eCommerce is the hottest thing on the market. The online sales of the market has reached $5.7 trillion globally in 2022 and are projected to surpass $8.1 trillion by 2026. The sector is booming, offering incredible opportunities for entrepreneurs from all over the world. However, the burning question is is it really profitable in 2024? If you are a new business owner, or even thinking of starting a small business of your own, should you really get into eCommerce at first? Let's figure this out.
Trends, statistics, and profitability landscape of the global eCommerce industry
Market share
The retail landscape is being fundamentally altered by eCommerce. In just 2023, online sales accounted for approximately 19% of total global retail sales. This marks a continuous upward trend for the industry. While traditional physical stores still hold their place in the current market, the shift of customers towards online shopping is evident and clear. This translates to a huge worldwide audience of eCommerce businesses. At the same time, it opens a lot of doors of opportunities for customers to reach the products and services of business beyond the physical store's limitations.
Growth projections
The boom of eCommerce continues at full speed, even in 2024. According to recent projections, the global e-commerce market size has the potential to reach an astonishing amount of 6876 billion by 2025. This immense growth indicates that there are massive opportunities for businesses of different types and sizes. The recent trend suggests that the consumer mindset has shifted towards online shopping and its convenience. This is why in the current digital world, having an online shop is not just an option anymore, it has become a necessity for further growth.
Profitability landscape
So the most important question right now is, can anyone build a profitable eCommerce business in 2024? There is potential, and it is undeniable, but at the same time, several factors play in your success. If your business is established and has a strong online presence, it will surely have a distinctive advantage. But that does not mean that new entrants cannot carve out a profitable niche for their businesses. So the key profitability factors include carefully choosing the right products, and managing costs like shipping and marketing. The level of your success will also depend on providing extraordinary customer support. At the same time, it is also important to be aware and avoid common mistakes; such as finding and targeting the right market, poor inventory and product management, and undermining the importance of fast web hosting and high-quality web design.
What are the foundations of a profitable eCommerce business?
How to select the right niche -
The starting point of any successful eCommerce business is selecting the right niche. When you enter an overly competitive, and saturated market, it makes it harder to stand out amid the competition. It also makes it difficult to acquire customers in a cost-effective way. So here are some factors you should consider -
- Expertise and interest - When you are passionate enough about a niche, it translates to more in-depth knowledge about the product. At the same time, you will also be able to form a deeper connection with your audience. According to a survey, around 67% of entrepreneurs believe that passion is vital for any kind of business to be successful.
- Market demand - After selecting your niche, now it is time to know about the market demand for the product or service. Conduct thorough research about your target audience and whether they are actively searching for the product or services you intend to sell. You can use tools like Google Trends that can reveal search volume over time.
- Competition - Evaluate the number of existing competitors in the market and what they offer. When you differentiate your product from the existing players or find a less crowded market, it will have a significant impact on your profitability. To conduct quality market research, you can use tools like SEMrush or Ahrefs that help in gauging competitor strength while identifying gaps in the industry.
- Potential of profit - To calculate this, the question you should find the answer to is are you capable of sourcing products that allow you to be both profitable and competitive? When you calculate your potential profit margin, make sure to include product cost, shipping cost, along marketing expenses. According to a Statista report, the average net profit margin in the eCommerce business lies between 4%-10%.
What tools can help with niche research -
- Keyword Research - Keyword research tools help businesses understand the volume search intent of the specific product or service areas. Some of the most effective keyword research tools are Google Keyword Planner, SEMrush, and Ahrefs.
- Competitor analysis - Analyzing the competitors in the market translates to examining which successful online stores in potential niches are selling and what their marketing strategies are. This will help you understand the gaps so that you can help fill those.
- Spotting trends - The market changes according to the trends, so running any successful online business means staying at the top of the market trends. You can do that too by using Google Trends, social media, and industry publications.
How to do market validation -
This comes before investing a hefty amount of money in production or inventory. You need to validate your interest in the chosen niche.
- Pre-launch Landing Page - The first step is to create a simple pre-launch landing page that can gauge the interest of the general public and capture all email signups.
- Engagement on social media - If you are thinking of starting a business online, social media is going to be very crucial for your business, its marketing, and its success in the future. So start building an audience, and share interesting and trendy content. This will help you reach a wider audience pool and get feedback on product or service ideas.
- Minimal Viable Product (MVP) - This includes offering a small bunch of products to the audience just to test the waters before going all in. This will help you understand how people like your offering and what is the feedback regarding it.
What is the difference between focus and generalization -
Generalization refers to a form of abstract, where focus gives you a far more structured result. When you are choosing a niche, it increases the chances of success, while making the building of your website more focused. You will be more attentive to creating highly targeted landing and product pages. At the same time, you will get an overall website design that directly aligns with your chosen niche's interests and needs. This level of targeted design and features is far more difficult to achieve with little to no vision or interest in the niche, much like having a general idea.
How to do product sourcing right?
Once you have chosen a niche, it is now time to identify and source the right products with strategies that bring in profits. There are two most common models -
- Inventory Model - This method requires you to buy and store products which gives you more control over product quality and shipping. Let's look into the pros and cons of this method.
Pros:
It requires low startup costs and gives business owners the ease of testing different products. Business owners do not usually need to worry about shipping logistics.
Cons:
This method requires a higher startup investment that comes along with the risk of unsold inventory. This also needs storage and a separate and well-structured order fulfillment management.
- Dropshipping Model - Dropshipping generally allows business owners to have a low-risk entry point as it lets them sell products without holding an actual inventory. In this method, business owners partner up with the suppliers, handling order fulfillment along with directly shipping to the customers. Let's look at the pros and cons of the dropshipping model.
Pros:
The most significant advantage of using this method is that it comes with low startup costs and gives business owners the ease of testing out different products. So the business owners do not have to worry about shipping logistics.
Cons:
This method offers potentially lower profit margins. This also comes with less control over the quality of the product and shipping times.
How can you choose sourcing strategies and considerations -
- Wholesale Suppliers - This refers to sourcing from established distributors and manufacturers. This is the perfect option for bulk orders.
- Manufacturing on Demand - If you are planning to manufacture products on demand, it would be best for you to partner up with manufacturers who create products according to how many orders come in. This is also the ideal choice for customization or unique items.
- Online marketplaces - If you are looking to sell your product on online marketplaces like Alibaba, you can connect with a wide range of suppliers. This is also the best choice if you are trying to sell low-cost products.
When you figure out which way you want to go and get the foundations in line, make sure to use multiple marketing channels to get the maximum visibility. In the end, remember it is the customers who can make or break any business, so always treat them with utmost importance.
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