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Why your e-commerce business is failing

ENTERPRISE
By Pauline Muindi | September 8th 2021
Mobile payment with wallet app [File]

Did you know that 90 per cent of e-commerce businesses fail within the first 120 days?

These statistics are much dire than those of brick-and-mortar businesses where only 22 percent of small businesses fail within the first year according to a survey by the Small Business Administration (SBA).

The failure rate for small businesses tends to go up in the fifth year, but still, the number is not as bad as for e-commerce stores.

Fortunately, due to movement restrictions caused by the Covid-19 pandemic, e-commerce has experienced dramatic growth since 2020. In fact, the global e-commerce market is expected to reach $4.89 trillion (Sh528 trillion) in 2021 – a figure that is expected to increase over the next few years.

In Africa and the Middle East alone, retail e-commerce sales increased by 19.8 per cent.

These promising statistics tell us one thing: despite the high failure rate, e-commerce is the future of business. Even if you started out as a traditional business, expanding to an online presence is one of the best ways to boost revenue and future-proof your business.

Have you already tried and failed at running a thriving e-commerce business? If so, you might still be wondering “Where did I go wrong?” We will explore some common mistakes that lead to e-commerce business failure. If you are planning to venture into the world of e-commerce, you will also learn what not to do to ensure the survival of your business.

You ventured into a saturated niche

Was yours another online store trying to sell generic products that saturate the market? This could have been your undoing. An online store selling generic women’s clothing is unlikely to catch on. But if you niche down to affordable office wear for women, you might have a better chance.

The idea is to avoid any kind of niche that is over saturated – if you find that the “affordable office wear for women is saturated”, invest in something else. You have to be able to find a niche that will make your business unique and serve your customer’s unmet needs.

Bear in mind that as much as the internet is the land of opportunity, it is a very competitive space to establish a business. E-commerce is unlike brick-and-mortar shops where you can get foot traffic by your mere presence. You will be competing against larger and more established businesses that spend more on online customer acquisition. The best way to claim a piece of the pie is by starting out in a niche that isn’t too saturated.

You underestimated the investment it takes

Starting an online store is easy and inexpensive, right? In fact, anyone with a social media account can set up their online store and start selling products in minutes with only a few thousand shillings! While all that is true, many new entrepreneurs underestimate exactly how much it takes to have a thriving online business.

Like any truly successful business, a fledgling online store will probably require several capital infusions and significant labour. If you are starting your online business as a side hustle, make sure that you have enough time to run it. Which tasks can you outsource? Do you need to hire someone else to help you run the business? These considerations will help you make the right decision.

On the other hand, if you already have a physical store and are expanding to e-commerce, think about the online store as a new location. After all, the online store will require a similar investment in time and a good portion of what it would have cost you in revenue. But don’t worry – if you do it right, this is an investment that is sure to pay off.

You had poor inventory management

Poor inventory management is a mistake that many new e-commerce entrepreneurs make. If you are poor at managing your inventory, you are likely to also have cash flow problems. For example, if you invest all your money in inventory, you won’t have any left over to pay for social media marketing campaigns. And if you invest in too little inventory, you will miss out on sales and disappoint customers.

To avoid such problems, write a business budget for your online store. As much as possible, spread out your expenses to ensure that everything is not due at once. For example, you can make arrangements to pay for inventory in terms of 30, 60, or 90 days.

Take into account that suppliers have different lead times. While it might take a couple of days for one supplier to get you a certain product, another could take a few weeks. Place your orders accordingly to make sure you always have adequate inventory without cash flow problems. In addition, spend or reinvest based on actual revenue, not ambitious projected sales.

The online customer experience was wanting

To be successful in e-commerce, you must think about the online shopper and their experience. If your website is difficult to navigate or not mobile-friendly, they’re unlikely to purchase your products.

A successful online business starts with a good website. Ensure that your website is secure, mobile-friendly, and light. If you have a shoe-string budget and little technical expertise, there are various platforms where you can create a simple online store. If you can afford it, hire a professional website developer to do the work for you. Remember to constantly test your website to ensure that it runs smoothly.

On top of that, enable shoppers to inspect products with high-quality product photography. Look at the most successful online stores in your niche for ideas on what works. When you choose the right niche, create a user-friendly site, have proper inventory management, and invest in online marketing, you are on your way to being a successful e-commerce entrepreneur.

Remember, it takes time for any business to grow. Many new e-commerce entrepreneurs expect to start earning profits immediately. But don’t be surprised if it takes several months to start making even meagre profits.

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