What it means
In e-tailing, the shop window is a website or app. Customers browse products, pay online and receive their goods by delivery, or in the case of digital products, by download.
The seller handles marketing, payment, stock, shipping and returns. Businesses choose among several models.
Some sell only online, some combine online and physical stores, and some list products on large marketplaces in return for a commission. Each model has a different mix of control, cost and customer reach.
The economics differ from traditional retail. Rent and shop staff are replaced by costs such as website development, digital advertising, payment fees, packaging and delivery.
Many e-tailers also face high return rates, particularly in categories such as clothing, which can cut profit significantly. Key measures help managers monitor performance.
These include the conversion rate (the percentage of visitors who buy), average order value, cost to acquire a customer and the share of orders that are returned. Tracking them weekly shows whether marketing and website changes are working.
A nuance is that growth does not always mean profit. Heavy spending on advertising and free delivery can win customers but leave little margin, so successful e-tailers watch the profit on each order, not just the sales total.
Strong customer service and repeat purchases usually matter more than a single large campaign. Logistics and customer service are as important as the website.
Fast, reliable delivery builds trust, while slow or damaged shipments lead to refunds and bad reviews. Many e-tailers therefore use third-party warehouses and carriers, and treat delivery performance as a core financial measure.
In practice
Real-world examples.
Example
A family business that sells handmade candles launches a website and ships across the country. Within a year, online orders make up more than half its sales, and it opens a second warehouse. The owners track the profit on each order to make sure growth does not hide losses.
Example
A clothing brand with 30 stores adds an online shop and offers in-store returns. Customers who return items in person often buy something else during the visit, which improves overall sales. Because the stores serve as returns points and mini-warehouses, delivery times shorten and shipping costs fall.
Example
A small electronics retailer lists its products on a large online marketplace and pays a 12% commission on each sale. The marketplace brings in traffic that the business could not have generated alone, although the commission squeezes margins. The owner compares that cost with the margin on each product and drops items where the commission leaves almost no profit.
Formula
Calculation
Conversion rate = orders / website visits x 100. Revenue = orders x average order value.
Worked example: an online homeware shop receives 50,000 visits in a month and records 1,500 orders at an average order value of $80.
1. Conversion rate = 1,500 / 50,000 = 0.03, or 3%
2. Revenue = 1,500 x $80 = $120,000
3. If advertising costs $18,000, then advertising cost per order = $18,000 / 1,500 = $12
Raising the conversion rate from 3% to 3.5% on the same 50,000 visits would produce 1,750 orders and $140,000 in revenue, an extra $20,000 without any extra advertising.Case study
Seen in the real world.
Willowbrook Outdoor is an illustrative, fictional retailer that moved from one physical shop to an online store selling camping gear. The founders spent heavily on advertising and quickly reached $400,000 in monthly sales.
The finance manager then analysed profit per order and found that after advertising, delivery and returns, many orders lost money. Orders under $40 were the worst, with delivery costs eating most of the margin.
The company introduced a minimum order for free delivery and focused its advertising on higher-value customers. Monthly sales dipped slightly, but profit turned positive. The illustrative lesson is that online growth should be judged by profit per order, not just by sales. Within a year, the company opened a small warehouse nearer to its main customers, which cut average delivery times from five days to two. The founders also began tracking repeat purchases, since customers who ordered a second time cost far less to serve than new buyers. By the end of the year, repeat customers produced more than a third of revenue.
Watch out
Common mistakes.
- Judging success by website visits instead of orders and profit.
- Ignoring returns, delivery and payment fees when calculating margins.
- Spending on advertising without measuring the cost of acquiring each customer.
Questions
People also ask.
What is the difference between e-tailing and e-commerce?
E-commerce is the wider term that includes all online buying and selling, while e-tailing refers specifically to retail sales to consumers.
Is e-tailing cheaper than a physical shop?
It can lower rent and staffing costs, but advertising, delivery and returns often make up the difference.
What is a good conversion rate?
It varies by industry and product, and many online shops see conversion rates of a few per cent, so compare your own results over time.
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