Building an e-commerce Business to Sell: Tips and Strategies for Today’s Marketplace

24 Jan, 2013

e-commerce 1
Creating a new e-commerce business is simple. All it takes is finding a niche with demand, such as weight loss; skin care; or car parts, then securing a relationship with a supplier and setting up an online store with one of the many popular e-commerce solution platforms. Get some traffic and you’re good to go.
Creating an e-commerce business that makes you a consistent, long-term profit that is built for an exit, is NOT simple. Just ask the guys over at Wayfair.com, Overstock.com, or Fab.com.

There are many things to consider if you are thinking of creating a new e-commerce business, currently running one, or contemplating buying a business with an established brand, customers, and supplier relationships.

In this article I will be covering 3 important questions to ask yourself when it comes to an e-commerce business built to succeed in today’s competitive marketplace, and more importantly, in the future if you ever plan on selling it: Where do your customers come from, what are your conversion rates, and, is your business built to sell?

Where do your customers come from?

One of the first things you should learn about building a business from scratch is: “who will you be selling to?” If you are like many first-time business owners, you’ll try to jump into a niche marketplace that has high demand and low competition. This scenario is ideal, but unfortunately in today’s world of mom and pop e-commerce stores and Silicon Valley startups with large funding pools, it’s nearly impossible to find.

While it may not be 1998 anymore, don’t fret. Even though there’s competition to deal with, e-commerce retail sales continue to grow at an alarming rate, so there’s still plenty of pie to share. When decided who your customers will be, reflect on these points.
Evergreen products – Is the demand for your products based on seasons such as weight loss (Jan-Apr), or on events like major consumer electronic brand product releases? If so, expect and make preparations for the slow times. If you want to avoid this, choose products that have year-round (evergreen) demand that customers will more than likely need to order more than once a year such as acne treatment, ink cartridges, socks, and contact lenses.

Diversified traffic sources – This can’t be emphasized enough. If you build your business on just one type of traffic source such as Google shopping results, search engines, PPC, media buys, etc. It could eventually dry up and, whoops, there goes your business. As much as possible, we suggest you diversify your traffic sources by having no more than 25% of the total traffic come from one source. That way you don’t lose 100% of your business when Google’s algorithm goes wild, or they change their requirements for free shopping results (http://www.huffingtonpost.com/2012/05/31/google-shopping-search-results_n_1559757.html).

When working on building traffic, think about where your customers most likely hang out. Are they regulars on their favorite forum or online community? Do they visit certain type of blogs often, and are there spaces for direct advertising available? Are there active industry newsletters currently being run by an expert with a large readership? Find out where they are and divert them to your store.

Keeping your customers – We all know it’s cheaper to keep a customer than to acquire one. So why not regularly follow up with your visitors and customers by asking them how their experience was, offering them special discounts, and providing them with useful content (don’t forget the power of pre-selling) through a simple email autoresponder?

What is your conversion rate?

If you take the “throw some products in front of your visitors and hope you make some sales” approach to your online store, I’m afraid you are leaving money on the floor for someone else to pick up.
Once you have an established stream of daily visitors, the most important thing you could be doing on a daily basis is tracking and testing conversions. A successful “conversion” in e-commerce is when a visitor leaves your site on the “thank you for ordering” page. That should be your goal for every visitor that reaches your store.

To give you an example of how unbelievably simple and overlooked conversion testing is, this e-commerce store that sells spy camera equipment increased its conversion rate, and therefore revenue, by 69% by changing just 4 things. They weren’t draining their bank roll on increasing traffic to increase sales, rather optimizing the traffic they’ve already secured.

What you test and change will depend on numerous factors. But they revolve around the ability to catch the attention of a visitor right away, whether it be a visually appealing sale or a video review of the most popular product above the fold (the first area a visitor sees before scrolling down), leading the visitor into placing items into the shopping cart by having attractive prices and good reviews (as you know, not always easy to achieve), and then getting them to click the order now button by having a secure, simple, and trustworthy payment option.

Do this exercise on a regular basis to stay on track with conversion testing: Pretend to be a customer and go through your own store. Browse, read the about section, compare the site to your competitors, google the site name + reviews and see what comes up. Does anything turn you off as a customer? If so, fix it.

Is your business built to sell?

This is something that many small e-commerce business owners overlook. What happens if you have a family emergency and need cash, get an unsolicited offer from a larger company in your space, and you are forced into the position to sell the business?
Buyers of e-commerce businesses are attracted to consistency and automation. They want to know that the traffic and demand for the products are sustainable, and that they will be taking over a system that doesn’t require a lot of their time to run.

Transferring the moving parts – An e-commerce business is typically built on a shopping cart platform such as BigCommerce and Shopify, which is tied to a payment processor like Paypal, 2Checkout, or authorize.net. Products are usually supplied by vendors that the owners have developed a working relationship with, and in such have – in some cases – negotiated lower COGS (cost of goods sold) rates, faster shipping, etc. With so many moving parts it comes as no surprise that a buyer of an e-commerce business would like them to not only be transferred over easily, they’d like to ensure that the business continues to run as is for the time needed to develop their own strategy moving forward.

Most of the major shopping cart platform accounts can be transferred directly to a new owner, but not all suppliers are willing to work with new owners they don’t know. That’s why it’s critical you keep them happy by making payments on time, keeping customers satisfied which reduces refunds and returns, and maintaining professional communication.

Automation – Do you store the products in your own home and handle all customer service and fulfillment? If so, finding a buyer for your business will always be tougher than if these tasks were handled by a third party. Here are a few pointers:

*Consider hiring an English-speaking assistant(s) to handle all your sales calls and emails. If you are a control freak and can’t stand the idea of letting anyone else speak to your customers, try taking the time to personally train them to your satisfaction, and have at least 2 backups ready in case the main becomes unavailable. Be sure to check their references and previous work history to ensure quality, and remember that you get what you pay for. Luckily in today’s global internet economy, you can find quality virtual assistants for under $300 a month.

*If you are stuck with inventory at home and hate dealing with the local shipping company, there are numerous 3rd party fulfillment centers that would be happy to take over storing, shipping, and handling for an affordable fee per transaction. Even though they are the expensive big player in town, look at how Amazon fulfillment has made business owner’s lives easier. Keep in mind that there are usually volume and product restrictions for most fulfillment houses.

*Check to see if your current suppliers offer drop shipping services, or consider switching to one that does. E-commerce stores with suppliers that drop ship the products are still a highly desired trait for buyers as we’ve seen recently with many of our clients, ranging from beginner individuals to high budget investors.

Very few people want to pay cash to create a new full time job for themselves, so do what you can now to automate your business. It will save you time, energy, and stress now, and set up the business to be as attractive as possible to buyers later.
Summary

Keep in mind that running a truly optimized e-commerce business is a work of art that takes practice, patience, and discipline. You can’t expect to hit gold with only two weeks of digging. Wayfair.com was built into a $500M (revenue) a year business by two hard working individuals with a solid plan that they replicated to a T.

While you may never reach their level success, taking the steps of analyzing your traffic sources, customer experience, and preparing your e-commerce business for a sale will show a marked improvement to your bottom line.

This is a Guest post by Ryan Sorensen if you would like to publish a guest post with ArabCrunch please email newsATarabcrunch.com, Ryan is a Senior Broker and Partner with Flipping Enterprises, Ltd., a mid-size ($10k-$2M) web-based business brokerage firm that has helped clients in a variety of businesses including e-commerce, services, affiliate, blogs, information products, and others. We are committed to quality service and helping both buyers and sellers succeed in today’s volatile and competitive marketplace.

#image: Flickr.

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  1. chaitra pallavi  |  January 25th, 2013 at 12:27 PM #

    Very well written article. The second step after setting up for an eCommerce enterprise is cataloging their content/products effectively and applying Business Intelligence to make more out of the data.

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