- 12/23/2011

Ecommerce

People Are Increasingly Spending More Money Online

A macro analysis of our current set of customers tells an interesting story regarding rising prices, increasing discounts, and falling shipping and taxes. On the whole, over the past few years, store owners are making more net revenue per unit sold and charging less on shipping and tax.

Check out our findings.

Revenue

The average per unit revenue is rising fast. For starters, the average gross revenue per unit has risen +12.3% from 2010 to 2011, and has risen +73.9% from 2007 to 2011. This means that in 2007, the average price of something you’d buy online was $19.86. Today the average price of something you buy online is $39.37!

There could be several reasons for this:

+ The price increase is due to inflation, not the item itself. This explanation is doubtful. With inflation rising from 1.6% to 3.9% and falling (0.3%) in 2009 over the past ten years. Prices aren’t rising that fast.

+ The price increase is due to the item. I believe this argument to be plausible. As online communities have flourished and e-commerce continues to grow. According to Forrester Research, e-commerce will continue growing at 10% year hitting $279 billion in 2015. People have demonstrated a greater willingness to buy online, and buy more expensive items. Increased use of tablet, mobile technology and daily deal sites will continue to spur growth.

+  The price increase is due to inflation and a shift in the items. I prefer option 2, but could be convinced of this given sufficient empirical evidence. What makes me skeptical of this is the fact that online sales only account for a mere 8% of retail sales. In order for online businesses to steal market-share, they are likely undercutting the brick and mortar store on price. The failure and bankruptcy of Tower Records, Borders and Blockbuster are testament to disruptive players like Amazon, Spotify and Hulu.

Long story short: people are increasingly willing to buy more expensive things online–don’t let that opportunity pass you by. Maybe it means offering a premium version of your product or a new high-end product line all together. If you sell T-shirts maybe get into polos. If you’re selling coffee try going the fair-trade organic route and reaching that premium niche.

Discounts

The average discount percentage per unit sold has also risen from an average of 11% off per unit in 2007 to over 19% in 2011. Sites like Groupon, LivingSocial, Scoutmob, Woot and dozens of others appeal to the masses on the basis of discounting. The perception of “savings” is sometimes enough to tip the customer to pull out the plastic and hit the trigger to buy.

Opensky, an e-commerce site specializing in celebrity recommendations starts you off with a $15 “free credit.” Most of the items on their site are at least $25. They’ve instantly created a perception of savings from the start. Markup, then discount–perception is everything.

Form of Payment

Among buyers, Visa (39%) is the most attractive form of payment, while Paypal (21%), Mastercard (21%) and American Express (9%) trail behind. Amex fees are typically higher so encouraging your users to use Visa and passing along a part of the savings might be a win/win. On a large ticket item such as a TV or original art, a 0.5-1% difference isn’t a trivial dollar amount.

Shipping

Comparing 2007 to 2011 averages per unit, shipping fees have risen +24.3%. However, when compared the rise in gross sales over the past 4 years of +73.9%, relative shipping rates have actually fallen. In other words, gross sales and shipping are both rising over time, but because gross sales are rising significantly faster than shipping the percentage of shipping relative to the purchase has actually fallen from 11.7% to 8.6%.

Cheap or free shipping is another implicit means of providing your customers with perceived and actual value and can be employed much like discounting. For some of our users, free shipping promotions have actually decreased cart abandonment by up to 20%.

To sum it all up (pun intended), the landscape of the ever growing ecommerce industry is constantly evolving. Stay on top of what’s trending via our blog or by checking back frequently to see how your store is performing. There’s another 92% of the retail market to take over people. Time to get cracking!

Read more about our findings over on the Shopify blog.

Updated November 17, 2017.


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