Checkout Conversion Rate: What Is It? And How Can Online Businesses Improve It?

Income is the bloodline of every online store. There are many factors that influence an e-business’s profitability. Today we will introduce you to an element that has a great impact on your business: checkout conversion rate.

Let’s say that your online store has hundreds of visits per week, but only a few of them make a purchase. How can you persuade more of your visitors to buy your products? Read on to find out what checkout conversion rate is and strategies to improve eCommerce conversion rate. 

What is a checkout conversion rate?

The checkout conversion rate is an important metric for every e-commerce business to follow. It refers to the percentage of customers that start and finish the checkout process in a particular amount of time. 

Online businesses can monitor patterns and inconsistencies by tracking conversion rates on their checkout page over time. With this approach, e-businesses will be able to learn more about which components of the checkout experience resonate with their consumers and which might be improved. As a result, a slight improvement in checkout conversion rate can substantially increase income.

Shopping cart abandonment is directly linked to e-commerce checkout conversion rates. This represents the percentage of consumers who add products to their shopping cart but never finish the transaction. We’ll learn more about shopping cart abandonment in the next section.

Why do customers abandon their shopping cart?

Cart abandonment is a common issue. For one reason or another, customers often leave an e-commerce site without making a purchase, even when they’ve put goods in their cart. According to research company Baymard Institute, the average cart abandonment rate is 68.8%, which means that nearly seven out of ten customers have put items in their cart but don’t finish the transaction. 

Here are some common reasons:

  • High extra costs (shipping, tax, fees, etc.) 
  • Too much information required
  • Slow delivery time
  • Complex checkout process
  • Lack of trust in website security
  • Want to save the items for later
  • Lack of preferred payment option
Reasons for shopping cart abandonment ( Source: Baymard)

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4 strategies to improve checkout conversion rate

  1. Convert to a single-page checkout process

The checkout procedure should be as quick and smooth as possible for your customers. People are busy, and whatever you can do to save them time and speed up the process will help you secure a sale.

This is when a one-page checkout comes in handy. Here are some benefits a single-page checkout process offers: 

  • It’s shorter and gives customers an incentive to complete the transaction.
  • It has all the fields on the same page, avoiding unnecessary complications for users.
  • It requires fewer clicks. Behavioral research shows that the fewer the number of clicks required to complete an action, the higher the conversion rate.
  • It reduces the chance of website errors occurring between one checkout page to the next. 

The famous hypermarket Walmart has an excellent single-page checkout. It has a 3-step process with each step including a minimal form that is easier to navigate. 

Walmart single-page checkout (Image source: Ecommercebooth)
  1. Skip the mandatory sign-up

Due to the fear of personal data being leaked or tracked, online shoppers are becoming increasingly hesitant to provide their personal information to your website. Though customers may enjoy your items enough to purchase them, only a small percentage of them want to register an account right at the start of their buying journey.

Despite this, many e-commerce businesses continue to force their potential buyers to create an account for user information collection and to send newsletters. Rather than being excited to take advantage of a newsletter with deals and promotions, this forced account creation may actually lead to prospective customers giving up on buying altogether.

If you’re concerned that you won’t be able to develop a user database without mandatory sign-ups, keep in mind that you can always request a buyer’s contact information during the checkout process. The essential thing is that you give them an option, not an obligation.

If customers had a good shopping experience, they’ll come back and realize the value of having an account. You can also send them emails to encourage them to join your program.

  1. Offer free shipping

The delivery fee is one of the most common reasons for online shoppers to abandon their shopping carts. Customers visit a store and put items into a cart, but at the end of the checkout process, if they discover that they don’t qualify for free delivery or that the fees are too high, they will ditch the deal. 

Free shipping is what most online shoppers value. Shoppers are thrilled when they find a good deal and will take advantage of every opportunity to save a few dollars. Therefore, though it involves a cost for online businesses, offering free shipping significantly boosts eCommerce conversion rates. Besides, it’s not too difficult to calculate and work in the price of shipping into the product price

  1. Use shopping cart recovery emails

Sometimes, all it takes to bring back a customer to your site and entice them to complete their purchase is a little push. Enter shopping cart recovery emails. These shopping cart recovery emails are emails sent to a visitor who has abandoned the checkout process halfway through with the promise of a special deal or promotion for them to close the purchase.

Shopping cart recovery emails are incredibly successful. According to statistics, 46.1 percent of all such emails are opened (the mean open rate for all emails varies from 10-25 percent across industries). One out of every eight of these emails is clicked, and a third of those clicks result in a sale.

To get the most out of a shopping cart recovery email, online businesses should tap the customer when the lead is still “warm.” Typically these emails are sent 1-3 hours after the abandonment when your brand and your product is still fresh in the visitor’s mind. One important note is that you should check the items they’re interested in are still in stock before sending out these emails.

The bottom line

To every online business, the checkout conversion rate is a key metric that affects their ability to turn visitors into customers and close sales. That explains why e-businesses always look for methods to improve this point. For those looking for tactics to increase checkout conversion rate, following the advice you read in this article will be just what you need.

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How To Create a Business Budget with 7 Steps

Once your business is up and running, it’s essential to manage your financial performance. Establishing a business budget is the most effective way to keep your business and your money on track.

Having a business budget lets you know how much money you have, how much you’ve spent, and how much you’ll need in the future. It also can drive important business decisions.

In this article, we’ll discuss what a business budget is, why it’s important to every business, and how to create a good budget for your company. 

What is a business budget?

A business budget is a detailed spending plan that outlines how you’ll spend your money monthly or annually based on your business income and expenses.

Every penny counts! So, if you want to make the most out of your business funds, a business budget is the perfect tool, as it allows you to compare your plan with reality to see how you did. 

A business budget will help you:

  • Determine your available capital
  • Forecast your spending
  • Predict revenue

Why is a business budget important?

Why is a business budget a must-have tool for every business? Simply put, a budget assists you in determining how much money you have, how much you need to spend, and how much you need to bring in to fulfill your business objectives.

More specifically, a business budget can help your business benefit by:

  • Identifying money that is available for reinvestment
  • Predicting slow months and keeping you out of debt
  • Estimating what it will take to become profitable
  • Providing a window into the future
  • Helping you keep control of the business

How should you create a business budget?

Now that we all acknowledge the importance of a business budget, it’s time to learn how to create a good one.

A budgeting process begins with a review of your previous revenue and spending as you get started. The longer you’ve been in business, the easier this process will be because you’ll have more data to work with when creating your forward-looking budget. However, suppose your company is fresh new; chances are you may need to conduct more in-depth research on average expenditures in your sector or area to develop workable estimates for your projected finances.

Every good budget should include seven components:

1. Estimated revenue

The first step in creating a business budget is to go backward and identify all of your revenue sources. To find out how much money comes into your company on a monthly basis, add all of those income streams together. When calculating your income, make sure you look at revenue rather than profit. 

Once you’ve identified all of your income streams, calculate your monthly income. It’s critical to do this over a period of months — preferably at least the previous 12 months if you have enough data.

2. Fixed costs

The second step is to identify all of your fixed costs. Fixed costs are expenses that remain constant throughout a particular period. They’re the expenses you have to pay whether or not your company operates. For example, due to the outbreak of Covid-19, many companies are being forced to shut down their operations temporarily. Though there are no operating activities, businesses still have to pay for fixed costs such as rent and interest charges.

Fixed costs within your business might include:

  • Rent
  • Supplies
  • Debt repayment
  • Payroll
  • Depreciation of assets
  • Taxes
  • Insurance

Every business is unique, so your fixed costs will differ from those listed above. Take a few minutes to make a list of any other fixed costs that your company may have.

3. Variable costs

While looking for the information you need to identify your fixed costs, you’ll notice that your company has some variable expenses as well. Variable costs fluctuate based on how often you use a service. Many of these, such as utilities, are required for your business to operate.

Some examples of variable expenses are:

  • Raw materials
  • Inventory
  • Direct labor costs
  • Equipment replacement 
  • Office supplies
  • Utilities

4. Periodic costs

As its name suggests, this type of cost doesn’t occur monthly or annually like fixed or variable expenses. However, there are some occasions that you’ll need these expenses, so you have to be aware of this and make a budget for them. Periodic costs include education expenses, networking expenses, travel expenses, etc

5. Cash flow

Cash flow is a metric that tells you the amount of cash that comes in or goes out of your business within a specific period. This metric also represents the amount of money produced or lost by a business during a given period.

Because cash flow is the oxygen of every business, make sure you keep track of it frequently. If you have a positive net cash flow, you’re likely on the right track. On the other hand, a negative net cash flow means you may need to reevaluate your strategies. 

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6. Profit

Profit is a business’s total revenue minus total costs, expenses, and taxes. If profits are increasing, your business is expanding. Based on your predicted income, costs, and cost of goods sold, you can estimate how much profit you’ll make.

If your profit margins (the gap between income and costs) aren’t where you’d like them to be, you should reconsider your cost of goods sold and consider boosting prices. Alternatively, if you believe you can’t squeeze any more profit margin from your company, consider increasing the Advertising and Promotions item in your budget to grow overall sales.

7. A budget calculator

When it comes to business budget planning, a budget calculator can help you know exactly where you are by compiling all of your budget’s figures into a single, easy-to-understand summary. 

Create a summary page in your spreadsheet with a row for each of the budget categories listed above. This is the foundation of your budget. Then write the total amount you’ve budgeted next to each category. Finally, add a new column on the right and record the actual amounts spent in each category at the end of the period. This gives you a quick snapshot of your budget without having to dig through layers of cluttered spreadsheets.

The bottom line

A budget is a road map for your business. Though it can be daunting and time-consuming, like any good habit or practice, you will see the positive results in just a month or so. Stay diligent and continue to reach out for guidance and informative articles to help you build a financially strong and healthy business with the Shoeboxed Blog

Shoeboxed is a cloud-based software that helps businesses turn their piles of paper receipts into digital data. With Shoeboxed, you can do tasks such as scan, store, and organize receipts, manage business expenses, and even track mileage for business travelers. It’s simple to install and easy to use. Try Shoeboxed today!

What Is Gross Profit and How Do You Calculate Gross Profit for Your Business?

The gross profit metric shows a business’s profit based on its revenue and cost of goods sold. By knowing the exact figure of your business’s gross profit, you will gain a deep insight into your operational efficiency and financial performance, allowing you to take immediate action to improve. 

This article will give you a simple explanation of what gross profit means and a quick guide on how to calculate it correctly. 

What is Gross Profit?

A business’s gross profit is the difference between its sales revenue and the cost of goods sold (COGS). Gross profit reflects how much the company actually earns from selling its products and/or services. 

Gross profit appears on the company’s income statement and it can also be referred to as gross income or sales profit. 

How to Calculate Gross Profit 

To calculate gross profit, subtract the cost of goods sold (COGS) from the total amount brought in from sales. 

The formula for Gross Profit 

Gross profit = Revenue – COGS 

Now, let’s take a closer look into the two factors that make up gross profit: 

  • Revenue: the money generated from the total sales of your products or services. Revenue represents your gross income before deducting any expenses and taxes. Note, some companies may substitute net sales for total revenue when computing gross profit. Essentially, net sales are the same as total revenue, except it deducts the price of refunded or returned sales, allowances, and discounts, if any. 

See also: Revenue Vs. Profit: What’s the Difference?

  • Cost of Goods Sold (COGS): includes all of the direct costs and expenses involved in producing, selling, or delivering your goods and services. Here are some typical examples of COGS:
  • Raw materials 
  • Direct labor costs in production 
  • Shipping fees 
  • Utilities in production    
  • Product packaging fees 

COGS excludes indirect costs and fixed costs, such as rent, office expenses, salaries for administration staff, depreciation, advertising, etc. 

Example of How to Calculate Gross Profit 

Below is the income statement of ABC Inc: 

Revenues$ (million) 
Sales 120,000
Financial services10,000
    Total revenues130,000
Cost of sales95,000
Administrative and other expenses10,000
Financial services operating and other expenses8,000
    Total expenses113,00

To calculate the company’s gross profit, we first have to determine the cost of goods sold, which is $95,000 in this example. Remember, do not include administrative, operating, or other expenses as they are not directly involved in making the products. Next, we calculate how much our total revenue is, which comes to $130,000 in the example. 

Based on those figures, we subtract the cost of goods sold from revenue to work out the gross profit: $130,000 – $95,000 = $ 35,000.

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How Can the Gross Profit Metric Help Your Business? 

Gross profit is one of many basic accounting and financial tools available for small businesses. It focuses on one simple fact: the higher your revenue and the lower your production costs are, the greater your gross profit is. By knowing the exact number of your business’s gross profit, you will have a sound idea of whether the production process could or should be more cost-efficient. 

You can then look for effective solutions and take immediate measures to maximize your gross income. For example, if you notice that manufacturing costs are too close to or exceed your revenue, try different cost-effective methods to lower COGS by switching to a cheaper supplier or reducing your packaging weights. Alternatively, you can also try to boost sales by stepping up your marketing campaigns. 

The Limitations of Gross Profit

The gross profit metric’s major flaw is that it doesn’t account for all of a company’s expenses and income sources, so it’s not really useful when it comes to analyzing real profitability. 

Another point is that the gross profit metric is a fixed number unique to your company – you can’t use it to compare with your competitors. For example, it wouldn’t make sense or bring any useful insights if you compared the gross profit figures of a newly established startup with an established company in the industry. 

Instead, to compare, you should compute the gross profit margin – a financial ratio that shows how well a company makes income relative to how well it manages its manufacturing costs. You can then use this ratio to compare against other companies as gross margin percentages are all depressed in proportion to the magnitude of each company’s sales and COGS. 

Formula for gross profit margin (GPM):  

GPM = Gross Profit/Revenue

Final thoughts 

Gross profit is a useful and easy-to-calculate metric that allows businesses to understand their financial performance on a deeper level, resulting in greater profits. However, to see the broader picture of your business’s efficiency, it’s best to analyze and use the gross profit metric with other financial ratios as well. 

Want to Learn More About Business?

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