Start an online Business with Ideas
Starting an online business is an easy way to start your own business with limited investments. This blog explains 70+ best Online Business Ideas and tips for 2019.
Online Business models - How will I make money?
Below, as an introduction, I want to briefly discuss what online business models are currently available. There are basically four main ways to make money online:
1. Sell products or services
The most common model is usually referred to as e-commerce. However, e-commerce does not necessarily need to involve a physical product.
Examples: Shopify design awards! (Be inspired by the design of successful e-commerce sites using Shopify, one of the most popular e-commerce systems for small and medium-sized shops.)
2. Generate leads - This means that you have some interesting content driving visitors to your website. However, you do not “sell” anything directly to a visitor. Instead, you make money by referring the visitor onwards to another website that gives you a “kick-back” since you provided the “lead” to them.
Either you have your own program, which is typically the case for large online newspapers, magazines, and yellow-pages (but also some niches.) Or you are getting paid via an intermediary like Google AdSense or an affiliate marketing platform.
Example: SmartPassiveIncome (the author is open to opportunities in which he receives a commission on these tools that he also recommends in the resources page.)
3. Sell Premium content
This is the model where you charge visitors to access part of the information you are offering. Examples of this are media consumption such as video, music, e-books, online software and membership platforms such as dating sites. Most often this is provided in a “Freemium model” meaning that part of the content is available for free.
But if you want to consume more (once you are hooked) you need to upgrade to “premium” and pay a fee. Example: I Will Teach You To Be Rich in which the author claims that he shares 98% of his knowledge for free. The rest is paid in the form of courses. Many apps for Smartphones/tablets are also based on this business model.
4. Provide a marketplace
In this model, you provide an online location that will help match buyers and sellers of different products or services in an online environment. You can choose to make money only on the sellers, only on the buyers or both. Example: (Vacation Rentals, Homes, Experiences & Places - Airbnb, the global marketplace for short-term rental of your home).
These four models can also be combined, but typically one model is the core concept and another one has been added to further optimize revenues.
When you are planning an online business, it is important that you conclude what will be your core revenue. If you are already running an online business, it is worth it to acknowledge which of those you are using. This will increase your awareness of online business mechanics.
How do I choose the right online business idea?
This blog is primarily about the execution and optimization of your online business. However, I have noticed, that coming up with an idea is also a challenge for beginning online entrepreneurs. Therefore, I briefly share my insights into the process of choosing the right online business idea below.
The good news is that the online world is growing very fast. Therefore there is always an abundance of new ideas. If you apply lessons from this blog, you will soon realize that the success factor is about concluding what NOT to choose, rather than how to come up with “the idea of the century.”
1. Offline→Online mind-set - Everything sold “offline” can be sold online. Literally everything! Examples include: Food & Other consumables; Clothes & Accessories; Advice; blogging (at hotels, flights, restaurants, taxis, events, etc.)
All the businesses above were traditionally sold offline only. Therefore, if you are looking for an idea for an online business, see what’s being sold offline and (still) not online in a competitive way. If you can find a niche that is “hard to find locally” but still has enough demand for a bigger online market, you might have hit the “sweet spot.”
For example, an e-commerce business that focuses only on “Clothes from the 60s” or “professional dancing shoes” will most likely have an OK national demand but not have a local traditional shop in every town.
2. Make it more convenient - Think of finding information such as the price of a fridge 30 years ago. You would get in your car and drive the whole day to compare prices among local retailers. The same task now takes just five minutes. Providing accounting services as a company?
Such work used to take 10 full-time employees, and now, just one location-independent person who could be, for example, in India can use online software to complete the same work.
So in terms of convenience, the Internet has changed “the game.” Many online businesses are still being created around convenience. Hence, think about how you can make the world a more convenient place.
3. Make it cheaper - Let’s take a traditional, offline business. It sells electronics. It has 10 retail stores and 40 employees. It rents an inventory warehouse. It owns stock. It has trucks.
4. Come in as a 2nd or 3rd player and dominate the market - There is a common view that the first company to discover (or enter) a market niche dominates it.
However, this is often untrue. Companies, that enter first, make the most mistakes and pay a premium for educating their market. It is often the 2nd or 3rd company in the market that succeeds. Examples include even multimillion dollar companies like Facebook and Google.
5. Immature niches - This was the case with Online School Even though online business had come a long way in the general travel industry, it was still lagging in the Online niche when we started. A more recent example of mine is a company I supported with an online concept for car recycling in Poland, which in 2014 still had zero “online” competition.
6. Follow your passion
Another dimension is to ask yourself what you are passionate about? My passion is Online, so I naturally started an online business in the Online industry. This gave great “fuel” to the business development and made it easier to become an “expert” in my niche.
7. Think about your unsatisfied needs - Have you ever been struck with a thought like: “Wouldn’t it be great if…?” This is an indication that you have a new business opportunity within your grasp. Continue that thought and think about how it can be conceptualized into a business.
Following one or a few of these principles, you will begin to discover many ideas. To me, it happens quite often, but only in the latest years, I have developed the discipline to also write them down in a list.
To make the first evaluation of your business ideas, I suggest considering the following key criteria:
1. Market niche attractiveness - How much money will I make if I am successful?
New trends affecting the market
2. Ability to capture the market - How probable is it that I will succeed?
How strong is the competition in the niche?
Do I have any prior knowledge and experience of the niche?
Am I, or can I see myself becoming passionate about this?
3. Risk - How much resources do I need to put in to test the idea?
How much time and effort will it take to test the idea?
How much money do I need to invest up front?
A quick way to evaluate the first point - market niche attractiveness - is to start using the keyword planning tool in Google Adwords. Here you will be able to see the monthly search volumes for the strategic keywords associated with your business idea.
The keyword tool in Google Adwords will also be helpful to evaluate how strong the competition is in this niche. As indicated in the picture above, my chosen niche “Online camp” has today high competition in paid ads, meaning that many companies are paying to be associated with this search term.
Just note that the monthly search volume estimates are dependent on the period you choose for the data extraction. It is crucial to understand also the seasonal effect and how much the market is growing/declining year by year. The best tool to analyze this is Google Trends.
As shown in the picture above, the search term “Online camp” is very seasonal and during November, it only generates 36% traffic volumes compared to the highest month (June). Hence, if you estimate the market size using Google AdWords during the month of June you need to keep this in mind, not to overestimate the market size.
In the picture above, you can also note a somewhat declining demand; every year the peak is a little smaller. Even though it is just a few percentage points of decline per year, it would, of course, be more attractive with positive growth.
Another indication of how strong is the competition is their Page Rank. This is a scale of 1-10 showing how strong a website is in organic search. As a rule of thumb, I would say that if you find more than four competitors that have higher page rank than “4,” it will be tough to compete in this niche for those who start up from scratch.
However, the most important research activity is to evaluate the competition’s presence online. I suggest you go through all companies that are listed on the first page in Google when you search for keywords associated with the niche you evaluate.
There will always be competitors and new entrants because the Internet has low barriers, but you need to ask yourself, “What can be done smarter?” For example, can you differentiate from your competitors by:
Making a simpler (not as messy) website, for example, by targeting a narrower niche?
Creating a more trustworthy website?
Creating a more enthusiastic website?
Creating a better mobile/ tablet website or application?
Competing in the areas of better convenience in service, customization, payment options, etc.?
Competing at better prices?
The third of the main points for evaluating an online business idea is the risk, meaning how much money, time and effort you need to put into testing your idea. The risk level will mainly be determined by how you plan to differentiate your business and what you are selling (e.g., physical products vs. leads.)
After comparing a few different business ideas with the criteria suggested above, you will get a good feeling of how attractive they seem in relation to each other. Once you have chosen an idea, the next step is to get a simple business plan down on paper.
Here is a structure I usually use:
1. A short description of the business idea - Use the “elevator pitch” concept, meaning that if you meet a potential investor in the elevator, you should be able to pitch the idea clearly and in an inspiring way before the elevator ride is over.
2. Traffic generation - Describe how you will get visitors to your website.
3. Business model - Describe how you will be able to monetize this traffic over time.
4. Operations - How will you run the company?
5. Long-term strategy - What is the long-term growth plan if the concept is successful?
6. Business case
Financial simulation of revenues and costs over time. How much money can you make (in a high vs. low scenario) based on the market size and competition in the niche? How much do you need to invest and what is the return on investment? Typically, the easiest tool to use for this task in Excel.
7. Roll-out plan -What will you do? In what order? With which deadlines? Show all the activities needed to launch the business. Set a clear action list with a responsible person. Set some main “milestones” A good example is a beta launch of the site for friends and family to discover the first transaction expected, etc.
Once you have this business plan documented (typically in 5-10 pages using Word or PowerPoint), you can use it to get feedback from friends and experts. Then it’s time to make the go/no-go decision, meaning if it is worth to test the model in its simplest format, or not.
Social Media traffic
“Social media” has been the biggest “buzz word” in online marketing in the last decade. There have been many “social start-ups,” and the field constantly evolves in exciting ways. But in practice, it has boiled down to having Facebook as the core ingredient of the “soup.”
Besides Facebook, other social media channels include:
Direct substitutes such as Twitter, Instagram, and Google+. Social networks with a specific niche (e.g., LinkedIn, Foursquare)
Content sites that have later added on social media platforms (e.g., YouTube and Spotify)
More traditional forms of Social Media (used before Facebook) such as newsletters, blogs, and discussion forums
But if you should start somewhere, it is with Facebook (using the same logic that you should start your SEO with Google and not Bing/Yahoo) and then once you have it working, spread your influence to other channels. The first step is to create a company page on Facebook where you can post engaging content and interact with potential customers.
But how do you reach thousands of “likes” on your Facebook page? The smart thing is that every time somebody makes an active click to “like” your page, it is seen in the news stream of this person, visible to all people in his network. This creates a “viral” effect, meaning that it spreads from one “population” to another.
However to get this viral effect started, either create some awesome engaging content that “goes viral” by itself (by people sharing and referring to this awesome content on your page) or you can acquire likes “inorganically” by paying for them.
Use Facebook ads to build a critical mass of likes on your Facebook page
By using Facebook ads in the startup phase, you can quickly achieve a critical mass of people liking your page and continue driving your “social reach” organically.
Facebook ads show your page as a “recommendation” to Facebook users within your chosen target group (e.g., age, gender, nationality, interest.) Then after acquiring the first set of fans, the “killer” function is that you can choose to spread this only to people connected with people who already “liked” your page.
In this case, it will say, for example, “Mark Smith likes this” as a social endorsement under the ad, enabling a much higher conversion rate of Mark’s friends.
So let’s say you have acquired a few thousand fans which are people have clicked “like” on your Facebook page. What will you use this for? The obvious use is to drive people to your landing pages where they can make conversions and generate income for you.
This is most effectively done by posting engaging content and special promotions, stimulating your Facebook “fans” to visit your website (e.g., “10% discount on product X for all our Facebook fans, until midnight.”)
Based on the outcome of these campaigns, you can conclude if it is worth using Facebook ads to get more likes. If it is not, due to low conversion rates, you can stop the ads and just continue to get links organically.
By posting interesting content that is “liked” by your “followers,” it will be seen by their friends and hence, you will continue to steadily grow your likes without needing ads.
So far we have basically discussed how to use Facebook as a “marketing channel.” However, Facebook also has another great benefit: it can be used as a customer service channel.
Use Facebook both as a marketing channel and customer service channel
By allowing your “followers” to post questions on your Facebook page, you can use it as an interaction channel with the clients. This is often a lower “barrier” for the potential customer to make contact than sending you an e-mail.
The answer to the questions can be seen by other people visiting your Facebook page which is not the case if they send an e-mail.
Having a critical mass of Facebook fans (at least a few thousand) and using Facebook as an open customer service channel helps build trust among others. As a result, the probability increases that more people will consider buying a product or service from you.
When you have your Facebook page under control and have gained some experience in harvesting the benefits, it is time to consider other social networks.
If you have plenty of resources, there is almost no end to how much time and money you can invest in social media experiments. But for most online entrepreneurs, I recommend a more passive strategy where you synergize additional social networks in relation to your current Facebook statuses, activities and updates.
Synergize Facebook with other social media channels
Technically, you integrate your Facebook stream with your Twitter account, your Twitter account with your LinkedIn account, etc. When you send a newsletter or write a blog post, you post a link on your Facebook page (which is then automatically transformed to e.g., Twitter and Instagram.)
In general, the user’s acceptance of the high frequency of “social buzz” (updates) seems to be higher on e.g., Twitter, Instagram, and Foursquare than on Facebook and via Newsletter. Based on this fact, it makes sense to set a clear hierarchy and tie into a standardized distribution schedule. Here is one example:
Monthly - Send a Newsletter (which is also posted with a link on your Facebook page)
Bi-Weekly - Write a blog post (which is also posted with a link on your Facebook page)
Weekly - Post additional content on your Facebook page which is then automatically connected to Twitter, Instagram, etc.
Daily - Choose to do additional postings on e.g., Twitter, Instagram, Foursquare or other, but don’t choose to redirect them all to Facebook to avoid spamming your “fans” over and over.
Do you remember ASM (A Small World)? Or Myspace? Or Google Buzz? These are all real examples of sites with similar potential as Facebook which had their “rise and fall” cycles. Right now, there is a growing trend that the most active young Facebook users are abandoning the platform in favor of Instagram.
Nobody knows how this will develop over time in this fast-moving dynamic industry. But it is clear that you need to stay up-to-date with the latest trends if you are going to reap the fruits of future opportunities that will ultimately be available.
Stay tuned on the fast-changing Social Media trends
One particularly excellent resource to stay up-to-date with the latest social media and other technology trends is http://mashable.com. Follow their trending stories on a weekly basis. I have been able to stay in-the-know and have been inspired to test new online tools and tricks long before discovered by competition.
The phrase “online ads” refers to all links to your website (text or graphical) placed on an external website to whom you are paying for the ad space. There are various payment models for this including, fixed fee/month, fixed fee/ thousand views, cost per click, cost per conversion or commission on sales.
There are basically two ways to buy online ads:
1. Directly from the site owner
2. Indirectly, via an intermediary
In the first case, it is easy to start thinking of broadcast media, such as newspaper websites. It is true that these have by far the largest audience, but they are also an expensive marketing choice. If you don’t run a large scale company, it is typically better to find content sites related to your niche of business.
Tip 36: Evaluate potential direct ad partners for your niche
Remember that this traffic has dual benefits (hot traffic and links), so consider both, when you decide which niche site to place an ad on and what you are willing to pay:
1. To maximize the “hot traffic” - Place the ad on websites where your potential customers might hang out, optimally when they would be in the buying mode for your product /service
2. To get quality links to build Page Rank - Place your ad on a content site that has high Page Rank, but a low number of outgoing links, to help build your Page Rank. Ideally, the ad should not be recognized by Google as a paid ad, but appear as a natural link, since this gives better page authority.
When considering the indirect purchase of ads, you have several options to consider, but the quickest and most common is to activate the Display ad Network in Google Adwords.
Experiment with Google display network, but be cautious
The cautious technique is to carefully screen out the real (value-adding sites) from the spam sites, and then allow Google to only place your ads on these content sites that have been approved by you.
Google AdSense has a network of over a million sites (display partners), and it also includes specific Google sites such as Gmail and YouTube, so the key is to find the handful that actually is valuable for you.
You can do this by:
1. Start by allowing your ads to occur on all sites (that contain the keywords you are targeting.)
2. Doing daily (or even hourly checks) to block sites which drive a lot of clicks without generating any conversions.
3. Following this closely you can probably screen out a handful of websites that have some value for you. This would typically be some niche content sites.
4. Later on, you might also consider buying ads directly from these niche content websites
Besides finding the good niche sites, the above approach will also show you if it is worth it to keep your ads appearing in high ranking platforms such as Gmail and YouTube. In the case of Online School. it proved not to be worth it as a general ad display.
I also strongly recommend having separate bids and budgets on Google AdWords for your search networks campaigns and your display network campaigns. Because search traffic is typically “hotter,” you may be willing to pay a higher CPC for it in order to meet your max. cost/conversion.
Besides Google, there are several other “wholesalers” of ad space on numerous networks. Some of them offer different business models than CPC, called affiliate marketing. It is based on commission for actual conversions to the site owners.
Evaluate the potential use of affiliate marketing networks
During recent years the large affiliate marketing networks have increased their offerings to overlap more and more with other online marketing offers, for example, regular ads (pay per click) and e-mail marketing. So be sure to sort out exactly what you want to join (and not) before engaging.
Another interesting development is “deal of the day” platforms, such as Groupon that reach out to a large audience of subscribers.
Evaluate potential use of Groupon or similar “deal of the day” programs
Groupon and similar programs can be an attractive way to reach new customers. However, note that it typically requires you to offer a huge discount, meaning that you need to be very careful when evaluating the business case so you don’t end up losing more money than you gain.
It will typically be more attractive if you have:
1. High gross margin share (e.g. 80%) on your products (e.g. luxury products or digital products)
2. Excess merchandise in stock to put on sale
3. Available space (e.g., hotel rooms) which you will not be able to blog
4. Products that will be purchased frequently if the first time a user likes them (e.g., socks)
5. A subscription business model (e.g., gym membership) and can “hook” the users after the first try
Another important development is the evolution of “comparison shopping engines” such as PriceGrabber and Nextag. The basic functionality of comparison shopping engines is to:
1. Collect product information, including pricing, from participating in e-commerce sites
2. Display that collective information on a single results page in response to a shopper’s search query
3. Enable shoppers to compare each retailer’s price, shipping options, and service on a single page and choose the one which offers the best overall value
Evaluate the potential use of comparison shopping engines
Adding your website (if applicable) to different comparison shopping engines enables you to list your product offers on the comparison site and pay per click (CPC) for the “hot traffic” it generates.
The obvious downside to this (from the seller’s perspective) is very hard price pressure. So this mainly makes sense if you are able to compete on prices.
So far comparison shopping engines have mainly been applied for commodity e-commerce products. But there is a growing evolution of comparison engines that target a specific niche.
With “offline” marketing I mean all kinds of traditional marketing channels which you cannot “click” on. This includes Direct mail, Flyers, Newspapers, Magazines, Radio, and TV.
Even though you cannot technically click on the “offline” ad or article, you can still use some smart techniques to track conversions anyway.
Apply conversion trackers also for “offline marketing”
For example, you can display a coupon or “special offer” with a unique redemption code in the advertisement and then track how many times it is being used.
This way you can calculate your cost/conversion also for an “offline” media channel, and you can compare and analyze what is the most profitable marketing mix for you such as Paid Search vs. online ads vs. offline ads, etc.
Another example is to include a QR-code in the “offline” ad, enabling the user to take a photo with his smartphone and to be redirected to your landing page (with a tracking code from the ad he was directed from.)
“Offline” marketing typically works best for companies that address a local market such as a certain country or a city. For example, I have seen this work quite well for a local company that distributes flyers with the website name and redemption code that is traceable.
“Offline” marketing can also work well for building brand recognition locally, meaning that people who could be future customers will have you in mind when they eventually consider buying what you offer.
An indication of this is when you get a big share of direct traffic, people writing your website address directly into the browser. You will also see increased search traffic where your brand name is the keyword.
Successfully convert traffic into customers
Introduction - The three-step approach to maximize your conversion rates
In the previous three blogs, we have discussed how to generate traffic (“paid search,” “organic search” and “non-search”) to your website. But this traffic is of little use unless you can “monetize” it and generate an income (or another benefit.)
We previously defined “hot traffic” as visitors coming to your site that are likely to make a conversion, while “cold traffic” are visitors you cannot monetize.
A key performance indicator to measure this is the conversion rate, which is defined as:
Number of conversions/ number of visitors
For example, if your conversion rate is 2%, it means that for every 100 visitors you make on average 2 sales.
Working with this part of the business is often referred to as CRO - Conversion Rate Optimization. In general, you can see this as a three-step approach:
1. Build trust – How to make sure the potential customer feels comfortable to work with you?
2. Rig the sales funnel – How to actively lead the visitor into making a conversion?
3. Manage the bouncers – How to handle visitors “falling out” of the sales funnel and to continuously improve conversion rates by effectively analyzing data?
Building trust is about convincing a potential client to think, This is a serious company. I am opened to work with them. “Online trust” has many components, but the first one you tend to notice is the web design of the website you visit.
If the design feels “tacky,” you immediately feel a subconscious hesitation about engaging with this company. Classic mistakes are:
Too much text
Text in many different font sizes
Too intense color scales
Moving objects or sounds
Poor explanation of website topic
How to make a successful web design is a science of its own that I will not cover fully in this blog. Most likely you would hire a web designer to make a few suggestions for you.
Just remember to not let the “creative part” of web design go too far. The main purpose of each landing page is to make the visitor make a conversion, which calls for a simplistic design.
Use a simplistic but modern web design
So, let’s say that the website which you are visiting looks nice and trustworthy at first glance. What is the next thing you ask yourself if you have never seen this company before? You probably ask yourself, who this company is? Where do they come from? Why do they do this? What are people saying about them?
Therefore a very important part (which is often overlooked) is to explain (in a credible way) who you are and why you have this website, which is typically done in an “about us”-section on the website.
Now, a key factor is to tell the story of where you come from and why you do this. This is because people, in general, don’t believe in what you sell, but why you sell it.
See this TED talk for an inspiring lecture on this subject. It is also connected to the growing trend of sustainability/CSR, meaning your customers ask themselves what is your wider contribution to the world (beyond personal profits).
Sell a serious AND personal “story”, which shows the people behind the scenes
It can hence be a great benefit to “personalize” your company and present “the people behind the scenes.” What is their story, why do they do this, and what are they truly passionate about?
Another important factor in building trust is that you cannot be “best in every aspect.” It is instead recommended to clearly formulate and communicate what is your specific “value proposition.”
A “value proposition” is a formulation of the main reasons why a potential customer should purchase something from you (instead of from a competitor.)
Clearly communicate your “value proposition”
Here is an example of how the value proposition of Online School is formulated and communicated on the top domain.
Note that your “value proposition” will not fit everyone. For example, if you have “best quality” and “great experience” as propositions, you will most likely not also have “lowest price” and cater to the “budget segment” of the markets.
Segmenting your market and formulating a value proposition is one of the core concepts taught in all basic marketing courses, and you can easily find lots of further reading about this online. Another important factor a potential customer should consider is if this is an established and “tested company.” Showing customers’ testimonials is the best way to meet these criteria,
There is also a clear synergy having a successful Facebook page to support the recommended criteria. Facebook is (so far) a well-known and trusted platform. Having many likes, good content and customer dialogues on your Facebook page will build trust and credibility in your prospects’ eyes.
A “dead” Facebook page with very few likes and no interaction is more of a liability, as it would make potential customer suspicious. But an active Facebook page with thousands of followers tells the potential customer that you run a serious business.
Thousands of Facebook likes can’t be wrong - show it off
Once you have reached “critical mass” with your Facebook page, you can emphasize this on your website, by integrating Facebook Social plug-ins, telling how many likes you have or what the latest post is about - directly on your website.
A final factor to build trust is to use different external certificates. You can use companies that offer secure SSL encryption (e.g., GeoTrust) or payment providers’ endorsements (verified by Visa, MasterCard Secure Code, etc.) There are also a number of (often national) industry organizations that offer memberships and validation logos on your website (with a “click to validate” function.)
Use external certificates to signal trustworthiness
These kinds of certificates used to be a differential factor in the early days of e-commerce. However, over time as the online market space has emerged and evolved, they have become standards. Therefore, you don’t need to “show them off” anymore as I (and many others) have in the past.
In summary, building trust is a key component to set a proper “arena” for enabling conversion. To earn the trust of new customers (even if you are not a Fortune 500 company with indisputable brand recognition) you need to:
Have a trustworthy web design
Sell your story
Show that you have lots of customers
Rig the sales funnel
Once you have “the arena of trust” in place, the potential customer feels comfortable enough to keep engaging with your website and is more likely to consider a conversion. To maximize the probability that the conversion will take place, you need to set up an optimal “sales funnel.”
The Sales Funnel is a combination of the process-steps that a customer will complete upon entering your website, to make a decision that eventually generates an income for you.
Your sales funnel will look different depending on the business model of your website.
If you sell a product or a service, the sales funnel typically ends with the customer taking out his credit card and clicking “pay.”
If you are selling leads, it would typically end with the customer leaving your site via clicking on a link to another website where a transaction might take place later.
If you sell premium content, the sales funnel might end with a visitor signing up as a member.
In many cases, you would have a mixed business model that sells both products and leads. Or you might be working in a “freemium model”, where:
1. Your first funnel is about signing up members (for free)
2. Later on, you have a process for upgrading these members to become paying customers
In order to make your sales funnel a successful reality, you need to clearly define your “business model hierarchy.”
Nail your business model hierarchy
For example, if you can make the most money selling one type of products directly on the site, you do not want to dilute this by including lots of sponsored links (selling leads) in the center of the page. But if you can guide the visitor through the site and share some benefits (e.g., selling leads) with the clients who don’t buy your core service, it can prove beneficial.
Knowing your “business model hierarchy” is a key success factor to design conversion-friendly websites. In order to get “there,” you should:
1. Write down the “objective” of each landing page (what action you want the visitor to take.)
2. Optimize each landing page to make it “click-friendly” mainly for the action(s) you want the visitor to take.
Make each landing page “conversion friendly”
As an example, study this print screen from a landing page at Online School
Finding the best design to maximize conversions requires a lot of testing and iteration. You can use A/B-test for this, meaning that you set up two different designs and then split your incoming traffic 50/50 to conclude which design is the most effective.
The above picture also demonstrates another best practice: make use of “enriched content” to convince the potential customer to make a conversion.
With “enriched content” I mean all graphical elements (not purely text, i.e., photos and movies.)
When it comes to photos, it is important to have big enough photos so the visitor can get a true feeling about what the photo is “selling.” In order to keep the loading time short, it is wise to firstly load small icons of the photos only. They can be expanded on a visitor’s request.
If you sell a physical product, you can offer an extreme “zoom-in” of the details of the product or offer a 360-degree view and more likely to experience a positive conversion. This practice has successfully been introduced by friends of mine running the online business http://tailorcut.com.
Here you design your own shirt and see a rotating 3D-model of the shirt as you change design and fabrics. To get a genuine feeling of the fabric, you can see an extreme close-up picture. Of course, it is not exactly the same as touching it, but it gives you a profound understanding of the quality and texture anyway.
Next, consider the fact that photos of real people who are happy and smiling tend to drive better conversion than photos without people.
According to research, it is the “positive feeling” around your product or service, that drive sale.
Videos are another great way to create a “positive feeling” and to further let the customers experience the product or service you are offering. In the case of Online School, we were able to increase the conversion rate by 20% after including a video presentation of each Online camp.
Use enriched content (photos, video etc.) to create a positive feeling”
One of the most effective factors to convince a potential buyer is to show ratings and testimonials from previous customers. This can be achieved either by your own system or using a third party when applicable or both.
If you have your own system, it is important that you stick to ethics and present ratings from all clients (not only the satisfied ones). Research has even shown that a product with mainly positive but some negative ratings actually drive higher conversions than products with only positive ratings. Products with only positive ratings make customers suspicious.
Remember that these customer evaluations also can be marked with “rich snippets” to be shown directly in Google’s search result. An effective way to build and improve each step of the sales funnel is to ask yourself, What questions might I have as a customer right now that makes me hesitant to continue?
By anticipating this and providing the answers to questions like these proactively, you can effectively continue to lead the visitor through the sales funnel.
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Offer proactive answers to potential questions
If you are not successful with this, you will typically have many visitors that “bounce” (leaving the sales funnel) either to contact you or to move on to a competitor’s site.
How to anticipate these questions?
Analyze what questions you receive from customers contacting you
Benchmark your competitors’ sales funnels
A common behavior of visitors is that the first “window shop” and then come back later to make a transaction. This would not really be a problem if they always come back to your website, but since the barriers on the Internet are so low the risk is that they will end up somewhere else.
One way to manage this is to use Google AdWords’ “remarketing campaigns” But it is even more attractive if you can convince a customer to make the transaction rather now, than later. This is something you can affect by using “scarcity reminders.”
Use scarcity reminders to avoid window shopping
Scarcity means that a product or service will not always be available, at least not for the same price. There are four main types of scarcity arguments you
1. Limited quantities - Inform the visitor that you are offering a limited number of units for sale (or have limited in stock.)
2. Price increase - Inform the visitor that the price will likely go up in the near future.
3. Price decrease - Inform the visitor that a discount or special promotion will end in the near future.
4. Deadlines - Inform the visitor that the offer is only valid for a limited period of time
Have direct navigation between your offerings
Another way to stimulate customers to buy more is to add incentives connected to volumes. A proven example tactic is to offer free delivery over a certain purchase value.
This makes sense (for physical products) since you typically have an (almost) fixed cost of delivery which cannot be covered by your margin for small purchases. But if the customer is buying a lot it is a “win-win” that the delivery is included.
Stimulate batch buying (e.g. offer free delivery above a certain purchase value)
Another way to maximize income/conversion is through “up-selling”, meaning that you stimulate the visitor to add additional products in his “shopping basket” before checking out.
Up-sell relevant products at the right moment
One effective way to do this is to use a recommendation module informing the visitor that “Customers who bought this also bought…”.
Another way is to automatically recommend “add-on” services at the end of the sales funnel. This is, for example, common for travel insurance when you are blogging a flight online.
Just note that there can be a fine borderline between getting additional income from up-selling vs. making the customer irritated and bouncing (no conversion). If you are not a budget player but rather have a premium value proposition you need to be very careful, so you keep your promises.
Once a visitor commits to conversion the key success factor (besides up-selling) is to make the check-out process as quick and smooth as possible.
If the customer experiences “hassle” in your check-out process you risk that he “bounces” and the sale is lost. The hassle might be out of your control, i.e. if their internet connection is lost or if they receive an incoming phone call and forget about you. It is in your favor to make sure the check-out is quick.
Simplify the checkout process
A few examples of how you can simplify the check-out process are:
1. Have a few steps as possible - Each time you ask the customer to click on “next step” you risk that he will bounce (e.g., if the next step doesn’t load correctly due to an issue beyond your control).
2. Simplify data collection - Avoid demanding data (e.g., personal information) before you actually need it, and the question only if you really need it. For example, you don’t need a person’s name and nationality to present them a price offer.
3. Avoid mandatory membership - One common mistake is that you might be asked to either “log-in” or “create an account” before checking out. This is a big “bounce factor” and something you should try to avoid. It is instead better to do this more discretely and recommend the customer in the final step (after conversion) if they also want to set-up an account for future purchases.
4. Offer log-in with Facebook or Google - If you have a business model that really calls for making the customers “create an account”, one of the best ways to do this is by using a plug-in from Facebook and/or Google which automatically creates the account.
A final factor to avoid bouncing is to offer a wide range of payment options. If the customer cannot pay for your product (if that is your business model) all previous marketing and sales efforts are lost.
Today most advanced Internet users have a credit card, and if you offer payments with VISA and MasterCard your will reach the vast majority of Internet users.
However, note that there are many national variations to this. For example, American Express and Diners have quite large market shares in the USA. In Germany, Denmark, and several other countries there are “domestic cards” that have large market shares.
Offer multiple Payment possibilities
Here is a general overview of the most common payment options:
1. Integrated credit card solution - In this case, you work with a payment service provider (e.g., DIBS or AYDEN) that hook you up directly with credit card payments as a customized fully integrated part of your sales funnel.
2. Electronic wallets (e.g., PayPal) - This is the quickest and simplest way to get a payment option “semi-integrated” at your website. The downside with PayPal and other electronic wallets is that they charge a higher commission than integrated payment service providers (e.g., 5% instead of 2%) and have limited flexibility for integration at your website.
3. Direct bank transfer - For customers that don’t have a credit card this can be a good option. It also means lower commission fees, since you get the money directly. The downside is that you need to set up a direct link with banks on each local market.
4. Invoice - You can always offer an invoice which customers can pay later (e.g., via their Internet bank). However, you are exposed to credit risk, meaning a risk that the customer will not pay the invoice.
5. Other - There are many payment options evolving (e.g., SMS-payments) so stay tuned on the latest trends to see if there might be an opportunity for you.
Manage the bouncers
To optimize the conversion rate you need to understand the behavior of your visitors who do NOT convert. The first thing to understand is where in the sales funnel they are “bouncing”. The good news is that this can easily be done (for free!) using Google Analytics.
In the behavior-section of Google Analytics you can:
Track how visitors are moving around on your website
See what events they are performing
See where they are leaving your site
Compare the bounce rate % and exit % for each of your landing pages
For example in the picture below, Google Analytics shows (in a visually smart way) where visitors click after they enter the top-domain of Online School
If you have an integrated search field on your website, you can also get valuable statistics on what people are searching for (and not) and how they behave after the search. This can be a very valuable input to further optimization of your landing pages and to discover additional keywords and business opportunities.
In the conversions-section of Google Analytics, you can visualize your sales funnel and define goals for each step. You can then track the actual conversion rate in relation to the goals.
Based on this insight, you can conduct A/B-tests with different designs of your landing pages. This can be tracked directly in the Behavior >Experiment-section in Google Analytics.
Use Google Analytics for continuous improvements of conversions
Google Analytics is also the ultimate place to see exact traffic statistics (e.g. organic vs. inorganic search.) You can also explore the different web browsers (Chrome, Safari, Firefox, Explorer etc.) your visitors are using.
By tracking the behavior flow per web browser you might also discover potential issues which are technology related (e.g., high bounce rate for one browser on one specific page.)
Focusing on one web browser is a common pitfall in web design. You will be surprised to see how different your website might look in another browser. Therefore, it is important to test the website performance in many browsers as a “quality assurance.”
Ensure user-friendliness for all browsers (Chrome, Safari, Firefox, Explorer etc.)
Besides different browsers, you also need to test and investigate how your website is being perceived on different platforms (Smartphones, Tablets, and Computers.)
The good news is that by using responsive website design, you can code your website to work well on any device (desktop, tablet, mobile phones with different screen sets) without creating multiple versions of your website.
Ensure user-friendliness for all platforms (Mobile phones, Tablets, Computers)
There are several tools available online which can evaluate how user-friendly your website is on different platforms and give you suggestions for updates. On e.g., http://mobile test.me you can even see how your website looks on different kind of models of smartphones and tablets.
While your visitors are interacting with your website, technical issues will inevitably occur. Some of them are due to external factors, for example, a problem with your web-hotel or the visitor’s Internet connection. Others will be “internal”, meaning that there is an issue in the code of your website which can be fixed.
One issue that can be both internal and external is “broken links.” If this occurs, your visitors are being directed to a place on your website which does not exist. In this case, your browser will show a “404 error page” telling you that the site does not seem to exist.
To prevent the visitor from “bouncing” completely, i.e., leaving your site for good, you can instead show a customized error page, with links back to your most important landing pages.
Customize your 404 error page
A successful tactic can be to include a portion of humor to your customized 404 pages, which will make your visit more tolerant towards the error.
There are many good examples of customized 404 pages to be found online.
Maximize the value from your customer base
Introduction - The three hidden values of your customer base
In this blog, we will discuss how to maximize the total value of these customers, after the first purchase. This can be summarized in three main opportunities:
1. Stimulate your customer to make another purchase from you
2. Associate other business opportunities with your customer base
3. Let your customers sell for you
Stimulate your customer to make another purchase from you
How many times during a lifetime could a customer consider buying from you? The answer obviously depends on the type of product/service you are offering.
If you are selling wedding dresses, a typical customer will only use your service once. On the other hand, if you are selling food or other consumables, your customer might buy from you every week.
It means that:
During a period of 10 years, a customer who buys a weekly product would make 52 x10 = 520 purchases.
This hence means that the first purchase they made is only 1/520 = 0,2% of the total value of this customer.
By stimulating the customer to do repeat sales from you (and not switch to a competitor) you can hence secure the remaining 99.8% of the total value.
One of the most straightforward ways to do this is to offer discounts to loyal customers. If the customers, for example, know that they have a 10% discount on all future purchases from you, they have less incentive to switch to a competitor.
This 10% will, of course, be taken from your margin. For this to make sense your margin needs to be well above the discount percent.
Drive re-purchase via loyalty discounts
For products or services less frequently needed, the customer might need to be reminded and inspired to make another purchase. A great way to do this is by sending newsletters to your customer base.
To convert recipients of the newsletters into sales, you need to make the newsletter “conversion-friendly.” It is the same logic as when optimizing your landing pages for conversion. You need to have a clear hierarchy on where you want the customers to click on the newsletter and send them to a landing page where they can make a conversion.
Use conversion optimized newsletters to get your customers back to the site
There are many newsletter campaign platforms (e.g., http://mailchimp.com) that offer cost-effective management of newsletter campaigns. A key feature is that they use tracking codes in the mails enabling you to see:
How many people opened and read the e-mail
How many people clicked on a link in the newsletter
Which person clicked what particular link
How they further interacted with your website after the click
Once you have more than 1000 newsletter subscribers, it can be worth it to run the A/B test on the design of the newsletter on a smaller group (e.g, 100 subscribers) before sending it out to the wider audience.
If you reach over 10,000 subscribers, you can also consider segmenting your newsletter based on your customer characteristics. There are three main ways to segment the newsletter:
1. Demographics (age, gender, native language, place of living, etc.)
2. Likely purchase patterns (interest, previous sales, etc.)
3. Online attention – meaning how often they think it is OK (and NOT OK) to receive newsletters
Segment the newsletter, to minimize unsubscribing
For example, let’s say you are selling sports shoes online. Using the first example (demographics), you can customize your e-mail campaign and only send female shoe offerings to your female customers (and vice versa.)
Using the second example (purchase patterns), you might have insights that one customer group is particularly interested in tennis shoes (neither running nor trekking.) Then you can customize a campaign only focused on tennis to them.
In the third example (online attention), you ask your customers how often they want to receive e-mails from you and include them in e-mail campaigns based on their preferred frequency.
You can consider to first include them in the high-frequency category but then after clicking on the “unsubscribe”-link in the newsletter, try to move them down in frequency, rather than doing a full exit. You can also ask the customers why they want to unsubscribe, to give you valuable feedback on how to design future campaigns.
By making smart segmentation of your newsletter, you will provide your customer base with the most interesting information for them, on their chosen terms. Which will hence minimize the “unsubscribing” and stimulate loyalty.
Another best practice relating to newsletters is to always strive to personalize the interactions you have with your customers. An example of this is to start the newsletter with the customer’s name. For example, the most acceptable greeting might be “Dear Caroline” instead of “Dear customer.”
This is an automated feature provided by most newsletter platforms. In the same way, an e-mail can be personally written and signed by a real sender (not by “the company.”)
Personalize the interactions with your customers
To maximize the value of the newsletter, you need to catch your subscribers’ attention and inspire them. To make optimal “copy-writing” is a science of its own which I will not go into detail in this blog.
Another way to stimulate repeat sales is to make it easy for your customers to log-in when they return to your website. This can be done either with cookies, tracking code in the link of a newsletter or IP recognition.
It does not mean that you will be automatically logged in, but the username can be pre-filled and the site can be shown in the right language format, showing previously viewed products, etc.
Offer to associate products from partners to your customers (selling leads)
The way to approach this is to deeply think through and recognize the value your customer insights could be to other parties.
Let your customers sell for you
We previously discussed how you can maximize the value of your customer base either by buying more things directly from you, or indirectly by selling leads to partners who would benefit from reaching your customers.
The third way to get additional value from your customer base is to use your current customers to gain new customers for you.
An effective way to do this is to ask your customers for evaluations and endorsements of your products and you as a company. By showing both the quantitative ratings (e.g., on scale 1-5) for each product and some written testimonials, you build trust and will increase the conversion rate of the rated products.
These evaluations can also be tagged with “rich snippets” increasing “clickability” and your organic search traffic.
Ask your customers for evaluations and endorsements
Since a customer evaluation is of such big value to you, it is wise to give your customers an incentive to take the time to fill it in. This can also be combined with the loyalty discount previously discussed. For example in the case of Online School, we offer all customers who fill in the evaluation form a 5% discount on their next purchase.
Another way to enable your customers to promote your products is to integrate social referral buttons as the last step in the check-out process. This makes it easy for the customer to share his liking with people in his social networks, who could be new potential customers.
Offer Social Media sharing directly after the purchase
Asking for evaluations and social media sharing is something you can engage every customer in. However, you can go even further with your most passionate customers, asking them to be your “ambassadors.”
This means that you, for example, ask for permission to write an article or a blog post about them and their experience with your offering. You can also use them in the customer service process and offer new clients to ask them about tips based on their experience.
If they have their own blog, they can promote your products to their followers and get a kick-back on the sale they generate.
If they have potential customers in their network, you can stimulate them to persuade their friends to buy from you. Either with direct kick-backs, e.g. commission on sales, or more subtly by giving them and the people in their network good discounts. This type of activity provides a “win-win-win” situation.
As an example with Online School, we have successfully used ambassadors to organize Online trips for our customers’ friends and student associations. The benefit of the ambassador is that he can join the Online trip for free.
Set up an ambassador program for your most passionate customers
Potential ambassador candidates can easily be screened out by reviewing your customer data. Look for customers who:
Buy a lot from you,
Make social buzz
They are ideal candidates. If they also have their own blog and/or interesting networks for you to engage with, it is even better.
Minimize costs and effort
Introduction - Low-cost opportunities in five categories
Sales & Marketing
Sales & Marketing cost is often the biggest cost for online business, excluding the sourcing costs of the products you sell.
The good news is that everything online can be easily measured and evaluated, which is not the case for offline channels. For example, it is very challenging to track how many people who entered a physical store due to a commercial they saw on TV a long time ago.
By including the Google Analytics tracking code on your website you can see:
How much traffic came to your site during a certain period?
What was the source of it (paid search, organic search, social media, referral, etc.)?
How did the visitors behave (e.g., made a conversion or not)?
By exporting this data to Excel, you can make your own “controller tool” and include also other marketing metrics.
You can also include your budget and targets, calculate break-even and return on investment for each marketing component. By following this up on a regular basis (e.g., every month) you will get alerts that help you discover whether your business is going in the desired direction or not.
Set up a regular marketing evaluation routine
Note that you can calculate the cost per conversion for all media mix including “off-line” (radio, newspaper, TV, flyers, etc.) with some assumptions.
Firstly, marketing evaluation can be tracked by direct means (e.g., using QR codes or traceable coupon-codes). Secondly, it can be tracked by the exclusion method. With the exclusion method, I mean that if you make an isolated campaign (e.g., in radio), you can compare how much more sales you probably will have the coming period compared to your baseline.
The baseline is the revenue you would have if you did not do the radio campaign. Given that your baseline is only driven by online traffic (and there are no significant changes in the market), you should have a pretty good knowledge of such. As a result, you can then calculate the difference between the actual sales and the baseline as the net effect of the radio campaign.
Let’s say that your expected baseline sale (given the traffic you receive) is 1000 conversions in a specific month. But during this month, you conducted a radio campaign and received 1200 conversions.
The difference is that 200 conversions (most likely) are connected to your campaign. If you paid $1000 for the radio campaign, your cost per conversion is 1000/200 = $5, which can be compared to your conversion costs for Google Adwords and other channels.
Another example is the “conversion-cost” of a loyalty discount. Let’s say you are selling products for an average value of $100 and your average gross margin is 20%. Those results mean that your average gross income is $20 / sale.
If you give a 10% loyalty discount, the “marketing-cost” for this project will be $10 / conversion, which can be compared to your conversion costs from other initiatives.
Track and calculate the cost per conversion for all media mix, not only online
With more advanced regression analysis it is actually possible to calculate this for multiple campaigns at the same time. This is an offering that consulting firms typically offer large companies which run multiple marketing campaigns at the same time. However, for small and medium enterprises, I would recommend:
1. Keep it simple
2. Try one campaign at the time
3. Learn and improve gradually
Customer service is all interactions you have with the customers during the sales and the after-sales process. These interactions have a big impact on how you are being perceived by your customers and what evaluations they will give you.
The first question you need to ask yourself is what availability your customer service shall have. This is a very strategic question since it affects your value proposition and customer experience.
If your strategy is to differentiate vs. competitors by offering the best availability you might state that “We answer all calls and e-mails within 30 seconds 24/7”. To deliver on this promise will require a large-scale and costly customer service function.
But if your type of business or chosen value proposition doesn’t require high availability, it might be enough with “All questions are handled via e-mail (no phones)” and “All e-mails are answered within 24 hours”.
Optimize customer service availability based on your value proposition
Just note that this can change over time since customer demands tend to increase and competitors are constantly improving. This means that if you make a valid trade-off between availability and cost today, there can become a hygienic demand in the future to increase your availability.
However, what is more, important than the absolute availability is that you keep your promise. If you clearly communicate that all e-mails will be answered within 24 hours, most customers will accept this (even if many of them would prefer quicker answers). But if you don’t keep the promise all affected customers will be irritated and give you bad reviews
Be clear with your availability and keep the promise
Once you have set the strategic direction of your customer service process you can focus on how to make it as cost efficient as possible.
The first thing to consider is how you can “reduce” the questions your customers want to ask you by answering them proactively already in the sales funnel.
The second thing is to consider how you can answer the questions proactively just before they decide to contact you (e.g., via phone or e-mail). This can be done by channeling each question via a “Frequently asked questions” (FAQ) section.
Channel each customer question via the FAQ
The three questions being highlighted in the box are the most frequently asked questions we used to get via e-mail. By channeling the traffic via this top FAQ, we were able to reduce e-mail volumes by over 30%.
Just note that all questions cannot be “reduced.” Sometimes customers want to ask you a question just to initiate a conversion to feel you are trustworthy. If they get a quick and trustworthy response, it will be the tipping point that makes them convert.
After working to reduce the questions to customer service, the next step is to answer the questions that must reach you in the most cost-effective and service-minded way.
If you read some management literature regarding Customer Service, you will hear about “first line” vs. “second line” customer service.
The first line is the first person, to whom your phone call or e-mail is directed to. If this person cannot answer your question, it is redirected to the second line, who is an expert or process owner of the area your specific question is about.
When setting up the first line and second line structure, you want to use the Pareto principle, meaning that typically 80% of the questions you receive are quite similar and should be answered by the first line.
The remaining 20% are more complex, and it does not make sense to educate the first line to know all these details, hence it is better to redirect the customer to the second line.
Use the Pareto principle to split the customer service into a first line and a second line
The first line typically consists of people working only with customer service, while the second line might have it only as part of the job. The second line might also be outside your company.
Operating a customer service function can be quite costly, especially if you are located in a developed country with high labor costs. However, in the global information society that we are living in, it is not obvious that your customer service function needs to be located in the same country that you are.
Business Process Outsourcing (BPO) has been a major trend in the last decade, and today there are numerous options available to outsource your customer service to a BPO-provider in a low-cost country.
For example, all customer service for Online School is managed from the Philippines, a country with people, who, on average, have excellent English skills and offer very competitive labor costs.
This kind of “offshoring” is not only limited to customer service. It can also be applied to web development and digital content management Basically you can be anywhere in the world and have “virtual assistants” located in a completely different place.
Use virtual assistants for first line customer service
The second largest cost after labor is the technology you use to answer questions. Phone calls can be quite an expense, for both you and your customers, if you handle them the traditional way. However, if you use VoIP (voice over IP) providers such as Skype, you can conduct phone calls with a very limited cost and with high flexibility.
For example with Online School, we used to have different Skype-In numbers for all or largest markets. It means that a customer located in the USA can call a USA-number, a customer in the UK a UK number, a customer in Germany a German number, etc.
This means that the customer only pays a small fee (as if he called a local number) while all calls end up in the same Skype account. This is available from Skype and other VoIP-providers (such as Virtual Phone Line and Inphonex) at very affordable fees. For customers who have their own Skype account, they can even call you Skype to Skype at zero cost (for both you and the customer.)
Minimize technical cost by using VoIP (e.g. Skype)
For many customers, it can be a big step to lift the phone and call customer service while shopping online. At the same time, they can feel that response time to an e-mail (directly or via “contact us” form) would be too long.
A smart way to balance this is to integrate a live chat widget on your website. The widget will show when somebody is online, and it is a very small, convenient step for the customer to start an interaction.
Use a live chat widget to enable high availability in a cost-effective way
Using a live chat widget can have a big impact on improving the conversion rates by “coaching” the customers through the sales funnel. However, it requires manpower (and hence cost and effort), so you need to compare the additional cost with the increased sales value you can receive.
The benefit of the live chat widget is that the same customer service person can have several conversions ongoing in parallel, meaning that it is typically more cost-effective than customer service via phone. The negative side is that it makes it easier for the customer to ask questions directly which otherwise would have been answered via your FAQ.
Integrating the chat widget is easy and not particularly expensive. There are many chat widgets (e.g., http://purechat.com) available in “freemium model”, meaning that limited numbers of interactions per month are for free, but unlimited usage requires a subscription.
Something very important to have in mind is that all “customer service” does not occur within your controlled domain. In tip 33, we discussed that your Facebook page actually works as a parallel customer service channel and needs to be handled that way.
Additionally, your customers can say whatever they want in forums not controlled by you.
A classic example of this is the “Dell Hell” case study where a customer in 2005 got irritated with Dell’s poor customer service and started blogging about it under the title “Dell Hell.”
When other customers, who had similar experiences followed, the results were a lot of traffic and links to this blog so when you searched for “Dell” on Google, the “Dell Hell”- a warning would come up on Google’s Top10 result. Eventually, Dell made a total U-turn and is today a leading enterprise when it comes to customer engagements.
The key learnings here are that you need to handle customer service inside and outside of your domain. By regularly googling your company name or using services such as Google Alert or http://mention.com, you will find things being said about you on the Internet. You can handle these in a professional manner and be present and answer all questions openly and immediately.
Proactively check and handle what people write about you outside your site
In summary, the customer service process has many savings opportunities. But what is most important is that you are successful to keep customers happy by being proactive and keeping your promises.
Sourcing, Production & Transport
In a typical income statement, the first cost stated after the revenue is the COGS, meaning “Cost Of Goods Sold.” If you are in the retail business, this refers to the goods you buy from your suppliers and you later resell to your customers. If your business has a production component, this is the cost of the raw material you need to source for producing the products you sell.
If you sell physical products such as shoes, books, clothes, food online, this will be a major cost for you. But on the other hand, if you enter an online business that sells digital products, you can eliminate this cost to a large extent.
For example, if you sell storybooks for children (in traditional format), you would first purchase the books, then keep them in stock, and then send them to your customers.
Consider avoiding production costs by selling digital products & services
This is of course mainly applicable if you are in the start-up phase. If you have an established company selling physical products, it is probably not something you should stop with. But maybe some of your products could be “digitalized” and sold in different formats to your customers?
If you do sell physical products online, there are still many best practices to keep the costs down. One important choice is which main tactic you use in the sourcing and production: “make to stock” or “make to order.”
Traditionally, companies tend to use “make to stock.” Meaning that they keep (sourced or produced products) in a warehouse from where the goods are sent to the customer. This is usually good for the availability of the product, but it drives a lot of costs and risks:
Cost of the storage room
Cost of the store personnel
Cost of capital tied up
Risk of damage to goods
Risk of “out of stock”, meaning the customer doesn’t receive goods on time
Risk of additional transport cost due to order split
The opposite of “make to stock” is “make to order.” This means that you do not order or produce the product before the customer actually orders it from you. In this scenario, you can avoid the costs and risks above and you get a fantastic way of free financing since you get paid by a customer before you drive any cost.
Use “make to order” rather than “make to stock”
So how does “make to order” work practically? If we use the example of selling children books, you would not print the blog before the order was made.
A decade ago this was not possible, but with today’s technology, you can print in small series at a very low cost. With the rise of 3D-printing, you can even do it for more advanced products, like jewelry, accessories and technical components.
The down-side of “make to order” is that it often implies longer delivery times than if you have a product in stock, ready for delivery. One way to get around this is to digitally integrate your e-commerce system with your suppliers and send the purchased products directly from them, without you actually touching them.
Send directly from your suppliers to your customers
This is called “drop-shipping” and works best for businesses where the customers tend to buy only a few different products at the same time. If the typical purchase pattern is that your customer orders 20 different products from 10 of your different suppliers, it will not be acceptable for him to receive 10 different deliveries.
A middle-way is to keep your most common products in stock but source rare products directly from your suppliers. You can then choose either to split the order or to connect them to your warehouse before sending them as one batch to your customer.
Consider sourcing from developing countries
Just keep in mind that sourcing from developing county can also increase the complexity of your business. Delivery times can be longer, it can be more complex to return faulty products and there is a risk that products get stuck in customs.
Having the above in mind, it is important to find trustworthy suppliers who are committed to the delivery times you agree on and who are flexible enough to help solve any problems that might occur.
Once the physical product is ready, either in your own warehouse or at your supplier, it is time to deliver it to the customer. Doing this on your own requires lots of resources in the form of transport means (e.g., trucks) and personnel. It is typically smarter that you outsource this to a third party logistics provider.
Fully outsource the logistics
If you are servicing only one or a few particular countries, you can find logistics companies who can handle the whole order fulfillment process for you.
This means that the logistics company will do everything from the storing, order picking, and packing to transporting the goods to your customers. Many logistics companies also offer the reverse process with the claims reception and returning faulty products.
If you are planning to serve a global market, your best bet is to solve the transport service with a global company like DHL, UPS or TNT. They can also handle the whole logistics (also including warehousing, order handling and returns) on a global market, but it requires a larger scale.
One thing to consider if you are sending products cross-borders is to avoid having product trapped in customs. “Proper labeling” is key in this process. However, this aspect differs heavily among countries.
Make sure to discuss potential shipping issues with your logistics partner before you start shipping, to avoid unnecessary costs and angry customers.
IT & Content Management
When starting an online company, one of the first practical questions you need to ask yourself is how your website will be developed and managed. Basically, you have two extreme options:
1. Build and manage the website (including e-commerce platform) on your own
2. Buy a standardized hosted service
Make a strategic “build or buy” decision for your e-commerce system
There are several articles available online which compare different e-commerce platforms and can give you further guidance in making this decision.
When building and developing your website, you also need to consider the labor cost of the web programmer. Doing the coding yourself is obviously the cheapest way, but maybe not the most sustainable.
The opposite is to use IT-consultants from large recognized enterprises, but they tend to charge very high fees, making them unsuitable for most small and medium-sized businesses.
If you (or one of your co-workers) have some basic web-programming knowledge, it is quite easy to get this cost down drastically by using low-cost web developers.
Consider using low-cost labor for your web development needs
These low-cost providers can be of two types. The first option is to use programmers from developing countries (e.g., India.) The downside to this option is that you will need to give very exact instructions, and you will inevitably run into some issues connected with languages and cultural differences.
The second option is to use IT-students from your local market. They are typically quite eager to work hard at low cost (since they see it as a learning experience) and you will experience problems related to neither language nor cultural differences.
The downside can be that the students tend to move on to work for other companies than yours after their studies are completed and hence might not be able to offer sustainable support to your business.
The code describing your website and e-commerce system also needs a “home,” meaning a server where the data is stored. This can be completed on your own server(s), but is typically better to outsource to a web hosting provider.
There are five main things to consider when you choose a web service provider:
1. Technology match - Your website is typically built either with ASP or PHP coding. The PHP host is for servers run on Linux while the ASP host is run on the Windows system. Make sure that your web host has the same technology that your website has.
2. E-commerce integration - If you are using a standardized e-commerce system (rather than building your own), it is good to check which web hosts the e-commerce system provider has the most positive experiences.
3. Server location - If you are running a local or national website, it is beneficial to have the server located in the same market to avoid traffic disturbances. If you are running a fully international website, the best solution is to work with a company that has multiple server halls around the world.
4. Capacity - The web host needs to have both storing space and bandwidth for your needs. If you are running a small business with a few thousand visitors per month, this is usually not an issue. But if the website you are trying to create is like a social networking site with streaming videos, then you need more space and ability to scale fast.
5. Support - If your website is down, you want immediate and professional support to solve the issue.
The above things shall be balanced with the price you pay for the hosting, which is typically a fixed fee per month, depending on storage space and service quality.
Choose the right web hosting for your needs
There are hundreds of web hosting companies available to choose from.
Check out, for example, http://whoishostingthis.com/ to make a comparison.
Even if you buy a standardized full-service e-commerce solution, you will still need to handle most of the digital content creation and management on your own. Some of this will need to be handled by skilled web developers (as discussed above), but the majority is pure administration work. So let’s now look into the best practices of effective administration.
All businesses require a certain amount of administration. Most of it is connected to the monitoring and controlling the money streams in and out of the company, for example invoicing customers, paying suppliers and employees, managing accounting and tax declarations.
The good thing with an online business is that it is natural to automate as much of this as possible.
For example, a key enabler to minimize the administration with Online School is that we have built separate administration pages where our customers, partners, and administrators can log in and manage the blogging and update information.
By adopting this “backbone” system to our needs, we have been able to eliminate approximately 70% of all time which was originally required to manage the business.
Automatize as much admin as possible
Another example is the money you owe your suppliers. Instead of them sending physical invoices to you, it is possible to automatize the money handling between you and them. Basically, there are four options:
1. Full integration - Meaning that you code your systems to talk to each other automatically. This is the preferred option for suppliers most connected with your core offering (e.g., the one producing the goods you sell.)
2. Automatic charging of credit card - Meaning that you add your credit card number into your supplier's system which then automatically charges your card on a regular (e.g., monthly) basis. This is can be used with Google AdWords, Bing Ads, and Facebook Ads.
3. Direct debit - Meaning that you give your bank approval to transfer money directly from your bank account to your supplier. The systems for direct debit vary between different countries, while the automatic charging of credit card is most favored by global suppliers.
4. E-invoicing - Meaning that your supplier sends the invoice in PDF to you (instead of in printed form.) You still have to manually pay the invoice.
Obviously, you cannot automatize all admin 100%. E.g., in the second example above you will still need to log in to Google AdWords, Bing Ads, and Facebook Ads to export the receipts of your paid service, to use in your bookkeeping.
However, instead of doing this every time the transaction occurs, you can “batch” the administration work and complete many exports at the same time (e.g., once per month.)
Batch admin that cannot be automatized
The third way to get rid of admin is to outsource it, ideally to low-cost labor.
Just remember that you can’t outsource “your problems,” meaning that you should first go through the two steps of automation and batching. After doing this a while, you can map and document the process so you will know exactly what it is you will be outsourcing.
The five dimensions of growth
There is a classic management slogan saying, “Think big, start small.” It means that if you try out too many things at the same time, you will be overwhelmed and get stuck in details.
However, when your first core concept is optimized, using the learnings in previous blogs, and proven (i.e., you are making money with acceptable effort) it is time to take the next step and grow in new dimensions.
There are basically five dimensions which you can expand your original business model into:
1. New Offerings
2. New Customer Segments
3. New Sales Channels
4. New Markets
5. Sell the Know-how
By new offerings, I mean that you offer more products and services to the same customers as before.
For example, if you are selling sports shoes online, you might have a few different categories, like:
1. Running shoes
2. Trekking shoes
3. Tennis shoes
If you add in another category of shoes such as football shoes, it is still a natural optimization of your core business model: selling affordable sports shoes online!
This growth dimension is based on you knowing your customers very well and being able to offer them more and more things based on this relationship.
If you take the first step with a partner (and it is very successful), you can then take a further step and do it on your own.
Adding new offerings to your website is a very natural growth path, but it has some pitfalls. There are a lot of bad examples out there of websites that have completely lost their heart and structure by having too many offerings in the same place.
Instead of increasing the sale, this can dilute the trustworthiness and the sales funnel effectiveness, meaning that your conversion rates will drop.
If you have concluded that a new offering is the right growth path for you to prioritize, you need to make a strategic decision on how it should be integrated into your online hierarchy.
If the new category is far off and makes your website appear to look ”messy,” it might be better to promote it under a separate website. This way you can keep a “clean” and trustworthy story around specific niches you are targeting with each website.
Make a strategic decision between creating a new category vs. a new website
The downside of having separate websites is that you need to optimize both the organic and inorganic search traffic for more than one website. However, it does not necessarily mean more administration work to have separate websites for separate offerings.
If you build your system smartly, you can separate the “front-end” from the “back-end” of the system. The “front-end” is everything that your customers see and interact with, which can look completely different and must be optimized for the specific offering.
The “back-end” is the “engine” of your system, i.e, how products, orders, and payments are stored in databases and how you can access a control panel to manage these.
Separate the “front-end” and the “back-end” to get synergies from different websites with similar business models
When you grow by adding more offerings, it is important to keep a “trial and error”-approach. Remember that if you decide to expand the offering in one direction, you will not know the results until you see how the customers respond.
Adding on more and more offerings can also put you in a bad spiral of making your website too “messy.”
It will require some discipline to analyze your offerings and remove products or even whole categories that don’t add significant value.
The best way to do this is to continuously evaluate your offering using the “Pareto Principle.” This means that you rank your products (or categories) in a falling order based on their share of the total accumulated sales value they stand for.
For example, in the picture below you see the example that three shoe categories (Running, Indoor and Trekking) together stand for over 80% of the total sales. These are your “A-products” and should be a top priority.
On the other side of the range, you see that Golf and Cycling shoes only stand for around 1% of the total sales. Hence, the question you need to ask yourself is if it is really worth to keep them? The customers of this kind of shoes maybe have a different purchase pattern than your typical customers?
It would probably take a lot of time and effort to turn these categories into higher sales volumes. Probably you will get a better “return on investment” if you focus your time and energy on driving up the categories that are already selling well?
Continuously Pareto-evaluate your product line and “cut the tail” of non-value adders
Just note that sales volumes are not the only parameter. You also need to consider what margin you have on different product lines and how much effort they require to be properly managed.
Besides growing “horizontally”, meaning that you add more categories in your offering, you can also work on the “service component” of the products you are already offering.
By doing this you should ask yourself what process steps your customers will go through to buy and use your product?
For example, if you are selling cufflinks online, it could be that many of your customers are buying these as gifts (especially just before Christmas). You can then offer to do the gift wrapping for them, for a small extra fee.
Offer enhanced services connected with your product
What kind of enhanced service you can offer depends on the kind of business you are in. Here are a few general examples to explore:
1. Customization - How can you make the product unique to your customer?
a. Specific color?
b. Printed name or initials?
c. Customers making the design by themselves in your online store?
2. Prioritization - How can you offer your customer VIP treatment?
a. Priority access to products on sale (before other customers?)
b. Faster delivery of your goods?
3. Logistics - How can you make the delivery process more convenient?
a. Help to carry goods into apartments and other destinations?
b. Help to mount the product (e.g., if you are buying furniture?)
c. SMS notifications of delivery status?
4. Sustainability - How can you help your customer to be environmental friendly?
a. Recycling of exchanged goods (e.g., if you buy a refrigerator?)
b. Off-set the CO2 emissions from the product/service?
5. Insurance - How can you reduce the risk for the customer?
a. Money back in case the product gets broken?
b. Money back in case the service gets canceled or delayed?
6. Financing - How can you help your customer manage his cash flow?
a. Not paying up front, but instead in the future?
b. Leasing instead of buying a product from you?
The possibilities are endless!
New Customer Segments
The second dimension you can grow it is to offer the same products but to a different customer segment. Customer segments can be “carved out” in different shapes and depend a lot on what kind of business you are doing. Here are a few variables that can be used to define customer segments:
1. Legal entity - The difference between doing business with consumers (B2C) or business with other companies (B2B). Other entities are organizations and governmental/municipal bodies.
2. Industry segment - Valid for B2B. The industry segment your potential customers are working in (e.g., production, retail, hotels, restaurants, hairdressers.)
3. Demographics - Valid for B2C. For example gender, age, nationality or place of living.
4. Interests – For example sports, IT, cars.
5. Spending willingness – Customers seeking budget deals vs. premium offers.
Let’s say that you are selling gardening tools to private people who own their own houses (B2C). But you notice that a percentage of your customers are actually “professional gardeners” (B2B). There could be an “untapped potential” to split your offerings in two, to come closer to the specific needs of each segment.
For example, the professional gardeners would not want to see your prices including VAT, and it could be a “knock-out” criteria for them if they could just get an invoice and pay later instead of paying up front.
The professional gardeners will also use your tools much more frequently than the private people since they are serving multiple houses and hence, could be interested in more advanced services, like maintenance service or leasing.
To service different customer segments online, you need to make a strategic decision if you should have a separate or common sales funnel for them.
There are basically three levels of this:
1. Same Sales funnel - Only small adaptations completed based on customers’ input (e.g., showing prices including VAT for private people and excluding VAT for companies).
2. Separate front doors - Already at the top-domain, ask the customer which segment he belongs to. The rest of the interaction will be done in separate sales funnels optimized for each segment (but on the same website).
3. Separate websites - Different websites (and potentially brand names) for different segments. Remember that it is only the “front-end” that needs to differ. The “back-end” can be the same.
Make a strategic decision to have separate funnels or separate websites for new customer segments
If you, for example, are selling some type of clothes or accessories you would most likely come across one segment who is only interested in premium products (high quality, status, and price), while another segment is only interested in budget products (decent quality to low price).
To mix offerings to both these segments on the same website will most likely be confusing for both segments (and drive down total conversion rate). If you can have two different websites you could serve both segments successfully.
When you start serving multiple customer segments, it is important that you review and adapt your marketing as well. You need to ask yourself. How can I reach this specific customer segment in the best way?
You will solve part of this on a “keyword level” since specific keywords can be pointed to one segment. Part of this will be solved on the “marketing channel” level, meaning that you, for example, only advertise your B2B-offer on company forums or your premium-offer in premium magazines.
Adapt the marketing to the customer segmentation (not the other way around)
New Sales Channels
E-commerce is one type of “sales-channel”. Other sales-channels are:
1. Outlets - A physical place (e.g., a retail store) where the customers come to buy the products
2. Sales meetings - When a seller and a customer meeting to discuss a business opportunity, it can either be a pre-blogged or spontaneous meeting (e.g., somebody stopping you on the street.)
3. Phone sales - When somebody calls you from a call-center and offers you a deal. Or the opposite when the customers call a company to buy something
4. Mail-order - When you receive a letter that you respond to with an order confirmation. This is a sales channel which has shrunken dramatically with the rise of e-commerce.
These are all examples of traditional “offline” sales channels. Many e-commerce companies start in an offline sales channel and then expand into e-commerce, with the same offerings.
But you can also go the other way around. Meaning that when your fully online concept is proven you can expand into “offline” channels. This is a growing trend for many successful e-retailers.
To start your own outlets obviously requires lots of investments, but if you expand into the other offline sales channels, (meeting, phone, or mail) it can be done with limited costs.
Cross-sell between online and offline channels
Let’s use a sports shoe example again. If you, for example, want to increase the sales of your football shoes segment, maybe one way is to expand into other sales channels?
You could, for example, send a commercial mail to all junior football clubs in your region. Remember that each club probably has hundreds of children as members. In the mail campaign, you offer large discounts for the whole team and offer to meet the team leaders to discuss this.
You later follow this up with a phone call (referring back to the mail) and try to blog a sales meeting. In the meeting, you bring your range of shoes and make an inspirational show engaging the junior players, while you convince the leaders and parents by proposing a discount.
The next season you do the same (since children’s feet grow fast), but you will then not need to do the actual phone call and visit. It should be enough that you send an e-mail with a specific discount code that can be used on your website.
Besides synergizing with offline sales channels you can also widen your online sales channels. This, for example, the case when you develop an application that customers can download and get a better shopping experience from smartphones and tablets. It is typically a bigger barrier to get your customers to download the app, but once downloaded you have a fantastic direct sales channel set-up.
The fourth growth dimension to consider is to expand your online offering to serve more geographical markets.
The most important thing to analyze is how attractive it would be for you to expand your business to a new geographical market. A brief market analysis should answer questions like:
How big is the demand for your product/services in different markets?
Is the demand growing or shrinking?
How is the competition in the market?
Are there any legal differences to consider?
Is there any difference in how your product/service is consumed?
If you are not selling a physical product, this can be a quite simple step. For instance, with Online School we offered our services to a global audience already from the start.
Make a strategic decision whether to adapt your website for different markets or not If you choose to adapt your website, you can either adopt the whole system at the core, or you can use and adapt tools provided by Google.
If you are selling physical products, there are many more considerations to make. As we discussed under Sourcing, Production & Transports in blog six, you need to have a logistics partner who handles international shipping, and you need to adapt to import rules so your products don’t get stuck in customs.
You also need to understand the taxation rules on your home market when you are exporting goods. For example, how the VAT should be handled differently within and outside the EU or any other country you reside and do business?
Document your knowledge and consider if there is a different market or way to capitalize on it
Other ways to sell the know-how is to help other companies as a consultant, where you typically charge a fee per hour or a fixed fee for a certain project defined as a “deliverable.” You can also sell know-how in the form of training and seminars or as being called in as a “field expert” and help other authors or consultants.