The true cost of cart abandonment

Where do OEMs normally focus their marketing efforts?

Manufacturing OEMs tend to focus on traditional “Above-the-Line” (ATL) and “Below-the-Line” (BTL) activities to drive awareness and build their brand in the top-segment of the sales and marketing funnel.

The ATL-activities are normally rather costly marketing efforts, but an essential part to build the long-term brand identity and market position. Besides ATL, most brands typically also have a BTL activity plan, which builds on the awareness from the ATL campaigns to drive conversion and sales in the shorter term and further down the sales and marketing funnel.

sales funnel with hand

The typical BTL plan is more focused on direct communication, targeting specific consumers with specific messaging strategies. Think; direct marketing (emails, SMS campaigns etc.), sponsorships, in-store activations and banners. BTL efforts are generally intended to create conversions (leads, sales, buy-in from consumers), as opposed to building the brand as a whole (which is the goal of ATL activities). In relative terms, BTL marketing efforts require less budget because of the nature of the mediums which are being used, and therefore, usually offer a better Return On Investment (ROI).

We recommend Brands and OEMs widen their typical BTL efforts and investigate what new marketing segments and platforms could offer them in terms of measurable better results. These new marketing platforms offer a big, untapped potential, which could increase conversion rates and significantly increase profitability.

Typically, an OEM invests huge marketing resources to build awareness and bring consumers all the way down to a product page at a local e-tail site. Worth considering is that on average only 1 out of 100 consumers which have visited a product page, will purchase the product. So the OEM has done everything right in terms of marketing, but still 99% is not converting?

What if you as an OEM could retarget those visitors and increase that conversion? Have you ever calculated how fewer drop-offs could change your overall profitability?

By converting more of your already existing prospects and leads, currently looking at your products at your e-tailer partners, you will significantly increase your profitability as your fixed costs are shared between more buyers and that additional conversion makes a significant impact.

How can a lowered cart abandonment rate impact your immediate profit?

Typically, as an OEM, you invest huge amounts in both ATL and BTL marketing activities, with the ultimate goal of attracting new buyers and customers.

Once a consumer has landed on the product page of one of your products at a local e-tail partner store, your job as a marketer as an OEM marketer is over and it is now the e-tailer’s job to seal the deal, right? But what if you could actively help to increase the conversion rates for your products at that local e-tailer, by actively being part of the consideration and conversion part of the sales funnel?sales funnel with zoomWhat is really the impact of the cart abandonment rates for your products at your major e-tail partners and how does it impact your profitability? Let’s do some simple examples, to see how this plays out.

In our example you pay 500,000 euros for various marketing campaigns for the products in our example. Let’s assume that this investment leads to 400,000 unique visitors looking at your products which are sold at your most important e-tail partner stores. Furthermore, let’s assume that 15,000 of those visitors (3,75%) add one of your products to the shopping cart. Finally, we assume that the average purchase price is 250 euro and that the profit margin averages 50 percent. In other words, for each purchase you earn 125 euro.

So how do some changes in conversion really affect your profitability?

Example-1 – normal ATL/BTL marketing activities:
  • 500,000 euro is paid for ATL and BTL marketing
  • 400,000 unique product page visitors
  • 70 out of 100 (70%) abandon their cart
  • 15,000 visitors start the purchasing process (3,75%)
  • 4,500 in the end buy (1,13% a fairly normal conversion rate in e-commerce)
  • 10,500 abandon carts (30% cart conversion and 70% abandon cart)

Revenues in this scenario: 1,125,000 Euro (4,500 x 250 euro)

  • Product costs: 562,500 euro (50 percent)
  • Marketing costs: 500,000 Euro
  • = 62 500 in immediate order profit
Example-2 – adding extra retargeting marketing:
  • 500,000 euro is paid for ATL and BTL marketing
  • 25,000 euro is paid for retargeting marketing
  • 400,000 unique product page visitors
  • 60 out of 100 abandon their cart.
  • 15,000 visitors start the purchasing process (3,75%)
  • 6,000 in the end buy (1,5% medium result in mass market e-commerce)
  • 9,000 abandon carts (40% cart conversion and 60% abandon cart)

Revenues in this scenario: 1,500,000 Euro (6,000 x 250 euro)

  • Product costs: 750,000 Euro (50 percent)
  • Marketing costs: 525,000 Euro
  • = 225,000 in immediate order profit

So, by a rather small investment in retargeting advertisement (25,000€ or 5%) the profit increased more than 2,6 (!) times; a 260 percent improvement. Note that all extra we did here, was to retarget your existing visitors and hence decrease the “abandoned cart rate” from 70% to 60% and increase the conversion rate from 1.13% to 1.5%.

The additional profitability of each additional converted customer from your existing visitor base, becomes even more evident when you consider all the fixed overhead costs you already have in your business for staff, R&D, buildings etc. Seen from that perspective, improved conversion is almost pure profit and critical.

The takeaway from this article is that OEMs must now also be active in the lower parts of the sales and marketing funnel

OEMs have a huge, untapped opportunity in steering a smaller portion of their total marketing budget into the lower parts of the sales and marketing funnel. By systematically working with retargeting of warm and hot leads, an increased conversion rate can be achieved, which ultimately can increase profitability.

/Leif Sundström, CEO of re:nable