business resources
Starting an E-Commerce Site? You Must Know These 3 Things First
Staff
29 Oct 2020
The lure of the e-commerce industry is very powerful, and it’s only gotten more powerful in recent years as people have increasingly switched from buying in local stores to ordering the majority of their products online. The potential market for e-commerce sites will only continue to grow, and one of the best things about selling online is that you don’t even need an enormous amount of capital in order to get started. You’re free to start with just a small selection of products and grow as your budget allows. From there, the sky is the limit.
Before you jump headlong into the world of e-commerce, though, it’s important to understand that there are lots of people in the world with the same idea as you – and the vast majority of online businesses fail within just a few months of launching.
Why do most e-commerce sites fail? Generally, it’s because they launch without a realistic path to profitability – and that’s one of the main themes we’ll focus on in this guide. Are you thinking about starting an e-commerce business? These are the 3 things that you must know first.
Know What You’re Going to Sell
Getting started in e-commerce begins with knowing what you’re going to sell, and you can basically break this decision down to two broad choices.
- You can sell something that people don’t know about yet. In this case, you’ll need to create the demand for your product – but you’ll have less competition to worry about.
- You can sell something that’s already popular. In this case, you can take advantage of the product’s existing demand and could potentially begin earning money more quickly. However, you’ll also have a higher level of competition.
For example, let’s suppose that you’re thinking about starting an online vape shop. The Geek Bar Pulse is the most popular product in the vaping industry at the time of writing. The demand for it is enormous – but so is the competition. On the other hand, there are many other manufacturers producing vaping devices that aren’t widely known but might be just as good.
When you choose a type of product to sell online, the best product isn’t necessarily going to be the one you’re most passionate about. It’s far more important to choose an industry in which you’ll have a chance to compete – and that’s what we’re going to talk about next.
Know Your Realistic Chance to Compete
Before you choose an industry for your e-commerce site, you need to know your realistic chance to compete within that industry – and that’s going to require a bit of research. Start by searching on Google to see which websites show up on the first page for the keywords that you’d be targeting. If the first page is full of huge retailers like Amazon, you need to have a concrete plan for competing with those businesses. If you don’t have a realistic chance to break through, maybe it’s possible for you to carve out a narrower niche within that category. If not, you’ll probably need to choose a different category.
On the other hand, maybe you searched for some keywords related to your potential industry and found page after page of websites that you’ve never heard of before. If that’s the case, you’re in luck because you’ve probably found an industry in which you’ll have a realistic chance to compete – but don’t get too excited just yet. Are you sure that the market you’ve discovered is actually worth pursuing? How much can you expect to earn if you’re hugely successful? We’ll talk about that next.
Know the Size of Your Target Market
If you’ve found a product category in which you have a realistic chance to compete, congratulations – you’ve already cleared the biggest hurdle. Before you move forward, though, you need to ask yourself an important question: Have you found a market that’s actually worth pursuing? Maybe other potential business owners have already evaluated that market and decided that it wasn’t large enough to be worthwhile.
You can pay for detailed market research covering just about every industry you can possibly imagine, but it’s actually not that hard to do your own market research. Here’s how to get a fairly solid back-of-the-envelope estimate for the size of a potential target market. To do this, you’ll need to use Google Keyword Planner or another tool that allows you to see the monthly search volumes for keywords. Here’s what you need to do.
- Gather the keywords that people would be likely to search for on Google if they wanted to buy the products that you’re thinking about selling.
- Find the monthly search volumes for those keywords.
- Multiply the total search volume by .25. When people search for something on Google, they click the first result about 25 percent of the time. The resulting number is the amount of traffic you can expect to get each month if you’re incredibly successful and have the top organic ranking for all of your target keywords.
- Multiply that number by .03. The resulting number is roughly how many orders you can expect to receive per month based on the traffic number that you calculated above. A conversion rate of about 3 percent is normal and healthy for most e-commerce sites.
- Multiply that number by the amount that you expect your site’s average order total to be.
The number that you arrive at after performing the above calculations is the gross revenue that you can expect to earn each month if you are wildly successful in the industry that you’re considering entering. If the number is huge, congratulations – you’ve probably found a market that’s worth pursuing.
If the number isn’t so big, on the other hand, it’s probably best to spend a bit more time thinking about the direction of your potential e-commerce business. You can’t realistically expect your website to be the first result on the first page for every keyword you’re targeting. If the potential size of your target market isn’t large enough to make up for that fact, you probably won’t have a realistic chance to carve out a decent living for yourself.
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