Welcome to the third episode of the podcast. I'm your host, Scott Austin.
I want to open with an alarming statistic, and that is that 80% of all eCommerce businesses fail and many of them fail very quickly. That means that four out of five people listening to this podcast will not meet their business goals. Now, the good news is that if you're listening to this podcast and other resources on how to make your business grow, you're more likely to be in the one in five that is successful.
Now, there is no one reason that all these businesses fail, but one of the common themes that I see in failed or failing businesses is an incomplete understanding of how the business should work. So in this episode, I'm going to present a way to break your eCommerce business down into logical pieces. This will give you a structure to evaluate and focus on your business one piece at a time so that you can evaluate what is working well and what needs improvement.
So in today's discussion, we'll use these four areas of an eCommerce business:
So let's dig into each one of these buckets.
First and foremost is value exchange. That exchange is synonymous usually with product or service. Whatever the product is that you're selling. Without something to sell, your business is going nowhere. You must have something, whether it's a physical product, a service, or an information product that potential customers will want to pay you for.
One of the things that distinguishes successful stores is that their value exchange stands out from others. Something about their product is differentiated from all the other choices out there. That differentiation can take different forms including these.
So my advice to you is to think long and hard about what your differentiator is. And here's where I see a big area that store owners are not being honest with themselves. Ask yourself, what is different about your products and your business. And is it different enough to make a difference in your target customer's eyes? And this is because you need a differentiator to stand out amongst all the other marketing messages that customers receive every day.
Now, another key aspect to the value exchange is that customers need to be willing to pay for your product with enough margin and volume for you to be profitable.
For example, let's say you come up with a unique product, but if the COGs for manufacturing are too high, that your price puts it out of the reach of your potential customers, that will be an issue. As an example, let's say that you have a broom that is three times as effective at sweeping than the average broom. And let's say that the average broom costs $20. But your awesome broom costs $30 to manufacture, which means you'll probably need to retail it for $60. So your broom is three times more effective, but also costs three times as much. That's a cost increase that very few people would be willing to pay, even if there is a performance improvement.
And here's an example on the volume side. Let's say that you create a unique product for left-handed lacrosse players. Well, there are approximately 700,000 lacrosse players in the United States and 10% of the population is left-handed. So your total addressable audience is only 70,000 people. This potential customer size may not be large enough to build a sustainable business from.
So let's move on to the next bucket to think about for eCommerce business. And that is Customer Acquisition. I have seen that customer acquisition, or lack of acquiring customers actually, is the biggest contributor to failing eCommerce businesses. Now I'll spend a lot of time in future podcasts going into detail on each customer acquisition channel. So here I'm only going to list some high-level customer acquisition principles.
The first principle is that every successful store is going to have a multi-channel approach. Multi-channel means getting customer traffic from more than one source. And most successful stores get their traffic from several sources. And here are some of the common customer acquisition channels:
Now the second customer acquisition principle is that paid channels are important to most successful stores. Many new or aspiring store owners think that the free channels. And I put free in air quotes as I say that as these channels take a lot of effort so they're not really free. So many of the new or aspiring store owners think that the free channels, like SEO and social, will be enough to build and grow their business. And while success stories of businesses getting to seven-digit revenue through free channels do exist, they are the exception, not the rule.
Let me illustrate with a math example. Let's say that you already have 50,000 Instagram followers, which is an impressive number. Let's do some napkin math on how many sales that can generate. Let's say that 30% of your followers are actually real accounts and are actively engaged in following you. That's around 17,000 people. And let's say that you're very successful in getting those followers to visit your eCommerce site and you get 10% of them to your store. That's 1700 visitors to your store. And let's say that you have a really good conversion of these people at 5%. That's 85 sales. So your 50,000 followers ends up turning into 85 sales, and that's pretty optimistic numbers actually. That's not enough sales to support your business ongoing.
So if you do not already have great SEO rank or massive social engagement, be ready to pay for traffic through advertising channels while you build out the SEO and social channels.
And my third and last customer acquisition principle is that each and every channel is hard, very hard. Some of them may have been relatively easy in the past. But the world of eCommerce is rapidly maturing and it's getting larger every year. So it's really competitive in every one of these channels these days. There are no more easy wins and online traffic. It is a sophisticated endeavor that will require extensive knowledge and effort. Customer acquisition will consume a large chunk of most eCommerce businesses' attention.
Now, the third bucket for your eCommerce business is your conversion funnel. Now I use the term conversion funnel where many people call it a store or a website. My reason for this is to put the appropriate focus on the purpose of your website and that is to convert traffic into sales. For most of the listeners of this podcast, their main conversion funnel is their Shopify site. But stores can have more than one funnel with other sales channels like Amazon, Etsy, retail partners, and more.
And I believe that building out your conversion funnel is actually the easiest of the four buckets discussed here. There are many tools, like Shopify, and people, like Shopify Experts, that can help you build your website into an effective conversion funnel. Yet, I've seen many store owners that focus the most energy in this area only to neglect other important buckets like customer acquisition.
So let's go back to the purpose of your conversion funnel and that is to convert traffic to sales. With that goal in mind, here's one way to think about your website design. The design of the site should focus on the customer's decision-making process for your products. The common misstep is that stores focus good effort on describing the products and telling the story of the brand and mission, but don't apply that same effort in guiding the customer through the decision-making process of finding the right product for them.
Let me illustrate how to design for the decision making process. Let's say you sell gifts. And for this example, I won't be any more specific than gifts. To design your website, you need to understand how people are making decisions when shopping for your products. For example, here are three top-level decisions that customers could be making:
And any one of these, or maybe even more than one of these, could be the right solution for your customers and your products. The key is to know which ones are the right ones for your shopping situation. And that involves getting inside your customer's thought process through interviews, looking at stats, doing surveys, all those techniques.
And this conversion funnel can take many steps in a complex purchase decision. Take an engagement ring as an example. Some of the decisions that the purchaser has to make include, and this assumes they've already decided on a traditional diamond. The decisions they have to make include:
This is obviously a complex decision-making process. And a successful engagement ring store is going to walk the customer through the process in a way that makes it easier for the customer to get the product that they want to add to the cart and purchase. Here are some design guidelines when creating your conversion funnel.
First, let the customer make one decision at a time. That makes the decisions easier to make and keeps the customer moving forward. For example, with shoes, the decision steps could be:
Breaking the decisions down into small steps. Make something complex easier for your customers, therefore improving your conversion rate.
Second, the ordering of the decisions can be important. Start with the easy ones first. For example, if you are selling aftermarket products for cars, an obvious place to start the process is to have the customer pick the make, model, and year of their car because these are known things that the customer is going to be easily able to answer.
Third control the number of options. It's hard for people to compare too many options at one time. So you may choose to reduce complexity to make it easier for your customers. Let's look at color as an example. At the top level, I frequently simplify color choices to red, orange, green, blue, purple, brown, black, white and gray. That's still nine different choices, but much fewer than if a list included all possible shades of color. So at the top level a customer may choose green. Then at the next level, the shade options would be chartreuse, mint, lime, olive, shamrock, jade and other shades of green. Breaking up decisions into logical steps helps the customer make more confident decisions.
Fourth. Use the browse navigation as a decision-making tool. Collections and collection filters are a great way to have customers make decisions and reduce the number of products that they are considering. The flip side of this is that product pages that have many decisions, through variants or product options, that the customer has to make will have lower conversion if the customer finds the decision-making process too difficult or confusing.
Fifth and last. Respect the decisions the customer has made. Our goal of a customer being on a product page is that they add that item to the cart. And if you have a well-designed conversion funnel, someone who gets to the product page should be a qualified customer for that product. They didn't end up there by accident. So respect the customer and their decisions and reduce the noise on that page that is not part of the decision making process for that product. For example, don't add elements like 'You Might Also Like' or Your Viewed History' on the product page. While there are stores and shopping experiences where those elements are useful, most of the time they are not appropriate for the product page. Save them for the cart or post-purchase emails.
And now onto the last of our four buckets, the post-purchase experience. Your work is not over when the purchase is made. You need to fulfill the product, support the customer, and deal with any post-purchase issues. Doing this well is important to keeping your customers happy. Doing this poorly will quickly erode your brand. In today's highly connected world, the news of poor service and customer dissatisfaction spreads quickly. And this is one of those times where one bad experience can counter the impact of a hundred good experiences that you provide to your customers. So for me, it's a given that a store's fulfillment of the product has to be quick and that shipping communication must be clear and frequent. Here are some other post-purchase tasks that you'll need to determine how you will handle:
And most of you have probably already experienced your share of customer support nightmares. Customers that seem unjustifiably angry or those that have unrealistic expectations. To proactively counter these situations, you should have a process for support and clearly communicate your policies. Many customer complaints can be diffused when the store can point to their clearly displayed policies. Another helpful tactic is to make support more person-to-person. Instead of customer support coming from an anonymous team, have it come from, or appear to come from, a person. Use that customer's name and have the customer support team use their name also.
So those are the four buckets that help me think about an eCommerce business. And here's a high-level summary of what we discussed about them.
Thanks for listening to this episode.