How To Start A Profitable Ecommerce Business

By Angus  |  1 May 2015 16:00:00

Whilst there are a good number of ecommerce websites that are set up either as a necessary extension of a bricks and mortar business or as a way of generating income from a hobby, this post is for you if you are looking to get into ecommerce solely as a profit making exercise.

I plan to cover some timeless fundamentals, as well as some of the most up to date ecommerce marketing techniques that will hopefully guide you in establishing a successful online business.

Product Strategy

Considering that your business and your product are one and the same, it is only right to start with ensuring that your overall product strategy is optimised for profitability. What this means exactly is not as obvious as it sounds.

Whilst high margins are a prerequisite, this will not count for much if you are unable to generate sales in the first place. Considering that for many products there is exceptionally high competition for online sales, the most profitable strategy is to look for emerging products for which demand has just been proven.

Ideally these will be markets where there are currently only a handful of successful sellers that you can individually identify, thus making it clear how you can compete with each one to establish your advantage.

Clearly there are huge potential rewards if you can be the first to market with a product; however due to the risks of predicting demand this is not a strategy for the calculated profit seeker.

The key to success with product strategy is timing your entry to the market perfectly to meet the rising demand.

Search Engine Marketing

Ranking highly in the natural search listings will be key for the profitability of your ecommerce business, and is another key reason why choosing an emerging market is so important.

With Google now placing ever more emphasis on the quality of your websites content, if you can initially rank above the fold for your product category keywords and have a well optimized website that is regularly updated then you have a great chance of establishing your business early on.

You will probably wish to supplement this with some paid search activity, especially as the trend with Google is leaning towards displaying more paid advertising, but if you start out in a saturated market where you are reliant on paid traffic then you are on a losing path with regards to profitability.  

Social Proof

Social proof is a current buzzword in ecommerce and refers to the age old psychological phenomenon, that when in a situation where we are unsure, we will take influence from the actions and recommendations of our peers.

In ecommerce, effectively harnessing the power of social proof is without doubt both the most cost effective and most powerful way of increasing conversions and therefore profits.

In a marketplace where there are multiple websites selling the same product, the majority of consumers are likely to search around before committing to purchase. Whilst it’s easy to assume that people will simply be looking for the cheapest option, studies have proven that social proof is a more powerful influencing tool than price.

Because a new ecommerce business is not going to benefit from much awareness to begin with, you should be making a strong effort to get customers talking about your business as early as possible. If customers have left reviews on your products then this gives prospective customers something else to consider as well as price.

We all know that positive things said by customers carry a lot more weight than anything a business can say about itself, yet the reality is that many satisfied customers will still not be bothered to leave a positive review. As social proof is as much about how many people have validated something as what they have actually said; to increase review participation you should be prepared to offer your customers something in return, perhaps a 10% discount off their next order.

In order to overcome the initial lack of social proof that new businesses suffer from, it is important to maximise the impact of what feedback you do have. For this I would recommend reaching out to customers personally and asking for an in depth testimonial coupled with a picture. Ideally the individuals that you ask will closely reflect your typical customer as people are always more influenced by those that they identify with and can relate to.     

Affiliates

Affiliate marketing is a strategy that has enormous potential for a new business looking to maximise profitability early on. To summarise, affiliate marketing works by finding affiliate websites who are willing to promote your products or website in exchange for a commission on each sale.

Affiliate marketing has the advantage of having an excellent ROI when compared with other forms of advertising. For this reason I believe that it is something all ecommerce businesses should consider, however it is especially useful for businesses that are looking to rapidly gain exposure and increase sales.

As with all marketing, it is important to put time into planning your strategy in order to maximise its effectiveness. Quality definitely takes precedence over quantity, as a handful of well-chosen and well rewarded affiliates have the potential to generate a huge number of sales.

You should research blogs and websites in your industry in order to find a handful that are a very close fit with your brand and that you know are regularly visited by your target audience.

Affiliate relationships are symbiotic, in that both partners should benefit from the set up. If you choose your affiliates well however then not only will you benefit directly from the sales that they generate but also from free relevant traffic coming to your website which may later turn into a sale and from  an association with the affiliates brand which you can leverage for credibility

Retain Your Customers!

This point may appear obvious but must be stated as it is a key factor behind many of the most successful ecommerce businesses.

Retaining customers is a much more cost effective way of increasing sales than attracting and converting new prospects. As has been discussed in a previous post, email marketing should be the primary channel used to maximise customer lifetime value.

This point ties in with both product strategy and social proof. With regards to product strategy, if you can provide a broad selection of complimentary products within your niche then customers have a good reason to only purchase from you.

The longer you retain your customers the more likely they are to become advocates of your business which as discussed in the social proof section, will make it easier to attract and persuade new customers.