The online world is a very competitive one. Barriers to entry are pretty low so lots of people launch online to compete with established brands. The issue really comes up with the business structure and the ability to succeed.
Yes, you can easily sell anything online, but the real difference is can you make any money doing it!
There are some key characteristics that are pretty important to ensure that you make it past the startup stage into a business that is sustainable and can grow (ideally without external funding).
There was a huge land grab in DVD’s, CD’s and other entertainment items in the 1990’s and early 2000’s. Amazon is the only one that has managed to get any scale in this market as the margins are brutally low. So ideally launch with a product that you make a decent margin from. What’s a decent margin – well that depends on what you’re marketing costs are!
Costs of acquiring customers never really goes down as you grow – so you are likely to use your most efficient marketing channels first. If your costs of customer acquisition is more than the margin you make on your first order, then beware – you have a funding gap.
Working capital cycle
If you have to pay for your goods upfront then you need to fund this cash flow too. So every retailer in the land tries to push the liability of funding working capital to their suppliers. Most large retailers don’t pay you for 60+ days so you have 60 days to generate enough sales to pay for the goods. This cycle gets worse the quicker you grow, so try and agree it upfront, your suppliers usually like to grow too, so your interests are aligned.
OK, I am a broken record, it’s much better to sell a product with lower margin that customers like than a higher margin one that they hate – fixate about your product, listen to the customer, fixate again!
Sloppy marketeers hope that they can find a pot of gold at the end of the marketing rainbow – it does happen (in fairytales). In reality you need to get clarity on every marketing activity you do and don’t fool yourself. I have heard the phrase “it’s been good for the brand” as an excuse for a failed direct marketing activity too many times 🙂
Brands are successful at satisfying their customer needs. This is repaid by the consumer with loyalty and reorders, which funnily enough = higher sales and higher margins!
So you might be an online marketing guru but no matter what – if you ignore these simple rules then you are better working for someone else than yourself, they can have sleepless nights worrying how to fund the business, you can enjoy a peaceful nights sleep.Tweet