You went into the e-commerce business with high hopes, and now here you are—flat broke with nothing to show for it.
“You’ll make a ton of money!” they said.
“It will be easy!” they said.
“You’ll never have to work another 9–5 job in your life!” they vowed.
And now it all feels like lies, like you’ve been suckered into some kind of scam.
The good news is: the e-commerce industry really is thriving! According to Digital Commerce 360, U.S. online purchases topped $861.12 billion in 2020. That’s an increase of 44.0% year-over-year, and it’s only projected to grow from there!
The bad news is: you’re not thriving. Womp, womp.
But you can turn that around! In this article, we’ll teach you what the data says about e-commerce business failures—and how you can use this information to make the comeback of a lifetime.
Analyzing the Failure Rate for E-commerce Businesses
If it makes you feel any better, you’re not the first person to fail at starting an e-commerce business—not even close. According to a study conducted by Marketing Signals, approximately 90% of e-commerce startups fail within the first 120 days. So… if it hasn’t even been four months yet and you’re already sinking, you’re in good company!
If a 90% failure rate sounds awfully high to you, that’s because it is. According to the Small Business Administration (SBA), only 22% of physical stores fail within the first year. As you can see, that’s a huge difference!
Granted, the 2018 SBA report is based on pre-pandemic data, so that failure rate will likely look very different in 2020–2021. That aside, it’s still worth examining why more e-commerce businesses fail than brick-and-mortar stores under normal market conditions.
Why E-commerce Businesses Fail
If you had to guess, what is the number one reason that e-commerce startups fail? Is it because the market is oversaturated? Is it due to bad customer service? Is it because of issues stemming from pricing and cost?
According to Marketing Signals, poor online marketing is the number one reason why e-commerce startups fail. These findings, based on a survey of 1,253 e-commerce entrepreneurs in the U.K. whose businesses tanked, highlight one of the key differences between virtual stores and physical stores: brick-and-mortar shops can attract customers through foot traffic, whereas a digital shop cannot. E-commerce businesses, therefore, are completely reliant on online marketing efforts to attract customers.
But just because poor online marketing is the number one reason attributed to failure doesn’t mean it’s the only reason. Below is a list of the top 10 reasons why e-commerce businesses go under, according to survey respondents.
- Poor online marketing (37%)
- Lack of online search visibility (35%)
- Little to no market for their products or services (35%)
- Running out of cash (32%)
- Price and costing issues (29%)
- Got outcompeted (23%)
- Retail giants dominating a large share of the market (19%)
- Lack of customer service (16%)
- Poor team around them (14%)
- Product mistiming (11%)
Of course, simply knowing this information isn’t much use. It’s how you apply it that truly counts, which takes us to our next point:
How to Save Your Failing E-commerce Business
In this section, we’ll walk you through some steps you can take to reverse course and get back on the right track.
Step 1: Reimagine Your Marketing Strategy
Let’s begin by addressing the two most prominent issues: poor online marketing and lack of search visibility.
If customer acquisition has been an issue for you, it’s time to reimagine your marketing strategy. We use the term “reimagine” because while some of you may already have a marketing strategy in place, it may not be as effective as it could be. Therefore, it is important to examine how well (or not well) your current methodology is working and make changes as needed.
“A targeted, strategic approach to digital marketing is vital to the success of any online business in this day and age, only more so for small businesses who are just starting out,” says Marketing Signals Managing Director Gareth Hoyle. “Many tools can be used to increase their brand awareness and search visibility in their first few days and weeks, where consumer trust and loyalty hasn’t yet been established.”
Of all the tools available at your disposal, advertising will increase brand awareness and search visibility the fastest. To maximize your results, consider using an ad management service like Quartile, which harnesses the power of AI to optimize your campaign.
Step 2: Conduct Product Research
In an ideal world, you would have thoroughly researched your product prior to purchasing a bunch of inventory, using a tool like Black Box or AMZBase. Doing so would have prevented you from running into two major problems: a) having little to no market for your products and b) retail giants dominating a large share of the market.
But alas, it’s a mistake countless e-commerce business owners make. Thus, we’ll go over some strategies you can use to move products that aren’t selling should you find yourself in this situation.
The first strategy involves offering volume discounts. Let’s say you’re selling soda. Instead of selling a box of 24 cans, you may consider offering a discount if the buyer purchases three boxes (72 cans). Of course, this isn’t much use if there is no market for your product, but it can certainly help if you’re having trouble competing against retail giants.
The second strategy is somewhat opposite of the first. Instead of offering volume discounts, you convey scarcity. Examples include: “limited quantity,” “special edition,” and “only 5 left in stock!” You may very well find that adding a little bit of pressure is all it took to kickstart sales.
Last but not least, try using some comparison pricing. By displaying similar products side-by-side, you can highlight how your item stacks up against the competition. If you can convince your customers that you offer the same product (or better) for a lower price, you increase the odds that they’ll purchase from you.
If after trying all these strategies you’re still having trouble getting rid of your inventory, you may end up having to either drop your prices and sell at a loss, or donate your inventory all together just to save the cost of storage fees. If you donate your inventory, you can always use that as a tax write-off, so it’s not a total loss. Consider it the cost of learning an important lesson: next time, do your product research beforehand!
Step 3: Set Up a Bookkeeping System
If you find yourself running out of cash, you’ve got a money management problem. And how exactly does one go about fixing a money management problem? It starts with tracking your income and expenses. That’s where bookkeeping comes into play.
Bookkeeping, for those who don’t know, is the systematic recording, organizing, and storing of financial transactions. When done properly, bookkeeping will tell you exactly how much you spent acquiring goods (also known as Cost of Goods Sold or COGS), how much revenue you generated, along with whether you are operating at a profit or loss.
The importance of knowing this information cannot be stressed enough. As Visa founder Dee Hock once said, “Making good judgments when one has complete data, facts, and knowledge is not leadership—it’s bookkeeping.”
As for how to set up a bookkeeping system, you have two options: you can either do it yourself or hire a professional firm.
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While doing it yourself may sound like the more cost-effective option, it’s usually the other way around. That’s because doing your own bookkeeping requires that you invest a significant amount of time into learning how to do it properly—time that most entrepreneurs don’t have. That’s why most small business owners find it easier (and cheaper) to hire a professional firm like ours. With plans starting as low as $199/mo, you can rest easy knowing it’s not going to cost you an arm and a leg.
Step 4: Use a Pricing Tool
Now let’s address two other problem areas: pricing issues and getting outcompeted.
If you want to be at the top of your game, you’re going to have to adjust your prices frequently in accordance with shifts in demand and competition from other sellers. Doing this manually would pretty much require you to monitor these fluctuations 24/7. Fortunately, there’s a better way.
Thanks to advances in technology, you can now leverage the power of AI to do your bidding for you. Take RepricerExpress, for example.
As one of the industry’s leading software tools, RepricerExpress automates this process by adjusting your prices up and down according to market conditions. And it’s not just for Amazon, either. Their software can be used on other platforms too, like Google and eBay.
Skeptical? RepricerExpress offers a free 14-day trial with no credit card required. Might as well give it a shot!
Step 5: Consider a New Supplier
Looking to cut costs? A good place to start is with your supplier.
Just like no two people are alike, the same goes for suppliers, which is why it’s always worth it to examine all your options.
“Sites like Alibaba, Aliexpress, or IndiaMart are an easy way to sort through your options abroad, and sites like ThomasNet or Maker’s Row are useful for domestic suppliers,” says e-commerce marketing expert Drew Estes. “If you have a competitor in mind you want to go after, check ImportGenius to see where they’re sourcing their products, and reach out directly.”
TIP: If you’ve already done your product research but are still uneasy about how well the product will sell, limit your risk by placing a small order as a test run.
Step 6: Hire a Virtual Assistant
The team you have around you will either make you or break you. Remember: 14% of respondents said their team was ultimately responsible for their e-commerce business going under, so don’t overlook this aspect!
The cool thing about e-commerce is that since everything is done online, you don’t necessarily have to have an in-person team. In fact, we actually recommend that you use virtual assistants, as they offer a multitude of benefits over your traditional in-house employee.
For starters, you can save money by hiring a virtual assistant from abroad. In the Philippines, for example, you can get a qualified virtual assistant for around $2 per hour. On top of that, you won’t have to provide them with the benefits that you normally would for a traditional employee, like paid time off and health care.
To learn more about the benefits of virtual assistants, along with a list of firms we recommend, read our article titled, How a Virtual Assistant Can Help You Grow Your Amazon Business.
Step 7: Time It Right
Sometimes, when you launch your product is just as important as the actual product itself, as evidenced by the fact that 11% of respondents attributed their e-commerce business failure to product mistiming.
You wouldn’t, for example, launch your new line of Christmas clothing in the middle of March, would you? That would just be silly, considering there’s little to no demand during that time of year.
And yet, many sellers do the equivalent of just that by not analyzing market conditions or peak periods of demand. Collecting and interpreting this data may be time consuming, but it will prove invaluable to your business’ success in the long run.
Failure isn’t fun. Losing money isn’t fun. If you look at the world’s most successful entrepreneurs, you’ll notice that all of them suffered their fair share of failures. The difference is that they never gave up; they were willing to take those failures and turn them into learning experiences.
After reading this article, you’ve probably identified a few key areas for improvement. Good. You’re already on the right path. Now all you have to do is implement those changes and you’ll be well on your way to a better future.