Business Advice

The five biggest reasons why online retailers fail

- October 10, 2022 3 MIN READ

Why do so many new businesses fail in their first year or two, while others succeed? eCommerce guru Paul Waddy explains the top five reasons online retailers fail.

One in five new businesses in Australia will fail in their first year, and online retailers are no exception to that rule.

So, what are the hurdles the online retailers keep falling over?

In my books, Shopify for Dummies and Selling Online for Dummies, I discuss some of the reasons why some of the best ideas never quite make it. Here are some of the most common:

Failing to plan is planning to fail

We’ve all heard that before, in year ten business studies, but you know what – it’s true. I’ve worked with a lot of well-known brands in Australia, and there is a common theme – those that are meandering along, holding a finger up in the breeze, superficially successful, the hail-fellow-well-met sort of brands; they’re the ones just waiting to come crumbling down.

We’ve seen it time and time again with the collapse of ‘good brands.’ Present a winning plan, then go about executing on that plan. Don’t work it out as you go.

Paid media isn’t enough

Paid media is not a strategy, as my good friend Mal Chia from Ecom Nation likes to say. In the early days of eCommerce, an online retailer could put a few bucks into Facebook ads, and pull out five to ten times their money. Those days are gone.

Brands now need to be interesting, and brand interest and good old-fashioned product is what drives growth, including a healthy return on ad spend.

Founders need to remember what they dreamt of when they first started their business; was it a healthy Facebook ROAS, or was it a product that was going to change the world?

The price is right

Well, it needs to be. Too many businesses price their products too low, which leaves far too much pressure to run the business lean, often unrealistically lean.

The trap then, is that online retailers want to spend on marketing, but without the wiggle room in your product margins, you cannot afford to loosen your belt on marketing.

Remember the 50, 30, 20 rule; aim for a 50 per cent gross profit, while operating your business on 30 per cent operating expenses, leaving you with a 20 per cent net profit margin.

Starting before you’re ready

A lot of gurus will tell you to fail first. I don’t buy it.

Too many businesses start before they have a solid product that solves a genuine problem. If you can’t tell me what problem your product solves in one sentence, then you’re probably going to struggle to get cut through.

Take your time, and try and find that ‘ah ha’ moment when you realise that ‘this is the one’. If you think you’ve got a winning product that’s ‘better quality and cheaper’ than your competitors, then you might be in for rough weather ahead.

Confusing the brake with the accelerator

In other words, just because I can find the timing belt in my car, it doesn’t mean that I should try and change it; eCommerce is a trade, and a tricky one at that.

Success is the sum of all parts; operations, logistics, customer service, marketing, product, pricing, and plenty more. Take the time to learn the trade, and if you can’t tell me what AOV, CVR and bounce rate are – then it’s back to the drawing board.

So, before becoming another statistic, it’s worth remembering that eCommerce can be a highly lucrative space – given it’s only accounting for around twenty per cent of total retail in Australia at this point – however it can be a tricky beast.

Before diving into an expensive website or filling your shipping container, it’s worth taking the time to learn the basics, and scale your knowledge before trying to scale your business.

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Now read this:

The four essential ingredients to a successful online business