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The Profit of an Online Wine Store: some Financials

What’s your priority? To convert traffic into sales.

This is the hardest task and requires the most work (especially creating good content).

But here’s the problem, many websites look fantastic (“flash” slides, great vineyard images, trendy artwork) and fail to make a return on investment. Indeed many are commissioned for, say $10,000, and never recover that investment.

The frustrated wine retailer then writes off the internet as useless

And yet research* shows that 4-6% of a retailer’s business is now over the internet. The same research showed that 8% of sales will go online by 2013 (some small wine stores already have 15-25% of their sales online).

What’s more the phenomenon of people browsing online and buying in-store is now accepted by big retailers all round the world. Macy’s CEO says** that for every $1 of online spend that same customer will then spend $5.70 on in-store purchases!

So let’s do the numbers (note this is an illustration of what you could be making with a lot of hard work – not a guarantee):

$1,000,000 Store Revenue (nice round figure for calculation purposes)
$40,000 4% via the internet as per the research
$12,000 = Gross Margin (30%)
PLUS
$228,000 Internet sales $40,000 * later in-store spend $5.70
$68,400 = Gross Margin (30%)
LESS
$6,000 Less advertising, web hosting and service fees.
= between
$6000 and
$62,400
= Total Gross Margin and a good profit no matter how you look at it
(i.e. with the ‘Macy’s sales’ or not).

So done well an eCommerce website makes a good ROI

Done poorly you’re just supporting a designer’s artistic ambitions.

What figures would you use?

Notes:
*”Retail v e-tail in America. Bleak Friday, Bricks-and-mortar shops struggle to win customers back from virtual ones.” Nov 26th 2009 The Economist (may need a subscription to read).
** “Macy’s chief addresses power of e-commerce.” Las Vegas Review-Journal.

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