In this episode, Nathan and Val discuss the importance of first-order profitability in e-commerce businesses. The podcast is structured into three sections, firstly setting the scene, secondly how to become first order profitable, and finally how to operate a repeat purchase model.
Takeaways
- First order profitability is crucial in e-commerce businesses to avoid financing losses through repeat customers, investors, or creditors.
- Accurate gross margin calculations and efficient marketing are essential for achieving first order profitability.
- Understanding unit economics, including average order value, contribution margin, gross margin, and customer acquisition cost, is key to maximizing profitability.
- Pricing strategies, shipping costs, and upsells/cross-sells play a significant role in achieving first order profitability. Tracking first order unit economics versus repeat orders is important for understanding customer spending patterns and making strategic decisions.
- Building a business that is not profitable on the first order requires a deep understanding of metrics and data analysis.
- Maintaining strong markups and testing pricing strategies can lead to increased profitability.
- Separating first-time and repeat customer unit economics is crucial for making informed decisions about marketing spend and customer retention.
Chapters
00:00 Introduction and Setting the Scene
03:36 The Importance of First Order Profitability
08:10 Accurate Gross Margin Calculations
20:28 The Role of Pricing Strategies and Shipping Costs
26:51 The Power of Upsells and Cross-sells
28:33 Importance of Tracking First Order Unit Economics
39:13 Becoming First Order Profitable
48:39 The Role of Markups and Pricing Strategies
53:47 Testing Pricing Changes and Elasticity of Demand
