Do you want to start up an e-commerce web site? Do you understand what is involved with this type of venture before you get into it? While setting up a successful e-commerce site has never been an easy task, the challenge has grown exponentially over the past few years due to the enormous growth of the web. This post covers many–but not all–issues that you should be aware of before you invest in an e-commerce site. In today’s highly competitive global markets, only the very strong or the most innovative will survive.

Although this article is not designed to scare people away from e-commerce ventures, it is intended to give anyone contemplating such a task a dose of reality. This is something we repeatedly see as missing with many new e-commerce startups. It is also a primary reason for failure with new web sites.

Realize that unless you have a unique idea that generates substantial demand and is difficult to duplicate, your chances for success are limited. That is not to say that you cannot be successful, but the more competition you have to cover a limited amount of demand, the harder you will have to fight to remain successful and profitable.

It is almost insane in today’s market to think that you can compete with very successful discount retailers selling mainstream products, such as books, DVDs or CDs. You are much better off focusing on a niche market or one where you can develop a substantial competitive advantage. A competitive advantage is something that you can do better than anyone else in your chosen industry, and something that the competitors cannot easily duplicate. When a market for a product has matured, it usually means that competitive advantages no longer exist–and profits have been driven down to a point where it is not very profitable for new companies entering the business.

Make sure that you invest in a professional-looking web site. The more professional the site looks, the larger and more professional you will look in the eyes of your site visitors. Make sure that the site design that you chose fits the expectations of your potential customers. Sporting goods sites should look "outdoorsy". A site selling HDTV equipment should look at least moderately high tech. Make sure that any site you design includes useful articles and information that help position you as an expert in the industry.

Think very hard about how you will drive visitor traffic to your web site. Without traffic, you will never have customers. The days where you could build a web site and develop a lot of traffic in a short time with little expense are long gone. If you plan to depend upon search engines to drive free traffic, you need to realize that search engines are not always a reliable way to build traffic. You must have an alternative. First, it is a long-term project to build traffic to a site using search engines. Generally speaking, Google does not allow new web sites to rank well for up to a year for any competitive search phrases. Second, if you are involved in a competitive industry, realize that there may be millions of other web pages competing for the search phrases that you want to focus on, and only 10 pages will make it into a top 10 positions in any given search engine. Third, optimizing a site for search engines can be time-consuming and is not typically part of standard web site design. Once again, think about finding a niche market where there is a good demand, but not very much competition.

Pay-per-click (PPC) advertising is good way to drive traffic to a web site–especially if it is new–but it can be costly and doesn’t always work well for all types of businesses. With PPC, you bid for positions for individual search phrases. But the more competitive a market is, the higher the bid prices tend to be.

Make sure that you choose a product or service with a substantial profit margin. Given the costs for web site design, monthly hosting fees, advertising, insurance and other business costs that take many new entrepreneurs by surprise, it is not rational to think that a startup business can be profitable and survive on a 10% or 20% gross margin. Many of the larger players do well on a 20% margin, but their profits are driven by a large volume of business. Do your research in advance to determine where you need to price your products relative to your costs for acquiring those products.

Plan to spend a substantial amount of time building your product or service offerings and promoting your business. It is not likely that the business will build itself. Think about how you will handle order processing, shipping, customer returns, potential credit card fraud problems and many other common business issues that will require that you wear many hats.

Have you had a large enough dose of reality? If any of these issues are things that you have not thought about, you will need to do more research to fill in the missing blanks.

Here are the key points to remember.

1. Do your homework before you invest in a new business.
2. Find a niche business. Do not try to go toe-to-toe with experienced players in a competitive market.
3. Develop a professional web site.
4. Develop a plan for driving visitor traffic to your web site. Do not depend upon free search engine listings as your sole source for traffic.
5. Develop a competitive advantage. Become the very best at something that matters to your customers.
6. Plan to promote, promote and promote some more.

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This entry was posted on Thursday, September 6th, 2007 at 8:11 pm and is filed under Internet Marketing. You can leave a response, or trackback from your own site.