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Here’s how it’s like running an E-commerce store for 1 month
Author Terence Leong
We tried running an e-commerce store for 1 month and this is what it’s like:
After one month, we had $1,200 in sales.
Many of you would know this is just a very small number.
This post is not meant to show off any numbers, but just to chronicle what we have learnt and to show what it's like from the inside for those who are curious about e-commerce:
1. Customer acquisition cost (CAC) must not be an afterthought.
Think of it as renting a shop in a shopping mall, you are buying the traffic not the shop lot.
The numbers game work like this: 1000 people pass by, 50 enter the shop, and 5 become customers.
It works the same online, this means you are paying Facebook/IG to buy the traffic or paying someone to generate content.
You can’t just have a shop in some rural area and expect customers to magically appear.
If the profit margin does not cover this, you may want to reconsider.
Do you have a product whereby the CAC pays for itself? I.e. the customer referral rate is high
Do you have a high lifetime value (more repeated orders) and a high average order value (AOV)?
2. Watch out for hidden costs
We initially started this store because we chanced upon a great supplier with great pricing. And the market we are operating in generally sells similar products at 4-5 times the price.
We thought that after including shipping, fulfillment, and CAC, we might earn a decent profit.
But instead, our numbers look more like this:
25% operating expenses (warehousing, defects and returns, boxes, labels, pick and pack)
5% transaction fees and GST
15% shipping and fulfilment
5% profit margin
This is not counting all the other effort and time we have poured in (ie. campaigns, website, etc)
A successful brand breakdown should look more like this:
3. No pain no gain
If there’s no pain to solve, there’s no urgency to buy. Yes, you can run a time-limited offer or other scarcity tactics, but it seldom moves the needle.
CAC will skyrocket as a result of this.
At one point our CAC was as high as 40-50%.
We were only able to tame it down to 25-30% after we crafted an offer that solves a market pain.
4. What is your unfair advantage?
No one wants to play the price war game.
Without an unfair advantage, profits will be competed away in a competitive environment until it’s just enough to keep the lights on.
Good supply pricing alone is not an unfair advantage. Neither is marketing alone nor supply chain/shipping capabilities alone.
For those of us with no channels/IP/specialized knowledge/manufacturing advantage, I personally think we need to:
a. Discover untapped market gaps and structure an irresistible offer around them. b. Combine this with a good product, pricing, supply, and shipping that get perfected over time through execution.
“Never chase the hot thing whatever it is. That's like trying to catch the wave and you'll never catch it. You have to position yourself and wait for the wave.” - Jeff Bezos
I tend to think untapped market gaps are not easy to spot.
Perhaps like what investment folks talk about “time in the market vs timing the market.”
Perhaps what we need to do is not chase after the trend, but work on what matters to us, have more skin in the game, and keep executing.
P.S. Moving forward, we will likely move in direction of health and wellness. Ping me if you’d like to chat!
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