Not all Sales are Profitable
You might not believe me because it sounds strange, but not all sales are profitable. You might be asking, “it makes no sense — why would the business price an item to be unprofitable,” and that is a solid hunch. Brands, especially ones still in business, are pricing their products to be profitable, but unfortunately, bad actors take advantage of policies to cause an item to be unprofitable.
So, let’s take my favorite example: the toaster oven.
So laying down some ground rules — this toaster oven is retailing for $42.99, and let’s assume the cost is $20.
- Scanning for Deals — the first thing a bad actor does is look for discount codes (i.e., Honey, Rakuten, RetailMeNot), as this establishes their baseline margin. You can often use multiple coupons while getting additional margin from using a cashback credit card. It might sound ridiculous, but the extra 1–3% can make a significant difference for arbitrage. Let’s say the bad actor is purchasing the toaster oven at a 15% discount at $36.55.
- Exploiting the Refund Policy — this is the critical piece, as e-commerce sales typically have a 14–90 day return policy. It has become universal, and it is kinda weird if a brand does not have a return policy. This no-questions-asked return policy allows the bad actor to purchase a product, attempt to resell, then return whatever they cannot sell. Typically, these arbitrageurs undercut the price of the product and entice other customers with their lower prices. This eliminates potential consumers from buying at a higher price for your store, as they are more inclined to buy the cheaper option — I will spare the proof of purchase headache for another time.
3. Returning the Product — this is the killer; as mentioned above, whatever is not resold is returned to the brand. Returning the product is expensive, especially for a toast oven that weighs 8 pounds. It likely costs $10 to reship the product back to the store, and unfortunately for the brand, the costs do not stop there! There are restocking charges of someone physically receiving the product, checking the quality, and repackaging the product to go back into the queue. Let’s assume this entire process costs $7, ultimately making the return $17 per item and the item unprofitable ($36.55 - $37)!
4. Removing Deadstock — once the toaster oven is back on the shelves, you want to sell the product and attempt to recoup some of the losses. You can hope to sell it at the old price of $42.99, but it might not be purchased because of the resellers undercutting your price. Or, you could try marketing the product with a discount, ultimately decreasing your margin even more. Lastly, and most dramatically, you choose to salvage some value for the item by selling it to discount stores at a loss or “throwaway” the product to get new higher demanded items to sell.
This cyclical process causes these purchases to be unprofitable. See, I was not lying, and unluckily for the brand, the fun does not stop here! This is just the beginning, as many brands are overwhelmed with data and cannot discern these bad actors or connect the dots without tedious manual review if you ever find them. It creates a significant and costly impact on the business from an inventory forecasting, cash flow perspective (i.e., you cannot collect cash until the return window is up), understanding the products your consumers want, and much more.
Fortunately, BotNot can help eliminate these unprofitable sales by analyzing and optimizing every transaction to ensure that your sale will be profitable. We quantify the impact of every transaction to allow you to optimize for limited products (i.e., raffles or limited supply) and protect against nefarious individuals trying to profit off your brand. We do this dirty work, so you can do what you do best, building a brand that your consumers love.