When analysing cart abandonment, it’s critical to look at the problem from a profitability perspective rather focusing blindly on revenues.
Just slightly improving conversion, let’s say 40 of 100 shoppers completing a purchase instead of only 35, is obviously great from a revenue perspective; it means 12,5 percent greater revenue (assuming that they spend the same amount). But what’s even better: It could improve your profitability by 100 percent or more.
How cart abandonment impacts immediate profits
You are already incurring costs for acquiring new customers; be it for sponsored posts on Facebook or Instagram, Google ads, or other ways of driving traffic to your online store.
So what does that mean?
And how does it relate to your abandoned cart rates and profitability?
Let’s do some maths.
Say you pay 500,000 euros for traffic to your online store over a period of time. And say that leads to 300,000 visits to your store, and 12,000 of those visitors (4 percent) place items in your shopping cart. You probably have different numbers, but follow along…
To make things simple in this example, let’s imagine that all buyers shop for the same amount, 250 euro, and that your profit margin averages 50 percent. In other words, for each order you earn 125 euro.
Now let’s see how that plays out.
SCENARIO 1: 65 out of 100 abandon their cart.
500,000 euro is paid for traffic
12,000 people start the purchasing process (4 percent)
4,200 buy, 7,800 abandon their cart (35 percent cart conversion)
Revenues in this scenario: 1,050,000 euro (4,200 x 250 euro)
– product costs: 525,000 euro (50 percent)
– traffic costs: 500,000 euro
= 25,000 in immediate order profit
SCENARIO 2: 60 out of 100 abandon their cart.
In this slightly improved scenario, the numbers look like this:
500,000 euro paid for traffic (the same)
300,000 visits (the same)
12,000 people start the purchasing process (the same)
4,800 buy, 7,200 abandon their cart (40 percent cart conversion)
Revenue in this scenario: 1,200,000 euro (4,800 x 250 euro)
– product costs: 600,000 euro (50 percent)
– traffic costs: 500,000 euro
= 100,000 in immediate order profit
That’s four (!) times as much immediate profit; a 300 percent improvement. And all that by just changing the abandoned cart rate from 65 to 60 out of 100.
The profitability of each additional customer becomes even more evident when you consider all the fixed overhead costs you already have in your business for staff, buildings etc. Seen from that perspective, improved conversion is almost pure profit.
The long-term impact
To see the real impact of cart abandonment you also need to consider the lifetime value of your customers. A certain number of those additional new customers won’t only buy from you once, but again and again. How much are those extra sales worth? For most online businesses, that’s where the most profit is created.
Having a high-converting payment process doesn’t just lead to a higher number of new customers entering your world, but also makes it more likely they will buy from you the next time. And remember – improving shopping cart conversion also means making more sales from your existing customer base.
A low-converting payment process, however, has the opposite effect. It makes it more difficult to capitalise on those relationships you have already worked so hard to develop with your customer base. And to make matters worse, if your checkout is slightly too overwhelming (i.e. not easy and smoooth enough), some of your existing customers will start thinking “Maybe I should check somewhere else first, maybe I can get a better price?” and will end up as loyal customers for your competition instead.
Again, cart abandonment and conversion isn’t just about revenues. It’s way more important than that. It leaves big marks your profitability and success, both short- and long-term.