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For most startups, especially in the e-commerce industry, achieving rapid revenue and sales growth in the first few years is a dream come true. The bigger and more powerful you get, the easier it will be to keep adding resources and expanding in the future, right? Maybe not.
Business intelligence company RJMetrics recently published its 2015 E-commerce Growth Benchmark report, which analyzed anonymous data from its e-commerce clients to uncover trends in growth, sales and revenue. The report found that the smallest companies — those with less than $1 million in annual revenue — grow at a rate of nearly 140 percent each year. This annual growth slows significantly when a company reaches each new revenue bracket, dropping to 40 percent at $1 million to $5 million, 25 percent at $5 million to $10 million, and about 10 percent at more than $10 million.
The report's authors wrote that it becomes harder to sustain rapid growth as a company gets bigger and that the business will eventually need to explore new ways to boost its revenue.
"The most successful e-commerce companies ... target a very specific niche of customers," said Jake Stein, chief operating officer of RJMetrics. "This hyperfocus allows them to acquire customers quickly and grow incredibly fast in the early days. But [as] they start to max out customers in that target niche ... growth often starts to slow. This forces them to expand their product line or distribution network so they can reach a bigger market. In order to maintain that rapid growth, a company needs to continue to excel at customer acquisition but still retain that core market."
Stein said that although it's tough to make that leap as a growing e-commerce company, it's doable with the right strategy and tools. Online retailers can start to achieve this balance of old and new business by building a product and brand experience people want to come back for.
"Our report found that product-market fit emerges early, within the first six months of sales," Stein told Business News Daily. "If you're not seeing these indicators of rapid adoption from the start, it's a sign you need to either change your product or how you're presenting it to the market, Stein said.
The report identified six factors driving fast e-commerce growth in today's market:
- Increasingly tech-savvy consumers spend more money online than ever before.
- Mobile purchases made via smartphones and tablets have increased by nearly 50 percent year over year.
- Third-party and in-house warehouses and shipping services are becoming more efficient.
- All-in-one logistics providers have made it easier to enter international markets.
- Niche retailers are differentiating their product and brand experience to compete with larger companies like Amazon.
- Brick-and-mortar retailers are expanding into online sales and adjusting their in-store strategies accordingly.
While these trends are indeed fueling e-commerce growth, a company's choice of tech tools remains one of the most important factors in maintaining sales growth. According to the RJMetrics report, e-commerce startups that were launched in 2013 saw a tremendous spike in monthly revenue growth in their first 18 to 24 months in business, reaching an average of more than $2 million. Businesses founded in 2010, 2011 and 2012, on the other hand, grew more slowly, barely reaching $1.5 million by the 36-month mark. Stein believes this is because companies getting started today have access to technology that older e-commerce companies could only dream of.
"Major shopping-cart platforms offer beautiful, mobile-optimized sites," he said. "Facebook has made it easier than ever for very new companies to do brand advertising. SaaS [software as a service] products make it easy for brand-new retailers to send great emails, run A/B tests and make sense of the data they have at their fingertips. All of these products make it easier for new retailers to grow quickly from day one."
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