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