Just because the internet is home to some of the biggest businesses in the world doesn’t mean that it’s easy to start a business online. In fact, it’s incredibly difficult. The failure rate for businesses in general in their first ten years of operation is close to 71%. The odds are well and truly stacked against you. However, e-commerce in particular is even more daunting – 65% of businesses fail in the first 18 months and 90% in the first 5 years! So, considering this, what are three common reasons why e-commerce sites fail?
Profit isn’t something you should necessarily expect from day one, but it is the goal of virtually every business out there to eventually turn a profit. Profit is basically another way of saying “making money” – if you’re not making money, what’s the point in running a business?
Low profit margins are rife online because of sites like Amazon that aim to be the cheapest at all times. For small businesses and start-ups it’s nigh on impossible to compete with Amazon in terms of price – should you choose to do so you’ll probably end up with very little or no profit.
There are no universal figures out there pertaining to average profits in the e-commerce industry, but from experience I can tell you that net profits on branded items can be as low as 5% – they can also be as high as 95%+ in niches where competition isn’t particularly tough. Higher profit margins tend to be enjoyed by those that develop and brand their own products – giving them a much larger bite of the cherry.
You might be thinking “Hey! How can profits be so damn low?” – but once you’ve factored in variable overheads like shipping, affiliate commissions, credit card processing fees and fixed overheads like rent, profit margins soon start to dwindle.
Profit is important to a business because it’s with profit generated that growth can be encouraged and funded.
Increasing profit can be done in many different ways: Negotiating greater discounts with suppliers, looking for a cheaper company to ship items with, moving to premises in a cheaper area of town, or even just increasing the prices that you charge.
Always be thinking about how YOU can grow profit in your business!
Lots of business owners will tell you that if you let your business stand still, it will actually regress. Those businesses around you won’t stand still – so neither should yours. Promoting growth within a business is extremely important – it boosts the bottom line and it helps to diversify your business.
Look at where your business is now – if your business is in the same place in five or ten years, the chances are your business won’t survive. In five or ten years there will almost certainly be a host of new competitors trying to chisel out their own chunk of market share, encroaching on your territory at the same time.
Letting your business stand still even for a year or two can be deadly. You’ve got to be pushing growth all the time – whether that’s bigger and better sales on your existing inventory, or expanding the number of products that you carry, or expanding to multi-channel selling. Why not hedge the risk of selling through your own site by leveraging third party platforms like Amazon, eBay, Rakuten, etc.?
A lack of growth can lead to problems and it’s easily demonstrated with numbers. Let’s say you turnover $15,000 per month at present – fast-forward ten years and you’re still turning over $15,000 per month.
Over that time new competitors will have entered the market – they will undoubtedly have swallowed up some of your market share. Forgetting competitors for a minute, things like gas and electricity bills go up on an almost annual basis – as do things like rent and shipping rates – and of course the cost of the products that you sell. All of a sudden four or five of your biggest overheads have increased, yet your turnover has remained the same. This can lead to only one thing: regression. Your business is now making less profit leaving you with little capital to fund expansion and growth – it’s something that you should have been doing ten years ago, not now – it’s too late.
The time to promote growth and allocate profits for expansion is always now – not tomorrow, next week or next year.
There’s a lot to be said for competition, but don’t get too caught up on monitoring the every move of your competitors. Sure, keep an eye on them – but don’t become consumed by a vendetta to put them out of business. More often than not, that strategy backfires.
Sometimes competition is so fierce that e-commerce businesses simply drop off the face of the earth. If competition is intense in your niche then the best thing to do is to differentiate yourself – give customers a unique proposition they can only get if they shop with you.
You could in theory offer free 24-48 hour delivery/dispatch – this would give you a USP over big names like Amazon that only offer free super saver delivery (which takes a good few days to arrive). Differentiating your business from the rest of the pack can appear impossible at first – often it’s the simple things like delivery options, range of choice and service that allow you to stand your business above the rest of your competition.
Another thing that e-commerce business owners all too often overlook is repeat business. Nearly 35% of our sales at False Eyelashes are made to repeat customers, and that figure grows by a few percent every six months! Go all out to impress every customer and watch your retention figures skyrocket. Don’t concentrate solely on attracting new customers, look after your existing customers in order to maximize your market share. Once you’ve “wowed” a customer with your service, it’ll be hard for your competitors to snatch them away from you.
It’s not all bad news…
Now that you know some of the most common reasons why e-commerce businesses fail, you can plan accordingly, ensuring that your business doesn’t fall afoul of any of the above. The best thing anyone can do in life is to learn from their own mistakes – it’s even better if you can learn lessons without actually making your own mistakes, learn from other people’s instead!
Running an e-commerce business is rewarding, enjoyable and ultimately a great way to earn a living. Don’t let the above put you off e-commerce – just remember that the world of e-commerce isn’t always sunshine and cocktails, there’s a lot of hard work involved too.