When growth stalls, attention easily shifts from driving sales to reducing costs. It may seem counterintuitive that spending more money can decrease total costs, but, with a platform like Nosto’s, you can actualize significant cost savings when applied intelligently. We’ve seen many of the tactics we discuss in this article used by different retail customers, but we don’t think there’s anyone who’s made use of all of them—at least not yet!
To empower us to get practical and speak to concrete savings in USD per year, let’s assume you’re running an ecommerce business with around $10M in annual sales, allocating about $1M into marketing (primarily Google and Meta), and around $200k into various technology vendors and partners.
1. Decrease staffing pressures through automation
While most ecommerce teams are fairly lean, staffing still remains a large cost component for any business. Depending on the location, experience level, and required skill set, recruiting a single person full time probably adds at least $100,000 onto your costs.
Inversely, this also means that delayed hiring quickly adds up to a large saving. The pressure to hire typically piles on when there are too many tasks to be done by the existing team, and not enough hands on deck. When you analyze the time allocation, very often a large portion is designated to various forms of campaign management and store merchandising, such as ensuring category pages are optimally sorted and taking account of inventory levels.
Nosto’s Commerce Experience Platform (CXP) can automate a heavy proportion of such work through smart algorithms. Layered with an intuitive user-interface, you can choose the optimization goals that matter most to your business for both category and search results pages. Other forms of automation that our CXP offer are featured products or categories on the home page, cross-selling or shop-the-look items on product and cart pages, color detection, as well as the tagging of incoming images from social media.
Total savings: $200,000. Assumption: delaying the need to hire one to two new team members and / or freelancers by 12 months.
2. Cut ad budget while maintaining performance by improving landing page effectiveness
Driving new traffic into a store remains a key priority, even during a cost-saving exercise. Converting that traffic more effectively enables you to keep the same outcomes while spending less. This is partly about doubling down on channels that are more effective and scalable, but it’s also about ensuring the experience a person has after clicking the ad is as relevant as possible.
We offer various ways to optimize landing pages to make them more relevant. Some of the key methods include:
- Using the UTM parameter and real-time behavior to understand intent and personalize everything from products displayed to content banners and text descriptions.
- Using real-time crowd wisdom to automatically feature the best possible products for each shopper. For example, showing a shopper an item based on what is best selling in their location, weather conditions, or other shoppers with similar behavior.
Total savings: $160,000. Assumptions: Reducing the bounce rate (which increases conversion rate) of traffic sourced from digital ads by 20% on a budget of $1M, would mean that results remain despite slashing the budget by $160,000. Why? Because advertising budget times ROAS (return-on-ad-spend) equals sales, and reducing one side is balanced out by increasing the performance (ROAS) while sales remain the same.
3. Remove the cost of making detrimental changes with A/B testing
If you counted the number of changes made on an average ecommerce website per year, and then counted how many of them were tested prior to deploying, we think it would be less than 1%. Some of these changes are certainly seasonal or campaign related, but even without those changes, there are many iterations that can cost you by hurting your sales.
The easiest way to remove this cost is by simply verifying that each ‘permanent’ change is helpful. How can you do this? By only driving a portion of traffic to that variation (let’s call this challenger B), and comparing its results to the previous variation (challenger A), you can see the counterfactual of each decision play out in real time—a true superpower! Using our CXP, you can also delegate the job of traffic allocation to algorithms, further diminishing the costs by automatically weighing the better performing variation higher.
Total savings: $150,000. Assumption: Avoiding 5 changes that would have decreased your sales by $30,000 each.
4. Reduce inventory costs and discount rates with smart merchandising
Every ecommerce professional who’s been in charge of trading knows the pain of stale inventory. When the sell-through rate suffers, you end up with a pile of units whose value keeps decreasing every day. This leads to higher discounts and lower margins, all while the costs of keeping inventory grow.
To avoid unnecessary discounts and decrease the pile-up of inventory, consider two things:
- What you order into your inventory
- Using inventory levels for merchandising
There are several ways our platform can support this effort!
One method is using Catalog Explorer as a smart layer on top of your inventory management system to keep track of products that perform exceptionally well or particularly poorly, and estimate how many days your inventory will hold at its current rate of purchases and impressions.
Compliment this with well-structured, global merchandising rules that promote items that are high in inventory, which will allow you to control what’s moving.
Finally, you can also create specific segments of shoppers with a discount affinity. Instead of sacrificing on margin by featuring discounted items to every shopper on your site, you can create a specific ‘discount’ experience across category pages and other pages for this group of customers.
Total savings: $117,000. Assumption: Reducing the average discount rate from 15% to 10%.
5. Consolidate multiple vendors into a single platform
To be a successful ecommerce player, you typically end up with multiple SaaS providers to cover for your various needs, such as customer support ticketing to marketing automation. Because of the unit economics of providing a cloud software service, especially with a human component (e.g. an Account Manager or Customer Success Manager), each vendor typically has an annual price tag with five figures.
All that being said, consolidating multiple solutions under one roof is more cost-efficient. The more providers your team has to learn and interact with, the more time-consuming it becomes to maintain the latticework, which adds further pressure on staffing.
With the launch of Search, we’ve become unique in the breadth of tools you’re able to cover with a single platform for onsite experience optimization. Combining all the key elements for product discovery (including Search, but also Category Merchandising and Product Recommendations), shop-the-look Dynamic Bundles, behavioral Pop-Ups, Content Personalization, as well as powerful Visual User-generated Content (UGC) capabilities, reduces the number of tools being used from potentially eight separate solutions, to a single platform—all powered using a one dataset and controlled through one sign-on.
Total savings: $100,000. Assumptions: total cost of removing 2-4 other vendors at $20-50,000 per solution plus the value of time saved in tooling maintenance / management minus the added cost of Nosto modules.
6. Negotiate better supplier prices in exchange for curated experiences
For any multi-brand online retailer not manufacturing their own products, the largest cost tends to be the supplier. Whether they’re selling bikes or dresses, suppliers usually have fairly strict policies on their product pricing with possible volume discounts. In the current macro-environment, there’s been an intense ballooning of manufacturing and logistics costs, trickling down to higher supplier costs as well. And yet, even a small percentage decrease in supplier costs would have a consequential impact on margin.
Although a rarely used tactic, at least one of our clients has used the creation of branded experiences (think tailored banners and promoted products from that brand) for those with an affinity towards that brand as leverage in their supplier price negotiation. It’s similar to how department and grocery stores auction the prime real-estate to their brands. This can prove hugely beneficial for the supplier, as they’re able to differentiate from other producers in a crowded space, and possibly even influence the merchandising decisions within a category page (i.e. “promote my products for those with an affinity towards the ‘running’ category, and I’ll offer you a discount).
Total savings: $100,000. Assumption: Decreasing the annual supplier cost by 1.25%, assuming an $8M supplier cost.
7. Decrease the cost of returns through UGC and decrease the spotlight on frequently returned items
Besides being a major contributor of CO2 within ecommerce, returns are also a large cost component to any seller of physical goods. In some verticals, the return rate tends to climb to over 50%, which means that making a dent in reducing returns can turn into meaningful monetary impact. There are a multitude of reasons for product returns, from faulty products to buyer’s remorse. Particularly in apparel, a big reason is that the size or color of the product doesn’t match expectations.
There are certainly some dedicated tools for size fitting, but one simple method is showcasing images of other people wearing or using the product through authentic UGC. This also presents the product in various lighting and environments, giving the shopper a better idea of the item in its everyday use, and further decreasing the risk of return.
Another way to impact the return rate is to decrease the spotlight on products that are frequently returned. While you may still want to keep them in your catalog for those who specifically seek them, a good experience platform will allow you to make sure these products aren’t featured in recommendations, and are appropriately demoted.
Total savings: $70,000. Assumption: Reducing the cost driven by returns (including logistics, handling, ad costs, and product damage) from $250,000 to $180,000.
8. Reduce content production costs by tapping into photos and videos created by your customers across social networks
Modern marketing is a hungry beast and requires a huge amount of visual content to feed onsite banners, ad campaigns, email newsletters, and a swath of landing pages. Since stock photography typically performs extremely poorly in ecommerce (shoppers can smell the lack of authenticity a mile away), and supplier photos are too generic, the best merchants end up conducting expensive photography shoots or paying influencers to gain more visual assets.
The good news is that any relatively established brand today will have a community on social media, producing an ever increasing stream of video and image content. And with the improvements of smartphone cameras and software enhancements, the quality gap between a professional and an amateur photographer has dramatically decreased. As a nice little extra, the latter is perceived as more authentic, giving you a boost on content performance. But most importantly for our cost saving exercise, UGC is much more cost-effective, providing a 65% cost reduction compared to usual forms of acquiring visual content—at least when using a good platform that makes discovery, curation, and publishing a breeze.
Total savings: $65,000. Assumption: Cut content production and influencer marketing costs from $100,000 to $35,000.
9. Reduce development costs by taking over certain aspects of site design
A good content management system provides independence for a non-technical marketer to make changes to their website. Surprisingly, we still see customers who are fully reliant on their developers to make even the most simple changes on their website. This incurs not only direct costs, but also the opportunity cost of using developers’ time on more menial tasks.
While our Content Personalization was originally built to empower the creation of experiences to different audiences, this functionality also empowers retailers to take control of their website content and launch campaigns targeted towards the “Everyone” segment.
Some of these campaigns include promoting ‘pay-later’ options on the category page, scheduling specific campaign content banners on the home page, or adding some ‘fear-of-missing-out’ messaging on the product page. These can all be launched relatively easily, assuming the foundational blocks have been laid out.
Total savings: $39,000. Assumption: Reduction of 5 hours of developer time per week, at $150 per hour.
Wrap-up: sometimes, spending is saving
Regardless of how large your organization is, money, time, attention, and energy are going to be scarce resources. Being smart about allocating those “chips” is ultimately what sets apart the best businesses from those that fail. Applying a platform like Nosto intelligently can reduce the pressure on all of those resources—and save you major costs.
Spending money to save it may feel like a strange suggestion, but perhaps an apt metaphor would be investing in better insulation of your house in order to save on heating costs. Well, assuming that the insulation was smart enough to also increase your income while you slept…and has a fantastic support team to assist you with house renovation projects…anyways!
Want to explore whether Nosto could help with your costs? Book a demo.