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Read if you are making an online store to make money

online store

The article describes what I discuss with customers when ordering an online store. We've written about these things more than once. And yet people make the same mistakes. 

Motif

The scale of the e-commerce project, the scale of your tools for conquering the online market depends only on the stage of development of your business. This is the only thing you need to focus on.

A set of smaller tools than you currently need will prevent you from reaching your full potential. You won't feel the potential online and will be disappointed to turn direction. This happens when the business has matured to a real store, but so far it sells on Instagram, with which it started.

Swinging at more than your business allows now, you risk not digesting what is neglected. And you will drown in the operating system, will not be able to recoup the invested funds and go bankrupt. This happens when it is more reasonable for a company to sell on Craigslist and marketplaces, and instead the owner has ordered a large site and pours paid traffic on it.

The purpose of launching an online store is to make money

Making money is the only reason to run an online store that I'm considering. If you have a different goal, you won't be interested in reading the article further.

It will be possible to earn money on the online store if the condition is satisfied: withthe content of the attracted buyer lower than the profit received from the sale.

There are no more conditions. It's one. But from this condition follow a few interesting indicators that should worry you:

  • Profit from one buyer.
  • Payback period for launching e-commerce tools.
  • Scalability: how to increase profits.

You will earn online if the value of the attracted buyer is lower than the profit from the sale to this buyer.

Let me explain on my fingers: if the net profit from one buyer you have is 100 rubles, you spent 1 million rubles on the implementation and the market will potentially give a maximum of 100 sales per day, then in theory you will recoup the investment in about 100 days (1,000,000 rubles / 100 rubles * 100 pcs. = 100 days). Then you will start earning.

But now you're a threesome and your production ceiling is 20 sales a day. To achieve a performance of 100 sales, you will need to increase the team and thereby reduce revenue from one sale. And you need to calculate what profit remains (and whether it remains at all) after subtracting the payroll of the attracted employees. This is a purely mathematical problem.

There is another factor. It follows the current state of affairs in the company. Here we divide all companies into 3 conditional groups:

  • Beginners
  • Intermediate level
  • companies that are firmly on their feet

Surprisingly, difficulties arise more often for companies standing at the middle level. Why? To begin with, let's consider how beginners and experienced companies start.

Beginners

They start "on their knees". Often on free (or shareware) platforms. The risk of losing money on the launch is minimal. These are loners or small teams of enthusiasts who do everything themselves, including attracting traffic to their online store and sending orders. The resulting profit is divided between the partners.

Big business, firmly on its feet

Imagine if MVideo were now going to e-commerce. The company has a strong offline business with a lot of cash flow. It has points in every city. Developed logistics. It already has thousands of employees. Launch an online store and start delivering goods will not be difficult. These are impressive costs, but the company goes for them because it understands the economics of the project and is confident of success. If something goes wrong, the company has enough resources to make adjustments.

Medium level of the company

Here for the company lies a maximum of pitfalls.

  • The business owner no longer wants to do the operating system - hired employees are needed.
  • There is a temptation to swing at a large online store with a maximum of automated processes and integrations. But it is not yet clear what is really needed and what can be automated and integrated at all due to lack of experience.
  • It is not clear where to get traffic and how much it is needed to recoup investments in the site and support the site, employee payroll, advertising and ultimately earn.

It is necessary to calculate the economy so that the cost of attracting a buyer to the site is less than the net profit from its purchase (UNIT-economy). With this, companies at the middle level of development have problems. The owner of such a business usually has offline business experience, but it is not suitable for e-commerce.

The most common mistake is to invest all the free money in the development of an online store and not leave a budget for advertising. If you're waiting for organic traffic on a new online store, this illusion can cost you dearly. Without attracting traffic, the online store will not take off.

To assess the prospects in e-commerce, answer the questions:

  1. What do you sell? Estimate the size of the market through the number of requests per month in Wordstat. No more than 10% of this traffic shines on you.
  2. How competitive are your prices? Will they buy from you at these prices?
  3. What is the margin of your products? How much do you have left minus the cost and other costs?
  4. What cost of attracting a buyer can you afford? You are unlikely to see more than 2% of the site conversion.
  5. What kind of turnover are you planning?

The payback period of the launch, the profit after reaching the planned level, the possibility of scaling are calculated.

Resume

Beginners do not need the help of a web studio at all, they do everything themselves. And large companies assemble internal teams or hire web-agencies from the TOP-10. We work with medium-sized companies. As you can imagine, they have the most problems.

Customers ask us 2 questions: which platform to choose for an online store and how much it will cost. This is the wrong way to put it. In fact, the questions should sound like this:

  1. What value online store can my business afford?
  2. On what platform is it best to make such an online store?