The causes of ecommerce failures are diverse, but they frequently end with the proprietor shuttering the operation because it is losing too much money. In this article, I list four activities that I believe can destroy an ecommerce business’s bottom line and waste your money. I think that if you avoid these money traps, you will likely improve your chance of ecommerce success.
No. 1: Too Much Custom Development
An ecommerce business’s content, site functionality, and site aesthetics are its most important assets. Without these, it is extremely difficult to succeed. So it is very reasonable to invest in developing a good site. But site development costs should be commensurate with investments in inventory, marketing, and operations as well as being in line with projected revenues.
For example, a start up online retail store with $10,000 in product inventory, has no business spending $5,000 on site development, in my view. Likewise, a business plan that calls for $250,000 in annual revenue should probably not spend $100,000 building a website.
As a rule of thumb, development costs tend to rise as you add more custom requirements. For example, a small ecommerce business can get a relatively nice Magento or Shopify theme created for between $500 and $2,500. So aim to use available — and if possible free or low cost — ecommerce platforms that are designed to be “themed” so that you can get a unique, attractive, and functional site without wasting money on unneeded custom platforms or features.
No. 2: Search Engine Optimization Experts
Search engine optimization (SEO) is the art of (a) studying how search engines behave, (b) reading and analyzing interviews from search engine engineers or executives, and (c) combining this information to make an educated guess about how a search engine will behave in a given situation.
As a rule of thumb, don’t pay for SEO experts or tools or systems that either promise instant results or top placement on search engines. Also avoid any SEO plans that discuss keyword density. And for most start-ups using a mainstream platform, you don’t need to invest in SEO consulting at all.
Over time, SEO practitioners have been able to make a lot of common sense observations that can really be helpful to a business trying to grow. Much of these observations are available for free at this site and others. As an example, Jill Kocher, a Practical eCommerce contributor who is SEO manager at Groupon (the deal of the day site), recently wrote a great article about the technical SEO challenges of geolocation.
Search engine algorithms change frequently, and as a result SEO changes constantly, too, so that even professional search engine optimizers can be wrong from time to time. What’s more, there are also a lot of scam artists who pretend to be SEO experts. So, remember that while traffic from search engines is important (if not vital) for your business, it is not, generally, the best converting traffic. Successful ecommerce businesses tend to get the best traffic from viral or word-of-mouth marketing (social media) and from affiliate programs.
No. 3: Analytics and Measurement
Large or mid-sized retailers will often invest in custom or advanced web analytics suites, marketing measurement tools, A/B testing solutions, or attribution management systems. All of these tools can help improve an ecommerce business, making it more effective in the long run. But they all have a relatively high entry point in either actually hard dollars or in the labor costs associated with managing them.
As a general rule, your ecommerce marketing budget should be something like 15 percent of revenue, and analytics and measurement tools should represent less than 5 percent of this (that’s 5 percent of the 15 percent), in my opinion.
For an ecommerce start up or a small online store, use the free stuff. Google Analytics is awesome and it doesn’t cost a penny.
No. 4: Advertising and Marketing
If you look at ecommerce or business forums, often you will find suggestions to invest in site content and marketing if you want to succeed. I agree completely, but you still need to be careful about what you spend.
For example, pay-per-click (PPC) advertising will often give you a quick boost in site traffic and sales, but depending on your average sale size, PPC advertising can be rather costly, and, frankly, you can waste a lot of money on it if you are not very careful.
Instead, consider focusing on social media marketing, like starting with a site blog. As an excellent example, take a look at REI’s blog. Think of other kinds of site content or social media engagement you can use, and invest hard money sparingly.
I am not aware of any magic recipe for ecommerce success, but there are some seemingly best practices that can help you to succeed. I especially believe that avoiding over-spending on too much site developer, SEO, analytics, and advertising and marketing will help.