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E-commerce startup? Start from brick&mortar!

Familiar with startups failing under the pressure of getting money to finance customer acquisition? Probably, there's a better way to launch your e-commerce startup.

The focus of this article is on e-commerce startups. So, whether you're planning to launch the next retailer or you manufacture a wide range of own products, like Happy Socks, this concept applies to your case.

The cons of starting to sell online

Selling online is a great opportunity to access the whole world and scale your shop numbers.

It’s like a window to the whole world, nowadays easily accessible by anyone, even on a budget.

But, when you put your head through the window the first time, you face two problems:

  1. no one can see you at the beginning;
  2. when you reach someone out, you lack trust.

And this happens both when you launch your own shop and when you access a marketplace.

This means that, besides working to overcome such problems, you should perform some actions in the present to start selling.

And, what you can basically do, is to use paid media to get in touch with prospects, selling and build trust.

Your customer acquisition cost, in the beginning, is unpredictable, but for sure would be a figure that leads to a loss in sales margin.

Even though such loss is typical of the online channel, it might be so high to determine an unsustainable CAC payback period.

The pros of starting brick&mortar

While your aim is to be an online pure player, starting Brick&mortar has a few pros:

  1. customer acquisition cost could be financially sustainable;
  2. you can then exploit the customer lifetime value through your e-commerce store;
  3. you can talk to customers to improve your subsequent online customer acquisition strategy.

To be sure starting brick&mortat has advantages, let’s see it in numbers.

Consider an online customer acquisition campaign at €1 Cost per Lead and 1% Conversion Rate. The Customer Acquisition Cost (CAC) is hence €100.

Now, think at a traditional shop with €4.000/month in rent and utilities, plus €2.500/month to have a shop assistant. To reach the same €100 CAC you just need 65 equivalent sales.

The main point is understanding whether, in your location, such a rent exposes you to a sufficient number of people to reach 65 sales. In my location, it does.

What happens with better-performing online marketing campaigns?

Well, to understand different scenarios, we may keep fixed the cost of the brick&mortar storefront while investigating the equivalent sales needed by the offline approach to be comparable with different online performances.

 

So, let’s take two scenarios far from what we have considered so far.

The first is a best-case scenario with €0,5 Cost per Lead and 1,7% Conversion Rate; the second is a worst-case scenario with €1,5 Cost per Lead and 0,3% Conversion Rate.

The equivalent sales needed by your brick&mortar shop to be comparable with an online marketing campaign ranges from 13 in the worst-case up to 221 in the best-case.

It’s now your turn to apply these considerations to your case.