Top 6 Reasons Why E-Commerce Stores FailToo many discounts and too much inventory can kill your online store.
Ever dreamed of opening an online store? Now’s the time to do it: Online retail sales in the U.S. are expected to climb from $373 billion in 2016 to $500 billion by 2020. New technology has also made it easier than ever to launch, market and manage an e-commerce business.
But a climate ripe for success doesn’t eliminate the risk of failure. “Much of the success of an online business depends on good business sense and cost controls — things that are easy to overlook when sales are good, but can quickly sink an operation when sales dwindle,” said Krista Fabregas, an e-commerce startup consultant who ran two sites with more than $1.5 million in gross annual sales.
Here are the most common mistakes that can doom your online store, along with some expert advice on avoiding them.
Entering flooded market
Trying to launch a new business in a flooded market is grueling at best, detrimental at worst.
“The biggest challenge small online sellers face today is market saturation,” said Fabregas, the e-commerce writer for FitSmallBusiness.
“You can have a terrific site, but if you compete with Amazon, Wayfair and other big names, then great rankings, a great site and even a strong mailing list won’t make a difference.” -Krista Fabregas
Before you launch your store, conduct a competition analysis to see what similar websites have to offer. Then, come up with a way to distinguish your site from the rest. You can stock brands that aren’t widely available elsewhere or offer exclusive products, like handmade pieces or locally-crafted items.
“Concierge-type services are also a great way to gain an edge over the competition. Sell your products in a unique way or offer a personalized experience, like personal styling for footwear. Figure out what you can do that others don’t do.”
Offering too many discounts
Promotions are an effective way to entice new customers to your online store. But a growth in sales volume doesn’t always equate to profits.
“Increasing sales numbers with promotional tactics, like free shipping, loss-leader items, discounts and free returns, can be a cash-flow trap. While these tactics can increase volume, they also increase overhead costs, causing profits and cash flow dwindle,” said Fabregas.
Set some guidelines around promotions. When Fabregas ran her online stores, she only offered free shipping to customers who ordered $50 or more. Limit discount codes to product categories (rather than the entire store) and time them during periods of lackluster sales.
“Small sellers shouldn’t get caught up in a pricing and discount frenzy for the sake of volume. Building a brand around less competitive, higher profit items is a smarter course in today’s competitive online environment.”
Buying too much inventory
The more you buy from a vendor, the better the deal you can get on the products. While lower wholesale costs can lead to higher profit margins, the surplus product might not sell quickly.
“Warehouses are easy to fill, but difficult to empty,” said Fabregas. “Warehouse space is cheap and it can be tempting to rent a large space and fill it with inventory in hopes of growth. But storing your stock comes with bills, whether it sells or not.”
Before you get wooed by great deals from vendors, make sure you’re completely confident in your ability to move inventory.
“Some products I was really happy I took the chance on, other things I was selling at a loss a year later just to get rid of it,” said Fabregas.
When it comes to storing products, only pay for the space you need. Look for creative shipping options, like drop-shipping from vendors, to minimize your investment in product and storage.
“Sellers should maximize every inch of a small warehouse space, set up drop shipping from vendors for large bulk or special orders and test-run new products before committing to large inventory buys,” said Fabregas.
Isolating marketing efforts
You may discover that one type of marketing drives the bulk of traffic to your site. But ignoring other platforms could come back to bite you if your main outlet changes its policies.
“It’s hard to juggle the range of online marketing options these days, but a small business must if it’s to survive sudden changes to Google’s algorithm or Facebook page policies. Sellers who rely on traffic through just a few means can see sales drop abruptly and recover slowly, if ever,” said Fabregas.
She recalled the upheaval that online stores faced when changes to Google’s algorithm pushed sites that relied on certain SEO techniques down to the bottom of the rankings.
“It caused a lot of trauma for a lot of stores. Article marketing was penalized and a lot of stores went from hundreds of orders a day to 10 orders a day from new customers because they fell out of the Google rankings.”
To avoid falling victim to changes on your favorite marketing platforms, build a holistic brand that tells a story on a variety of mediums, said Fabregas.
“Online sellers should build a memorable brand using blogging, e-mail marketing and printed shipment inserts to retain customers and encourage repeat sales,” said Fabregas. “They should also experiment with all social marketing options. Pinterest works better than Facebook for some stores, and Instagram is also a fast-growing marketing tool.”
Failing to innovate
Software that keeps online stores running is constantly changing and improving. What works well right now may cause serious inefficiencies — and dwindling profits — down the road.
“People tend to stick with what works, but in an online business, that mindset leads to unnecessary costs, a lack of innovation and ultimately declining profits. There are web platforms, operational software, marketing options and payment systems available today that are less expensive and more robust that what many started with and still use,” said Fabregas.
One of the biggest problems e-commerce entrepreneurs run into is when their software is so old that integrated systems (such as inventory management software) no longer support updates on that platform, she added. This might force you to close your online store for days (or longer) as you migrate to a more modern system.
“Online sellers should always be on the hunt for more nimble and cost-effective solutions, from website platforms that feature blogging components, to cloud-based shipping rate comparison systems in place of less efficient, carrier-provided software.”
The back-end of a website contains a wealth of sales data and insights about customers. This data can reveal valuable clues on how your business is doing, yet many storeowners fail to take a hard look at it.
“Page statistics, site analytics, keyword ranking, and traffic sources aren’t reserved for online marketing specialists. Every online business owner should understand these measurements, but too few do, and their sites and sales suffer for it,” said Fabregas.
For example, if you try to expand into a new product category without understanding the analytics behind it first, you could end up investing thousands of dollars on inventory with no hope for a return.
“If you jump the gun on new product categories without doing your research, a few months of screw-ups can really cost you in the end.”
Setting up Google Analytics on your website is simple, but understanding the data that comes in can be a little trickier. Fabregas said taking free courses at Google Analytics University must be included in your business development strategy.
“All of that data tells you why people are coming to your site. Why not make the most of that? This data will help you see how to maximize sales.”