You’ve heard it before, and if you search online, you’ll see it repeated often: It takes two to three years for a new business to make money and become profitable (ecommerce, too).
Where does this figure come from? Whenever I dig into sources, I hit a dead end. I suspect it emerged from anecdotes and stuck after people said it often enough. As a rule of thumb, two to three years has a couple of virtues:
- It isn’t so long that a serious businessperson becomes dejected.
- It is long enough to deter a get-rich-quick mindset.
Truth is, there’s no solid number for us to lean on.
There’s no reason to believe time-to-profitability is longer in ecommerce than in other industries.
According to the Census Bureau, 15.4% of total sales in 2023 were online. In 2022, that number was 14.7%. According to revenue growth across the board, ecommerce has room for new mouths to feed. It’s not too late to enter the arena.
How long does it take for an ecommerce business to be profitable?
If ecommerce time-to-profitability likely isn’t longer than other industries, is it shorter? No.
You might think so by reading online forums (e.g., Reddit, Quora) and listening to business guru YouTube videos and Spotify podcasts.
But, even anonymous users have an incentive to posture. Online communities have engagement features (e.g., likes) that feel rewarding. Gurus have an additional incentive to make money.
Take advice and encouragement over ecommerce with a generous dose of salt.
More importantly, consider the efficient market hypothesis. It says we shouldn’t expect easy pickings anywhere in a free market. Where they exist, they are rare, and people are close to finding them anyway.
Why should ecommerce be any different?
- If we’re talking about costs, ecommerce isn’t safer. For example, inflation weighs down small businesses in the digital space as much as they do in brick-and-mortar spaces.
- If ecommerce profitability came quick and easy, then in terms of competition, you wouldn’t see winner-take-all effects over the long haul. But we do. Consider that Amazon has a dominant share.
In summary, it’s not always easy to make money with ecommerce. (Thankfully, Amazon is mostly a middleman, and there is some room for other intermediaries.)
With our short “answer” of two to three years in hand, let’s ask: What does the long answer depend on?
It depends on you and the particular business you’re interested in building.
What’s my particular ecommerce time-to-profitability?
Mathematically, profit is money you’ve got after paying off costs. In that sense, the easiest ecommerce business to start is the one that costs the least amount of money upfront.
Low upfront costs is why dropshipping is popular among ecommerce entrants.
You don’t need to hold stock or worry about shipping too much. Once orders come in, you can get what you need from manufacturers on the spot. And, more importantly, you can start from the comfort of your own home - learn more about ways to make money online here.
But the easiest ecommerce businesses to start are also the most competitive, stressful, and least rewarding. In addition to costs for inventory, shipping, and fulfillment, you’ll likely have to pay for other needs:
- Payment processing
- Website hosting
- Marketing
- Specialized software
If reducing costs is one way to boost profitability, making more revenue is the other lever you can pull.
You can choose products known for higher per-unit revenues (e.g., electronics). But the same logic will invite entry from other ecommerce players.
So, what separates those who do well in ecommerce from those who don’t? I’ll quote an expert.
We're not competitor obsessed, we're customer obsessed. We start with what the customer needs and we work backwards.
You may have guessed it: that’s Jeff Bezos. Knowledge and skill are what matter most when running an ecommerce store.
As a small business owner, you need to do everything in the business, especially in the beginning. You can earn passive income as an ecommerce business owner. Customers will purchase off your site, but building and maintaining your operation is not a passive effort.
You have to understand everything that matters for the business. Even seasonality. The slowest months for commerce are July, August, January, or February, and the most intense months are November and December. You need a plan for how and why you’ll handle the highs and lows.
Finishing out our Amazon theme, you could object that Bezos didn’t even manage a profitable firm until 2004. But then he would respond (and has responded) that the future looked brighter, so the investment was well worth it.
Bezos ended up being right. His insight was based on his understanding as an ecommerce business owner who had been there from the start and knew the business inside and out.
Likewise, you’ll be in the guts of things from the get-go and will probably know within the first year if the business could be profitable in two to three years. That initial year is the most ruthless of any. Just see the big drop-offs in business survival rates in the Bureau of Labor Statistics for retail trade and wholesale trade.
What will make your business profitable soonest is how good you are at the business. It affects revenue gains and cost management.
How can I make my ecommerce time-to-profitability shorter?
Ask yourself: What strengths do I have right now that I could leverage for my ecommerce business?
Those strengths are either:
- Physical assets that multipurpose for how you use them today and how you could use them for your store, or
- Knowledge, understanding, skill: Bits of information that lend you an advantage when doing essentially what Bezos aimed for when he started out.
For physical assets, you might just use your laptop, home space, and Wi-Fi for your ecommerce store. More important of a factor is your knowledge.
Relevant knowledge breaks down to:
- Who you’re selling to
- What you’re selling to them
- How you’re selling it to them
But we’ve tripped over a critical element by accident: Your motivation for the actual business that you pick (for those who haven’t definitively decided).
Bezos started with an online bookstore.
Jeff Bezos began with a business he understood and liked. Do the same, as you’ll have more motivation to understand customers, partly because you might be one of them.
Do a little homework to figure out the right target customer group for you. Who do you relate to the most? Which buyer situation is the most enjoyable for you to think about?
If you haven’t started your business yet, then you have a blank slate and can think broadly. If you’re deep into the process, on the other hand, then you can work with the information you’ve gleaned so far to move the ball further.
As for the final basic element, how you sell to customers, marketing in ecommerce can get complicated, and this article won’t lay out all the pieces of the puzzle. Consider the following:
- Social media
- Search engine optimization (SEO)
- Influencers
- Customer loyalty programs
- Referral programs
- An easy-to-use website
- Convenient payment methods and processing
And more factors can affect your marketing success. As a result, you may want to consider a tool designed for beginners that lets you manage everything in one place.
The overall complexity will be overwhelming unless you dig in deep to the research and understand as much as you possibly can.
All that understanding will feed into your business plan and prepare you for contingencies. Ultimately, your business plan must answer the question, “What do my customers want, and how will I provide it to them?” in a detailed way.
Eventually, your business plan won’t be enough, and you’ll need to adapt. Avoiding and remedying ecommerce mistakes can be tricky, but it can be done.
Making money sooner in ecommerce
How long does it take to make money with ecommerce? The short answer is two to three years.
The long answer: It depends on you and the business you build. Don’t aim to get rich quick. It won’t work out.
Ecommerce time-to-profitability depends on what you actually do in the business, which makes predictions beside the point.
What are the takeaways from this article?
- Pick a product you like and a customer group you’re already part of.
- Leverage the assets you have today.
- Research everything that matters for the business so you aren’t surprised by what happens.
- Lay out a business plan.
- Adapt when needed.
- You’ll likely know within the first year of business if things could work out in the next year or two.
But this short article only touches on the essentials for building an ecommerce store. You can go in-depth to understand what your best next steps might be.
Remember, no checklist can build a profitable ecommerce store for you. It can only lay out guiding principles, which you then apply in your own way. Good luck.
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