I don’t plan on starting another e-commerce company anytime soon, but if I did, I would do three things differently from my first business.
1. No Discounts
Discounts are the lazy way of increasing order volume. A discount might persuade more people to order, but the problem is that you’re also giving the discount to people who would have paid full price. That’s a profit killer.
Plus, you’re training your customers to expect discounts in the future. Once your business gets on the discount treadmill, it’s hard to get off.
Every business has some customers who are just a pain in the ass. Guess whether it’s the full price customers or the discount customers who cause the most problems. Yeah, I don’t even need to tell you. No discounts means you can filter out some of those customers.
2. No Returns
This one sounds insane, but it’s actually returns that are insane. Shipping is expensive. If you offer free shipping and free returns, you’ve paid for shipping both ways and a third of the items that come back aren’t sellable.
In addition to the shipping costs, you’re paying employees to help the customer through this process, receive the return, determine if it can be resold, restock the item, and provide a refund or store credit.
Ever wonder what happens to your Amazon returns?
Instead of offering returns, I would encourage the customers to think before they buy. Turn the perceived negative into a positive – everyone benefits from a more thoughtful shopping experience when waste is reduced.
And if they don’t love the product, I’ll suggest three solutions: give it to a friend, sell it on Facebook marketplace, or donate it. Sometimes things don’t work out; that’s life. Just deal with it and move on.
3. Exclusive Products Only
It’s hard to make money when you’re reselling products from other companies. If a customer can buy the exact same product from multiple websites, then you’re competing on price and it’s a race to the bottom.
It’s easy to sell someone else’s product – you buy it and put it on the website. But maintaining profitability at 30-50% margins (before shipping costs) is a challenge.
It’s hard to make your own product, but much easier for your business to be profitable when you have margins of 70% or better.
Better to do the hard thing up front by creating your own products than chase revenue by constantly adding other vendors’ products with high competition and low margin.
These rules aren’t for everyone. It would be hard to run a e-commerce business that offers no discounts, no returns, and only in-house products. But the opposite is hard too and you’ve got to choose your hard.