Q: Just under two years ago, I started an e-commerce website. The website has been spectacularly successful, with tens of thousands of sales and a social media following of over 250,000. How do I take my business from being a million-dollar business to being a hundred-million-dollar business?
Candice Galek, Founder & CEO, Bikini Luxe
A: We'll get into the growth question in a moment, but first, what are your goals? If your goal is to make more money, I would first confirm that your business model is profitable today. In other words, do you make enough money on your product sales to cover your other operating expenses, such as staff, IT and marketing? Margins are usually thin with e-commerce because of the strong competition and low barriers to new competitors.
If it is profitable, is it scalable? Can you grow your sales by a factor of 10 or 100 and continue to meet demand without major changes to your business model? Typically, rapid growth requires significant new investment in areas such as inventory, infrastructure, staff, facilities and the like. Does the growth in profit justify the additional investment?
Let's say you are good on both counts. There are only so many ways to grow revenue. First, you can raise prices. That's often not practical due to competitive forces. Second, you can take business away from your competitors. That's also difficult because they are fighting for business, too, and you probably don't want to get into a price war. Finally, you can expand into new products. That's probably the plan that I would investigate first. Selling new products to your current customers is usually the quickest path to new revenue, as long as the products are somewhat complementary.
By simply drawing more eyeballs to your website, you create a separate advertising revenue stream. Does it make sense to sacrifice some product profitability by, say, lowering prices in exchange for more eyeballs and ad revenue?
It's hard to say. But I would engage an expert in website analytics and run a few experiments to test out some theories.
Mike Ryan is the director of the Small Business Development Center at the University of St. Thomas Opus College of Business.
