When talking with folks that are interested in starting an online store, the most common issue they are running into is not knowing where to start.
Trust me, I know the feeling.
I am a computer nerd and I was completely lost when I started selling products online. I can only imagine how difficult setting up an online store must be for someone with limited computer skills.
Two years ago my wife caught the bug to start her online store. As this year ends I have been looking back and thinking about how far we have come in the business. Selling over $100,000 of Baby Clothing in a year is no small feat.
While we were able to eclipse the $100,000 income mark relatively quickly, imagine how quickly we could eclipse that number if we started today with the knowledge acquired over the past two years.
The lessons we have picked up are extremely valuable and that is why I wanted to share them with you.
Below are tips I wish I would have known when starting an online store. If you are reading this take advantage of all of the mistakes I have made.
1. Laser focused market
“Jack of all trades, master of none”
No matter your budget you should start with as small of a niche as possible for your online store. Let’s pretend you are interested in selling kitchen utensils. When you are first getting started, pick just one utensil. Avoid the temptation to build out your inventory from day 1. Use your budget to buy a deeper stock of inventory.
Here is what I mean by a deeper stock of inventory. Going back to our utensil example. I would recommend ordering 500 spoons, instead of ordering 250 spoons and 250 knives. Even worse ordering 100 salad forks, 100 entree forks, 100 spoons, 100 sorbet spoons and 100 knives. I can go on forever, but I feel I have accurately gotten my point across.
I would go deeper in inventory to learn how to sell one product well before moving on and trying to sell another product well. If this is your first online store you need to learn how to market and sell one product before trying to market and sell multiple products.
We made this mistake with my wife’s store. We bootstrapped the initial inventory purchase. It is amazing how little inventory $5,000 will buy you. Not only did we buy multiple styles but we also had to buy multiple sizes of each product. We ended up with about 15 products when we initially launched. Most products had 3 or 4 size variants.
Our initial inventory was thin. For one product, we might only have 1 or 2 units per size. Sell one size and we are out of stock. Once sold out you have to hope that any potential buyers that land on your site looking for a product are looking for the sizes that you have in stock.
Running out of stock is a natural part of retailing. If the majority of your products are out of stock after 1 or 2 purchases it will be difficult to justify running pay per click ads.
You are spend money driving traffic to a product and then the size variant the shopper is looking for is out of stock. Doh! Money wasted…
To recap, laser focus the initial focus of your online store. When starting out the fewer products the better.
2. Take advantage of huge marketplaces when starting an online store
It is no secret that Amazon is taking over the world. It is estimated that 23% of all online commerce takes place on Amazon.com. That is nearly a quarter of all purchases online. Crazy right?
I am going to let you in on a little secret. Promise not to get too discouraged. Promise?
When you start your online store you are going to struggle to bring in orders. When you launch there is not going to be a flood of buyers knocking down your door to buy your products. More likely, it will be crickets.
You on your site in one browser tab and on Google Analytics in another tab. Sitting back and waiting. Waiting and following any visitors to your site as they navigate from page to page. Hoping and praying they hit the add to cart button! Only to have your soul crushed when they abandon their cart.
I know the feeling, because I have been there.
What if there was a way to get your product/s in front of hundreds of thousands of people right now? Good news, there is.
List your product on marketplaces. In exchange for getting your product in front of people who want to buy it, the marketplace will take a percentage of the sale. Typically the commission you pay will range from 15% to 25% of the purchase price.
Listing your products on marketplaces is a great way to start selling. One problem is the marketplace might eat into your already thin margins depending upon the types of products you are selling.
Recapping this tip, try out marketplaces. If you do not want to sell on Amazon, try eBay, jet or buy.com. Start moving product!
3. Consider private labeling products
I have touched on some issues with low margin products. The biggest issue is limitations when selling on marketplaces due to smaller margins. With traditional retail products you are buying at wholesale pricing from a brand and reselling at the brand’s suggest retail price.
Back to our utensils example. Let’s say you wanted to sell a particular brand’s cutlery line. You contact the brand and get their pricing for retailers. The line sheet they send you will typically include the cost to you the retailer and the minimum price you can sell the items for. Pretty straightforward.
The brand is manufacturing the items and then selling them to you. You then take the items and sell them to your customers. The brand’s profit is the margin between their manufacturing costs and the price they sell the items to you.
Your profit as the retailer is the margin between your cost of purchasing the product and how much you resell the item for.
To illustrate, let’s assume that you purchase knives from a brand for $3 each and resell them at $10 each. You are then making $7 per knife that you sell. In the same example, the brand is manufacturing the knives at a cost of $1 per knife and reselling them to retailers for $3 each. Their profit is $2 per knife.
This is an oversimplified example as there are other overhead costs to take into consideration for both the brand and the retailer.
With a private label product you are creating your own brand. You are effectively cutting the brand out of the equation. You are manufacturing your own product and in doing so you are increasing your margins and your control over your business.
Using the same cutlery example as before. In the private label scenario you are manufacturing the product yourself. Your margin then becomes the difference between the cost of manufacturing the product and the final price you set for the knife. Let’s assume that you are able to manufacture your knives for $1 per knife. If you sell that knife for $10, your profit is now $9 per knife.
A private labeling strategy also fits in well with my two previous recommendations. When venturing into private labeling your own product, laser focus is a requirement. You need to start with one product before you move on to creating and selling others.
A private label product also affords you better margins, which allows more flexibility to sell on the large marketplaces mentioned in my second recommendation.
4. Build an audience
Audience building is one of the main reasons I am writing this article right now. One of the biggest mistakes when building online businesses is not building an audience. An audience is a valuable asset.
With an audience you can quickly get feedback on your product idea. An audience provides you with a group of like-minded people that you can survey to get ideas from. When the time comes to sell a product, having an audience makes selling easier.
The best part about building an audience is that you can do it for free. That is right $0. You might have to sacrifice some time, but that is about it.
The second best part about building an audience is that you can start today. Create a twitter account, Facebook account, Instagram account, Pinterest account or start a youtube channel. Choose the social channel you feel most comfortable with. If you love Instagram, start on Instagram.
There is no best channel to build an audience. Play to your strengths.
Start following accounts that are dedicated to the products you want to sell on your store. Start posting about the products you are thinking about selling. Get creative and you can build an audience quickly with minimal effort.
You can start building an audience for free. Start today!
5. Have a goal and a plan
Do not worry, I am not talking about a business plan. At least not the type that you might have written in high school or college entrepreneurship classes. I mean “have a plan” in the broadest possible sense.
What do you want to accomplish with your online store?
Are you building the store for spending cash? Do you want to replace your current income? There is no right or wrong answer.
Having a plan helps with creating a framework for making decisions.
If you are looking to replace your current income, you are going to have to put in more time and more money as you are looking to build a larger store that is capable of generating enough income to replace your current income.
Building an online store for the purpose of having some extra spending cash is a great option. If you are building an online store for this reason you can take a more leisurely approach and will not need as large of an investment of money or time.
This is where goal setting comes into play. I am not into setting random fairy tale type goals.
I will be a millionaire! Ha. Ok. How?
I am into working backwards from a goal. For instance, I want to build an online store that replaces my current annual income of $30,000. Now we have something to work with. Let’s work backwards from the goal.
To make $30,000 annually, I will need to make $2,500 monthly, which is about $625 weekly or $125 per work day (assuming 5 day work week).
When making a decision about the type of online store you are going to build, you will need to make your decisions based upon your goals. To make $30,000 annually, you are going to have to sell $60,000 if your profit margins are 50%. If your profit margins are lower than you will need even more sales to replace your annual income.
Having a plan and working backwards from your main goal helps you avoid building an online store that you don’t want or need in the long run. There is no guarantee of success.
If your store being successful doesn’t get you what you want then why bother? You shouldn’t!
The new year is quickly approaching. Will this be the year that you start your online store? Sign up for our crash course to jump start your online store.
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