If you've never started a business before, chances are your first business is not going to be your last business. In this article, we are sharing with you tips from Kevin Williams, the CEO of Balls.co, an e-commerce company that's going big on Tiktok advertising.
Kevin shares with us tips on the best criteria for starting a successful e-commerce business that is usually overlooked by most people who teach and preach about e-commerce on the internet.
His answers could be hugely helpful because he is an entrepreneur that owns multiple e-commerce businesses and invests in and acquires other successful e-commerce businesses to broaden his portfolio.
The criteria he talks about are also the key things he analyzes in an e-commerce business that he intends to invest in or acquire. He believes that any e-commerce entrepreneur who gets these right from the start has a big chance at scaling to over $1 000 000 in sales with his/ her e-commerce business if everything else is done right. So here are the criteria:
1. Cost of Acquisition and Average Order Value (CAC and AOV)
Kevin says that he usually puts the cost of customer acquisition and the average order value (AOB) first. If you are going to have a business that is dependent on direct response advertising, you either need to have an AOV that's well north of $100 or a customer lifetime value (LTV) that’s 18 months.
CPCs these days are very high. They can easily be at $35 on a good day and up to $75 on a bad day depending on your vertical. So having a higher AOV that’s above $100 or $150 together with a longer LTV can really give you an advantage over the high costs of acquisition.
“I basically wouldn't consider investing or acquiring a brand that's smaller than that. In fact, I recently rejected a brand based on this point. It had good intellectual property, and a great website, and it used to be doing a ton of money, but its AOV was at $45. It was also in the women's accessory space which is not it's not an area that I'm like super intimate in.
If I were to acquire it, I would have to create this influencer marketing strategy that would have to be so noisy and it would be so hard to make money from it. So eventually l just passed because there's just not enough money in the transaction.”, Kevin says.
2. The Brand Has to Be Original
The brand has to be original because most non-original commodities are already on Amazon, so you might not easily scale to $1 000 000 because the products can be found elsewhere.
“Just getting out there and trying to sell something random like diffusers or humidifiers or trying to sell random common commodities isn’t good in the long run because that's why Amazon was born.
You need to be able to have a brand and tell a story. For example, with Balls, I had no choice but to convince customers to buy from a brand named Balls by telling a story. You need to come up with a story and make sure the visuals are great. Everything is visual in marketing these days, so can you tell a visual story that you can turn into a video that is consumable?”
3. Having a Moat
Kevin says that he generally prefers brands that have some sort of a moat around them, like a subscription business or intellectual property.
“I feel less good about just pure patent protection than I used to, but having a mode that gives you some defensibility is really important, so you know, having solid trademarks that you can fight off the other people.”
4. Logistics
Logistics elements should be given a huge consideration according to Kevin. Some postal services tend to be run recklessly. Sometimes products can get spoilt or they can get dropped and that can really eat into your business because it will increase the percentage of your returned sales. So you need to have the right logistics set up.
“The actual dimensions and weight of the entire packaging need to be considered carefully and never overlooked.
For example, our product was packaged in a completely nice box poly bag that was 15.99 ounces. If that thing weighed a few grams more, it would cost me $3 or $4 extra per unit to fulfill, and that changes the economics of the business and a lot of people overlook this.
If you can sell a product under 16 ounces that is good because you can ship it to the US in first-class and save a whole bunch of money. If you can't keep it under 16 ounces, then you better understand how you're going to deal with that because with transport costs increasing it's just going to completely eat your lunch :)”, says Kevin.
5. Scalability
So the other criterion is scalability through accessories and SKUs. As a result, having upsells cross-sells, and catalog sales for your hero product is critical.
“With Balls, the brush was the hero product but it had replaceable heads. So it had a subscription element to it but I also could get into the car deal detailing lifestyle so I could get into soaps and towels and all kinds of other stuff that people would want. Initially, they could only be in need of the one brush but they’ll also need the other stuff that I now have permission to market to them as upsells.”
6. The Durability of Customer Relationships
The cost of acquisition is so high these days so you need to build a strong LTV with your customers instead of selling to them only once. You've got to form a relationship with your customer that allows you to sell them things over many months or more years.
This can be done by setting up proper email sequences with offers and providing them with a great customer experience from the get-go.
Conclusion
Kevin Williams believes that any e-commerce entrepreneur who gets to understand and implement these 6 criteria, will have a strong chance to hit and scale over $1 000 000 in the e-commerce industry. Kevin as an e-commerce entrepreneur and investor, evaluates a number of e-commerce businesses, and it is only when these criteria have been met, then he pulls can decide to acquire or invest in the business.
