In my recent series of articles, I looked at six different elements of a business model: customers, products and services, channels, profits, people, and infrastructure. A well-planned business model and a well-executed strategy to support it should enable you to achieve your business goals.
To date, the series consists of the following installments.
What is the business model again? That’s how you make money. Your business model is constantly changing, reflecting the goals and strategies you choose to pursue.
This week, I cover two more key aspects of running a successful e-commerce business: setting goals and developing strategies to support them. If you’ve thought through your business model and how the different elements should work together, you’ve probably already developed many of your business strategies. Now is the time to link your strategies to measurable goals. You will then use the business model as a frame of reference to measure your risk and chances of success in achieving your goals.
On goals, strategies and tactics
Business owners, consultants, and employees usually don’t know how to go about defining goals, strategies, and tactics, or even what they really are. A great article on the definitions and origin of these concepts thousands of years ago is a 2009 post on Brand Insight Blog. I will also spend some time clarifying things in the article.
- Goals. Should establish a measurable and realistic goal to achieve. Set your goals before deciding on strategies. Examples might include: (a) Increase sales by 30% in 12 months; (b) Achieve 15% market share by 2013; (c) Improve profits by 15% in two quarters. Goals can be at the corporate level or at a lower operational level, but I’m now focusing on the big picture that supports your overall business model. So if your business model is set up to be a high-margin business, your goals must support that way of making money. To be real, a goal must be measurable and have a realistic chance of succeeding.
- Strategies. An idea on how to achieve your business goals. Let’s say your goal is to increase sales by 30% in 12 months. An alternative strategy might include adding new products to increase top line revenue. Or improve the overall conversion rate of all your website visitors. Another could be to entice your existing customers to buy more from you. It’s a good idea to have more than one strategy to support an objective. Just make sure you are able to execute all the strategies successfully.
- Tactical. Individual plans and actions to support big strategic ideas. Tactics to improve your overall conversion rate could include: (a) redesigning your shopping cart to reduce abandonment; (b) Provide more incentives to buy now that buyers are in your shopping cart; (c) Improve the speed of your website; (d) Add an alternative payment method to your payment; and (e) Remarketing to cart abandoners. In most cases, you will have many tactics that will be used to make your strategy successful.
Why bother to set goals?
You might wonder why even bother to set goals. I can’t imagine not setting trading goals, because those goals will drive your strategies and trade execution.
Whether you’re a start-up struggling to grow its business model, an existing business struggling to stay alive, or a high-growth company, goals establish your business framework. Let’s step out of the world of e-commerce for a moment and think about how most people buy a new home.
Imagine if you are looking for a new place to live. First, you think about what you are looking for in your new home or apartment. What size? Where is it situated? Do you buy or rent? How many rooms ? How much payment can you afford? How much maintenance is needed? What schools are nearby? Is it close to public transport? Think of this as your housing model.
Next, you need to decide what your goals are. Let’s say they need to buy a house within 20 miles of your office within the next 6 months. Your strategy is to get help finding the best home from a real estate broker rather than searching on your own. Your tactics may include interviewing brokers, searching online for brokers who have listings in the area where you want to live, and engaging friends and family about a referral to a broker. You can also go to a bank and get a pre-approved loan to make the process easier.
Developing eCommerce Goals
Now imagine that you have an e-commerce business that is growing, but you want to increase your profits. You have your business model in place with a single online store selling a product to a large market. You do your own fulfillment and customer support and have a set of manufacturers who manufacture your products for you.
Start by setting a high-level business goal of increasing your revenue by 15% in 12 months. You decide on a few strategies that will help you achieve this goal. First, you’ll be looking for a new range of kid-friendly widgets. Second, you will expand your channels to find new customers. Finally, you will explore new branding opportunities for your existing widgets to create more demand for your products.
Your tactics may include doing market research with the kids to see what kind of products they like. Then you can look for a way to target your existing products to children. You can also create a personalized product for children. Finally, you can consider opening a new website aimed at children.
To support new channels, you can explore marketplaces like Amazon and eBay stores. You may also decide to sell your products as a wholesaler in physical channels to reach customers who are not buying online.
Finally, to grow your brand, you can engage in social media campaigns, create a Facebook and Google+ brand page, and grow your advertising in magazines read by prospects. You can also hire a branding agency to create a more modern logo and messaging.
During this process, it is the reflection that is important. Make sure your business strategies support your business goals. Always make sure that your business goals are achievable within the business model you have developed. If it’s not, but it’s a priority, you may need to rework some parts of your business model.
If you pursue a singular strategy of improving sales by adding new products and doing all your own warehousing and fulfillment, develop tactics to support that. But you need to make sure they fit into your business model. It is unrealistic to pursue a 50% sales growth goal by tripling the number of products you carry in your stores if you have no more space in your warehouse to accommodate additional inventory and people to do the treatment. But, you may be able to target Amazon for revenue growth and let it do it for you. Similarly, you may decide on a tactic to add live chat to reduce cart abandonment, but if you don’t outsource this or hire a new person, another area of your business may crash when your employees try to support new chat activity.
Every aspect of planning your business involves risk. To do any type of planning, you have to make assumptions. Many people shy away from planning and budgets because there are so many assumptions made. I view planning as a vision that you support with as much facts and as much knowledge as possible to identify and minimize your risks.
Every assumption you make has a risk associated with it. In my next article, I will discuss how to identify your risks and how to mitigate or reduce the risks associated with your assumptions about your business model and your strategies and tactics.