I am helping a friend who is considering setting up a new ecommerce business. Even though she has done it before, we are both reminded of all that is involved.
My articles at Practical eCommerce focus on planning and strategies for ecommerce businesses. For this week, I’ll examine the process of selecting a market, products, a supply chain, channels, and infrastructure. Later, I’ll examine the needs for organization, financial modeling, and market-implementation strategies.
The first step in creating a new ecommerce business is to identify the market and customers you wish to pursue. I suggest keeping an open mind by looking at several different markets with very different products. In the case of my friend, our goal is to find niche products that have broad appeal, but are not widely available in mass-market retailers. We want to find several hundred products with a common theme and purpose so we can tightly focus our marketing activities within a specific niche.
An example of a niche market might be tennis players. Products that could be sold include tennis rackets, balls, instruction videos, clothing, accessories, and so forth. You may have an entirely different goal of selling commodities at the lowest price. Either works, just be aware of what your goal is.
One way to start the process is by looking at ecommerce businesses for sale. You will find a lot of successful ideas that you may be able to replicate. Consider acquiring an existing store that may be small, but has a proven business model, and an established customer base, supply chain and web presence. Visit BizBuySell.com, BuySellEbiz.com, local Craigslist.com listings, or other business listings. My friend and I have found some great ideas — and also markets that are over-saturated.
As my friend and I identify product ideas, we research what’s currently available and look at the traffic and web presence for the stores currently selling those products. We are looking for markets that have several — but not dozens — of seemingly viable stores. We size up the competitive sites for user friendliness, depth, and other factors. Conduct many Google searches and follow its recommended keywords. That process will take you on a journey through a market fairly quickly and comprehensively.
My friend and I also use Google’s AdWords Keyword Tool to analyze the number of searches for the products and related topics. Our goal is to find products that people are actually searching for so that we have a way to market through targeted pay-per-click advertising. We’re also looking at how competitive — i.e., expensive — the keywords are so we can begin to assess the marketing costs.
Once we find a suite of products that may have viability, we look more closely at ad spending and organic traffic to those sites using tools like SpyFu.com, a competitive analysis tool. This provides a more detailed view of what you might be up against if you decide to open a new store in that marketplace.
As you identify markets, you also need to evaluate the supply chain. Do you want to purchase and manage inventory, or would you rather use drop shippers? In our case, we are considering both options — researching traditional wholesalers, manufacturers, and drop shippers in our potential target markets.
The number of products you carry is also critical. If you are selling something like tennis rackets, you’ll want to have several distinctive price points and several brands available at each price point. I have found, in my previous online jewelry business, that 3 to 5 products in a particular segment are ideal. This provides choices to consumers, but not so many that they have to think too hard.
It’s fairly straightforward to build an ecommerce store for several hundred products. It’s much more complex to design efficient online, front-end navigation for several thousand. That’s not to mention the process and cost involved.
Finally, consider shipping issues. If you are in a market where everyone offers free shipping, or if you will compete with or sell on Amazon.com, you may have to offer free shipping. Consider whether you can make enough revenue to cover both your cost of goods sold and the shipping costs.
As you view competitive sites, try to sort by “best seller” if they offer that as an option. Also ask potential suppliers to provide “best seller lists” so you know what products are actually selling. I am frequently amazed at the things that really sell as they will not necessarily match my own style and taste.
One thing I’ve learned is that the supply chain is critical. You need to sell goods that you can easily restock, as there is a fair level of investment you will make in creating products in your shopping cart, then promoting them.
Ideally, you will find more than one supplier. Keep a close eye on margins and shipping costs for both incoming and outgoing shipments. Look at differentiation, brands, and pricing. In some markets, those are critical factors. In others, not so much.
A critical decision is whether you will use drop shippers, stock inventory, or a combination of the two. This will dramatically affect your margins, infrastructure, and the amount of money you will need to start your business. Drop shipping may limit the number of products you will have available to sell, and severely limit your pricing flexibility. Conversely, you will not have to worry about inventory carrying costs, incoming shipping costs, or fulfillment.
How will your customers find you and where will you close the sale? Since your store will be new, you will have poor search engine rankings, even if you do everything right to optimize them.
Will you sell your products only on your own website, or will you also set up a marketplace store on Amazon, eBay, or others? They may provide a much wider audience for your products that you can find on your own. You will pay them a percentage of your sales, but if your margins are sufficient to support their fees, it may be a fast way to increased revenue.
The most likely marketing channels available to you are pay-per-click advertising, comparison-shopping engines, targeted banner ads, social media, newsletter marketing, and affiliate programs. In most cases, you will be buying traffic one way or another in those channels. Even with newsletter marketing, you will find it difficult to build your list without some level of investment in customers finding you through searches or on Facebook.
Infrastructure includes anything you need to support the sale and delivery of your products to customers. I will likely leave something out here, but this list is a good place to start.
- Bank and merchant accounts.
- Domains, website hosting, email services.
- PayPal account.
- Payment gateway for credit card processing.
- Shopping cart.
- Order Management (if not supported in your shopping cart) that will support your selected model of stocking inventory or drop shipping.
- Inventory management (if required and not supported in your shopping cart).
- Google accounts for Analytics, AdWords, Webmaster Tools.
- Bing accounts for advertising.
- Email marketing solutions.
- Customer management tools to manage orders and inquiries (if not part of your shopping cart platform).
- Accounting solution.
- Computers, high-speed Internet connectivity, software.
- Accounts at comparison-shopping engines or marketplaces, if required.
- Website design and development services.
You don’t have to figure all this out up front. But it is important to consider the scale — the ability to grow — of your shopping cart and other ecommerce components. There is hundreds of shopping cart choices. You need to pick the cart that can support the rest of the decisions you make.
My friend is finding that a couple of carts she assumed would work do not support both drop shipping and inventory, forcing her to look at more expensive solutions. If you want to track inventory in your cart, that also may require a higher end cart.
Establishing a new ecommerce store is not easy. But, it can still be lucrative if you select the right market and products — and execute your business model efficiently.