Questions you should ask if you want to make money online
1. Are you selling a physical or a digital product?
My forthcoming book will be focussed on selling easy-to-shift physical product that people are actually searching for. It’s possible to make good money out of shifting digital product (many of you will be reading this as a free blog though!), but in general the digital market faces certain problems for the budding e-entrepreneur. The main problem is that the content that people really want can already be obtained by suppliers with massive leverage (e.g. Apple - iTunes) or illegally (e.g. LimeWire). You can pitch original content, software widgets, ebooks etc., but you’ve got a lot of work to do in establishing a market that doesn’t already exist.
At least with physical product, you will be shifting stuff that people want, and they know they want it.
2. What barriers to entry are there?
Ideally, you need a market which is difficult to enter or understand. Establishing supplier relationships for exercise bikes, for example, is fairly protracted.
3. Can you get good supply? Agree terms with your suppliers.
Will you be drop-shipping? (The manufacturer holds inventory, and ships when you get an order). Will you be buying stock? If so, can you buy small quantities, and achieve Amazon like JIT shipping.
4. What’s your price advantage? Put together a spreadsheet of prices
Get comparison prices using searches on Google Adwords, eBay, Amazon Marketplace and a price comparison engine, e.g. Froogle, Kelkoo or PriceGrabber. Calculate your likely margin.
5. How much will it cost to get a customer? Estimate the cost of conversion.
This is an approximate estimation, but you can do the following. Create a test page using a free blog tool (e.g. Type Pad, Word Press, or Blogger.com). Create an Adwords campaign, and look for the amount you’re paying for each keyword for each click-through (CPC). Ideally, you should expect around 6-10% click-through rate (CTR) if you’re Ad is well written, and compelling against the other Adwords being served. Of the 10% that clickthrough, you should be aiming for a 10% conversion rate.
Now, these are rough numbers, but I’ve seen them work across a range of industies. So 100 people see your Ad (100 impressions, cost of an impression = zero). 10 people click through (the exact amount you pay for each click-through is determined by a real-time auction with your competitors, but let’s assume £0.20 per clickthrough). 1 person buys, so the cost of the customer acquisition is £2 (10 x £0.20).
If your margin on a tub of vitamins is £6, you’ve just made £4 profit, and you’ve got a business.
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