How Much Money Do Online Stores Make?
Thinking of starting an online store?
The online retail industry in the United States alone is worth nearly $200 billion and all figures show that online shopping is on the rise. Judging by this information, you would assume that an online store would be very profitable. Yet, according to one study, the top 500 retailers claim 77% of the entire US e-retail market. That still leaves about $45 billion up for grabs amongst the remaining retailers but, with thousands or even millions of stores online, how much money are these stores really making?
The Competition is Incalculable!!!
To calculate how much money online stores are making, we'd first need to figure out how many online stores are out there. Many people have posed this question, but no one has yet to give a good answer. The blog Referral Candy comes closest to giving an accurate answer with their power law graphs. Their analysis shows that there are about:
- 55,000 online retailers making at least $25,000 yearly
- 34,000 online retailers making at least $50,000 yearly
- 21,000 online retailers making at least $100,000 yearly
They also estimate that there are probably 1 billion online retailers making less than $1,000 annually. This number is hard to swallow though as it would mean that 2 out of 5 internet users would have an online shop (though many ecommerce merchants have multiple online shops).
While it may not be possible to get an exact number of online retailers, it is clear that the competition is vast. With hundreds of thousands of competitors, you will have to work very hard to get yourself a piece of the $200 billion online retail industry.
It's About ROI, Not Sales
The top 500 online retailers didn't just throw up websites and become big overnight. Most of them, like WalMart, Staples, and Sears, have been household names for decades and already had a loyal customer base when they launched their online stores. Others, like the #1 online retailer Amazon, launched at the start of the internet craze with a clear business strategy for taking over the ecommerce world.
These top online retailers invested a lot into their businesses and, in exchange, have received a lot in return. If you expect to open a profitable online store, then you will need to be prepared to make an investment. In this sense, it is important to focus on ROI of online store models rather than sheer sale numbers.
Aside from sales, there are numerous other factors which are going to affect ROI on online stores. For example, certain marketing methods can produce better ROIs and the choice of credit card processors can also affect ROI.
Online Stores Are Not Get-Rich-Quick Schemes
Yes, there are numerous online stores raking in 6-figure profits, but there are plenty more which have never even seen a cent back on their investments. Unfortunately, the number of online stores which lost money is probably much larger than the number of stores actually turning a profit (regardless of how modest an amount).
The reason that so many online stores fail has to do with the mentality of many people entering the ecommerce industry. Often, they view ecommerce as a get-rich-quick scheme or an easy way to supplement their income. You can’t blame these people for their skewed perceptions though: there are countless “experts” flaunting their “proven” methods of making thousands online with 5 minutes of work per day.
Any business, whether an online store or other industry, requires hard work. The amount of money you make from your online store will be directly related to how much you are willing to invest in it.