It seems that right now is the best time for making money online. According to Statista.com, retail e-commerce sales worldwide amounted to 1.86 trillion US dollars during 2016 and online retail revenues are projected to grow to 4.48 trillion US dollars in 2021.
Ashwin Ramasamy writing for PipeCandy estimates that there are between two and three million eCommerce websites, excluding websites from China, on the web. So, if you do the calculation, taking the numbers of 2016, the average annual revenue per eCommerce website could be around 740,000 US dollars.
And with an online retail revenue of 4.48 trillion US dollars projected for 2021, there seems to be a lot of spare capacity to take up. Is making money online that easy? Not really…
“eCommerce has about an 80% failure rate. Other researchers claim it’s as high as 97%. One of the reasons the failure rate is so high is because an eCommerce business can be easy to set up, for a small amount of money. Creating a store front is easy. Making it successful, on the other hand, not so much”, says Dianna Labriem in Tech.co.
So, the Trillions of US dollar revenue generated each year by online retailers is shared by a handful of eCommerce websites.
Making money online the hard way
From the moment that you’ve activated your ecommerce website, you need already to know what value you’re offering your customers. In other words, what is your competitive advantage in the online market you’re targeting?
A sustainable competitive advantage may be defined as ‘the ability to deliver superior value to the market for a protracted period of time’ 1. Here, superior value refers to the fact that the consumers of a product or service must be convinced that they are getting something of value for their money. The value proposal for Bricks and Clicks retailers was previously discussed in this blog.
The hard way of making money online starts with analyzing your online market.
Analyzing your online marketplace
To make money successfully online, you need to know everything about your market. Your market consist of your customers, suppliers and intermediaries and your competitors.
Analyzing your customers:
- Who are your biggest customers?
- Who are the most profitable?
- Where can you find your customers online?
- Do your customers have any unmet needs?
- What are the benefits they seek from your products?
- And what price are they willing to pay for your products?
Analyse your intermediaries:
Intermediaries have captured a significant proportion of the profits available in the online retail market 2. Therefore, their impact on your business’s marketing mix should be analysed.
- The place (delivery) – most online retailers are dependent on logistic service providers to do the ‘last mile of delivery’ to their customers. Retailers should analyse the different service providers and choose one that is the most reliable at the best price;
- Your product – only source products of the highest quality at reasonable prices from reliable suppliers;
- Your promotion – which marketing intermediary will deliver your marketing messages the best? Google’s AdWords or social networks such as Facebook or Twitter?
- The price that intermediaries charge – analyse the offerings and choose those who deliver the best service at reasonable prices.
Analyse your competitors:
You need to find out how to satisfy customers better than the competition. By doing a competitor analysis you may begin to understand the level of competition that exists in your target market and it will help you to make the right pricing decisions.
The strategies and actions of your competitors may well determine if you will be making money online:
- Who are our present and potential competitors?
- What are the positions that they have established in the market?
- Know their strategic objectives and thrusts?
- What are their present and future strategies?
- What are their strengths and weaknesses?
The next step to do to get your online business on its way, is incorporating all the data you’ve generated with your analysis into a strategic plan.
A strategic plan to make money online
By now you should know who your customers are; who the intermediaries are that you’re going to use; and whom you’ll be competing against. Now you should develop a competitive strategy.
The competitive strategies available for online retailers to obtain and maintain a sustainable competitive advantage are 1:
- The differentiation strategy – value is added to the product or service through differentiation to make it different from competitors’ products and services.
- The low-cost strategy or overall cost leadership – this implies that an organisation will supply a product or service more cost-effectively than competitors.
- The focus strategy – here you can focus on a special product/market niche that you may later monopolise.
- The pre-emptive move or first-mover advantage – this strategy can be pursued by an online retailer who takes a calculated risk by being the first to enter a market with a new product or service.
- Synergy – this means that all the components of an organisation are working together and so creating a sustainable competitive advantage. For example a physical retailer that adds the online channel to its business.
It takes a lot of effort to make money online
Mostly, money doesn’t just start flowing in because you have an eCommerce website. You may need to spend many hours a day to monitor the happenings on your, (and your competitor’s) website. Therefore you need to follow the trends in your market, negotiate with intermediaries and confront your competitors. You definitely need to create quality content for your website and also get a presence on social media networks.
Furthermore, you should manage the finance of your business and identify the risks of the business. Your online customers demand a 24/7 service – and that is what you need to deliver. For your customers, the alternative is a click away…
Although the internet offers us billions of potential customers, anywhere at any time, it will take some time for your online business to show substantial profits. That is especially true for small retailers with a limited marketing budget…
However, if you do the right thing and do that right, with lots of patience and belief, you’re online business may be part of the 3% that make money online.
Lastly, a well researched and written Business Plan helps to get your business started the right way.
1 Du Plessis, P.J., Jooste, C.J. and Strydom, J.W. 2001. Applied strategic marketing, Heinemann.
2 Laseter, T.M. and Rabinovich, E. 2011. Internet retail operations: integrating theory and practice for managers, CRC Press.