Revenue Leakage: Learn Where It Happens and How to Minimize It

Posted By: editor
Posted On: 13 Jan, 2022

Every e-tailer focuses on the revenue they realize through successful orders. But what most of them do not pay attention to is the revenue they lose even after the shopper has shown strong purchase intent and added products to the cart. Revenue leakage can happen due to any of the following reasons – cart abandonment, canceled transactions, failed transactions, or returned orders.

While attracting new customers and increasing the top-line has long been seen as a primary goal of the business, e-tailers might not achieve their revenue goals with leakages in the purchase process. Hence, there is an enormous need for strategies tackling revenue leakages.

Though the e-tailers may not be able to put an end to this revenue loss entirely, there is a high chance that they can minimize it to a considerable proportion if they identify the causes and address them.

As mentioned above, revenue leakage can happen due to various reasons, but the purchase intent of the shoppers is not the same across each reason. While the intent is strongest among those who have reached the payment stage, those who have returned or canceled their orders have already changed their mind. Of the four reasons mentioned, shoppers who abandoned at the cart stage have the least purchase intent. Since the shopper’s purchase intent is directly proportional to their probability of completing the transaction, e-tailers should prioritize the handling of issues based on the purchase intent.

Here, we will discuss the reasons in detail and how e-tailers can make use of shopper-behavior, transaction data to identify the root causes.

 

Reasons Behind Revenue Leakage:

 

Failed Transactions:

Transaction failures happen at the payment step. And payment failure can happen from both the merchant’s end and the customer’s end. Customers most often experience failed transactions due to a faulty internet connection, entering incorrect financial information, or lack of sufficient funds. Unfortunately, there is not much e-tailers can do about any of those. But e-tailers can try and minimize those failures that happen due to payment processor’s downtime, or technical errors during payment processing.

E-tailers can look at metrics like the failure rate of each provider and avoid those which have higher failure rates. The other alternative can be integrating multiple payment service providers for the same payment methods. For instance, if credit and debit card payments providers face technical issues or system downtime, e-tailers can avoid the loss by having another online credit and debit card payments provider integrated.

Canceled/ Returned Orders:

While order cancellations (where the order is placed initially with full payment but canceled later) can be due to post-purchase dissonance or buyer’s remorse, product returns can be due to multiple reasons which can be referred to in this article. E-tailers can analyze transaction data as below to identify the root causes.

  • Product/ Category: Monitoring metrics like cancellation rate, return rate at the product/ category level helps e-tailers to find products that are frequently canceled or returned respectively. They can further dive deep by adding product attributes like price, color, size/ weight, discount offered.
  • Traffic Source: It is important to see if the source from which a customer came has an impact on cancellation and return rate. There can be a difference between shoppers who organically land on the brand’s website and those who land on the website via social media or other referral sites.
  • Delivery Location: Another important dimension which e-tailers must investigate while analyzing canceled/ returned orders is the delivery location.
  • Delivery Duration: The time it takes to deliver the product can have a significant impact on the cancellation rates. E-tailers can identify the threshold at which the cancellation rates increase significantly and try to work around for a solution.
  • Payment Method: One can also look into the payment method for identifying the outliers. For instance, high cancellation/ return rates can correspond to those orders where the mode of payment is COD.

Cart Abandonment:

Shopping cart abandonment is when a potential customer starts a check-out process but drops out of the process before completing the purchase. E-tailers can understand the pain points that lead to cart abandonment by looking at user-behavior data as below:

  • Product/ Category Level Analysis: E-tailers can monitor metrics like “cart abandonment rate” and “buy to cart rate” at the product/ category level to find products that are more often abandoned by customers. With this information, one can delve into the product-specific reasons (external/ internal) that lead to cart abandonment – competitors offering the same product at lower prices or product attributes did not meet customer expectations.
  • Average Purchase Lag: One can also track the no. of days lapsed between adding product to the cart and final purchase to understand the correlation between the time gap and cart abandonment rates. As the gap increases, the shopper’s intent to complete the purchase process dilutes. Hence, it is important to bring the shopper back to the site as early as possible and motivate him/ her to complete the purchase process.

 

Conclusion:

 

It is worth noting that e-tailers are never going to reduce revenue leakage by 100%. However, if they use some of the strategies outlined above, they could minimize the revenue loss by a considerable amount and at the same time increase customer satisfaction.

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