One of the major differences I think between a Brick & Mortar store and a an online store is the need for marketing to grow the company.
Build it and they will come – or Not
I’ve noticed there is a belief among those who produce online websites that if they build the website; their customers will magically appear. It might have been true in the early ’90’s but these days there are so many online stores and other sites out there that it’s nearly impossible to get any traction with external marketing.
Unlike a Brick & Mortar store where walk-by traffic will hopefully generate some sales for you (and thus word-of-mouth, etc); an online store has literally no ‘sidewalk visibility’. So, instead you have to draw customers to you.
The Cost of Marketing
When we first launched, we spent probably 20 – 30% of our revenue on advertising. As time went on, this amount dropped as our revenues caught up with our spending but even now; we’re spending nearly 5% of our Revenue on Advertising. That doesn’t count the time we spend on our social websites interacting with customers or the time taken to write the blog. Or the amount of time we spend tracking and adjusting our spending to optimise our budget.
Contrast that to B&M stores in the Hobby game category who spend a maximum of 2% on average. In fact, if you compare the Rent & Marketing percentages of the industry and ours, it comes very close to being even (10% to 9%). As the title says – a hidden cost because most people (including customers) just don’t understand how expensive it can get.
Oh – one last thing; Price Competition (i.e. being the lowest price vendor) is another common marketing tactic. There’s a definite cost to discounting in loss margin, though it’s a harder number to quantify due to the unknown slope of the demand curve.