5 Simple Rules for Running Ecommerce Websites

In 2010, Dropship Ecommerce was one of the most popular type of site listed on Flippa, not far behind affiliate and Adsense as a site’s primary model. Flash forward to 2013, and the honeymoon is pretty much over: ecommerce sites now account for a much smaller percentage of listings, and valuations on these sites have hit an all time low.

If you remember the whole ‘flipping mania’ thing that happened around 2010 (when flipping sites went viral in the Internet Marketing nichenot to be confused with a 80s wrestling event), you’ll know buyers were taught to look for passive investments – just like investing in gold or property. These buyers bought Dropship Ecommerce sites by the boatload, but quickly realised that to make this work was anything but passive. They were sold the dream of hands-off recurring cash that they would eventually trade in for a huge payday, but often ended up with a template site in a high competition niche that either failed to perform, or required a ton of work if it did.

The end result?

People fell out of love with ecommerce, and moved on to sexier business models like Lead Generation, Mobile Apps and Member Products. Think of this article as marriage counselling for buying ecommerce sites and for one simple reason.

Currently, ecommerce sites have one of the lowest profit to selling price multiples of any business here on Flippa. That means $1 spent on an ecommerce site, if managed correctly, is likely to provide a better rate of return than any other type site. If you’ve never considered an ecommerce purchase, then there’s no better time than the present; likewise, if you own or have previously bought or sold ecommerce sites but you’ve lost your passion and enthusiasm, I hope this article will help to turn things around.

Rule 1) You can’t succeed doing what everyone else is doing

Someone, somewhere, started a rumour that you can take a bunch of generic dropship products sold by hundreds of others, list them at average prices on a template ecommerce store and be successful.

My guess – it was knowledge from an ebook, and started as a ‘special offer’ on a certain forum I’m sure we all know. Frankly, there’s probably no surer way to go broke. One of the main complaints from buyers and owners of now abandoned dropship stores, is that it was too difficult to attract traffic and generate sales. The chances are, this is why:

a) If your product comes from a dropship directory or catalogue it’s likely competition will be immense. Just to be seen, you need to invest in enough SEO to outrank the manufacturer (who often sell the product too), other dropshippers, distributors, Amazon and Ebay.

Assuming you manage this on some long tail product search terms, you’ll either have to be the cheapest (unlikely as a dropshipper) or offer the best service / brand familiarity (unlikely with Amazon or Ebay competing) to get that person to buy.

b) Alternatively you try Paid Search, but aside from facing the same problems as in a), you also have the issue of margins as the profit you make on a product and your conversion rate have to be high enough to pay for that click.

In most cases this just doesn’t happen leaving you with a lot of expensive clicks and few sales. This leads to Rule 2.

Rule 2) Your best chances of success will come from original products in a high demand niche.

Original products don’t have to be products that aren’t sold anywhere else, just products that aren’t widely available to resellers. This means getting to know your niche, finding out what’s in demand, and making contacts amongst sellers. Here are a few examples that I’ve used with Ecommerce sites I’ve owned in past in niches to find new and original products to sell:

  • Trade Shows and Exhibitions. As well as being a tax deductable business trip (the kind of ‘business trip’ where the nights are more important than the days!), Exhibitions and Trade Shows are packed with new product ideas, and manufacturers and retailers keen to make more sales. Try to find overseas exhibitions; as well as the benefit of seeing a new country under the guise of work, you’re also likely to find products that currently aren’t being sold in your home-territory, giving you a significant head start.
  • Niche / Industry Print Magazines. Assuming the newspaper and print magazine industry still exists when you read this, the classifieds at the back of these publications usually feature small independent manufacturers with good products and poor marketing skills.
  • Private Advertisers on related blogs and forums. Use a tool like Whatrunswhere or Mixrank to find advertisers in your niche who produce a product. Many will already have an affiliate program in place, but will often also consider a dropship arrangement if you speak to the right person.

Rule 3) It’s ok to change a niche that sucks.

The worst niches for ecommerce are those with high competition, low geographical barriers and a high percentage of generic products. On the flip side, a niche with lots of small boutique manufacturers, products that don’t travel well overseas and low or evenly distributed competition is ideal. A perfect example is iPod docks  and mp3 players versus high-end home theatre and designer audio accessories; another is general car spares and accessories versus manufacturer specific custom tuning and interior enhancing kits.

The nature of selling something generic not only means microscopic profit margins, but also a price sensitive buyer. With the likes of Ebay or Amazon featuring cheap offerings shipped direct from overseas (in places where sellers are happy with lower margins), you’re continually fighting a losing battle. If this sounds familiar, then it’s probably time to change your niche.

One of the most useful developments on Google over the last few years was building semantic search into its algorithm. A by-product is that if all of your SEO or PPC efforts so far have been towards ‘mp3 players’ for example, then you won’t find it too difficult to rank for ‘home hifi’ or ‘Bose speakers’. Whilst you might not have this keyword heavily featured on your site, Google knows the people who link to you, and those who search for what you offer will tend to visit these types of pages too.

Start by adding to the products you already offer with products from your new target niche, linking to new product pages from relevant existing ones, and announcing the products on your blog or through press releases.

Rule 4) Always offer a geographic phone number for customers to call.

One of the easiest ways to increase conversions by a double digit amount is to have a prominent phone number on every page of your site. The reason many new owners fail to do this is because they wrongly envisage themselves tied to a phone line handling customer support enquiries. Here are a few facts to put it all in perspective.

  • You don’t need to man your own phone lines, or set up another line where you work. The best numbers to use are geographic VOIP numbers (available for around $5 / $10 per month) routed to a live (human) call answering service that greets the caller in your company name, takes their enquiry and emails it over to you.
  • Each message will typically cost 50c – $1 (on a pay as you go answering service), but generally users who have taken the time to call are on the verge of a purchase and convert extremely well, more than paying for any timewasters.
  • Only a fraction of all your visitors will actually call. Most people like the security of knowing that you’re a real company, and they have a point of contact should something go wrong.
  • You may have so many calls to return that it starts taking up a substantial part of your time. This is a good problem to have, as it either means you’re making decent sales (in which case you can outsource this to a part time customer service rep) or your potential customers are telling you that there’s information they’re unable to find on your site with having to call you first.

Avoid Toll Free numbers or numbers with a national non-geographic dialling code. People tend to associate geographic numbers with belonging to a ‘real’ company and one they’re more likely to do business with.

Rule 5) Go outside the box and hack your shopping cart

Your off-the-shelf shopping cart will be more than adequate for what you need it to do, but making a few tweaks will always give you the edge, and another reason for people to choose you over your competitor.

Here are a few tweaks I’ve made in the past that I highly recommend. All of the tweaks in this list cost less than $100 to do (probably a couple hundred in total if you get them all done together), and were all outsourced on Elance.

Rotating Geographic Numbers. Remember how having a phone number on every page of the site increases conversions? Well having a number near to that user’s location will increase it further. Purchase several VOIP numbers choosing most of the major cities in your region as their location. Ask a developer to add these to a script so that the system can guess the visitor’s location from their IP address and show the number geographically closest to them. Doing this on a renewable energy ecommerce store improved conversions by 73%, but call volume practically stayed the same. It seemed that just seeing the number gave people more confidence to buy. The downside of a couple customers wanting to collect in person (and being told they couldn’t) was certainly worth the increase in sales.

Easier Custom Checkouts. Most abandons in shopping carts happen at the checkout stage, and tend to be relatively high for off-the-shelf solutions such as OpenCart or Magento versus custom ones. A few simple tweaks to your checkout process will make a big difference and include

  • Not requiring customers to login or create an account to purchase
  • Not asking for the same information more than once (e.g. use this as my delivery address versus entering in their billing address again)
  • Reducing the number of steps required
  • Removing annoying country specific validations or requiring fields that aren’t entirely necessary (like asking for State / Country for non US residents)

Dynamic Price Adjusting. For products that were highly price sensitive (in our case, branded solar panels and solar hot water cylinders), we wrote a script that queried the affiliate product feeds of our competitors, and automatically showed the user a price that was a few dollars lower (but never lower than our minimum margin would allow). It’s a cheap shot (especially when you make that amount back in delivery costs), but works well short-term if you’re aiming for volume to negotiate a better price from your supplier.

Most dropship stores that were purchased and subsequently failed did so because their owner underestimated what was required to run the site as a business. Ecommerce of any kind will never be a passive investment, but then again very few businesses worth buying actually are.

With so many good sites currently available for far less than their Adsense or Affiliate driven counterparts, now is a great time to consider investing in an ecommerce store if you’re looking for an asset that you can buy and develop to hold onto mid – long term. If you’ve previously had success or failure with ecommerce, or if you’re thinking of acquiring an online store and have questions, let us know in the comments below.

Photo Credit: Daniela Hartmann

  • David Lahav

    Justin, great post. Love the out of the box ideas you shared.

    • flipfilter

      Thanks David.

  • The one about the hacking your cart is super true. I ran two big e-commerce sites, and after implementing that, sales went up. Thank Justin

    • flipfilter

      Hi Victor.

      Good to know. Out of interest which shopping cart software were you using?

      I’ve worked with Magento in the past but personally find making modifications difficult compared to OpenCart, but then it has so much more functionality.

      • Hate Magento exactly for the same reason. I had a custom modified zencart framework.

        • flipfilter

          Zencart is really starting to win a lot of people over .. Myself included

  • As many online retailers are struggling hard to succeed in ecommerce world, these tips will be highly useful for online store retailers. I would also suggest magento product reviews extension for any ecommerce store as it generates more sales.

  • Greg Gillespie

    So true. Everything you point out is just so obvious when you think about it. Having a unique supply source is vital, because the barrier to entry has to be set high, so competition cannot come in and set you on a race to the bottom.

    Great tips on the trade show sourcing, I like this one and it is also not easy to do, which raises that barrier again.

    • flipfilter

      Thanks Greg.

      Over the last 13 or so years, I’ve always found it’s easier (long term) to do the hard stuff. This could be as easy as picking up the phone and calling people (advertisers / suppliers / strategic partners) or choosing a niche that requires some technical knowledge first, but most people will never go the extra mile so there’s much less competition.

  • Bill C

    Thanks for the info. All good advice. I started my dropship site back in 2005 and it’s been a real struggle to keep it growing year after year. The Hack your Cart tip made a huge difference for me as well. The streamlined checkout was THE biggest thing for my site. Make it as easy for people to checkout without any road blocks!!!

    My biggest problem is that I sell intimate apparel (No novelties, toys or videos. Just clothes…) and Google sees it as an “Adult Site” for some reason but not my competition. Everything I have tried to get reclassified has failed. I can’t use Merchant Center and Adwords put me in the “Adult” category. That is killing me. Choose your niche wisely!

    • As a consumer, I’m very quick to lose interest in buying a product when the checkout process is unappealing. Verified by Visa is a nightmare, for example, so I don’t use any site that requires its use. I know I’m not the only one. How did you end up streamlining your checkout?

      • Andrew Brier

        As a merchant who has both the Mastercard and Visa security systems enabled this is interesting. We’re seeing increasing numbers of failed transactions due to customer problems with verification and are considering turning the security off. To do this we have to ‘opt-out’ of the scheme with our hosted payment provider who strongly discourages against this with words suggesting increased chargebacks and fraud.

        Does anyone have any experience on levels of fraud/chargebacks when these security systems are disabled?

        • flipfilter

          I previously disabled this on two sites at the same time. One was selling Solar Equipment and the other Hardware Spares. The solar site had a fairly high transaction value and we got hit with a seriously worrying amount of fraudulent transactions (we manually verified them ourselves before sending stuff out).

          The hardware site was high volume and low ticket price (£24 average), so even without 3D secure there was little increase in fraudulent transactions. I guess it ultimately depends on your market and how likely fraudsters are to want what you’re selling. Quite niche or specialist stuff won’t be as badly affected as consumer electronics for example.

      • Bill Cooke

        I am using CubeCart and their checkout process is aweful in stock form. I was able to get a low cost mod (under $30) for the site that made it a 2 step process with no account required. It was a 4 step process and buyers had to setup an account first. Sales went up 30% overnight. I only wish I had done it earlier!

    • flipfilter

      Hey Bill,

      Yeah, that wouldn’t be the first time I’ve heard of Google doing that (usually with gambling / drug paraphernalia related sites). The issue comes from being unable to accurately classify the site via automated methods so they either attempt it and fail (on page keyword matching) or have a human review it … someone who I doubt sees much intimate apparel and instantly hits the adult button at the first sign of anything even loosely related to ‘adult fun’.

      A company I consulted with ended up doing a 301 to a new domain (not for this reason) and re wording a lot of their content – that was the only way they managed to get unclassified, as it seems only Google’s search algo tracks redirects. Everything else appears to start afresh.

      • Bill Cooke

        I setup another site already but it got flagged too after about a month. Did it again and that one was OK for about a year….. I know and use the safe keywords that bring traffic and I don’t use any profanity or explicit language so not sure what to do. Seems the big problem is in the site name and keywords. Be very careful in what you choose. Anything that shows porn results when you search that term should be avoided.
        Bing has been great but then nobody uses Bing so that doesn’t really help too much…..I am finding that this is somewhat common for smaller sites like mine and there seems to be an underground movement to help each other out. I have found a couple of shopping sites that specializes in just this market as well. That helps a lot!

  • Dale

    Yeah, that Google can be a problem… very discriminatory. I’m in a niche where I teach stock trading yet they dumped me because I didn’t comply, yet they don’t tell you why exactly or how to get in compliance. Yet I see so many others doing the same thing as me on Google ads yet they can be on… what gives? They blacklist you for life… and I’m legit, even the top rated service in my industry, according to third party sources.
    Good article, Justin. The market is dynamic and the winner will be the folks who can anticipate and roll with the changes.

    • flipfilter

      Thanks Dale.

      My guess is in five or so years, companies like Experian and Dun and Bradstreet will have serious rivalry from companies like Google, Facebook, Ebay and Amazon who combined probably know more about us than anyone else. The downside is they also wield a lot of power … get on their wrong side and your life becomes much more difficult!

  • Forget about all the rules above. Just one simple rule is “understanding customers and offering best service” – this is require while building an ecommerce website in a way that it satisfy customer’s demand of product. shared this post here: https://plus.google.com/107154357961512888148/posts/EmHBoQy6ZoX and start developing an ecommerce site.

  • jfelient

    Thanks Justin for a great article! You made a lot of good points. I will share this with my clients and friends.

    • flipfilter

      Hey, no problem. I’m glad you found it useful.

  • Sam

    I just bookmarked it.

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  • Start your business right. If there are any legal papers, documents and requirements needed before your business start to run, you as owner should meet all those requirements first so that hindrances about legalities in the future will be avoided. Those legal papers can be business license or sales Tax numbers.

  • Great ideas. Thank you for share.

  • nagendra chowdhary

    That was a great overview of ecommerce , I guess focusing on a single niche would be more
    appropriate than going for a all category marketplace ecommerce site