e-commerce

7 Key Terms to Understand Before Starting an E-Commerce Business

E-commerce is big—much bigger than you might think. According to a survey from Pew Research, 79 percent of Americans have made an online purchase, and those numbers are even higher among younger demographics.

Because of this, it should hardly be surprising that more and more entrepreneurs are looking to enter the B2C e-commerce world and are using dropshipping as their go-to method. Dropshipping is an extremely cost-effective method of starting your own online business that can yield big dividends, but it is still largely misunderstood by many would-be entrepreneurs.

By understanding a few key e-commerce terms, you can better comprehend how dropshipping works and learn what you need to do to turn your own dropshipping endeavors into a profitable business.

Without further ado, here are seven key e-commerce terms you need to know.

1. Trading companies and wholesalers

Trading companies and wholesalers play a central role in dropshipping. Rather than ordering and storing your own inventory, the products you sell in your e-commerce store are made available through a third party manufacturer. You feature items in your store, but after the customer places an order, the trading company will fulfill the order. You essentially “buy” the item from the wholesaler, while keeping any profits from your price markups. While you need to be careful to only work with quality manufacturers, this partnership dramatically reduces overhead costs when compared with a more traditional business model.

2. HTTPS

With digital data theft a constant threat, customers are understandably wary of submitting their credit card information to a new site. Because of this, it is essential that you update your e-commerce site to use HTTPS. This system uses either an SSL or TLS protocol connection to provide an extra layer of security for your site, encrypting traffic so that hackers won’t be able to steal any data that is communicated through your platform.

If you don’t offer an HTTPS connection, many potential buyers will avoid your site entirely—but worse yet, you’ll put your own information and that of your customers at risk.



3. PPC advertising

It’s one thing to set up a store; it’s quite another to actually get customers to come to it. For dropshipping businesses, one of the best ways to attract new customers is through pay-per-click (PPC) advertising. In a PPC campaign, you create advertisements through AdWords or another similar resource, developing engaging content with keywords that are related to your products or store.

Your completed ads will then appear when a web browser conducts a relevant online search in Google or another search engine—but you’ll only pay when someone actually clicks on your ad. The quality of your ad and the amount you are willing to bid for an ad placement will affect where your content will show up in the search results. PPC is one of the most important tools in your dropshipping arsenal—the more you do to master this digital advertising method, the more likely you are to achieve success.

4. MAP pricing

While most of us understand the term MSRP, MAP pricing is a less commonly used term—however, it is of extreme importance for dropshipping businesses. Because of dropshipping’s low overhead costs, many sellers adopt a strategy of offering deep discounts in an effort to boost sales. However, many manufacturers enforce a minimum advertised price (MAP) agreement. In a nutshell, this means that sellers must agree to not offer items below a certain price. Should you break the agreement, the manufacturer can revoke your selling privileges for their products.

5. Cost Per Acquisition (CPA)

While your marketing efforts can help bring new customers to your store, it is essential that they do so in a cost-effective manner. Cost per acquisition (CPA) refers to how much money you needed to spend to acquire a customer. For example, if you were to evaluate the CPA for a PPC campaign, you would look at how much money you spent on the campaign, and then divide it by the number of conversions you achieved from your efforts.

It should come as no surprise that you should always be trying to lower your CPA, but you need to examine this crucial data point more closely than that. Your CPA should be evaluated alongside your other overhead costs and then compared to how much your average converted customer spends on your site. If your CPA is higher than your average customer spend, it’s time to rethink your marketing strategy—otherwise, you’ll only lose money.

6. Responsive design

People use their smartphones for social media and games, but they also use it for shopping. Currently, an estimated 34.5 percent of e-commerce sales come from mobile users, and that number is expected to continue to grow in the coming years, with mobile sales making up the majority of purchases by 2021. This means that responsive design is an absolute must for your e-commerce site.

Responsive website design accounts for the device someone is using to browse your site by adapting the presentation of images, menus and text so that a user can easily navigate the page. Responsive design makes it easy for someone visiting your site to fill out forms, browse items and make a purchase, regardless of whether they are using a desktop computer or a smartphone.


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7. Bounce rate

Another important term for understanding the effectiveness of your website is its bounce rate. The bounce rate refers to how many people click away from your site before clicking on any of your links or content. In other words, these people are taking a quick glance at your landing page, deciding they don’t like what they see and leaving before ever having the chance to become a paying customer.

While bounce rates for almost any website are relatively high, you should consistently examine your bounce rate and look for steps you can take to make your site more appealing to visitors. A retail commerce site that uses good targeting should aim to have a bounce rate between 20 percent and 40 percent—any higher, and you likely have issues with either your marketing campaigns or the site content itself that need to be addressed.

Conclusion

Knowledge is power, and that is definitely the case with these e-commerce keywords. As you come to understand these important terms and leverage them in your day-to-day business activities, you’ll be able to lay the foundations for a successful e-commerce store and get more out of your dropshipping efforts.

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