Why eCommerce Businesses May Face Failure – Part 1

Starting an eCommerce company may be a quick, relatively simple, and reasonably priced endeavor. However, building a thriving company over the internet is more complex than many entrepreneurs believe, as shown by an estimated 80 percent failure rate in the industry.

Although each new company is unique, certain similar factors contribute to eCommerce failures. Understanding these potential hazards should assist you in avoiding them, beating the odds, and running a successful online company.


The following are some of the most frequent reasons why an eCommerce business fails:


Narrow Profit Margins


During periods of high sales volume and steady cost structure, your low margins may be adequate to pay all of your variable and fixed expenses. The question is: what happens if the cost of your inputs or loan rates goes up, for example? It would be best if you built inadequate margins from the beginning to provide yourself ample breathing room to deal with any situation that may arise.


Cheap Prices


Prices that are too cheap are one of the factors that contribute to poor margins. Many e-commerce businesses compete based on pricing. However, you cannot achieve success at any cost. Set your pricing to be competitive while maintaining a reasonable profit margin, and check them regularly to ensure that they remain competitive. Prices are also a significant factor in calculating customer lifetime value.


Ideally, you do not want to compete only based on pricing. Look for more methods to add value to your consumers' experiences. Consider market sectors in which pricing is less relevant or where there is less price competition as a result.


Suppliers' Poor Payment Conditions


When it comes to suppliers, prices are not the be-all and end-all. Payment conditions are one aspect that is often neglected. Initial payment requirements for most vendors will be 70% upfront, with the remaining 30% due before the shipment of the goods. In most cases, you can negotiate a lower percentage upfront over time if you're persistent enough. However, while selecting a provider, it is essential to examine the payment conditions and the price. While a lower price is appealing, you may be forced to borrow and risk financial security if you are obliged to pay a large proportion upfront.


Exorbitant Interest Rates


With a world of rising interest rates, it is becoming more important to exercise caution when deciding on borrowing conditions. It is critical to align the term of the loan with the timing of your cash flows. Don't use your credit card for long-term capital expenditures like real estate. They should be limited to highly short-term liquidity smoothing only.


Customers Have Short Average Lifetime Value (LTV)


Having a poor client lifetime value places a limit on your capacity to attract new customers.

One of the most effective ways to improve LTV is to keep your clients, particularly high-value customers, for a more extended period. Concentrate on acquiring new consumers; but, as a business grows in size and reputation, it should prioritize keeping high-value clients. List your most valuable and prospective high-value customers. Target them with customized advertising to persuade them to make further purchases. Consider implementing a membership club or offering loyalty discounts to cement the connection further.


Work on raising the average order value is another strategy for boosting lifetime value (LTV). You may recommend complementary goods to your consumers at the point of purchase, which is very simple. Another method of increasing average order value is via the use of bundles or bulk discounts.


Make sure you are always a step ahead and avoid any pitfalls by having a reliable accountant for your eCommerce business. At Ecommerce Accountant, we will make sure you will increase profit and take a leap in your niche industry. Book a free session with us today!


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