A CFO plays a critical role in a business. They’re a ‘jack of all trades’ in a sense, with the ability to take and interpret financial data across your entire business, with a focus on one thing – How do we drive profit growth?.
As we get closer to Black Friday and Cyber Monday, we’ve put together a holistic and scientific guide to drive massive growth to sales and profit, with insight only a CFO can provide.
Black Friday and Cyber Monday (BFCM) are fast approaching, and if you’re not ready you could potentially be missing out on a significant sales holiday. For some businesses, this holiday represents a significant portion of their sales throughout the year.
In the eyes of the public, they’re looking for the best deal they can get. Some consumers might be waiting specifically for the BFCM deals as they know they’re unlikely to get the same deal until potentially boxing day or End of Financial Year. These sales holidays are important to be planned in your calendar and the same approach we consider here you can use throughout the year to better plan and manage the increased demand that comes along with a sales holiday.
It’s important to first pre-frame that the purpose of this guide is not just to drive up sales, but also drive up profit. Which seems somewhat contradictory, given BFCM typically represents discounting, which impacts your overall profitability. The aim of this guide is to find the balance between driving up sales and also driving up profit.
In fact, some brands over these holiday periods deliberately inflate their prices just so they can show a bigger discount. In this way they are still maximising their margins because they’re playing on the perceptions of the consumer and triggering a buying action because the consumer is sometimes focused on the size of the saving as opposed to the product price. So for example, they might increase the price of a product to $200 (which they normally sell for $150), and then apply a 50% discount so that the sale price is $100 with a 50% discount, when in reality, throughout the year they would have sold the product for only $150. But showing a 50% discount looks more appealing than a 30% discount.
The approach we are going to consider, isn’t going to be applicable just for BFCM, it can be applied for any sales holiday and simply overall for your business.
The first step is taking an analytical and scientific approach, which all starts with proper planning.
We start by analysing our historic sales data, both throughout the year and previous BFCM sales.
It’s important to go through this process and consider the concept of profitability versus popularity. Because an item you’re selling could be highly popular, but not very profitable and vice versa.
It would be a good idea to give each of your products a rating of their popularity (out of 5 or out of 10). This acts as a quick reference for you as to which items are popular. Another thing to consider is product synergies. So consider grouping your products, a simple example could be shoes could be grouped with socks. Or kitchen utensils could be grouped with pots and pans. The reason for creating these product groupings is so that you can quickly identify product upsells or product bundles. The objective for product grouping is to think ‘what else does my customer need?’.
Leading into BFCM it would be wise to create a simple spreadsheet that lists:
- Item name
- Item number
- Stock on hand
- Stock on order
- Popularity rating
- Cost of Item
- Cost of Manufacturing (labour and other direct costs required to move an item to finished goods)
- Sale price
- Optional Fields
- Overhead (a factor of your general business overhead/operating expenses)
- Cost of Acquisition
- Competitor Price
This reference sheet will help you draw quick insights and help you keep a track of which items are popular, profitable and grouped.
This spreadsheet will also help you answer the following questions:
- What’s selling?
- What’s not selling?
- What items have the most profit?
- What items don’t have much profit in them?
- Do I need to bundle items to increase perceived value?
- Do I need to strip out bundles to increase profit?
- Do I need to order more?
- How long will it take from order to fulfillment? I.e. Can I meet predicted demand?
- Do I need more teams for the rush?
- Do I need more equipment to manage the growth?
- What do my historic BFCM sales tell me?
- What are my competitors doing?
- How are they charging?
- What are they offering?
We ask these questions because cash flow is going to be significantly important. Ensuring that you have sufficient cash reserves to place a larger order, and that your sales will top up your cash reserves without it impacting your overall operations. Running out of cash or not having access to cash over a sales holiday (or even in general) is going to be seriously detrimental to your business.
If you’re going to be spending money on stock, you want to make sure you’re spending money on the right items of stock to meet demand, and potentially using the sales holiday to sell down slow moving or obsolete stock as a way to keep up your cash reserves. This is why inventory forecasting and inventory management is so important overall. The analysis and planning that you do at the outset will help you better forecast your inventory demand as you’ll be more strategic with your ordering process.
Throughout the planning process you’re also completing your budgets and forecasts, considering:
- The cost of additional stock
- The import cost
- The increase in manufacturing costs
- The increase in delivery costs
- Potential increase in business costs (machinery, team, overheads, etc)
- The cost of advertising
Preparing a budget for BFCM serves two purposes:
- It is a visual representation of your results. That is:
- It will help you better understand your potential cash flow and whether you’ll run into cash flow stress.
- It will help you visualise your potential sales and profit
- It acts as your targets and KPIs, in that you have some numbers to hold yourself and your teams accountable.
It would be a smart idea to consider potentially two budgets, a conservative budget which inflates costs, as well as an aggressive budget which inflates sales. It might seem strange to prepare two budgets but the intention is to show:
- What would break-even or a small profit look like?
- What would be the ideal numbers we’re trying to achieve?
In this way you’ve set a minimum benchmark as well as your targets, allowing you to continually monitor your results and hold yourself accountable.
With our analysis and budgeting complete, we now need to ask an important question. How are we going to meet our aggressive target numbers?
And this is where our marketing now takes the center stage.
Remember, sales are a game of perception, which is underpinned by consumer psychology. If value is perceived as higher than a price then a sale will occur.
From a marketing perspective, almost everything is important to consider, down to the finest details such as the size and spacing of your font. What may be ‘trivial’ to you could be the difference between a sale and no sale. Which is why your website needs to really be optimised for conversions, using underlying consumer psychology that drives decisions.
Some important considerations from a marketing perspective include:
1. Is your site optimised across multiple platforms, and in particular for mobile?
Your site must be optimised for browning across multiple devices, but importantly, more time should be spent to ensure that your site is optimised for a mobile experience
2. Is your site optimised for speed?
A fast loading site will drive your conversions because a buying ready individual will value the speed in which your page loads and they can make an order
3. What is the minimum number of clicks required to complete an order?
It’s important to reduce the minimum amount of clicks required for somebody to make a purchase. Coupled with site speed, this will improve conversions and the overall customer experience.
4. How is your order experience designed?
Generating a sale is important, but generating repeat sales from the same person is more powerful and cheaper into the long term. How could you create an experience throughout your order process that encourages people to continue to purchase from you in the future? This will create brand loyalty which increases customer retention.
5. How is your post purchase experience?
A sale doesn’t end simply because they’ve completed their purchase. For you to improve your margins into the future you must focus on repeatability. Having that same customer make future purchases. Your post purchase experience could include creating communities and email marketing with ongoing updates, offers and exclusive access to new products.
6. How easy is it for somebody to put their items into a cart?
A cumbersome and fiddly website will turn people away from making a purchase if it’s perceived as being too difficult to place an item into their cart. To ensure you’re able to capture those important impulse buyers you’ll need to ensure it’s easy for them to fill their cart
7. How easy is it for somebody to browse items?
In line with the minimum number of clicks, you want to reduce the number of clicks required to browse items. A site that’s easier to browse is overall going to be more pleasant than a site that’s not
8. How do you increase your average order value?
Your average order value is an important metric to measure and improve, and your cart experience can significantly improve your average order value. This is where you could include abandon cart incentives, upsells, product recommendations and frequently bought items. By increasing your average order value you’re increasing your sales and profit without the associated increase in customer acquisition.
9. Does your homepage showcase your best sellers?
Your homepage should be viewed in the same light as a retail ‘showroom’ showcasing your brand and most popular and profitable products.
10. How is your page designed?
From a conversion perspective, page design (which is considered in some of the above) is crucial. Every detail needs to be considered, from the fonts used, the spacing, the size, the buttons, the colours, the headings, the text. Because simple tweaks here could drive a big difference to your sales.
11. How are your products described?
Remember, people purchase with emotion and our subconscious mind quickly justifies this with logic, meaning your product descriptions have to include emotion as well as logic to satisfy both the emotional buyers and the ‘logical’ buyers.
12. Your Product ‘Assets’
The images and videos that showcase your products, how do you visually represent your products that allow your customer to see themselves using them? For example, using models that show how an item of clothing would look or using ‘lifestyle’ images that show your products being used in everyday life. Seeing an image of a dress is not as powerful as seeing an image of a dress on a person in the setting that the dress would be used.
13. How is your brand perceived?
Your overall brand perception will help drive more sales and it is important that your brand is congruent as your customers’ subconscious will appreciate congruence. Our minds like harmony and if the brand look, feel, talk, products are all congruent then we’re more likely to make a purchase.
14. Your Ads Strategy
An omnipresent ad strategy is crucial as you want your products to be showcased on multiple advertising platforms. Frequency is important, as it acts like a subconscious ‘touch point’. The more places your ads are shown, the more likely you’re going to convert those buyers that were interested but not committed.
15. Hype Campaigns
Your ability to drive hype and excitement for an upcoming sale can really give you that initial sales boost. Taking the time from now to engage and build your audience will help when your promotions become live
16. Offers and Messaging
Words are powerful, and the words you use, in which you use them will make a big difference to your sale. Your offer and your ‘hook’ needs to be compelling to drive action. Even the simplest language for example, showing a price as ‘only’ $x can make a big difference to your overall sales.
While this list is by no means exhaustive, it does highlight some powerful marketing elements that can drive some significant sales.
For many retail and e-commerce businesses the BFCM period represents a significant cash creating opportunity which provides the business with an essential buffer to support them though a slower end of year. When it comes to BFCM it’s important to take an analytical approach as opposed to ‘shooting from the hip’. Plan in advance, document your thinking in the form of a budget and ensure your marketing efforts give you the best possibility of success