A joint research initiative conducted by Forbes, Huffington Post, and Marketing Signals revealed a staggering 90% failure rate among eCommerce businesses operating exclusively online within the initial 120 days of their launch. The study of why ecommerce businesses fail involved surveying the unsuccessful entrepreneurs, prompting them to identify the primary 16 reasons contributing to their business failures.
This finding is not surprising given that online retail, constituting the eCommerce channel, stands out as the most intricate business model in history.
Rule-Based Engagement:
In contrast to physical retail where salespeople can leverage natural charisma and build rapport, online retail relies entirely on rule-based interactions. Every aspect of rapport-building and sales is governed by technological rules.
Learn more about how these rules shape the online retail experience and the strategies retailers must employ to navigate this challenge.
Demand for Skilled Professionals:
Effectively managing the eCommerce channel necessitates a collaborative effort of specialists working cohesively towards a common goal. The design, operation, and success of an online channel require specific skill sets and a robust knowledge base in eCommerce fundamentals.
Without these prerequisites, businesses are susceptible to erroneous decision-making, inadequate resource management, mishandling of diverse technologies, and improper utilization of specialized third-party vendors.
When examining the following top 16 reasons, it’s crucial to be mindful of the potential misdiagnoses from leaders of failed online businesses.
While they may perceive the issue as one thing, the true root cause often stems from the complexities highlighted in the above two elements that define the intricacy of the eCommerce Channel.
Bear this in mind as you delve further into the contents of this article.
E-Commerce Failure Rate – Learning from Failure
If you’re contemplating launching a new e-commerce venture and feeling a bit jittery, it’s completely understandable. Brace yourself for the reality that mistakes will be made, and not everything will unfold as planned.
Yet, there’s a silver lining – you can take steps to minimize the likelihood of errors and prevent your e-commerce endeavor from becoming a statistic of failure.
Consider this eye-opening fact: recent research indicates that approximately 90% of new startups face failure.
E-commerce businesses share a similar fate, with a staggering 80%-90% experiencing failure, resulting in an e-commerce success rate of less than 20%. Whether you’re just starting your online business or already managing one, these figures might send a chill down your spine.
However, there’s no need to despair. While successful businesses offer valuable lessons, failures can provide even more insightful teachings.
Delving into the research, I’ve identified the top 16 reasons why e-commerce businesses often meet their demise. By steering clear of these pitfalls, you can position your business within the coveted 10% that thrives.
Why eCommerce Businesses Fail
1,253 failed business owners took part in this research which found 10 common reasons for failure…
- Poor online marketing – 37%
- Lack of online search visibility – 35%
- Little to no market for their products or services – 35%
- Running out of cash – 32%
- Price and costing issues – 29%
- Got outcompeted – 23%
- Retail giants dominating a large share of the market – 19%
- Lack customer service – 16%
- Poor team – inadequate knowledge of how to drive eCommerce – 14%
- Product mistiming – 11%
16 Reasons Behind E-commerce Businesses Failures
Inadequate Product Content
Despite having an excellent product and thorough market research, your product listing falls short with a low-quality image and poorly crafted copy. Instead of representing a successful e-commerce business, it resembles something found on eBay or a questionable Amazon vendor’s site.
Recognize that the world is watching, and there’s no excuse for subpar English (thanks to tools like Grammarly). Ensure you avoid making a negative impression and devaluing your brand due to a lackluster launch.
As my grandma always says, the first taste is with the eyes, and she’s absolutely right. If your product image resembles a shot taken with a 2005-era camera phone by a ten-year-old, it won’t impress your customers. Invest the time to learn how to capture high-quality product photos that captivate your audience.
Visual appeal is not limited to images alone. Your product description should clearly articulate your item and be compelling enough to resonate with your audience.
Don’t just dazzle them with visuals; ensure your written content contributes to a positive and engaging customer experience. Use bullet points to list the benefits of your goods in a positive light, as Amazon has done for their Kindle Paperwhite.
Conveying clear benefits to the customer is seamlessly integrated with product specifications, presented in an easily comprehensible format. In certain instances, simplicity surpasses intricate, ornate language. Consider the impact of your user interface on the overall customer experience.
Excessive Friction
Interested in that summer dress? Fantastic! Just click “Add To Basket.” Next, proceed to “Checkout.” Select your preferred delivery option. Then, input your home address, your partner’s address, your aspirations, and a 1000-word essay on your family history.
Alright, I might be exaggerating a bit. However, even though it may sound apparent, numerous e-commerce businesses still overlook the importance of streamlining their checkout process, to their detriment. This oversight has been identified as the primary reason why consumers abandon their shopping carts before completing a purchase.
Simplifying and streamlining your checkout procedure is crucial to prevent customers from exiting your marketing funnel at the final stage. It’s a straightforward adjustment that holds significant value.
Consider incorporating checkout trust signals as well. Consumers may be wary of unfamiliar websites and brands, so aligning with reputable payment facilitators can instill confidence.
The ultimate objective is to encourage repeat business, gather essential data, provide customers with a positive experience, and allow them to seamlessly continue with their day.
Discrepancy in Pricing and Ads Alignment
I came across a fantastic deal on a blender recently. However, upon reaching the checkout, I discovered that the postage and packaging costs were nearly a third of the product’s price itself. Consequently, I opted not to make the purchase.
This resulted in no sale for the seller and no morning fruit smoothie for me. If the full cost, including postage and packaging, had been transparent from the beginning, I might have been more inclined to proceed with the purchase.
Managing customer expectations is vital. Hidden fees significantly contribute to cart abandonment. It’s crucial to ensure that what the consumer sees aligns with the actual cost, without surprising them with unexpected expenses at the last minute.
Numerous free or reasonably priced shipping calculator widgets are available, so be sure to integrate one into your store.
The same principle applies to misleading ads. All your efforts can unravel if you direct consumers to an offer or landing page that doesn’t align with the ad they clicked.
Playing with your customers’ trust in such a manner is detrimental to your reputation. It’s a path that leads to unfavorable outcomes for your business.
Lack of a Transparent Return Policy
Regardless of the success of your online business, returns are inevitable. Without a clear and accessible return policy, your business may appear less credible.
It’s unrealistic to expect customers to make a purchase when they are uncertain about the return policy or struggle to find it.
Ensure that the return policy is easily identifiable under each product on your website and is sent with the receipt in case they choose to buy from you.
Having a well-defined return policy is particularly beneficial when dealing with customers who make short-term purchases, returning items in an attempt to secure a full refund.
Clearly communicating the return policy and sending it via email with the receipt will protect your business in case customers attempt to return products outside the specified timeframe and consider legal action.
Inadequate Financial Management
As we all recognize, a prerequisite for initiating any business, regardless of its nature, is having sufficient funds. Maintaining the right cash flow is crucial to sustain your business, as its absence can lead to a swift demise.
Exercise caution to avoid overspending at every stage of your e-commerce business, from marketing expenses to the budget allocated for essential software. It’s preferable to underspend initially, allowing room for adjustments and learning from any mistakes while retaining the financial means to adapt.
Concerning inventory, excessive ordering can result in prolonged product turnover, and if suppliers are slow in fulfilling orders and shipping, customer satisfaction may be compromised.
It is wiser to start with a modest inventory to assess product demand and adjust orders accordingly. When dealing with suppliers, it’s beneficial to source from a few and discern which ones align best with your business needs.
Neglecting the Significance of Mobile User Experience
Recent data reveals that 62% of smartphone users have made purchases using their mobile devices in the past six months. Given these statistics, prioritizing the creation of a responsive e-commerce store that functions seamlessly across all devices is indispensable.
Fortunately, technology has made achieving this goal relatively straightforward, leaving no room for a subpar mobile experience in 2023.
Familiarize yourself with the essentials of optimal mobile user experience (UX) tailored to your store. Utilizing Shopify’s store builder ensures automatic optimization for mobile devices.
Conversely, those employing a more customized system like Drupal may need to invest additional development time to achieve the same outcome. If you’ve opted for a shopping app, thorough testing before the official launch is essential.
Regardless of your platform, it’s worthwhile to personally test your store on various devices, ranging from laptops to tablets, considering different web speeds and accessing it from various locations and IP addresses globally.
If a customer encounters difficulties navigating your site, they can easily seek alternatives. Ensuring a smooth user experience is your responsibility to retain their engagement.
Having a Lackluster Marketing Strategy It’s a sunny day, and you’ve made the perfect lemonade. It’s the ideal sparkling solution for a warm summer’s day. But you’re selling it on an empty street, and no one knows you’re there.
That’s why you need to ramp up your online marketing strategy. Your plan should include paid, owned, and earned media and contain useful and relevant content. Think about your audience. Who are they? What do they want from your brand? What social media platforms do they use?
These questions are essential when formulating your marketing strategy. Even the smallest startups will need to invest in paid media at some point.
Social media ads are a great way of driving traffic to your online store and are relatively cheap compared with other forms of paid advertisements. Social ads are the cornerstone of a successful online business, with an estimated 1.39 billion active Facebook users every month.
Having an Ineffective Marketing Strategy
Imagine crafting the perfect lemonade for a sunny day – a refreshing solution for warm summer afternoons. However, you find yourself selling it on a deserted street, with no one aware of your presence.
This analogy illustrates the importance of elevating your online marketing strategy. A comprehensive plan should encompass paid, owned, and earned media, incorporating valuable and relevant content.
Understanding your audience is crucial. Who are they? What do they seek from your brand? Which social media platforms do they frequent? Answering these questions is fundamental to shaping a successful marketing strategy.
Even the smallest startups will eventually need to invest in paid media. Social media ads, in particular, prove effective in driving traffic to your online store and are relatively cost-efficient compared to other paid advertising methods.
Social ads play a pivotal role in the success of online businesses, especially given the estimated 1.39 billion active Facebook users every month.
Neglecting SEO Optimization
While implementing SEO on your e-commerce site might appear as a task for the later stages, it’s advisable to incorporate it right from the beginning. Identifying your crucial keywords is essential.
At a minimum, ensure that these keywords are present in your page title tags, along with relevant search terms directly related to your products. Opt for high-volume, low-competition keywords to maximize your chances of achieving favorable search rankings. If this sounds a bit advanced and you require further assistance, seek additional guidance.
Failing to Strategize and Test Products
Some believe that simply choosing any product and selling it online guarantees success as an e-commerce business owner. While this notion may seem like a dream scenario, the reality is that bringing a product to market without testing it is not a viable strategy.
Successful outcomes require thorough market research, utilizing software, and conducting competitor analysis.
Venturing into Saturated Markets
Entering a niche where everyone is vying to sell identical products and adopting a generic approach is not advisable. Selling commonplace items like dog collars won’t yield significant results. However, narrowing down to a more specific sub-niche, such as military dog collars, could enhance your prospects.
The key takeaway is that when selecting a niche, avoid opting for generic, widely available products like standard dog collars or ubiquitous fitness watches that saturate the online market. To achieve success, it’s essential to delve into a niche and further specialize to stand out.
Additionally, steering clear of products with well-established brand name competitors, such as Nike and Adidas, is advisable. Selling items like gym apparel, sneakers, and other products dominated by prominent brands in those niches would be challenging.
The “One and Done” Syndrome
In the face of challenges, some individuals tend to throw in the towel swiftly, and this tendency is prevalent in the realm of e-commerce as well.
Despite conducting thorough research and competitor analysis, the disappointment of a chosen product not meeting sales expectations may lead to the inclination to shut down the store and abandon the endeavor.
It’s crucial to recognize that success in e-commerce is not guaranteed, and there could be various reasons why a product falls short of anticipated sales.
Therefore, it is advisable to try out at least 3-5 products before considering giving up. Each attempt provides valuable insights and learnings, and quitting after just one product means forfeiting the opportunity to discover what could have been.
Overemphasizing the Front End
In any business, including e-commerce, having a well-designed website, appealing business cards, and a memorable brand name is important.
However, these components alone are insufficient for sustaining long-term success. It’s equally crucial to build a robust backend, as it plays a vital role in the ongoing vitality of your business.
Your customers are the lifeline of your business, and their interactions with your site significantly impact their overall experience.
Therefore, it’s essential to prioritize their needs and ensure that your website offers the functionality necessary for efficient operation. In the grand scheme, a well-balanced focus on both the front end and the backend is imperative for the sustained health of your business.
Ineffective Site Navigation
Similar to the checkout process, it’s crucial to ensure that your website is visually appealing and user-friendly. In e-commerce, key elements for effective navigation include clear labels (keeping them straightforward) and compelling visuals (as they often guide navigation more effectively than text).
Insufficient site navigation can deter potential customers, turning them away from what might have been a promising engagement.
Customers seek an experience that is easy, convenient, and intuitive, encompassing seamless navigation while browsing the website, locating products, and everything in between.
Take the company Norwegian Rain as an example.
As evident from the above, the company’s offerings are immediately discernible. The website is devoid of clutter, avoiding any intrusive animations. The shopping cart is prominently placed in the top left-hand corner.
Even without using a mobile phone, it’s apparent that the site is well-optimized for mobile devices. Crucially, a first-time visitor would likely navigate the site swiftly, accessing information or products with ease.
This aligns with the checkout process, as mentioned earlier. Simplifying the experience for potential customers increases the likelihood of smooth purchases, effortless exploration of startup details, or, at the very least, swift decisions about their association with the company—whether to stay or leave.
Irritating Pop-Ups
Few things are as bothersome to a potential consumer as visiting a website to make a purchasing decision, only to be greeted by a pop-up within seconds of arrival.
While having a popup on your site can be acceptable, it’s crucial to choose the right time and context. An immediate popup when a visitor is still exploring whether to make a purchase can be off-putting to your potential customer.
Popups that lack a visible exit button can particularly frustrate users, leading them to leave your site more often than not. It’s essential to employ pop-ups thoughtfully to enhance user experience rather than detract from it.
When considering the use of a popup, it’s advisable to set it to appear a few minutes after a user has been on your site. An even more effective approach is to trigger it when a specific action occurs, such as when someone adds an item to their cart.
Additionally, it’s good practice to include something enticing, like a coupon or a free add-on, to enhance the value of what they are already considering to purchase.
Mandatory Registration
What can be even more frustrating for potential customers is being required to register within the first few moments of arriving at your site. Expecting users to register or denying access without it often leads to them leaving.
Just as you wouldn’t ask someone out after only meeting them for a few minutes, the same principle applies to your website.
For individuals to commit to your site and potentially become advocates, they need the opportunity to familiarize themselves with your company and products.
This exploration plays a crucial role in determining whether they will dislike your site and leave, make a one-time purchase, or evolve into lifelong repeat customers.
Lack of Customer Service
Regardless of the size of your company, having effective customer service is imperative for sustained success. In the realm of online product sales, customers will inevitably have queries, and if you cannot provide timely and satisfactory answers, they are likely to turn to your competitors.
A decade or so ago, poor customer service might have resulted in a written complaint and a potential refund. However, in today’s digital age, where everyone carries a computer in their pocket, discontented customers can easily share their grievances online, reaching a global audience.
According to a 2017 survey, 54% of respondents stated that they ceased business with a company due to a negative experience, a figure that rises even higher among millennials, reaching up to 61%. Effective customer service is not just a nicety but a critical component in retaining customers and maintaining a positive online reputation.
Conclusion:
The primary challenges hindering the success of online startups are subpar site engagement (user experience) and deficiencies in order/inventory management. These foundational functions are pivotal for the triumph of online businesses.
Despite being explicitly mentioned, many of the other challenges trace back to people-related factors. It’s essential to recognize that the success or failure of these endeavors often hinges on human elements.
The intent of this research is not to label these owners as failures but to offer valuable lessons for others. While some critiques may seem blunt, they align with the realities of the competitive business world we inhabit.