Copyright ©2004 LUKY Designs, Denver, Colorado. All Rights Reserved. No permission to copy or re-distribute.
“How can I profitably sell online?”
by Todd Roseman
Good question. It's sad to hear of a site that failed because the owner didn't check the market before offering their wares. Not everything is right to sell on the web. You have to check the market, check your competition, and check your checkbook.
How many people might want your product or service? Are they searching online? What words do they use? There are a couple of tools to help you track down your potential on the web: Overture and Wordtraker.
Overture is a Yahoo company that sells Pay-Per-Click advertising. One nice feature that Overture offers is the Search Term Suggestion Tool. The Overture logo below will open a new browser window with Overture. Switch between these instructions and Overture to follow along this tutorial.
3. Click on Search Term Suggestion Tool.
4. Enter your potential search terms.
We'll use a fictional pottery store owner, Mary, who wants to sell pottery from local artists online.
Enter pottery and check the results.
The results show the number of searches done on Overture-advertised search engines (mainly Yahoo & MSN) over the last month. 55,341 is a lot of searches! Actually, too many. Unless you're a pottery barn and have a strong brand name, you're not going to want to compete on that keyword.
Criteria #1: NOT TOO MANY
Too many searches means you're competing for a very popular term. If you are a market leader nationwide in that industry then you do want to compete for that term. For most small businesses however, it's time to narrow the playing field a little. Let's say that Mary, the owner of the pottery business, knows that she can get some pottery made to have a tortoiseshell look. It's a specialty pottery with a distinctive look. Enter tortoiseshell pottery.
What! No searches!
Criteria #2: NOT TOO FEW
Well, that's not going to work. Nobody is searching for tortoiseshell pottery on the web. That doesn't mean that Mary can't sell it on her site - it does mean that she won't be successful in getting customers if she focuses on that keyword. Another artist makes pottery using actual horse hair in the firing process. Let's try that: horsehair pottery.
This looks good! Ok. Let's add that to our list of Good Keywords.
So Mary's job now is to think of all the types of pottery she can offer and gather a group of potential keywords. She might try "horse hair pottery" in case it's typed differently. She should look at "ceramics" and other variations. This is where it helps to know your market and their terminology. Oh, and it helps to be a bit of mind-reader to guess what your potential customers might search on. Of course, you may not be the only one doing this.
Close the Search Term Suggestion Tool and click the View Bids Tool.
Enter horsehair pottery and type in the security code and click Search.
Great! There are only two companies who have purchased ads at Overture for this term. The first one is bidding 11 cents and the second one is 10 cents. This looks like a good place to advertise with good pricing and not much competition.
This means that every time someone clicks on the top ad, Overture will charge them 11 cents. Not a bad way to get potential customers to your site.
Let's try handmade pottery since that covers a lot of what Mary sells.
This is a very different picture. First, there are 19 companies bidding on this term. So she has some real competition for this term. Second, the top bid is 68 cents per click. Is that too much? How much is too much?
There's no way to know for sure without trying it. But you can make some educated guesses. The important factor is called the conversion rate. This is the percentage of people who click this ad who become customers. There is no stock number since each industry and each specific search term gives a different conversion rate. In general, the more specific the search term, the higher the conversion rate. That's because you have exactly what people are looking for. The conversion rate tends to decrease as the amount of competition increases. Makes sense because people have more places to shop. Other factors that affect conversion rate include: product variety, pricing, web site design, perceived trustworthiness, and ease of use of shopping & checkout.
Criteria #3: NOT TOO EXPENSIVE
Using the Search Term Suggestion Tool, we get 1045 searches last month. Let's say that 25% of those searchers click the top ad and 5% of the people who click become customers with an average order of $100 each. That's around 13 orders per month for a total of $1300. The advertising cost is $0.68 x 261 = $177. Let's say that the profit margin on each sale is 40% when you include all overhead including order processing. That leaves a profit of ($1300 * 0.40 ) - $177 = $343 per month with this one keyword. Profitable, yes. But obviously we need a greater volume. This is where intelligent selection of keywords and ads makes all the difference. It is possible to be profitable selling online - you just have to be smart about it and do your homework.
This is a very simple example and you have all kind of secondary effects happening like return customer orders and customers purchasing more than the keywords would suggest based on your variety of offerings. Also, the placement on the search engine results for these same keywords works in tandem with these ads. It's easier to start your analysis with ads since it's so easy to find this information and quickly analyze it.
As we saw above, it's good to have a budget for advertising. This is essential for beginning eCommerce sites since it takes awhile to get your site ranked well on the search engines. It's also good to sit down, perhaps with an accountant, and figure out how much you can afford to spend to get a customer and your average order amount.
In addition, you need to figure in the cost of designing the web site and adding products to the site. Typical fees for designing an eCommerce site range from $500 for a very simple site with a few products to $2000 or $3000 for complex sites with customized features. Also figure in data entry hours on the order of 1/2 hour per product or so. Most manufacturers supply images of their products on CD or on their website. You will usually have to re-size the images to fit your shopping cart and page design. Figure 1/2 hour per product to cover handling images. Once you have this streamlined the time could be greatly reduced.
Other Reasons for Selling Online
It's not always about the straight profit from sales, although that's usually important. Many times store owners want to provide online ordering for the benefit of their customers. This works especially well for niche items, items only available locally or items that have a particular bond with the store or creator. An online eCommerce site can be hard to justify for stores selling generally-available products since online shopping can be driven heavily by price.