Setting up an eCommerce business from scratch would you recommend having my own website or using Amazon and Ebay or all three?

It’s a common question. The appeal of setting up an eCommerce business on Amazon, especially in the US, is appealing as it feels easier and the same with Ebay.

In short, I wouldn’t sell on marketplaces if you plan on building and running a long-term business. And let’s face it, all these side projects ultimately want to be a stand-alone business.

Why not?

At its core, when you sell on a marketplace like eBay or Amazon you don’t own the relationship with the customer, you’re just fulfilling the order, they bought from the marketplace. This is an issue because the majority of successful long-term profitable businesses get repeat customers. If you don’t have a relationship with the customers, i.e. their email and they don’t recognise the brand you can’t resell to them.

The other issue

Amazon and Ebay don’t let you sell on their site for the benefit of humanity. They charge a nice big percentage of the sale. It can be up to 45%! Although the average is 15%, you can spend this much on advertising your store and have a relationship with the customer.

Amazon and Ebay own you

Let’s say you build up a nice business on Amazon, orders are coming in, you’ve worked out their processes, the one day you get an email saying “We’ve closed you account”. You’re dead in the water, and all that hard work has gone to waste. It is up to them who can and can’t sell on their platform If you own your own site you control it. The key to any business is being in control.

Advantages of selling on Amazon and Ebay

Quite simply, it’s easier. That is why people do it. They have visitors ready to buy, warehouses ready to ship you just buy the stock and list it.

It’s also a good place to start learning how to sell. You learn product selection, inventory control, customer service etc. However, at some point, you’ll realise the above and have to start all over again.

Isn’t setting up your own website from scratch harder?

Quite frankly, yes. But it will be worth it. Your margins and profit will be higher and you can get repeat customers for much less. It’s building for the long term. It’s like buying a house instead of renting one.

What to look for in an eCommerce P&L 

The reason most people sell an eCommerce business is they aren’t running it properly. They will make other excuses like not enough time etc, but the numbers don’t lie.

Often the cause of that is not being across thier numbers.

I get it, it’s hard. We’re not all accountants (I’m not but learnt the fundamentals). However there are a few simple tricks to get you 80% of the way.

In a P&L you’re looking for roughly these ratios to spot a good business or opportunities to fix.

From the stated revenue make sure GST/VAT/sales tax is removed. This should always be the case, but double check.

50% Gross Margin (aka cost of product)

30% Operational costs (marketing, staff day to day stuff)

20% Profit (Money left over before tax)

This always help me understand where to start looking in a P&L. 

The next trick was working out where all the costs fitted into those ratios between what a seller provides and a traditional P&L format.

To make it just a bit harder most small ecom business will send you a screen grab looking like this…

How are you ament to match those up!

This is where the rubber hits the road and those of you who won’t buy and realise the advantages of having and eCommerce business tend to peal off. Don’t be one of those, learn a new skill and keep going.

The generally rule of thumb for allocating costs into Gross Margin or expenses goes like this.

Does the cost go up the more you sell? For example if you sell more products does that cost go up, for example manufacturing of goods. If you rent an office, unless you get a lot bigger that doesn’t go up.

Common costs in working out Gross Margin for eCommerce business are…

Cost to manufacture

Cost to ship from factory

Cost to ship to customer

Warehouse processing fees, if you use a 3rd Party Logistic business (3PL) like I do.

Now you have a P&L from the seller allocate expenses to calculate your Gross Margin. 

Is it 50% or less than revenue? (Remember or ration 50% Gross Profit, 30% Expenses, 20% Profit)

See, this is isn’t so hard!

Next we need to put costs into expenses. What is a fixed cost in the P&L they sent? By fixed I mean don’t vary the more you sell unless you sell a lot more!

Any staff fees, advertising, rent, platform fees (Shopify or hosting etc).

Do these come in at 30% or less?

The cash left over is your profit (or at least pre tax). If that is 20% or close, we’re looking good.

A key thing to check is if the owner is adding thier time into expenses. Often they don’t making the profit look higher. 

But if they haven’t they are selling a job not a business. It’s fine for the owner to be working in the business as it grows, but we want a business not a job.

In the example above the profit claimed was 15%. However when we add in everything including owner salary it made a loss of 6%!

What if my ratios aren’t 50/30/20?

That is commin, the question is with your “Buying super power” what can you change to get it there?

The eCommerce business I bought had a 30% Gross Margin. So I figured out if I bought more stock it would get increased to 50-55% (higher the more stock I bought).

Often eCommerce business are over spending on advertising, especially Facebook and a Instagram ads. If you’re a specialist in this you can look to reduce this.

So now you can analysis a P&L and make some decisions if you want to ask the seller more questions.

Ecommerce stores to avoid buying

I avoid these eCommerce stores when looking to buy

With COVID, there was an explosion in eCommerce stores being set up. Now things are getting back to normal; the founders are looking to sell, which means a lot is on the market, making it harder to find the valuable ones.

To help find them, I suggest you avoid stores which have the following.

No previous sales
The whole point of buying an eCommerce business is it has a proven market. This helps increase your chance of success.

Very few sales and lots of stock
Be careful of stores selling where the sale price is mainly the stock you’re buying and has very few sales. This means they’ve developed/imported a product that isn’t selling.

Dropshipping stores
Most dropshipping stores are reselling the same products as 100 other stores. It becomes a race to the bottom as they compete on price, killing your margins. If you can see an opportunity to hold stock to increase margins and the product is unique, consider it.

Fashion Brands
These are HARD. The competition is enormous and you have to hold stock of lots of different sizes. Unless you REALLY know the fashion industry, I’d stay clear.

Questions to ask a seller

Hopefully, by now, you’ve spotted an eCommerce store that has piqued your interest. If not, see here for a list of places to find eCommerce stores for sale.

Now is the time to start asking sellers for more details.

The first thing I ask for is a summary P&L. I want to know if the store has a chance of being profitable before I invest more time in researching it.

I’ve had the information come back in varied forms; one was a screenshot of an excel spreadsheet! So don’t expect a full export of their Xero file.

Here you’re looking for how much profit you’ll make per sale, also known as unit economics. I’m always looking for products that sell for over $100 and have a gross margin of $50. This gives me some buffer to pay for ads, as it’s hard to make a sale on Facebook for under $25.

Gross margin is the money left after GST/VAT/Sales tax, the cost to buy the product and get it to the place I ship it to customers from (i.e. warehouse).

If those numbers stack up I then send a word doc with more detailed questions, depending on what I want to know.

What to do if Shopify goes down in Australia?

Unlike some other eCommerce services, like WooCommerce, Shopify provides a hosted service. Think of it as a full-service eCommerce platform.

Hosting is like a home for the website code. It’s basically a fancy computer called a server and from time to time, like your computer at home or in the office, it has a hissy fits and needs some attention.

The great news is that unlike your home or office computer, Shopify has over 100 people (and growing) dedicated to making sure all the sites stay live.

First thing to check if you can’t load Shopify

Shopify runs a handy little site called Shopify Status. It will tell us if it’s having any issues with the different sections in its system. For example, the admin login, check or storefront. 99.9% of the time it looks like this…

Green ticks in every area. Good times.

However, when they have an issue like they did on Wednesday 12th Jan 2022 it can look like this…

Bad times!

This means Shopify is having an issue, and more importantly, know about it. In the above example, Shopify store owners couldn’t log in to the backend to process orders and make changes, customers couldn’t check out and their in-store point of sale/tills weren’t working!

This was a pretty big outage and lasted about 2 hours. It was a global outage, but sometimes they can be localised to specific countries like Australia. It just depends on what has gone wrong.

What to do if Shopify Status is showing issues?

Basically nothing.

If there is an issue showing on the Shopify Status page there are 100 people at Shopify running around trying to fix it. There is no point in trying to contact them. They know and are trying to fix it as quickly as they can.

I make a note in Google Analytics using annotations so when I look back on the month and see a dip in sales I can remember what might of caused it. If it last more then 20 minutes I’ll turn off any ads on running on Google or Facebook for example and make sure if I’m sending out an email campaign it’s delayed until it’s back up.

Then I like to make coffee and put my feet up. There is nothing I can do so might as well take a well-deserved break!

What to do next if Shopify Status isn’t showing issues?

You might be one of the first few people to see the issue if it isn’t showing on Shopify Status. However, that is pretty unlikely. I normally just wait 10 minutes and Shopify Status shows the issues.

It sounds obvious, but if you’re in a rush check your internet connection is working. Googling anything will confirm this. Also, try a different device like your mobile or a laptop.

If all that is working you need to identify exactly what isn’t working with Shopify.

Can you…

  • Login to the backend/admin of Shopify? If you can that’s a good sign.
  • Complete a purchase on your store? If not it’s a checkout issue (or you maxed your card out buying something late night on ebay!)
  • Load product and collection pages? If not it could be a change made to the site via the theme.

With the exception of not being able to log in, which is unlikely if the Shopify Status is ok, you’ll need to contact the person or team who make changes to the Shopify theme aka how it looks. This is normally your web developer or someone technical. There is a good chance they’ve made a recent change that is affecting the way the site displays.

What causes Shopify outages?

The internet is a pretty complex beast made up of lots of different elements. To simplify it you can think of a ecommerce website having 3 main parts.

  1. Domain name (www.mybonzashop.com.au)
  2. The code that does all the clever stuff
  3. The server where the code lives

Shopify could be down because of any or a combination of these 3 things breaking.

For example, a domain name is like a phone number. When you type it into your browser it “calls” a server to ask for the code. If the internet has lost the details of where to route your call (the geeky term is DNS) your browser/computer can’t find the server where your code lives and the site won’t load.

Or some code on one Shopify server that has been updated chucks a hissy (technical term) and causes part of a site not to work.

Shopify also uses Google Cloud hosting to host sites. So if Google Cloud hosting has an issue then it can have a knock-on effect on Shopify and more unfortunately your store.

How often does Shopify go down?

It’s rare. It might happen a few times a year and is often only for an hour or two. There have been cases where it’s been longer but after working for a web hosting company I can guarantee you Shopify is down for less time than if you host a website yourself!

Best Ecommerce Books for Aussie Stores

There is no shortage of tips, tricks and hacks for eCommerce. In my humble experience (which started in 2003), they tend to be what’s popular and often regurgitated in various forms making them seem common practice.

They attract lots of likes, comments and shares, but rarely move the needle or offer long term value. The best source of insights I’ve found is by trying things, talking to others who run store and eCommerce books.

Below are the best books I’ve come across that will help your Aussie eCommerce business, no matter what stage you’re at. Just starting out, up and running or growing.

They are broken down into the following categories

  1. Finance Books (aka get on top of your numbers)
  2. Marketing Books
  3. Starting an Ecommerce Business

Best way to “read” these books

I’m lucky enough to have the gift of dislexia dislyxia dyslexia (why do they make that word so hard to spell?). It means I’m great at problem-solving but find reading very difficult. When I discovered Audiobooks (Audible is my go to for audiobooks), it was a game-changer. Anytime I’m going to the office, walking or travelling I consume them like there is no tomorrow. If an audio version isn’t available I’ll put the effort into reading the book, but it just takes a lot longer for me. An example of this is Stark Naked Numbers, and I’m glad I put the effort in. It answered so many questions for me.

Ecommerce Finance Books

Stark Naked Numbers

Author: Jason Andrews

An unknown classic on making an eCommerce business profitable (a surprising often overlooked part of many eCommerce businesses, as it’s assume growing revenues means profit. Hint it doesn’t).

What you’ll learn

Ultimately how to make decisions about how to setting up and run your eCommerce business profitably. The goal of any smart business is to have more cash in the bank at the end of the month than at the start, this is called “cash flow positive”.

Many people see headlines like “XYZ business worth $100m” and aim for that. The reality is, some Venture Capital businesses invested $10m for 10% of the business, which values it at $100m, even though they are losing money hand over fist and have very little chance of being profitable.

Reading Stark Knaked Numbers will help you avoid building or running an unprofitable business.

I’ve been lucky enough to work directly with the author Jason, and I can tell you he is the real deal. It’s the reason companies like Xero and Shopify ask him to write guides for their customers.

Stark Naked Numbers Book

Profit First

Author: Mike Michalowicz

When I asked a very financially savvy friend how I could learn how to use my accountancy software (Xero by the way, total no brainer) so I could know at any one time how much tax I owed and what free cash I had, they said, just read Profit First. It will tell you everything you need to know!

What you’ll learn

Fundamentally it’s a budgeting book that will help you work out for every AUD$100 in revenue you take, what percentage should go to a separate profit account (profit comes first, see what the author did there), to operating expenses, paying you, taxes and anything else you need. You can then log in to your bank at any time and see how much money you have for specific parts of your business.

I describe this book at the Barefoot Investor for businesses. If you haven’t read the Barefoot investor and are live in Australia, where have you been, it’s a game-changer?

A word of warning about Profit First. The first half is very much selling the idea and getting you hyped up about it. Let’s call this the American infomercial approach (Thigh Master anyone?). It could easily be much shorter and is just a word of warning. It wouldn’t have made this list if it wasn’t worth reading.

Like a few books on this list it isn’t written specifically for eCommerce businesses, but can be easily applied. There is a variation that has been written by another author called “Profit First for Ecommerce Sellers“. I haven’t read it yet (haven’t been able to find an audio book version), but if you need more specific details on how to apply the principles to your eCommerce business I’d start here.

Ecommerce Marketing Books

All Marketers Are Liars

Author: Seth Godin

Another underrated classic on marketing for small businesses.

What you’ll learn

How to build marketing into your eCommerce business so others do it for you.

Every now and again a book comes along that changes the way I see the world. This is one of them. Even though Seth Godin is well known in marketing circles for his other books, like Purple Cow, All Marketers Are Liars isn’t that well known. It explains how small businesses can beat big companies appealing to niches and becoming a storyteller about your brand instead of just talking about the product (which is what most eCommerce businesses do).

This approach results in your customers talking about you to others, which is free marketing and will help reduce your online advertising costs, which is a significant cost for any eCommerce business.

Even though it’s not specifically written for eCommerce, it’s my most recommended book, because if you read it with your eCommerce business in mind you’ll be able to apply the principles to your business.

All Marketers Are Liars

Build A Story Brand

Author: Donal Miller

A step by step guide to REALLY branding your eCommerce business

What you’ll learn

Your one sustainable competitive advantage in Ecommerce is your brand (that is how people feel about your business, not your logo and colours used). Although this book is clearly a lead generating tool for the authors, the fundamentals laid out will help you build an eCommerce brand that will weather the storm of increased competition.

The beauty of this book is it has very clear steps to follow which will define your own brand. Brand is such a hard thing to really understand as it’s a pretty woolly subject, but once you master it you’ll be ahead of 99% of your competition.

Starting an Ecommerce Business Books

12 Months to $1 Million

Author: Ryan Daniel Moran

Ignore the cheesy title, this book is about building great long term eCommerce businesses.

Titles like this usually have me running for the hills. However, I saw Moiz Ali (founder of Native Deodorant) recommend this on Twitter. Took a chance on listening to it and am glad I did.

What you’ll learn

Doing well in eCommerce isn’t about clever marketing or the ultimate Facebook Ad account structure. The common thread in all successful eCommerce businesses is a great product. This book clearly lays out how to identify these products and make the most out of them.

If you’re at the stage of running an eCommerce business and no matter what you do with your advertising you can’t make a profit, it’s time to read this book.

The 4-Hour Work Week

Author: Tim Ferriss

Not what you’re thinking, but a very practical guide to getting stuff done and not just copying everyone else.

What you’ll learn

Even writing this book title still makes me cringe a little. The idea of working very little, becoming rich etc. doesn’t sit well with me. However it was recommended to me by multiple people, and several times by one person I really trust who runs a very successful eCommerce agency. So as with a few books on this list, I’m glad I looked past the title. Personally, I’m not fussed about working less, but the tips on productivity and not just following the crowd have always stuck with me.

It will explain the fundamentals about getting any small business up and running (eCommerce or not), and although it was originally published in 2007, making specific tips like which services to use outdated, the principles remain the same.

  • Select a product that has a high average order value so you can afford to advertise it and still make a profit
  • Make the business setup simple
  • Not everyone is your customer
  • It’s what you do, not how long you do it for (80 hour weeks) that counts

Available EVERYWHERE!

Company Of One

Author: Paul Jarvis

Why being small is the new advantage in business

Unlike All Marketers Are Liars book (included in this list) this book didn’t change the way I saw the world, it did confirm that you don’t have to be a massive organisation to be successful.

What you’ll learn

This isn’t a work on your own book, but questions being big for the sake of being big. It’s now possible to have the mentality of a company of one and be very profitable and not stressed.

One business I consult with decided to keep their eCommerce business a small family run team and have paid off their mortgage. They were thinking of going for massive growth and having big teams. Unless you’ve managed a team of 60+ people (I have and don’t recommend it) it’s hard to convey the challenges and it doesn’t mean a better business.

In Company Of One you’ll learn about lots of small “Company Of One” mindset owners who have done really well leverage modern technology.

A must-read if you think you have to be big to do well in eCommerce.

Company Of One Book

How to get the most out of these eCommerce books

If you’ve got this far into the article you’ve clearly serious about improving your Aussie based eCom businesses. But don’t fall into the trap of thinking if you read every book on a subject you’ve got it made. What counts is what you implement. You’re better to read one and implement 5 changes to what you’re doing than read them all and not change anything.

The marketing channel with the highest return is…

Email marketing.

It gets the highest return (amount back compared to how much you spend) because the cost is low, and if used correctly, generate a lot of sales.

For example, this food store we work with. Each of the big sales peaks is an email going out to 3,500 previous customers.

How?

The example above is from sending 3 simple emails, 1 a week, with messaging about new products in high demand being available.

The 2nd email (biggest peak) had a 20% off a specific product they were over stocked in. Note the promo was to clear a product with too much stock, not just a blanket 20% off (that just kills your profit).

What not todo

The above examples were send to customers who had showed some type of interest. Basically don’t email everyone on your list. That will see your open rates drop and subsequently sales.

If you’re new to email marketing, it’s time to start reading up on it and investing your time and energy in it. You won’t be disappointed!

The little known feature in Google Analytics that can help when eCommerce conversion rates drop

Oh eCommerce conversion rate, you fickle beast. Why have you suddenly dropped?!?!?!?

Identifying why your eCommerce conversion rate has tanked is never easy, and to be frank almost impossible to pick exactly why.

There is one approach that I’ve only ever seen really smart eCommerce stores do, and it can be a life saver. It’s a little known feature in Google Analytics. It’s called “Annotaions”.

Google Analytics annotations allow you to leave a note about a changed made on a specific day in Google Analytics. You can look back and see what went wrong.

For example, if you changed the layout of your site on Tuesday the 18th of October, you can leave a note in GA. Then look at a conversion rate report and match up your annoation to around the date that conversions drop.

In GA go to Acquisition > All Traffic >(Any report, i.e. Source/Medium) Then pick a date range you want to add an annotation to > Then click the tiny little down arrow in the middle of your screen (Told you it was hidden)

It will reveal “+Create new annotation”

Pick the date you made a change and add in a detailed note.

Learn a new discipline

You’re going to have to get in the habit of keeping this updated, everytime you make a change to your eCommerce store. Then you can look back when your conversion rate drops and get better insight into why it may of dropped.

Tomorrow you will thank you.

Warning eCommerce conversion rate issue are very hard to diagnose, for more info on averages and other ways to fix it read this.

Expanding eCommerce product range? Think customers, not products

Don’t make the fatal mistake of focusing on the products you sell instead of who you sell them to.

You’ll end up stuck with a loads of stock you can’t sell instead of cash in the bank.

Devo

Ecommerce is associated with selling products, like Akubra hats. That makes it easy to focus on the product not the customer. Think about Bruce who wants to keep the sun off his head, flies our of his eyes and pull off that classic Aussie look.

Existing customers are easier to sell to (mainly via email marketing, which you’re doing right? course you are, you ain’t a total drongo.)

When expanding your product range, think what the customers you have want, not what is easy to make, buy or import.

For example, if you sell high end dinning room tables, it’s easy to want to expand the range to low end tables because the thinking is…

“We’re known for tables”

Actually…

“You’re known for high end tables”

Your existing customers, who are easier to sell to, expect high end products from you, not a competitor to a $10 Ikea table!

The next obvious product expansion would be high end chairs.

However you expand the product range, your existing customers should think “Oh, that makes sense”, not “What is this all about!”

And for gods sake, don’t try and be everything to everyone.

You’ll end up meaning not a lot to a few people.

How to find your eCommerce competitors’ bestsellers

There is a catch though.

They need to be on Shopify.

Just copy and paste this into your browser…

https://www.competitorswebsite.com.au/collections/all?sort_by=best-selling

And replace “www.competitorswebsite.com.au” with, you guessed it, your competitors domain name (aka home page)

Boom! List of your competitors best sellers.

How do I know if my competitor is using Shopify?

Great question.

Go to a product collection page on their website. A collection page is where a group of products is listed, normally in a grid fashion. For example on a fashion website, the T Shirt page is often a collection page (but not always).

Once on that page, look at the address bar in the browser. In the URL it will have /collections/ (which looks like this)

If you see that, then it’s a Shopify site.

Also most the time they leave “Powered by Shopify” in the footer!

Does this work on every Shopify store?

Unfortunately not. The bigger the store the less likely it is to work. The web developer will have locked down this page. For example, it doesn’t work on Allbirds website, which is a well known Shopify store.

Also if the store is using Shopify for the checkout, but another software like WordPress for the product pages (the geeks call that “headless”), then it won’t work either.

However it does tend to work on lots of smaller stores.

How can I find other eCommerce best sellers?

If the above hack doesn’t work for you, there are other ways to find out what customers in Australia want. I’ve written about how to find the best selling brands and products in Australia.