March 14, 2001
The Profitability Problem
A new report finds 50% of business-to-consumer sites are profitable
Despite all the bad news about e-commerce companies lately, the truth is not all e-commerce companies are on the edge of going out of business. In fact, according to an ActivMedia Research study released this week, half of online business-to-consumer sites and one third of business-to-business sites are profitable.
The road to profitability online, however, can be a tough one. The study found the "newness" of e-commerce is one possible reason why many online companies are struggling to make a profit, and many of the high-profile online companies will take the most time to reach profitability. The secret to success in e-commerce is still mostly unknown, but many companies have ideas of what works and what doesn't. Here are some suggestions from profitable online stores:
In a report released in February, Boston Consulting Group found most online retailers hurt their chances of reaching profitability by being unable to effectively respond to customer demands. The group found online merchants need to address five key areas at once to succeed:
- Build your online business to support itself from the beginning.
- Plan on slower growth and careful spending, and rely on word of mouth to acquire new customers.
- Work on strengthening customer relationships and improving delivery, fulfillment and Web site performance instead of adding snazzy graphics and features to your site.
- Cut back on advertising expenses, and focus on only highly targeted advertising.
Customer satisfaction plays a huge role in how successful an online store can be. In a different survey, BCG found the most-satisfied customers spent $673 online in the last 12 months, while the least-satisfied customers spent only $428. The survey results suggest a strong correlation between customer satisfaction and the likelihood customers will return to the site and recommend it to others.
- Improve visitor-to-buyer conversion rates. BCG suggests tailoring your offerings to the high-value customer segment.
- Increase the proportion of repeat customers cement loyal relationships with customers by delivering a flawless online shopping experience.
- Increase site traffic.
- Increase orders-per-customer.
- Improve the ratio of repeat-order revenue to first-time order revenue.
- by Julia M. Duncan