Practical Ecommerce

4 Ways to Waste Money on Your Ecommerce Store

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.

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.

Summing Up

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.

Armando Roggio

Armando Roggio

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  1. Mike Eckler February 8, 2011 Reply

    Wow. Now that was a great article. Thanks.

    I especially enjoyed your comment: "For an ecommerce start up or a small online store, use the free stuff." I’m certain that many merchants just don’t know how many useful ecommerce tools are available for free.

    I expect that your second tip – avoiding SEO experts – is going to kick up a storm in the comments section. I fully agree with you. Good SEO is about presenting interesting content on your site, setting up clear title tags, and getting people to link to and share you content. I didn’t need a $250 an hour search engine optimizer to tell me that. When a so-called SEO expert tries to sell me on all sorts of keyword targeting tactics, I call the bluff, and get out immediately. An entire industry (or non-industry) has been created around SEO, and quite frankly, it’s frightening.

    Mike

  2. Pamela Hazelton February 8, 2011 Reply

    Great article. Too many store owners focus on SEO and ads and ignore what really helps sell products… shopability.

    While SEO is necessary, you’re right, there are too many so-called "experts" that promise the world. A client of mine spent more than $40K on one and got nothing in return. Since dumping them, her rankings have been better.

  3. Eye for Detail February 8, 2011 Reply

    Informative article. SEO is important to get rank well on shopping search engine. But I think someone have no need to spend too much for SEO

  4. insitesoftware February 9, 2011 Reply

    Armando–a great article. I agree with your observations that overpaying for SEO "experts," analytical tools (when Google Analytics is the industry go-to and it’s free), and costly PPC campaigns that can get out of hand and not drive actual sales is not a good way to spend the ecommerce dollars you have. I would also agree that buying bells and whistles you don’t need isn’t a wise choice.

    I would, however, caution that “free” or low-cost ecommerce platforms can be costly on the back side if your organization doesn’t have the in-house talent to make them work for you. The old saying, "You get what you pay for" applies. Just be certain that you are purchasing important functionality when you do spend money, not blindly buying everything. Nothing is truly free and low start up costs often mask unseen costs on the back-end.

    That said, I would add another way to waste money on ecommerce is to not consider back-end integration, especially for larger organizations where ecommerce could become a costly bottleneck without it. While some shy away from integration at the outset because there is a cost associated with it, the upfront cost is usually significantly less than the cost over time as employees duplicate data entry in multiple systems.

    Rachel Rodenborg
    Insite Software
    http://www.insitesoft.com

  5. Antibling Movement February 9, 2011 Reply

    Great article. I couldn’t agree more with Mike and Amarndo. The same business principles that that apply to a brick and mortar also apply to eStores. I share the same sentiments with Mike regarding explosion of the SEO industry. Many many store owners are disregarding basic business planning techniques whilst being sucked into thinking SEO is a complete business plan. I always tell my clients to approach every ecommerce opportunity as if it were a bricks and mortar business as below (I will make an analogy with the tips above):

    1.) Site development

    The amount spent on site development should take into account the product or service type and what the potential customers are going to expect. There is a reason why you find expensive jewellery shops in high street malls with expensive fittings and an antiques shop in an underground store. Its right for their product/service and right for their customer.

    2.) SEO, advertising and marketing

    Real estate agents promising an antique store they can find them the most ideal store front location. That’s in a high street mall next to the jewellery shop. Yes you get lots of traffic but your buyers are looking for deals so you will hardly break even let alone make a sale as you will have to increase your prices to make up for the high rent (SEO + Premium Estore fees). As with site development this should all depend on the on the product and service type and how consumers expect the prooduct/service to be delivered to them.

    Analytics

    A basic free analysis or even accounting program will do the trick for start up.

    After 5 years working in both Ecommerce and SME Corporate Finance it still pains me to see the amount of misinformation that is out there for ecommerce entrepreneurs. Basic business principles will help you succeed or at least explain why it is not working. It probably was not a viable business investment in the first place or the wrong route to market was used.

  6. lland February 10, 2011 Reply

    These are all valid points, but there are good honest hard working seo "experts" that don’t charge an arm and a leg. We take care of the common sense seo tasks that the small business owner just does not have the time to tackle. We have a partnership that has proven to be very successful and both parties are happy. We apply this model to a group of our small business owners with the same success. The small business owner is too busy running the business to be webmaster in charge of web design, seo, social media, analyzing stats, etc so we step in to be the partenr that handles that portion of their buisness.

  7. John Lindberg February 10, 2011 Reply

    As an efulfillment service provider that works with hundreds of webstore merchants, I have to 100% agree with your excellent article. The only thing I can add is product research and development is really the ballgame in online sales. The fact is that the world doesn’t need yet another "me too" online merchant offering the same products as available from hundreds of other websites. It really is as simple as that.

    Also, pay per click can be an ideal way to get started even if the cost per order eats up most of the profit margin because it is often the ONLY online traffic generator that a start up merchant can actually control and that can take effect fast enough to get the business owner past their start up loss phase before they run out of cash.

    In effect, the merchant is "buying" orders based on the click cost and the conversion rate. If the product gross profit will cover the PPC cost (which can be $20 to $40 per order in many cases), an online merchant can go from zero to substantial sales overnight. But, as you point out, PPC spending can become a company killer if not carefully managed.

    John Lindberg – President
    EFULFILLMENT SERVICE INC

  8. amberc February 10, 2011 Reply

    You made some great points. But I believe SEO is absolutely vital to e-commerce and whether you do it yourself or hire someone to do it, it is a good investment. Just make sure you find someone honest to do it for you and be patient and you will see results.

    -Amber SEO employee at gogodropship.com

  9. kevinmc3 February 10, 2011 Reply

    Re: "Successful ecommerce businesses tend to get the best traffic from viral or word-of-mouth marketing (social media) and from affiliate programs."

    You obviously have never created and/or run a REAL online business or you would know that statement is 95% BS. Particularly the "social media" part. In REAL life social media does NOT send volumes of quality "consumer minded" traffic to a web site. And, to stand around waiting for your online business to get traffic via "viral" or word of mouth is absurd, you might as well just get another Full time job for the next 10 years waiting for your theory to realize.

  10. Michelle Guzzo February 10, 2011 Reply

    Great article! One thing I would add to the Advertising and Marketing Advice – while Social Media is an incredibly valuable medium for reaching and engaging with a broader audience, you need to consider some key principles and best practices before diving in head first.

    Although you don’t want to miss out on what can be an invaluable asset of your marketing strategy, you want to ensure you account for what it takes to run a successful program. First and foremost, you need to ensure you have the proper resources and bandwidth to manage, maintain, and police your social media efforts. Without a clear strategy and specific goals, social media can be a low-ROI resource-sink that can actually undermine your other marketing efforts.

    To be successful in the social media arena, you will need the resources, knowledge, and commitment. It’s nowhere near enough to simply post content once. Social media requires a commitment daily (and sometimes hourly) monitoring and communication as well as a dedicated staff member to manage and spearhead these initiatives.

    Since the very nature of social media is viral, successful social media communication can explode into vast distribution in minutes. Unfortunately, that also means your mistakes can potentially spread just as quickly – or even faster.

    Simply put, while social media may appear to be an inexpensive medium to spread the word of your business there are many practices to consider in order to drive successful results.

    Read more in my Social Media & Email Marketing Best Practices whitepaper:

    http://tinyurl.com/6522eo3

  11. Cam Flanigan February 10, 2011 Reply

    We have saying here at VPASP that if you have $10,000 to spend on your new online business, $1,000 of that should be for store, design and development and $9,000 on marketing.

    An online business is not like a bricks and mortar. You do not have a storefront to pick up street traffic. So you need to generate traffic and marketing, through various channels, is the only way.

    We often get enquiries from people wanting to set up a storefront with a set budget for the store but $0 for the marketing side of things.

    I like the above article. Some good points are raised. Not 100% sold on the importance of the social media side of things unless as the previous comment from Michelle details you have a dedicated team or experience yourself to take advantage of new medium.

    Thanks
    Cam

  12. xtremeux February 10, 2011 Reply

    Good article.

    Custom development: Alternatively, focus on user experience and conversions.

    SEO experts: 81.79% online shoppers reach to online stores via Google, any other good choice of spending on SEO experts for initial SEO setup & consultation?

    Advertising/marketing: PPC is good choice for new start-ups until stores getting index and ranking in natural search results pages.

    Analytics & measurement: Only test can beat the intuitions. Which campaigns gives you ROIs, which deal/offer works more all are part of advance analytics configuration. It controls your marketing budgets, improve your website for better user experience and increase the repeat business.

    I agree that avoid over-spending. But all above are essential parts for successful ecommerce store. Earlier ecommerce store owners focused on design and SEO. Today, as competition increases, shrinking the profit and expensive the search marketing, ecommerce store owners look at conversions & measurement. So looking to budget for conversions, analytics and measurement is not advisable.

  13. Armando Roggio February 10, 2011 Reply

    @kevinmc3 thanks for the comment. I respectfully disagree.

  14. brustici February 11, 2011 Reply

    SEO is both a Scam and a Savior for an eCommerce business. It’s just a matter of picking the right strategy or partner to figure out the savior. SEO done right is a marketing channel and a very big one at that. Google can delivery a website 65 to 70% of your traffic, why would you advise a company to not put it on the top of the list. I’m one of those person who have been doing SEO Services for folks and now I’m eating the dog food with doing the SEO for my own eCommerce website (ubuycoffee.com).

    It’s not even six months old and I’m getting almost ALL of my sales from my SEO efforts – sales double along with the traffic each month. Facebook hasn’t delivered a dime. Yes, blogging is on the plate, but SEO was first and I don’t regret the strategy.

    Your advice that spending money on SEO can be a bad decision is right, but not doing it is worst.

  15. Zap Again February 12, 2011 Reply

    So this guy says here are 4 things not to do!! great, then he says he doesn’t know what to do!! DUH, that advise is worthless

  16. David Lithgow February 14, 2011 Reply

    Organic search traffic is the greatest source of traffic to FashionAddict.com.au. On a weekly basis organic search covers an average 65% of all traffic, followed by Direct traffic and Referring Sites. That said, SEO plays a large and important role in the survival of our online store.

    An initial investment in SEO knowledge is wise. After a short time the $ spend can be reduced to zero. The key is to invest in SEO knowledge rather than pay for someone to give you results. Learn and control SEO internally. Same with PPC.

    PPC can generate approx 500 unique visits to FashionAddict.com.au for approx $100AUD per week. Conversion varies from week to week. I view 500 additional people walking into the online store each week as an investment. Anayltics picks up sales from people who intially found us from a PPC advertisment and come back later.

    On that, I agree Analytics is awesome. It is more than enough statistics for your online store and free.

  17. internal_doors February 15, 2011 Reply

    I would agree with almost all the article, but I,m not so sure about about the SEO comments, getting a high place in SERPs get you traffic and if you are in a competitive market then you need to rank well for those key words, this requires links building which is a difficult and time consuming process there you need someone to do the SEO for you.

  18. GreatStart February 27, 2011 Reply

    Armando, Love the article. I am in the process of interviewing several development companies but most I have spoken to require over $10,000-$15000+ for a Magento community edition website to be developed. As a individual looking to start up small, spending $500 to $2500 for a Magento website would be optimal but where do you find such people who will charge that amount and are reputable, experienced, who you can trust with your business information, especially when it comes to developing the backend(Credit Card info, etc) ?????

    Some direction regarding that would be very helpful, especially for myself and others who are just starting out. Anyone feel free to post any guidance you have regarding this topic.

    Thanks,

    Andrew

  19. SouthWind March 7, 2012 Reply

    I am close to going live with a new Magento installation. I have limited experience in PHP, but am fairly comfortable with HTML and CSS, I am by no means an expert. But I found a free template online, modified it and customized it enough to distinguish my site.

    So far I have about $250 invested, (extensions) in a store with 90,000 SKU’s. It’s really not that hard to do it yourself quite cheaply, if you have problems you can do a web search, there’s answers to pretty much any issue you can think of. If you have small projects or customizations that you can’t handle, you can hire a freelance programmers for very reasonable amounts.

  20. Sterling Jackson April 30, 2012 Reply

    I also agree with the previous poster who mentioned that you get what you pay for. I recently worked with a client who was trying to get their store up and running using the Magento Community Edition and they spent two weeks just trying to get it to work correctly.

    An E-Commerce solution should just work, painlessly out of the box. You shouldn’t have to do massive system reconfiguration or bring in tech support to get it to work.

    This is the problem with a lot of free e-commerce tools. They aren’t really free when you factor in your time, functionality, security and potential problems.

    I definitely agree that there’s no reason to overspend, but I think all 4 of the points you touch on are essential to any e-commerce store, small business or not.