How Visual Merchandising Can Improve E-commerce Profitability

January 3, 2024

Visual merchandising is an essential part of any successful e-commerce business. The typical scope of visual merchandising is often limited to branding and conversion rate optimization. However, visual merchandising can play a crucial role in improving your overall profitability.

The main ways for a visual merchandiser to influence profitability are:

  • Nudge customers to buy more high profitability products
  • Increase the basket size, ie Average Order Value (AOV)
  • Decrease the risk of returns

We have previously written a blog post about decreasing the risk of return by focusing on optimizing the product pages and especially their content. When it comes the other two factors, this is more of a landing page optimization game.

Prioritize products with high profitability

You don't need to complicate it more than remembering this simple rule; when possible, prioritize products with high Net Gross Margin 2, everywhere on your shop. All the time.

What do we mean with this?

Well, it is as easy as this - if you have products with higher Net Gross Margin 2, meaning higher %-point left of the initial revenue after accounting for the COGS, returns, and all the shipping and transaction costs, you want people to buy these products.

A comparison of products depending on their Net Gross Margin 2 and how many sold units
An example of a report with products in Dema.ai with products and what Net Gross Margin 2 each and every product has, which can be used to prioritze what products to give more or less exposure in order to optimize for profit

Then you execute commonly used tactics for steering the buying behaviour on your e-commerce towards these products, such as highlight them on homepage banners, category pages, search results, and have them high up on default product listings etc.

What to do when you can't prioritize products with high profitability

Some cases, that are pretty common, won't allow you to keep the high prio on your golden Net Gross Margin 2 hero products:

  1. You don't have Net Gross Margin 2 hero products; you simply aren't that profitable with any of you products, or in rare cases; you just don't have much of a difference between you products when it comes to profitability
  2. When your constrained by inventory; you have too little inventory of the products with high NGM2 compare to the products with low NGM2.
  3. When the products with high NGM2 simply put has too low conversion rate due to limited demand

An example of a report with set of products in Dema.ai with the lowest AOV, Net Gross Profit 2 per order, where you likely have the low hanging fruit

In these 3 cases, you want to invest as much of your time into anything that can improve the Net Gross Margin 2 for these products.

We discussed tactics on how to improve Net Gross Margin 2 for products on their Product Pages in this article here.

Other than optimizing product pages for decreasing the risk of returns, you as a visual merchandiser should focus all your efforts in increasing the AOV. With higher average order value and lower return rates, we get orders with higher Net Gross Profit 1, that can then carry the transaction and logistics costs, resulting in higher Net Gross Profit 2.

Other things to consider to increase your profitability

There are several other things you could do as a business when you are in a situation where an increase in profitability is needed. We have written several other blog posts on this topic, you might want to read some of them.

  1. How to use free shipping threshold
  2. How to optimize discounts for profitability

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