking tools also take into consideration the stock level of rival products, so you can edit your pricing strategies accordingly.
There is no denying that selling is always a challenge, so from the purchasing department it is vital to get the best prices from suppliers. Negotiating is not an easy task, but thanks to the study of the competition you can identify which areas of your business deserve special attention. According to Pareto’s rule, 20% of the catalogue represents 80% of sales, so you have to be as efficient as possible with the other 80% of the product list.
Thanks to the use of price intelligence tools, you will be able to detect the competitor who is leading the price decreases and react in time so as not to lose competitiveness, which will safeguard the theoretical margin.