What are pre-orders, and why is now an incredible opportunity for Shopify stores?
Pre-orders are a type of advanced sale where customers can order a product before it is released or becomes available for purchase. This allows e-commerce businesses to gauge demand, generate buzz, and secure early sales.
The recent release of the ability to take deferred charge pre-orders via Shopify payments or PayPal has made pre-ordering even more accessible for e-commerce businesses. We were lucky enough to be part of the closed beta process and got a front-row seat to this exciting new feature set.
PreProduct (the pre-order app) I’m a co-founder of now processes millions of dollars a month in this new type of pre-order. Let’s jump into some reasons why you should consider pre-selling this year.
The benefits of pre-orders
Pre-orders provide many benefits for e-commerce businesses, making them a valuable tool for driving growth and managing cash flow. Here are some of the key benefits of pre-ordering:
- Boost Cashflow: By taking pre-orders, e-commerce businesses can start selling and recouping cash sooner, giving them a much larger window and a faster track to selling their products.
- Build Hype: Offering customers pre-orders can create excitement and anticipation, building hype and FOMO for new and upcoming releases.
- Gauge Demand and De-risk: Pre-orders provide valuable insights into how well a product will sell, helping e-commerce businesses forecast demand and make informed decisions about their inventory. Whether measuring variant breakdown or running a made-to-order model, pre-orders can help reduce risk and improve the overall sustainability of their business.
Types of pre-orders
Pre-orders come in different forms, including charge-later, deposit upfront, and charge upfront.
Charge-later pre-orders are when the customer goes through checkout and agrees to a deferred charge. The card information is then stored and charged once the merchant triggers the deferred charge. This pre-order can result in high conversion rates but can also be vulnerable to customers changing addresses or expiring cards.
On the other hand, deposit upfront pre-orders allows merchants to charge a portion of the transaction upfront, securing the pre-order for both the merchant and the customer. This pre-order can increase the window of time for acquiring orders, provide cash flow before the product is available, and use a deferred charge for the outstanding amount of the order.
Charge upfront pre-orders require payment to be processed immediately at checkout, like a normal customer order. This pre-order method is great for cash flow as the merchant gets paid upfront and allows them to capture orders for products that are currently out of stock. However, it may not be appropriate for lengthy lead times as customers have already paid upfront, which can negatively impact brand reputation and increase customer inquiries and communication.
Three pre-order strategies
Here are three situations where you could look at deploying pre-orders this year:
1. Launching a new core product
Launching a new product is one of the most common uses of pre-orders. By offering pre-orders, brands can generate buzz and excitement around their new product, build hype, and secure early sales. One great example is Olaplex, a hair care brand specializing in high-end hair health products. They have a strong following and eagerly anticipate their new product launches. Olaplex can gauge demand and build excitement for its new releases by utilizing pre-orders. This creates a scramble to secure a purchase and a successful launch.
2. Running a limited edition drop
Running a limited edition drop” is a pre-order strategy that involves releasing a product in limited quantities, creating a sense of exclusivity and scarcity. Streetwear and fashion brands, such as Supreme, often use this strategy to generate buzz and excitement among their loyal fan base. The limited release, combined with the hype created through pre-orders, creates a high demand for the product and can lead to sold-out products within minutes of their release. This not only creates excitement and anticipation, but it also gives the brand a better understanding of the market demand for future product release
3. Pre-selling while you wait for new stock to arrive
Pre-selling can be a great way to ensure you're never out of stock. For example, you can take pre-orders for a new product line that's on its way from the manufacturer, allowing you to start generating sales before the product even arrives. This is particularly useful if you're dealing with long shipping times and don't want your product to go “sold out.” This can help to keep your customers happy and maintain a steady flow of sales, even when your inventory is running low.
Summary and next steps
In conclusion, pre-orders are a great way to build buzz, create excitement, and gather valuable data before the launch of a new product. By offering pre-orders, businesses can generate early revenue and better manage inventory.
If you want to set up pre-orders for your business, consider giving PreProduct a look and starting a free trial. Also, feel free to email me; I’m always happy to chat ‘pre-orders’ and answer any questions.