Why £20,000 Per Week E-Commerce Businesses Often Don’t Make Money

It’s AWESOME! Make an e-commerce website and work ferociously on it until it’s turning over £20,000 per week. What you’ve achieved is to create envy and admiration from your past co-workers hailing your success. The new business is your pension. It’s living the dream!

No one can take away the fact that starting any business of any kind is a horrendous amount of work but seriously rewarding and more fun than fun itself. The attraction of running an e-commerce business is as tempting as a light bulb to a moth, dazzling and hypnotic. Running the spreadsheets for the sales forecasts seduces you into thinking that you just can’t fail. All’s that’s needed is the website, some stock and customers.

Imagine you choose to sell office machinery and computers. You source good brands at a reasonable price. You go online and spend £30,000 on a scalable ecommerce site and promotion. By a stroke of luck, and propelled by AdWords your getting lots of customers to the site and with a good proportion of those visitors purchasing. How would the figures look?

Sales average £20,000 per week

Total revenue per annum = £ 1,040,000

Margin on office machines and computers 20%
Giving you £200,800 gross

Costs & Reductions Include:
AdWords costs £5000 per month
Warehousing & rates £2500 per month
Returns of 15% per month £3,000 per month
Wages: Web manager, Customer Services and You £7500 per month
Technology requirements, hosting and stock management £1,000
Net Loss: £27,200

I have no doubt that you could jiggle some extra millage out of costs but the point remains the same, it’s never as bright as the headline makes out. I see these kind of numbers quite often when helping firms turn around their e-commerce strategy.

The clear opportunity lies in selling unique items to a niche market. The cost of the advertising is less, word of mouth marketing more effective, social and email marketing prevail and margins tend to be a lot higher. The only challenge faced now is to what niche is being unfulfilled and how can you do it better than anyone else in that market.

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Websites; you used to be cool, man

The digital marketing industry networking event is not for the naïve or the faint hearted.  Over canapés and bubbly it’s important to be seen to be saying the right things.  “Oh we’re using the new Web 3.0 paradigm shift to really maximise RoI on QR Codes integrated with Augmented Reality via a social media flash mob strategy – it’s going to go viral”.

This may cause most of us to struggle to keep our canapés down, but not this cliché hardened massif.  If you are wanting to see some subtly flavoured garlic olives stuck in throats, just say something about websites.  “Oh I’m working with a client to make their website easier to use” or “We’re carrying out a content audit on a website to clear off the stuff which isn’t resonating with customers” may result in an impromptu Heimlick manoeuvre.  You might well elicit a reaction similar to Ali G’s when presented with a certain brand of running shoe “wait a minute, it ain’t 1995 anymore”.

Back in the 90s things were different all right.  The www was a pup, it was all new, search marketing and email marketing were in early infancy and websites were all the rage.  We were as cliché ridden back then as we are now, of course, but at least we were allowed to talk about websites without being laughed off the streets.  However as the variety of online channels has continued to grow we’ve somehow become less and less interested in focussing on websites, despite their foundational importance to everything we do online.

This would be OK if the general standard of websites was improving.  But they’re not getting better.  In too many heartbreaking cases they are getting worse.

We all know this to be true.  As punters we all spend a disproportionate amount of time on websites lost.

What’s more, the humble website remains the most common ultimate destination for nearly every online marketing channel.  Where should best practice search engine optimisation lead people?  To various pages on your website.  What about Pay Per Click?  Generally, to landing pages on your website.  Email marketing?  Pages on your website.  Social, affiliate, video, banner ads?  You’ve got it, pages on your website.

In other words, your website remains at the hub of all of your online marketing activity.

If your site is converting 2%, how long are you going to wait until you work hard to push that up to 3% or beyond?  How much traffic can you afford to waste before you eventually recognise that you cannot make the other channels pay if you don’t ensure that an ongoing program of website optimisation and improvement is at the heart of your online marketing strategy.

Websites might well be the online equivalent of previous X-Factor winners; they’re not cool any more, their day in the sun has long passed and their 15 seconds of fame is but a distant memory.  It might be cooler to talk about all the new stuff, but they remain the foundation upon which all online marketing is built.  Lose interest in yours at your peril.