Top 5 Reasons Why Most eCommerce Businesses Close in Their First Two Years?

With so many easy-to-implement technologies available for starting an online business, you’d think a good idea is all you need to set up your own eCommerce business that will propel you to the heights of success. Unfortunately, most eCommerce businesses fail in their first two years, and many don’t even last 4 months. How is this possible? It turns out a good idea and a website are not enough to make it in the online market, you’ll need much more than that to grow into a successful business.

The problem with literally anyone being able to start a business online is that people are lead to believe that after they’ve somehow managed to launch their online store, staying afloat is just as easy. The fact of the matter is that the real challenges starts only after you’ve jumped through all the hoops of building your eCommerce website and worked out the logistics of it all. People without any business acumen get on the bandwagon of setting up an online store just to realize they don’t have the necessary skills to manage their business properly. This lack of business acumen and the inability of businesses to adjust and react to consumer demands leads to them closing in their very first years.

Which are the top reasons why eCommerce businesses fail and how to avoid these eCommerce faux pas?

Lack of knowledge on how an eCommerce business works

how ecommerce works

Not understanding the ‘how-tos’ and the ins and outs of what exactly an eCommerce business entails is one of the very first pitfalls that many businesses fail to acknowledge. First off, the sooner you understand that managing an eCommerce business is not easy, the better. It means that you’re ready to take on challenges, to keep an open mind, to put in the hours, and go that extra mile that others may not. So look into what it means to launch and sustain an eCommerce business, what common eCommerce problems you might face and how to avoid them.

You’ll need to dig into subjects like search engine optimization, user engagement and retention, social media presence, online marketing campaigns, visitor analytics tools, quality copy, product showcasing, customer support, and literally every and all aspects of making your website as easy-to-navigate and as user-friendly as possible.

The “build it and pray for the best” attitude towards an online business simply won’t suffice. You have to make it the best, and for that you’ll have to become well-versed in the subjects listed above.

Unable to keep up with customer demand

This too, is a multi-faceted problem – businesses may not be able to keep up with customer demand due to being under-funded, or because they focus more on their own visions and not on what consumers actually want. Both problems stem from unpreparedness. Without the funding you need, you won’t be able to mobilize the necessary capital towards meeting consumer needs. Thus, if your business doesn’t have the necessary capital to get started, it’s best if you don’t rush into launching a less than satisfactory version of your online business.

Also, it’s good that you have a vision that you hold dear, but are you sure that vision is in line with what your target audience is looking for? Before you launch any service or product think about how that product or service is helpful or useful for your consumers. Do some research into what your consumers think about it, and if you don’t receive the positive feedback you expect, be ready to make adjustments.

Unable to provide the best prices

The price of a product or service is just as important as the quality of it. But if you offer the exact same product at a higher price than your competitors do, you won’t be able to stay afloat for too long. If you absolutely can’t afford to cut down on your prices, make sure you sweeten the deal with discounts, free shipping, or even free express shipping. If your product is more expensive because it’s not the same as the product offered by your competitors, make sure to highlight why your product is different. If your product is more expensive for the right reasons (e.g. ethically sourced sheepskin, fair trade coffee, fair trade organic cotton, durability, etc.), your customers are more likely to buy from you instead of your competition. Consumers are generally ready to pay more for high quality products and services.

Not knowing who the target customer is

not knowing who the target customer is

This is another eCommerce faux pas that you should try your best to avoid. Only by knowing exactly who you’re selling your products to, you’ll be able to target your niche audience. If you’re trying to break into a field where competition makes it difficult to enter, do some research, see which niche your competitors have missed and try to target that. Are your competitors focusing only on providing their services to large companies and businesses? See if you can create a version of your product that will be suitable for small businesses or average users as well.

Try to differentiate your business from your competition by responding to a particular need that hasn’t been tapped into by others. Identifying your target audience also means that you’ll be able to better identify their needs and shape your products and services according to these needs.

Bad team and cash flow management

ecommerce bad team management

The team you take on board to help you out with your business and the way you manage cash flow can make or break your business. Many businesses fail because of these two aspects, so make sure you surround yourself with people who are knowledgeable at their job. Whether it’s marketing, accounting, IT, or customer support, make sure you choose people who can work together, who add value to your organization, and are committed and flexible enough to grow professionally.

Always have a business plan and business forecasting system in place and monitor the management of cash flow. Even if you do everything else right, but you fail miserably at budgeting, you risk putting your business in trouble. If you don’t have the financial acumen skills to manage cash flow, make sure you either get someone on board who does, or learn the ins and outs of it yourself.

Understanding and identifying the pitfalls of an eCommerce business, and being able to deal with them in an efficient and timely manner, can help you grow your business and stay on top even in areas with heavy competition.

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David Cross

David is the chief editor at WebHostingMedia right from the beginning. He has a great passion for building and managing websites and creating helpful content. He is also interested in programming - currently learning python.