Have you ever done the math to see when you can retire? There are many retirement calculators that can help with this eye-opening exercise, but you may find that your income won’t add up as soon as you’d like.
I’m here to give you good news: You don’t have to wait decades for the financial freedom to retire. One way to potentially retire earlier is to start an online business. Doing so can substantially change your income and lifestyle — if you go about it the right way.
For example, Amazon sales are increasing exponentially, and half of them come from small and medium-sized businesses. But for all the successful businesses, there are many that fail.
Here are seven common mistakes I see many online business owners make — and what you should do instead.
Mistake No. 1: Trying to invent a market.
I’ve seen many entrepreneurs jump in feet first with a product idea that’s completely unproven in the market. They spend a lot of time and money developing and launching it because they think it’s a cool idea, only to find that nobody else does.
Unless your goal is to exercise your creativity, the best way to launch a profitable e-commerce business is to find a product category that’s already popular. Even if you aren’t selling on Amazon, take a look at the Best Sellers Rank (BSR) on Amazon product pages to see how a product is performing, with No. 1 being the bestseller in its category. Look for products with a BSR between 100 and 6,000 in the high-level category, which means they’re selling well but aren’t too competitive.
Mistake No. 2: Selling someone else’s brand.
It’s tempting to sell a product with the manufacturer’s branding rather than go through the trouble of creating your own. While that’s easier at first, your competitors are selling the exact same product — which means you’re competing on nothing but price. As a result, your margins are tight at best.
Instead, create your own brand. Many manufacturers on Alibaba.com will let you “private label” their generic products, meaning you can package and sell them under your own name. (To be clear, you should not and legally cannot counterfeit someone else’s unique product. But you certainly can manufacture your own versions of generic products, ranging from basic tools to complex electronics.) This differentiates your business from the competition, even though you’re still selling similar products. When you own the brand, your margins are higher, you have more control, and you’re building a valuable business that you can sell later if you choose.
Mistake No. 3: Choosing the cheapest product.
Many people go with the cheapest version of a product possible. But if you’re selling a low-quality product, you won’t get repeat sales, referrals, or positive reviews that you can use in your marketing, which ultimately means the business won’t be profitable.
Consider a car cell phone mount selling for $30. The difference between the lowest-quality version and the best is often only $1 or $2, especially if it’s coming from China. That doesn’t have a huge impact on your profit margin, but whether you choose to spend it can have a long-term impact on the business.
However, don’t assume that a product is higher quality just because it costs more. When you’re deciding what to sell, research the reviews of competing products to find out what people like and dislike. To go above and beyond, order a few of the bestsellers that you’d be competing with. Then research suppliers on Alibaba, ask them for product photos, and eventually pay for a few samples before choosing a product that’s as good as or better than what’s out there.
Mistake No. 4: Spending too much money.
I’ve heard horror stories of entrepreneurs who spent $40,000 on a bad product and are stuck in debt with a product that won’t sell. Unless you’re willing to risk that kind of money, you should never order that much inventory — and there’s no reason to.
We coach hundreds of online businesses and found that they spend an average of $1,200 on initial inventory. Once you sell your initial inventory and confirm your idea works, you can use the profits to invest in more. If you can’t get the business off the ground for a few thousand dollars — $10,000 at the most if you have extra money — then you’re probably doing something wrong.
Mistake No. 5: Underestimating the importance of marketing.
Many people spend all their time and effort developing the product, setting up the business, and building their website or Amazon product page; so they lose steam before it’s time for marketing. Then they expect magic to happen, but that’s actually where the realwork begins.
Unless you get lucky, it’s likely going to be a grind. Don’t get discouraged or invest too much right away. First, test different marketing strategies to find out what works for you. Start by advertising on Facebook (and Amazon, if you’re starting an Amazon business), testing on a small scale; you should be able to spend as little as $200 to get a statistical significance. Then expand slowly, doing more of whatever works.
When you’re ready to try new things, what works best will depend on you. If you’re analytical, you might enjoy optimizing your ads more. If you’re creative, you may do well with social media or content marketing.
Mistake No. 6: Prioritizing incorrectly.
Many entrepreneurs need to get their priorities straight. For example, it doesn’t matter how many people your marketing drives to your website or Amazon page if it isn’t strong enough to convert them into customers. Prioritize finding a quality product, then creating a solid website. Only after you’ve dialed that in and had success with ads should you test other marketing campaigns.
Mistake No. 7: Scaling too quickly.
Once you’re doing well, you might think it’s a good idea to add new products — or worse, new brands. Launching a new brand is almost always a mistake because you have no leverage other than your experience. You can’t sell to your existing customers, so you’re starting from scratch.
It’s human nature to want to expand quickly but go deep before you go wide. Double down on marketing before adding a new product; otherwise you lose focus on your first one, which may not be as stable as you think. If you try to manage too many products at once, the whole business can come crumbling down.
You may be ready to scale when you’ve been producing consistent and predictable results for several consecutive months. What’s most important is that you aren’t constantly putting out fires; so first make sure your business is running smoothly. Even if you plan on scaling, don’t forget to stop and celebrate when you reach that point — because it means you’re on your way to early retirement.