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.

Is your eCommerce store too reliant on one source of visitors?

Oooooooh that wrappt feeling when you work out how to make sales from one marketing channel, like Insta, Google or Facey Ads.

You’ve found the magic formula and keep cranking it up, and more sales keep coming in.

BUT, what if you weren’t able to use that advertising anymore?

It happens ALL the time and you should be prepared for it.

It’s common for Facebook and Instagram accounts to get disabled by Facebook for literally no reason (Sometimes because the onions are to sexy).

Google regularly updates it’s organic ranking (SEO stuff) algorithm, which can cause big drops in your rankings and subsequent visitors.

Now imagine if your main source of visitors gets cut off suddenly.

Bad times.

Why diversify where your visitors come from?

If the worse does happen, then you need to have a backup, while you fix the issue.

At some point your eCommerce store will experience an issue that will stop some visitors coming to your site.

That means, your sales are very likely to drop off. Therefore you need to make sure you’re getting visitors from multiple marketing channels.

Ideally you want a mix of the following sources of visitors

  • Google Ads
  • Facey/Insta Ads
  • Google Organic (SEO)
  • Email Marketing
  • Industry specific channel (Award sites etc)
  • Affiliates

The percentage is different for each business and there is no magic formula.

However if your traffic is diversified then your eCommerce store will be more resilient to when an issue does arise (because an issue will happen at some point).

I’ve seen to many good eCommerce business go under by relying too heavily on one source of visitors. Don’t be one of those!

See ALL your competitors Facy & Insta ads

It’s possible to see exactly what ads your competitors are running on Facey & Insta, not just what they are targeting you with (because lets face it you have a good look at their site, for “inspiration”.

On top of that you can see which countries they are advertising in too.

Thanks to Facebook “Ad Library” all you have to do is type in your competitors name and boom there they are.

Go to Facebook Ad Library

Boom!

Red hot tip, make sure you select “Search All” not just “Issues, Elections and Politics”, which it currently defaults to at the time of writing (Oct 2020).

Can you buy an existing eCommerce business?

Yes!

I’m not talking about just an eCommerce website, but a trading business.

It’s by far the quickest way to get up and running if you don’t have a site or want to expand your business.

Setting up a new eCommerce business is risky. Finding a product, buying stock (don’t get me started on what a farse drop shipping is), setting up a website and finding customers.

You can reduce the risk by buying an existing eCommerce business.

Where do you buy existing eCommerce businesses?

The two main sites are…

1) Exchange by Shopify

Exchange is Shopify’s official marketplace for buying and selling Shopify stores.

The main advantage is all the visitors and revenue is verified by Shopify, meaning you have less chance of some drongo scamming you.

2) Flippa

A marketplace for all types of eCommerce (and none eCommerce) websites.

The advantage is there is greater access to more eCommerce businesses, but all results (sales etc) aren’t verified.

Should I offer Afterpay on my eCommerce store?

It’s all over the place, every site seems to offer Afterpay and us Aussies love using it.

However, there is a catch, a big catch.

Afterpay customers don’t pay interest (just late fees).

That means us, the eCommerce business, has to pay (Afterpay isn’t doing this out of the goodness of their heart!)

The fee varies, but it’s normally around 6% of the transaction.

Now 6% doesn’t seem massive. But that is 6% directly off your profit.

If your site is turning over $1,000,000AUD and your Net Profit (money left over after everything is paid for, but you still have to pay tax) is $150,000, then you add Afterpay, take 6% off that $150,000 profit to use Afterpay, which is $9,000.

That is $9,000 straight out of your pocket.

You can by a half decent car for $9,000!

You’d have to see a pretty good lift in sales to offset that cost.

When to use Afterpay

If your customers are very price sensitive, say looking for discount furniture, and money is tight, it makes sense to use Afterpay. It will most likely lift sales and justify the cost.

When not to use Afterpay

If you sell items at a low price, say $20 slaps.

Firstly it would look weird saying “4 easy payments of $5”.

Secondly if your products are all sub $30 then it’s likely your Gross Margins are low and taking 6% off that will smash your profit, leaving you feeling devo!

If you sell high end products.

Selling high end handbags for $1,000? Most people who can afford these won’t only buy from you if you have Afterpay. They might use it, but you’re giving away 6% of the profit on that transaction.

But all my competitors use it!

At the risk of sounding like your Mum…

“Just because everyone else is doing it, doesn’t mean you should”.

If you have a good justification to use Afterpay, then do.

Just be aware of the cost to you.

Find out WHEN your eCommerce site goes down

It happens, no website is up 100% of the time, even if we’d like it to be!

However, you want to know if your website goes walk about and somebody is on the case.

Want a free tool that will email an alert when it happens?

I use Uptime Robot and love it.

It’s especially useful for WooCommerce websites that need hosting (a server where your website lives).

If you’re using Shopify, there isn’t a need, because they look after the hosting and will know when it goes down.

If it does go down, you can be rest assured there are hundreds of techies in Canada (where Shopify is based) have dropped their hockey sticks and are sorting it as quickly as possible.

Is eCommerce profitable in Australia?

Oath!

(For the non Aussies, yes.)

However, as with any business it depends how you run it.

Remember an eCommerce store isn’t just a website. Your business needs to be set up in a way that allows you to make a profit.

(You know taking more money than it costs to sell stuff)

What profit margins can you make?

The term profit gets thrown around a lot. It has many different meanings, and can be before or after taxes and include other costs etc.

So lets define what profit is for an Australian based eCommerce business.

Our geeky accountant friends call it “Net Profit”. That is the money left after everything is paid for except for income or corporation tax.

I say income or corporation tax, because this depends on your businesses setup (sole trader, limited company, partnership etc).

Just to hammer home the point, Net Profit is profit left on paper (not cash in the bank, which is different) after all expenses are paid for.

In an eCommerce business, the main expenses are…

  • Paying for the product (Cost of Goods Sold COGS)
  • Getting the product to your warehouse
  • Advertising
  • Website fees
  • Staff
  • Delivery
  • Office/warehouse rent
  • Accountants and other “professional” fees

To name a few, but there are others, depending on your business.

Yeah, yeah, yeah we get it, what percentage can you make?

I’ve seen good eCommerce businesses consistently make a net profit of between 5% – 25% (And lots of badly run ones lose money).

For example, if the eCommerce business sells $1,000,000 AUD a year (It’s always AUD because Boom Ecommerce is about helping Aussie eCommerce businesses), then they are making a Net Profit of between $50,000 and $300,000 a year.

The (Net) Profit margin depends on your eCommerce setup.

Successful eCommerce businesses with high volume sales often make lower margins. For example, Amazon is all about growth and its net profit margin in 2019 was 3.6%.

But lets face it most people reading this aren’t Amazon (If you’re reading this, Hi Jeff).

Lower volume business can achieve high profit margins, this is where you see the 15% + profit margin businesses.

More on those types of businesses later in the post.

Ecommerce business types

Not all eCommerce business are the same. The profit and longevity of them often depends on the business model.

What is the point of making 40% profit margin for 2 months, when you can make 25% for 5 years!

If you’re all about the get rich quick scheme dream, you might as well stop reading now. We’re dealing with reality here, not Insta ads selling you the dream of a no work lots of cash business.

With that out of the way, lets look at some different eCommerce business models and the profit they can make.

Dropshipping – Bad

It sounds simple, all you do is find a product someone else has made (normally on Alibaba). Set up a website, run some ads, cross your fingers and hope you sell loads.

You’re aiming at high volume sales (if it’s high margin, everyone and their dog copies you. Then you end up competing on price which ends up in a race to the bottom on price).

If you’re lucky, after all your costs (mainly advertising) there is some money left. In most cases not because you’re dealing with 1%-9% profit margins.

Then you’ll have to deal with all the angry customers who have been waiting a month or more for the product they fell in love with on Insta because dropshipping delivery times are REALLY slow.

You may be sensing I’m not a fan of this type of eCommerce business? You’d be right, it’s not a sustainable business model, it’s get a rich quick scheme that works for less than 1% of people.

That in my humble opinion isn’t a business.

Great article here by Wired UK from a drop shipper on the reality of it.

Reselling – Better

You buy products from brands and resell it. For example, Footlocker is a reseller (mainly). They buy Nike and sell them.

The amount they make from each sale is less because Nike has to make a profit too. Foot Locker doesn’t have to to pay for all the advertising, Nike does that and creates the demand.

Although this eCommerce business model is vastly better than drop shipping and very common, you’re competing with other eCommerce businesses that sell the same product.

The challenge here is eCommerce businesses often resort to discounting to sell, which reduces your profit margins and profits.

Add to that, it’s easy for the product manufacturers to sell direct. Nike announced in Aug 2020 it was starting to shut down wholesale accounts. This shows a clear intention to cut out the resellers.

Not ideal, but all being well you can get 10% – 15% net profit margins.

$1,000,000 in sales $150,000 profit on top of what you have paid yourself (depending how you structure your business, there is always a “depends” with accounting!)

Direct To Consumer (DTC aka making and selling directly) – Best

Get it made, sell it directly online.

An example of this is All Birds. If you haven’t heard of them they make stylish, comfy and environmentally friendly shoes.

Then sell them gloably through their site.

Because they cut out the middle men, manufacturing brands (i.e. a Nike) and the retailer (i.e. a Foot Locker) they get their product for cheaper and control the price (very few other sell them, so less competing on price).

They do have to deal with the manufacturing, but that has become much easier these days.

These Direct To Consumer brands, if run well and aren’t spending everything on growing, can get sustainable profit margins of 15% – 25%.

Another poster child DTC eCommerce business is Gym Shark, which is a well built profitable business.

If you want to know more about Gym Shark there is a great review by Jason Andrews from SBO (Specialist eCommerce accountant in Brisbane).

Hello to you Direct To Consumer eCommerce business model!

Why is DTC (making and selling directly) the best eCommerce business model?

In summary of above…
(You read all of the above right?)

Better more sustainable Gross Margins which allow you to pay your other bills like staff rent and marketing and still have money left for profit.

Is Australia a good place to run an eCommerce business?

Yes, but it does have some challenges compared to other English speaking countries.

On the plus side

  • Less competition
    The population of Australian in 2020 is 26 million, which is significantly less than other English speaking countries, so the basic economics means there is less competition, lowering advertising costs and choice of products for customers.
  • Less savvy competitors compared to the US and UK
    When I first arrived in Australia in 2011 I was amazed at how little eCommerce activity was happening, especially from big retailers.

    Things have changed since then, but the competition here in Australia generally isn’t as savvy (don’t take that as slur, I love being an Aussie citizen). This means you can take inspiration from overseas and be one of the first people to do it here.

On the negative side

  • Population is smaller
    The pool of people we get to sell to is smaller, so if you just sell in Australia your growth will be limited. Not a bad thing but if you have a low margin product that you need to sell high volume of, you’ll need to expand overseas.
  • Delivery is difficult
    S’traya, she is a big old place. In fact, it’s roughly the size of Europe. This makes it difficult to delivery quickly and cheaply, which is key for eCommerce success.
  • Less people shop online
    The COVID pandemic in 2020 has changed this, but the percentage of online shoppers in Australia is still behind the UK and US.

Do I need a big eCommerce business to be profitable?

To the contrary, big eCommerce business can be very unprofitable.

Large eCommerce businesses have this strange fascination with growing really quickly (I think they get jealous of software businesses that can scale quickly).

To grow quickly they spend a lot on advertising which often means they lose money.

They justify this with saying we’re worth $X.XXX,XXX because someone bought 10% of our business that is losing money for $XXX,XXX.

Koala mattresses in 2018 was a very good example of that, they were losing money on revenue of $40m (AUD) See this AFR article.

How can I make sure my Aussie eCommerce business is profitable?

5 main areas you need to get right…

  1. Have a product that people want (Duh)
  2. Use the right technology for your needs (Your nephew can’t or won’t build it for free)
  3. Have a healthy gross profit margin
  4. Make sure target customers see it (promote it)
  5. Hold stock in Australia so you can deliver quickly (Customers don’t like waiting)

If you want to learn more about these 5 areas, sign up for the Boom No BS Ecommerce Tips.

Is your eCommerce reporting wrong?

Setting up tracking arrrrrrrrrrrrrrrrrrrrrrrrrrh!!!!

Achieving accurate eCommerce tracking to get reporting accurate is about as easy as getting someone from NSW to shout “QUEENSLANDER”.

Really hard, but not impossible.

Why is eCommerce tracking important?

It tells you where sales are coming from, but most importantly, if set up correctly, let’s your advertising accounts (Google, Facey etc) who bought from you so it can go find other people like them.

This gives you a better return on your adspend, a key metric to being more profitable.

Why is setting up tracking so hard?

I’ve never seen a perfect setup, there is always something that is just a bit off.

Most of the time it’s just plain wrong!

The issue is lots of different systems talking to one another, and it can break really easily.

Add on top of that, each system/company (Shopify, MailChimp, Google, Facey) all want to prove they are giving the best return.

How can I make sure my tracking is correct?

Smart question, glad you asked.

You could spend many months learning how to do it. For example there is a brilliant course by Love Data on how.

But lets face it, you’ve got better things to do.

I used to try doing it, then I found someone who is amazing at it!

Now for every project I work on or help with I get them to do it.

If you want their details, just contact me, and I’ll pass on their details.

You’ll be glad you did.

Who you need on your eCommerce team

You can’t build a great Aussie eCommerce business without a little help.

But what type of team do you need?

Choose people who get your brand/product

Anyone who uses or has a genuine interest in your product will understand what customers want, because they are customers! This will help your eCommerce business serve customers better.

“Serving customers better” is often said, but rarely done. This will become your competitive advantage as eCommerce gets more and more competitive.

Ecommerce really clicked for me when I started working for Billabong. As a skateboarder and snowboarder, I was the target customer. This helped me apply my technical eCommerce knowledge to a brand I understood.

They can be based anywhere

Long gone are the days you could only work with people driving distance from the office. With remote working becoming the norm, you have the whole of Australia or wider to choose from.

Aren’t “Experts” expensive?

“Experts” tend to be technical experts, i.e. Facebook marketers. Too much importance is put on this.

You need experts on your customers who are good at solving problems.

They can learn Facebook marketing (plenty of good free courses out there) or good customer service.

What about overseas?

Like most things in life, it’s all how you do it.

We’ve all heard the horror stories, but it can work really well.

Need a specific technical skill like website coding and know exactly what you want? Someone overseas who is cheaper can be a good way to go.

However, you can’t expect a Philippino who has only lived in Manila to write a useful guide on where to walk a dog in Perth.

It’d be like me writing about the best dog walking locations in Russia. I’ve never been and don’t have a dog!

Do I need full time employees?

No, not for every position. You can have contractors for things like advertising, web development and quality assurance in the factories.