▷E-commerce business plan: 7 mistakes that will distort your financial forecasts 2020

    Do you want to start an online sales activity? Carrying out an e-commerce business plan will probably be a must. Whether to structure your thinking and validate the feasibility of your project or to obtain funds from your banker or investors, you may have to rub your hands on the exercise.

    Highlight of your e-commerce business plan: financial forecasts

    E-commerce financial forecast
    Financial forecasts are the culmination of your e-commerce business plan because they reflect the economic vision you have of your project. They must show your mastery of the main economic components of e-commerce, demonstrate the consistency of your project and demonstrate its financial potential. The exercise is difficult but the validity of your e-commerce business plan is largely based on these financial forecasts.

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    E-commerce and more generally web activities present a certain number of specificities which necessarily impact the construction of their financial forecasts. Having a good knowledge of web mechanisms (from generating traffic to converting a prospect) is not superfluous for achieving consistent and robust financial forecasts. Indeed, an oversight or an error of assessment could completely distort your forecasts, sometimes to the point of making you discredit in front of your interlocutors.

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    A quick tour of the pitfalls that await you

    Mistake # 1: Believing that your e-commerce site will cost you (almost) nothing

    Contrary to what we can hear, the development of a website comes at a cost, even more so if it is an e-commerce site. When you have the time and the will to devote yourself to it, website creation software offers a very accessible solution for developing your e-commerce site yourself. But very often, for a custom design and development, you will need to use a web agency or a freelance. Depending on the complexity of the site, the budget can vary from a few thousand euros to more than 100k €, which can change a lot of things for your initial funding needs! By surveying various service providers, you will notice substantial price differences in the quotes that are offered to you, sometimes these differences are justified by the quality or level of service, sometimes not. So be careful to use your budget wisely by avoiding the pitfalls! For more information on the budget needed to create your site, I invite you to take a look at our article on the cost of creating a website.

    Once your e-commerce site is launched, the expenses are not over. Any site entails a minimum of technical maintenance costs, costs which are only likely to increase over time. In addition, if the audience of your site increases strongly it will also be necessary to adapt the technical infrastructure accordingly. It may therefore be relevant to index the evolution of your technical costs on the projected volume of visits to your e-commerce site.

    Risks for your business plan:

    • Underestimate short-term development costs
    • Do not anticipate the growth of technical costs

    Mistake 2: Forgetting certain cost items in your business plan

    In the absence of a good experience in e-commerce, it is not uncommon to underestimate or even completely forget to include certain cost items in the financial forecasts of your business plan. The ramp-up of your e-commerce activity will therefore probably go hand in hand with an increase in requests for pre-sales and after-sales support, which ultimately requires having permanently trained staff (and mostly) dedicated to this task. Similarly, a growing activity necessarily goes hand in hand with an increase in product returns which must be anticipated at the economic and organizational level. Shipping costs are more rarely forgotten. We will add that web development and web marketing are so specific fields that it is not useless to plan an annual budget of subcontracting and various external services.

    Risks for your business plan:

    • Do not consider support as an item of expenditure in its own right
    • Underestimating the growth in product return costs

    Mistake # 3: Not designing a real marketing plan

    A marketing plan is an essential instrument for planning your investments in media and communication. It guarantees the consistency of your strategy both over time and across all online and offline channels relevant to your business. Generating traffic for your e-commerce site is not simple and if you hack a few figures in a hurry to generate a turnover that holds up over the next 3 years, any experienced interlocutor will quickly flush out the hoax . To establish a marketing plan that holds water, above all, you need a good knowledge of web marketing and traffic generation. Some channels will quickly reach their limits, others will be able to absorb increasing investments without losing efficiency over time. All this must be analyzed according to your sector of activity and the nature of your prospects: a BtoB and BtoC marketing plan, for example, have little in common. To find out how to do this, I invite you to consult our article on designing a web marketing plan.

    Risks for your business plan:

    • Losing all credibility before an informed interlocutor
    • Underestimate the difficulty of generating traffic
    • Underestimate your online and offline media investments

    Mistake # 4: Believing in the miracle of virality

    How many neo e-merchants ended up with a well thought out site but without anyone coming to it? Just because your site is online doesn’t mean that prospects will flock there overnight and spread the word. The Internet is a jungle where it is not easy to find a place! Word of mouth, virality are terms we often hear in the mouths of ignorant people, but there is no free quick fix, not even social media! The notoriety of a website is built over a long time, before people come on their own website you will have to bring them there with great investment reinforcement in particular in Adwords or in content generation .

    Risks for your business plan:

    • Overestimate the speed of growth of your direct traffic
    • Overestimate the impact of social networks on your traffic

    Mistake # 5: Taking Google for the Golden Hen

    This is a corollary of the previous error: it is not because your e-commerce site is online that you will appear at the top of search results of engines like Google. Certainly if your brand is not a common name we should find your site quite easily by typing its name, however before being well referenced on competitive expressions like “men’s shirts” or “leather bags” it will suit you you have to work and not just a little! Google uses a complex (and kept secret) algorithm to classify search results, but we know some ingredients. To simplify a bit, what is certain is Google appreciates the unique content and the inbound links to your site from other well-known sites. Here are two dimensions on which you will need to invest to hope to attract qualified traffic via natural referencing.

    Risks for your business plan:

    • Overestimating traffic from internal search engines
    • Underestimate the cost of necessary SEO investments

    Mistake # 6: Overestimating Your Site’s Conversion Rate

    What will the conversion rate tell me? For an e-commerce site it is the share of visits to your site during which a purchase is made. We can compare it to the proportion of people who entered a store who made a purchase there. The problem is precisely that the comparison stops there because the orders of magnitudes are not at all the same: in stores it is estimated that on average 55% of prospects entered convert while on an e-commerce site the rate conversion rates may vary in a range from 0.1% to little more than 4 or 5%! The credibility of your e-commerce business plan depends on the validity of this assumption with regard to your activity.

    Risks for your business plan:

    • Overestimate the number of orders generated by your site
    • Significantly distort the apparent profitability of your e-commerce project

    Mistake # 7: Do not calculate your cost of acquisition per customer

    When we multiply the hypotheses on the volume of traffic, the overall investments and the conversion rate of each channel, we end up forgetting to look at what it really costs us to acquire a client globally. Investors on the other hand do not forget it and beware of you if your figures are completely unreasonable. A customer who brings back an average of € 100 per purchase can probably not be acquired for only € 2 of marketing investment. Conversely, if you need to invest € 500 for a customer who brings you € 100, your e-commerce business plan goes straight into the wall. Calculating your customer acquisition cost is therefore a kind of control variable, it also has the merit of showing your investors that you care. Finally if you also calculate a “Customer lifetime value” you can also show that you are thinking in terms of profitability, a good point for you!

    Risks for your business plan:

    • Present an unrealistic hidden acquisition cost
    • Do not see the deterioration of your profitability per customer

    Some general advice before you start

    • First, deepen your knowledge of the mechanisms of web marketing: Above all, it involves understanding the roles, economic models and performance of the multiple traffic acquisition channels available to an e-commerce site (SEO, SEA, display, social, retargeting, etc.).
    • Study your competitive environment carefully: Analyze your competitors’ trajectories to assess which ones you can take. But be careful to remain realistic. It is not in 6 months that you will catch up with the current leader in your market.
    • Use common sense to define realistic hypotheses: Very often when we find ourselves facing our Excel spreadsheet that we gradually fill with abstract figures, we end up losing all perspective and no longer realizing aberrations as big as a house.
    • Do not neglect the time you will need to devote to it: The financial forecasts of your e-commerce business plan are not just a simple exercise in style, they will help you identify certain risk areas and will reveal the aspects of your project that you still need to work on. The profit of your financial forecasts will very often be proportional to your investment in time and in reflection in the exercise.

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