In this series I want to give the benefit of my experiences as both a traditional and online retailer and laterally an ICT Specialist, who has worked with numerous ecommerce businesses of all shapes and sizes.
1. Getting started
So what is ecommerce?
A stupid place to start you may ask, however the definition of this term is wide and varied and whilst it has become to mean selling “things” (mainly products) electronically, in actuality it covers the whole gamut of online trading – from marketing, selling, delivering, managing and everything else besides (see Wikipedia who say it much better than I could). This is relevant because in my experience many potential businesses see the “selling” part as the be all and end all of ecommerce without due consideration for all that that entails (just think of any traditional “bricks & mortar” business – it’s so much more than just “selling stuff”).
Why go online?
The web opens up the opportunity for businesses to specialise in niche areas and find potential purchasers of that product from all over the world. It also provides the opportunity for more main stream businesses to gain customers from a wider catchment than just their traditional “bricks & mortar” outlets. They see the web as a relatively low cost way of doing this.
Is there a market?
Great ideas are subjective. As such making the decision to develop or source a product to sell online needs to be based on more than gut feel. The beauty of the web is that you can gather so much data to aid your decision making process. This market research is absolutely essential in order to validate your ‘gut feeling or convince you the idea is a no go.
So what sort of market research are we talking about – Proper digital market research
- Find out if there are existing competitors selling related products- (this is actually a good sign – where there are competitors there are customers therefore there is money to be made). Specific tools will give you some real tangible data on how much certain companies are investing in Google Advertising spend.
- Find out how people are searching for these types of product or service and in what volume. Analysis of Google Data can reveal numbers of monthly searches on related topics, products, services etc – this tool can give you an indication – Google Keyword Planner
- Analyse competitors to see how well they rank for related keywords and phrases in this space. Specialist tools can analyse competitor sites to identify how much traffic your competitors are receiving. Further analysis can reveal the commercial value of that traffic by overlaying Google Pay Per Click commercial values etc.
Based on all of this tangible data you should be in a far better position to answer the key question – is there a market?
If it’s a completely new ideas, product, service and there is no competition online then it woudl be advisable to consider market testing before investing large amounts of money in a web build.
Think, Plan, Do, Review
Planning is key. This may be an extension of an existing business or it may be an entirely fresh venture – either way, having a plan with Goals, Targets and costs is key to success – as the old adage goes – “failing to plan is planning to fail”.
“I expect to sell £1M of goods off of my new website but only want to spend £500 on a site and have no money for marketing”. A true story. Whilst there may be examples across the web where a business has managed to achieve this, it’s pretty rare. Whilst the cost of entry is considerably lower than more traditional retailing routes, there’s still a cost of acquisition.
Choose your route to market
Many business I meet who want to start trading online go straight for the bespoke ecommerce build or shopping cart plug-in, as it’s what their developer told them to do. Maybe as a way of testing the water you should look at selling your products through someone else’s site? Through Amazon? Through ebay? Or through one of the many Pay as You Go Cloud based ecommerce solutions. You don’t have to go down the full blown ecommerce platform from Day 1, particularly if cash is tight.
I come across businesses all the time that see great potential for their product, but haven’t properly researched the market eg selling fresh food products; selling alcohol outside of the UK, high value products sent through normal post, selling concrete ornaments over the web, where the carriage was twice the price of the product! You get the idea!
How do I set my price?
One of the areas I’ve seen considerable growth in since the recession is manufacturing businesses wanting to develop their own route to the customer as well as their traditional route of selling to the wholesaler/ retailer. This can be fraught with danger – you don’t want to upset your traditional market by under cutting them, in some instances you don’t want to sell the same products at the same price. Obviously not an issue for a retail only concern, however you still have to get your pricing right. Typical retail pricing in the UK market is cost (e.g. £10) x 2.4 to give you retail including VAT (£24) – i.e. 100% (from £10-£20) markup or a 50% margin. This is all well and good, but there’s a whole bunch of considerations:
- What price are other people selling at online?
- Does that include P&P or not?
- Is it a sensible retail price point?
- Can I offer discounts for multiple purchases or offer free delivery for a certain order value?
Obviously different business areas work to different margins, typically online businesses work to lower margins – it just depends on the market you’re in, so lots of research is required!
How will I fulfil the orders?
Back to the £1M of turnover off of a £500 website example above. Even if you could manage to achieve this, do you have the infrastructure and personnel in place to fulfil? After all that’s a lot of infrastructure. It’s also an awful lot of traffic to the site which means serious investment in SEO and Social Media. In the example, it was a £20 product with an average anticipated spend of £50 – so that’s 20,000 orders – or 385 a week and with the seasonality of the product it could well have been that 10,000 of those orders came in the golden 8 weeks up to Christmas! That’s a lot of picking, packing, invoicing etc. And if you haven’t got the systems to handle this, it’s an impossible task! You could consider a fulfilment house, of which there are many, including Amazon fulfilment, who, for a fee, will handle it all for you.
How will I generate the traffic?
Also, the traffic required to generate 20,000 orders, even at a very generous 5% conversion to sale (the average is 2% or less and for most ecommerce plays it’s under 1%), you’ll need to drive 400,000 visitors to the site per year (8000 a week) and that’s a lot of time and effort!
Next time, we’ll look at considerations when developing your strategy.