Retail Dogma

How to Actually Make Money Through Ecommerce?

How to Make Money through E-commerce

Making money online and being the boss of your ecommerce business is the dream life for many of us. In 2008 I kept searching the internet for how to achieve just that, and was overwhelmed by all the different things I had to learn to start an ecommerce business and actually make it work.

Today, we live in a totally different world. A world of high competition and open markets. A world, where opening an online store takes minutes.

Can You Make Money on Ecommerce?

The answer is: Yes!

But to make money on ecommerce in this market you need to have the right mindset and the right strategy.

In this article I am going to lay down a blueprint that has worked for me, and if I am to start all over again with ecommerce, I would do the same.

Build it For The Long Term

The first step to set your mindset right is to understand that you are building an actual business.

This is not going to be a get rich quick scheme or a “passive income” operation. There is nothing about ecommerce that is passive, and if you don’t keep on building and nurturing your business day in and day out by sourcing more products and building a customer base, it is not going to work.

As a retailer, I can assure you that starting a retail business is a hell lot of work! I can also tell you from now, that to start seeing meaningful profits it takes some time (around 2 years).

So, please set the right mindset from now and let’s get started!

Niching Down to Make Money on Ecommerce

If you want to survive in a world with so many deep pocketed players, you will need to niche down and master a certain product category and create a name for yourself in it.

The reason you want to niche down will also start to show when we talk about marketing and acquiring customers at low cost.

There are so many different product segments in retail and each segment has enough product options to build a good, healthy business around it.

We have compiled a list of financial ratios benchmarks for different retail segments. Check it out to know what to expect in terms of margins and profits for each product segment, and maybe it will give you an idea on which segment to choose.

cosmetics category financial ratios

For example, after compiling the list, I could see that Beauty & Cosmetics segment has good profit margins, high inventory turnover and GMROI

Niching down in ecommerce

The same goes for most specialty stores as well, which is another proof that niching down is actually a good strategy.

Product Assortment

Now that you have chosen your niche, you will start plotting down a diagram of the different product categories you can carry in your store.

ecommerce product categories
Product categories for a lingerie & loungewear store

For example if you are a Victoria’s Secret these are the different categories that you can carry in your store

  • Bras
  • Panties
  • Lingerie
  • Sleep
  • Sport
  • Lounge
  • Beauty
  • Accessories
  • Swim

You see? Even when niching down, you still have a lot to offer.

A common mistake I have seen on many Shopify stores is that they carry only one product. I understand it is easier to source only one product and deal with only one supplier, but that’s also why it doesn’t work. Easy doesn’t work long term, remember our mindset?

So you want to have different categories and then different products under each category. With every new SKU that you add, you are adding another chance to sell more items for each customer you will bring to your store or a possibility for those customers to come back for more. If you only have one product they only have one choice and if they take this choice now what will bring them back?

Read our detailed analysis for Shopify stores for sale and what to look for if you are buying one. You will learn a lot on how to make money through ecommerce, and why some business models don’t work.

Pricing for Profit

Retail is a numbers game ! If you understand this fact and learn how to master it you will make a lot of money in ecommerce

Since we have talked about the numbers game, this is the area that you can apply your strategies in to make the most out of your investment. Pricing is an art and those who know how to use it get to reap the benefits.

It is easy to go out and set the lowest price in the market or just “2x your cost price” ( a very wrong strategy by the way) but the question is: Are you making any profits with these prices? Is there a room to increase them without losing market share? How to create a pricing strategy for your entire portfolio, rather than focusing on each product and its cost only?

You can learn about how we go about pricing our product portfolios and how we increased our margins by 8 points in our pricing guide and through other articles in members are.

Building a Community

Let’s face it: Marketing cost is going to be your biggest expense in ecommerce and to make money you will need to find ways to keep it down.

One of the ways to keep your marketing costs down is to actually build a community of customers who will then buy from you over and over again.

Your goal is to be on top of their mind every time the need arises for the type of products that you sell. In order to do that you will need to start doing the below 2 points.

1. Content Marketing for Ecommerce

Blogging and content creation for ecommerce is a bit tricky. After all, who wants to read a blog that is purely about products.

Your way to blog, and also to build a community, is to create content about areas in life where your product will be used.

For example if you have a beauty & make up store you will start a beauty and wellness blog & youtube channel and write about beauty & self care in general. You will make youtube videos with tutorials and feature different artists and influencers on it.

If you are selling camping gear you can create content about the hobby itself and answer people’s questions: How to start it from scratch and the best practices to follow.. etc.

It is not only about a blog, though, but rather about creating content and repurposing it on different content distribution channels relevant to your customer demographic.

That’s another reason why niching down is good.

Sometimes your product will really be hard to create content about. When I was selling t-shirts I couldn’t really write about t-shirts.. I mean, boring! right?

What I have done, instead, was drafting a persona for the typical customer that would shop from me and started a blog about topics that would interest this customer. This got a lot of free traffic to the blog itself (about 10K visitors per month), and I simply placed my own banner ads in the blog and made sure to build my e-mail list from there too.

Which takes us to the next point…

2. E-mail List Building

All the efforts we are trying to do here is to pull traffic to our properties (website & blog) and try to maximize our return on this effort. We need to find a way to keep those people coming back again, and here is where the e-mail list comes in.

The beauty with building an e-mail list is actually that everyone who will volunteer to give you their e-mail address is definitely highly engaged with your content and what you have to sell.

With ecommerce websites’ conversion rates at around 2%, a lot of the traffic that you have paid to get goes to waste… unless you try and keep some of this traffic engaged with your brand, by signing them up to your newsletter.

I just want to point out that creating content and maintaining an e-mail list is not an easy task. It is actually very daunting. The goal here, however, is to try and get traffic with the least amount of money spent on ads, so that at the end the ecommerce business will actually make money. If you solely depend on paid ads to acquire traffic, chances are you will no longer be able to make any profit with the rising cost of online ads.

Creating content and utilizing platforms that still give you a good reach for free (such as Pinterest & Youtube) is more economical.

Using SEO for Your Content

SEO is one of the best free ways to acquire traffic online. It is getting more competitive every day, but it still works if you are creating content that actually provides value.

You can use SEO for your blog as well as on Youtube, and the best way to do it is by answering people’s questions through your content. If your content is helpful enough (and of course optimized) it will rank and you will benefit form all the free traffic.

It should be noted here, that ranking on the first page at Google for product related terms is going to be very difficult. Not only because everyone is trying to do so, but because of the way Google is changing its strategy on displaying ads in search results, which is pushing organic results further down the line.

The best way to use SEO for your retail or ecommerce business will hence be to optimize your blog content (see above) that you are building a community around.

Instead of trying to rank the first for “Hiking Shoes” for your product page and end up competing for a page that looks like this; basically dominated by sponsored listings….

search results for Retail & Ecommerce keywords

You can instead write blog posts that answer specific questions about hiking shoes and still stand a chance to be in the top results if your blog content is useful.

SEO for retail & ecommerce

To get the idea about those questions to answer simply type “hiking shoes” and scroll down to “People also ask” and then start answering those questions in blog posts

You will then use your blog as a medium to advertise the shoes you are selling as we mentioned before. You might also get the visitor attached to your useful content and the community you have built, that they will binge-read your blog and at the end decide to buy from you over buying from others.

Optimizing Online Advertising to Make Money on Ecommerce

Since your cost of customer acquisition will be your biggest cost in ecommerce, optimizing this channel is the key to making any profits. You want to make sure that your cost of customer acquisition (CAC) doesn’t’ t exceed your customer lifetime value (CLV).

Making 1 million in sales by spending 1.5 million on Facebook ads is NOT a win as far as I know.

You want to make sure you are attracting the right demographic with your ads at the lowest cost possible. There are a lot of online tools nowadays that allow you to optimize your ads and your targeting, so that you get the most out of your advertising money.

Mastering the process has a bit of a learning curve, but it is definitely worth it. You can also always hire an advertising expert and be sure it is worth the money.

Connecting Online to Offline

How to stand out in this competitive landscape? Be different!

One of the ways to stand out, and also to have a chance for your brand to stick in people’s minds is to go offline. You don’t have to spend much on a store in a mall, but you can utilize pop-up stores and use them seasonally to get this reach and also make some sales at the location as well. If you do it right, you can easily break even on the whole event through your sales, and you would have created an amazing branding event for free.

Another way to go offline for free is to partner with existing brick & mortar retailers. Brick and mortar businesses want to find a way to bring online traffic to their physical stores and you want to reach the offline traffic, so partnering with the right business can benefit both of you.

By the right business I mean a business that doesn’t compete with you, yet serves the same customer demographic like you.

For example if you sell beauty supplies you can partner with a salon that doesn’t offer the same products and make a deal with them that you will advertise their location on your property (site, blog,..etc). At the same time, your stand in their business will advertise & sell your products to their customers.

If you are selling protein shakes or bars you can partner with a gym or studio and put a branded vending machine there … and so on.

I only understood the potential of brick & mortar after I started working there and seen the huge amount of traffic and quantities these businesses clear everyday and compared it to online retail. My advice to you is to make use of this world yourself, even if you want to stay a pure play ecommerce retailer.

This is one way you can differentiate & stand out online.

Setting a Realistic Budget to Make Money on Ecommerce

I can’t close this article about how to make money with ecommerce without stressing on the most important part of any retail business: Retail Financials.

In fact, one of the most serious ecommerce mistakes that new business owners fall into is not planning the financial aspects of their business.

You need to start understanding how all the numbers fit together in a retail or ecommerce business and whether or not your operation will be profitable. This starts by setting a realistic budget and actually sticking to it.

Read our article on Retail Budgeting Process for a complete outline for this process.

While setting your budget you will get to know what gross margins are all about and how to set them right for profitability. You will understand how markdowns affect your final outcome and will start incorporating them in advance in your pricing process.

Mastering retail financials takes time, and a lot of trial and errors until you find a formula that actually works, but it is what actually matters if you ever want to make money from ecommerce !

What matters for any business is to make profits at the end and not only to make sales.

Read Also: 5 Ecommerce Mistakes New Merchants Fall Into

Monitoring Performance and Adjusting

Once you have set your budgets and started trading you will need to monitor the performance of your business throughout the year and take any needed corrective actions.

Things that you will monitor are

Adding More Products

Yes, your initial product assortment is not it.

As you grow, and get to learn more about your customers, you will be adding more products to your store. This is how you will make more money on ecommerce; by selling your existing customers more items and making higher transactions over time.

I used to invest all my profits back into the business to source more products related to what I was selling. So I started with t-shirts, then added hoodies for winter, and t-shirts for kids and babies, and then accessories and bags.

I should stop here and warn you about branching out too widely though.

Remember when we said the key to make money in ecommerce in this market is to niche down? Make sure you stay like that. Resist the urge (and it will come) to try and be everything for everyone. This is a very bad trap that a lot of retailers (online and offline) fall into, and by time they lose their positioning that they have built in customers minds over the years. They just stop being relevant anymore.

The key is to add relevant products to your assortment. Products that serve the same customers or expand your customer base while staying within the same category you are positioned in.

You Can Make Money With Ecommerce

This was our blueprint to start and manage an ecommerce business and actually make money out of it on the long run.

Ecommerce is here to stay, and soon it will become an integral part of every retailer’s strategy. Some will choose to stay purely online and some will choose to mix the online & offline worlds and create a coherent customer experience across channels.

If you are a brick and mortar retailer looking to move part of your business online, make sure to check out our guide on how to move your brick & mortal business online and connect both together.