In the world of eCommerce, we are always trying to figure out: What makes a great eCommerce business tick? There’s no definitive answer, but as an owner of multiple eCommerce ventures, working across various sectors, and having operated within the industry for a while, I’ve gained insights from both sides that have led me to some conclusions. In this post, I’m excited to unpack the 10 fundamental traits that compose the DNA of a successful eCommerce business.
10 Key Traits of Great eCommerce DNA:
1) Repeatable Purchases:
One of the aspects of what makes a great eCommerce business for me is getting people to do repeat orders. This not only extends the customer’s lifetime value (LTV) but also generates consistent revenue. To reach that you need to think about the product that can become a part of your customer’s routine. That’s when they are happy to spend the money as it is just native to how they do things.
2) Healthy Margins:
Understanding your product economics and keeping the cost of goods delivered (COGS) at around 70% or less is crucial for profitability. You want a product that, even after paying all costs like shipping, 3PL fees, and packaging, leaves you with a 70% profit.
This is a hard achievement for most and is what I’d consider the gold standard as it just makes your life easier in all other areas of operating the brand. Sometimes, you might not be able to do it immediately, but keep your target in mind. With time and adjustments to your product and prices, you can get there.
3) Size and Weight Considerations:
I always want to make sure that I will be able to send my product as a small parcel through Royal Mail. That means that I will be able to ship more units and also fit more units in less space in my warehouse, same with 3PL. Ensuring your product can be shipped efficiently as a small parcel optimises shipping and storage.
If you end up having bulky or heavy items, it limits your choices of couriers and 3PLs providers, ultimately leading to increased expenses that cut into your profit margins.
4) Streamlined SKUs:
I think reducing the number of stock-keeping units (SKUs) simplifies inventory management, reducing complexity. However, some industries, like apparel, naturally have more SKUs due to different variants like colours and sizes. This is important to consider this when choosing an industry from day one.
5) Uniqueness Over Commodity:
If customers believe that it doesn’t matter whether they buy from you or someone else, you are a commodity. That means that the only way to differentiate is through price, and that usually squeezes your margins and is a race to the bottom. I think it is important to set your product apart from competitors to avoid price sensitivity.
6) Low Return Rates:
I want my return rate to be as low as possible. That’s what you need to think about before going into industry, for instance, fashion brands can have over 20% all of which increases operational challenges.
7) Competitive Landscape or Low CAC:
Evaluate the level of competition in your industry. Choosing the niche market might be the easier option to gain initial traction but this market probably has a ceiling and at a point you will stop growing. That’s why I see the competition in the market as a good signal. It means that TAM (total addressable market) is larger but keep in mind that entering a competitive market may require more marketing resources to acquire new customers. The right choice here depends on what your long term goal is. You might be able to start in a sub niche of a large TAM and then slowly expand over time into these extra markets is possibly the preferred play here.
8) Product Innovation:
Think about how much product development is needed. Leading in an industry often demands constant innovation. Some industries require continuous iteration, which can be tough and require a lot of resources. For example, think about the iPhone, it has an iteration every year, personally my goal is not having to do a lot here. Though for you you might want to double down on this and use it as your competitive advantage.
9) Visual Appeal:
From my experience, I would say that visual appeal plays a big role here. If you are physically visible for your customers, it tends to sell more effectively.
10) Efficient Production:
Opt for production strategies that minimise lead times. For some industries like the supplements manufacturing in the home country is natural, as they need certifications and higher quality standards. I think that domestic manufacturing is the winner here, as you can often achieve the same production cost, and you won’t need to be concerned about extended lead times. Moreover, events like COVID pandemic proved the success of domestic manufacturing with logistical simplicity, fewer delays and customs-related complexities that were avoided.
The gold standard here is to implement just-in-time manufacturing to minimise the required stock holding, thus reducing the overall costs. This might mean only having 2 weeks stock ready to go which is much cheaper than if you’ve a 4 month supply chain when you have to import from china. Thus meaning you’d have to invest 8 times more in inventory for this approach.
These 10 traits are what I’ve discovered through my experience in diverse eCommerce landscapes. I hope you find these insights helpful for your own ventures.