In both start-up mode or big business, the question of how to grow online business is extremely common. For the small business, the Internet may be seen as a primary route to gain traction in a competitive space. For a large business, online sales may be a supplemental sales channel. Regardless, businesses of all shapes and sizes have been turning to the Internet over the last 10 years in an effort to grow the bottom line. But the big question is "how?"
Even in 2009, some people still view online business as an "easy" way to gain customers. Believe it or not, there are some that still believe they can jump right into internet marketing and see immediately profitable results. This is far from the case. At HubShout, when we come across this mindset we like to say "how very 1997." These folks have obviously not read much about the current state of SEO. This is not to say you can't grow online business. Certainly the Internet can be an incredible part of a sales and marketing strategy. In some business models, it is the only channel. However, people need to realize that the great secret of Internet marketing is out of the bag and for 10 years the once "undiscovered" market has been normalized. In true Adam Smith form, this market has found it's equilibrium.
A few important factors to consider as you try to grow online business through Internet marketing.
1) Barriers to entry are extremely low online. This means there is more competition, and therefore higher costs for advertising. Think this through a bit. There are only 10 organic positions on page 1 of Google for any given term online. Yet, every day there are more and more competitors for those spots. Likewise, the advertising shelf-space on the right is limited. Since those positions are determined, in large part, by how much the advertiser is willing to pay for them, greater demand drives the price per click up.
2) Google charges per click. Many new comers Internet marketing are very surprised by this. Google charges you weather you make money or not. As you do your research and start clicking around. It is only later that you realize that have been spending between $2.00 and $25.00 per click when cruising through those ads on the right hand side of the Google search results. Work the math here. If your website is solid and converts visitors into customers as a healthy rate (say 3%), and your core terms cost $5.00 per click, your cost per customer acquisition will be $166 per customer.
$5.00 per click x 100 clicks = $500
100 clicks x 3.0% conversion rate = 3 customers
$500 / 3 = $166
If your profit margin per customer is $600, then this math works. But here is the catch: It probably isn't.
3) The online marketplace offers perfect information. Again, Adam Smith told us that when there is perfect information, there will be perfect pricing between supply and demand. Internet marketing is the closest thing I've ever seen to a perfect marketplace. Therefore, prices are nearly perfect. How does this play out? Well, in the example I gave above you can make $600 by spending $166. This news gets out quickly. And because other players can move into these keyword spaces so easily, they quickly come in and bid the price per click up at Google (since that's a bid-driven system). Before you know it, you are paying $23 per click, and you're entire business model is upside-down.
These are incredibly important considerations as you try to grow online business through search marketing. We come across people every day who are well into their businesses (perhaps even 3-5 years) and still do not have a complete grasp on these realities. And the crazy thing is that most of the data you need to model your return is available for free. If you don't know how to get it, ask us and we can help. Bottom line, it is very difficult to build a strategy to grow online business based on advertising alone. It will take a mix of paid ads, search engine optimization and traditional PR to get your business going. It is our strong feeling that you should engage a professional (either us or someone else) to ensure that your investment and hard work return the profits you seek.