Recently I was asked by someone in my Rockstar Productpreneur community, ‘what does a successful ecommerce business look like?’ 

The person asking the question has an existing online store and has experienced some successful growth, but still wasn’t drawing a big enough wage to support her whole family, and was wondering if it was possible to grow an eCommerce business to the stage that it could support her and her partner and kids.

Growing a successful ecommerce business has never been easy. Success can feel even more elusive these days, considering the insane amount of growth in the ecommerce sector. 

eCommerce has literally experienced a decade’s worth of growth in the past year, thanks to COVID-19.

Now, your definition of ‘success’ might be different to the next person’s. 

I have some clients whose idea of success is a profitable lifestyle business. The kind of business where your work fits in flexibly around your lifestyle and consistently pays you a decent income.

Others have goals for global domination and are looking to grow really big. 8 figures in revenue a year or more, selling into major retailers nationally, exporting globally, and eventually selling the business for a tidy sum. 

Ultimately, whichever way you want to go, a successful business does really need to be a profitable one.

And part of my own personal definition also requires that the business can eventually operate without requiring you to be there. If it can’t, because no-one else knows how to do anything, or because it doesn’t generate enough revenue to hire staff or contractors, then it’s not really a business, it’s a job. 

Now, that’s not to say that’s a bad thing. Plenty of people do very well working in that way. But personally, I want to be paid regardless of whether I’m sick or on vacation or can’t work for any reason, and I also want to build my business into an asset that I might one day sell. 

Regardless of what your definition of success is, if you want to build a profitable business there are some solid do’s and don’ts that you want to look out for.

3 common mistakes I see eCommerce brands make all the time.

This is NOT an exhaustive list at all, but I think these are pretty much my top 3.

  1. Customers don’t know how or why to buy from you – navigation is difficult, site is slow or clunky, product value isn’t clear. This is often down to making a poor choice in website platform, but also because of bad design (not tailored to the brand or to the ideal customer, poor images etc)
  2. Not marketing effectively – spending all funds on stock and getting the business up and running, with none left over to invest in marketing. Relying too heavily on one platform for marketing, putting all your eggs in one basket so to speak. Not spending enough time or effort actually building up an audience or building brand awareness – there’s still the perception that if you build it they will come, but that’s just not the way the internet works. Not differentiating your brand or setting your business apart from the competition – making it extremely difficult for customers to work out why to buy from you instead of the next person. Not systemising your traffic and sales generating activities, or figuring out how to attract and convert customers consistently and therefore relying too heavily on constant hustle or discount offers.
  3. Business runs into cashflow problems – not managing / reordering inventory in time (& run out of stock to sell), take too much money out of the business, don’t set aside funds to cover tax or stock purchases or other obligations, the profit margins are too slim and therefore aren’t sustainable, or just poor cash flow management generally.

These errors are definitely avoidable if you take the time to learn, and mostly they’re fixable if you put your effort in the right place. 

So what are the metrics or performance metrics that indicate a successful, profitable eCommerce business?

So let’s take a look at each one in detail to see how you can try to measure and improve in these areas.

1. Low customer acquisition cost

Getting truck loads of profitable customers for cheap is the holy grail for most eCommerce businesses.

How low is a low enough price depends on your preferred profit margin, your customer lifetime value, and your competitors.

The biggest part of this cost is the marketing expense to acquire a new customer.

Even if you’re not actively spending money on things like advertising, each new customer still incurs a cost. 

At first, you can – and most of us do – get away with simply spending your own time. But if your business is more established, you will likely hire experts or staff to do the marketing for you.

So let’s take a look at two of the primary drivers behind this factor: your brand & your marketing efforts.

Brand

This is the fuzziest but most impactful way to stand out and lower your acquisition cost.

  • How many people have heard of your brand and know what it stands for?
  • How are you different from your competitors?
  • Why would a potential customer be triggered to check out your store?

When I go through this exercise with my clients, we often come up empty. Deep down they can’t give a compelling reason why people should buy from them versus their competitors.

That’s not because there is no reason, but because it’s well hidden. Going back to the origins of why the store came into existence will often help to find that reason.

For me when I still had my first business, my cloth nappy brand, that reason was to help regular everyday parents to adopt this eco-friendly and cost effective product. 

How do you measure whether you’re successfully building your brand? 

The easiest way is to keep track of things like:

  • The size of your following on social media platforms and in groups
  • The size of your email subscriber list
  • The volume of organic search traffic – people actively seeking you out
  • The number of people literally googling for your brand name

It’s not an exact science and I’m sure there are more thorough ways of tracking it, but in my experience it’s totally fine to keep things simple as you get started.

Marketing

Creating a strong brand means deciding what you stand for, and also what you don’t stand for.

That means that you’ll have a better idea of who to target, and where to find these people.

That’s a good starting point when it comes to marketing.

So how do you generate consistent traffic and sales through your marketing efforts?

Basically, you always want to have some marketing strategies designed to attract and convert new customers, and some designed to generate repeat customers. 

And, given your sales will all be happening on your eCommerce website, this all comes down to driving traffic to your store.

As I discuss in this post, the best way to build a strong foundation for eCommerce growth is to drive traffic from the three different types of traffic source: paid, owned and earned. 

I won’t go into huge amounts of detail about that here and now – you can go and read that for yourself.

But suffice it to say, using a mix of all three traffic strategies is key to profitable, long-term success in eCommerce business. 

Because I see too many businesses throwing all their eggs in one basket when it comes to getting traffic to their site. For example, posting like a demon on Instagram and not doing anything else.

It’s just too risky!

2. High returning customer rate

Let’s move onto the second key performance metric that will indicate your profitable success as an eCommerce business: Customer Loyalty. 

This factor increases the lifetime value for your eCommerce customers, which is great for profits.

I’ve said many times before – we all need to convert more and more new customers in order to grow, but in order to become profitable we need to convert customers from one-time buyers into repeat buyers.

This is because it is expensive to attract and convert customers the first time, between costs like advertising and offering incentives, or even just factoring in your time to work on things like SEO or networking in free groups.

Whereas, selling more to existing customers is much easier. They’re already inclined to like you and they’re familiar with shopping with you already, so it’s easy for them to buy from you again. 

Which helps you to recoup some of those initial customer acquisition costs.

The average repeat customer rate for eCommerce is quite varied – between 20-40%. 

Whereas the most successful eCommerce stores actually generate more than half their revenue from repeat customers.

Please bear in mind that you should never expect to achieve this at the start of your business journey. You actually need to have a decent and growing volume of new customers before you can expect to generate repeat sales. 

And if you ever stop acquiring new customers, you can see your business stagnate and then start to go backwards as your database of customers moves past being in the market for whatever you have to sell. 

So we always need to replenish our new customers coming through, but at the same time have strategies in place to convert more of them into repeat customers on a consistent basis.

Customer loyalty is something that’s the sum of a lot of important parts: customer experience, product selection, pricing, brand, and marketing.

Notice how I’ve put marketing last. Because the most common approach to increase customer loyalty is simply get more in front of your existing buyers.

Automated email campaigns can do exactly that. But if a customer had a poor experience when they first purchased, your campaigns will fall on deaf ears.

3. Healthy margins

Let’s move onto the third performance metric in a profitable, successful eCommerce business: Healthy margins.

A healthy gross margin makes your ecommerce business easier to run. This is because it gives you the financial room to move to invest in marketing and your team, to acquire customers and manage fulfilment and help facilitate your growth. 

As a benchmark, research has found gross margins internationally average between 22% and 38%. 

My experience here in Australia, though, with our higher average costs for things like wages and freight, the most successful eCommerce businesses tend to have gross margins between 50-60%. Most of them are buying at least their core products at distributor prices, or they’re manufacturing their own range.

This important factor is made up out of two numbers: revenue and cost.

We’ve already looked at a piece of that cost: your marketing. But of course, there are also other costs involved like product cost, shipping, and other expenses.

Now, I’ll focus on increasing revenue, and more specifically, on how to increase the average order value.

Selling higher priced products

It might come as a surprise, but it’s not that much harder to sell a $2,000 coffee machine online versus a $19 fashion accessory.

Even if your profit margin is lower, the total profit per order will be a lot higher on the first product.

I found this first-hand with my modern cloth nappies, which I primarily sold in bulk value packs for several hundred dollars. It literally was just as easy or difficult to sell an $800 pack compared to a single nappy for $35.

How can you increase your average order value, even if your products are low priced?

Upsell / cross-sell

Cross selling is selling complementary products like a $15 bottle of descaling cleaner for that $2,000 coffee machine.

Or try bundling your cheaper products for a high price, like our recent client Wilddough. Normally, they will sell individual pots of playdough for about 15 bucks each. But they also sell Playdough Kits for around $80. 

Once we introduced those kits, not only did revenue increase, but so did their website conversion rate, so clearly it helped customers to make a purchase decision.

Nudge buyers towards higher orders

While most people will buy, you can use psychological nudges to get people to spend just a little bit more.

For example, free shipping thresholds where you need to spend a certain amount to qualify for free shipping.

Wrapping up

You probably don’t have the bandwidth to explore customer acquisition, retention, and profitability all at the same time. Your focus will depend on what stage you’re at in your eCommerce business.

If you’re just starting out, focus first on customer acquisition. This means, brand building and marketing strategies to drive traffic and convert new customers to buy from you. This is where you’ll have the biggest initial impact.

But then once you start growing your website traffic and sales, and you’re seeing some consistent sales coming in, you can start working on customer retention.

Then at scale, it’s time to dig into the cost and revenue and find out how to optimise each element in that equation.

Alright – so that’s what I’ve got for you today. I hope you’ve found that helpful to break it down and show you the system that you need to have in place in order to scale and grow a successful eCommerce business! 

I you’re looking for help and support with your own eCommerce venture, join our free Rockstar Productpreneur Facebook group at https://www.catherinelangman.com/rockstar