90% of Online Businesses Fail After Four Months

Nowadays, it is relatively easy and cheap to start a small online business. Anyone who has a product to sell can sign up for an e-commerce platform or set up a business profile on social media and immediately start receiving orders. It is a far cry from the old days when an aspiring entrepreneur needs to find a space for a stall or a brick-and-mortar store. It also makes sense to go online rather than the traditional route as more consumers opt to shop using websites and apps. In 2020, experts estimated that 2.05 billion people around the world, or 26% of the entire human population, are digital buyers.

Most Online Stores Fail

However, despite the ease, the majority of online stores close after only a few months. A survey by MarketingSignals revealed that the failure rate for e-commerce startups is 90% within 120 days or four months. For comparison, according to the Small Business Administration, the survival rate of new brick-and-mortar stores is 78% after one year. The failure rate, therefore, is only 22%. Why do so many online businesses shutter its doors after four months?

Low Traffic

Consumers do not suddenly show up because a website exists. That is why finding out which e-commerce platform is best for a small business is crucial to success. There are so many other businesses online, all competing to gain a bigger slice of the market. There is also Amazon which accounts for a huge portion of all online sales across the United States. In September 2019, 150.6 million people accessed the Amazon app. A survey also revealed that 89% of consumers would choose to buy from Amazon than on any other e-commerce platforms. The competition is fierce, but there are also several strategies that businesses can adopt to market their goods. Building a social media presence is an effective way to boost traffic to an online store and entrepreneurs do not have to spend a lot of money to do it. SEO (search engine optimization) is a low-cost way to increase online sales. PPC (pay-per-click) is a little more expensive, but it is fast and it provides high returns.

Bad Website Design and Content

The overall look of the online store has an impact on whether a customer will make a purchase or not. After a marketing campaign has herded interested consumers to an e-commerce platform, the next thing that should entice them to buy is the website and its contents. Sleek Note reports that, on average, only 2.72% of online traffic in e-commerce platforms convert to sales. Offering the lowest possible prices is not enough. Online stores should be able to offer a unique and personalized shopping experience to the consumer. The business should also offer quality content. Because sales happen online, the customer can only be enticed to make a purchase if the photos of the product are good and the descriptions are accurate.

Low Investment

Opening an online store is cheap, but there will always be other expenses that come up when running any kind of business. An online store will need to be injected with capital throughout its lifetime. A few hundred dollars may not be enough for the business to survive a highly competitive market. By refusing to spend more, businesses end up with a website that does not look or difficult to navigate, publishes low-quality content, lacking cybersecurity, etc. Eventually, entrepreneurs will need to spend more money to improve their services. There is also a significant amount of labor involved in the process. Running an online store is not easy, especially if the owner is doing everything on their own. They would need a team as soon as they receive an increase in traffic.

Mismanagement

Not everyone has to be a seasoned business owner to open an online store, but aspiring entrepreneurs should learn about how to run a business before they start an online store. Mismanagement is one of the most common reasons why new e-commerce businesses fail. Inventory can be a problem. There is a lot that could go wrong. A business owner can overestimate demand and buy too much of a product which can affect cash flow. There would not be enough money for marketing or operational costs, forcing the business to close down. The business owner should be able to crunch the numbers and properly allocate funds. There should be a balance between the money that is coming in and out of the business. If the business is spending more than it earns, the money will eventually run out. No business is immune to failure. There will always be a risk that a business will have to close its doors because it is no longer profitable. However, knowing the common reasons why businesses fail can help entrepreneurs anticipate the problems they will encounter and plan for it.