Margin makes all the difference

I love e-commerce, I think it is one of the most transformational aspects of the web, allowing us to trade online but with quite low set up costs.

I have banged on enough about getting the product right – which seems to be paid lip service but most entrepreneurs. I personally think it is the difference between success and failure. No amount of marketing is going to fix a product problem, but even if your product is great you need to be able to sell it with a good gross margin.

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Early in the e-commerce revolution lots of companies started selling online with low gross margins (People like Play.com would be a great example of this). They benefited from the switch in channel, but once it became the norm to buy DVD’s and CD’s online you needed to be able to compete on price and availability.

You can run a perfectly reasonable e-commerce business that only trades on buying and selling cheaper than your competitors, but eventually someone will launch against you with a better product or simply be cheaper than you.

You need to constantly work out how to optimise your product to keep you with a reasonable gross margin. My personal rule is 50% margin. If you are not making this, how can you change your product or service without losing customers to achieve it.

I use this as a basic decision process of businesses I would like to invest in that trade online!

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