How to build a successful Fashion Ecommerce

5 key steps to e-commerce success

1. Build the commercial offer and business plan
2. Build the website and digitalise the product
3. Build brand awareness and visibility
4. Measure the results with appropriate KPIs
5. Continuous improvement and drive growth

Fashion E-commerce setup overview

To create a successful fashion ecommerce business you need to have a product to sell that has a clear identifiable value for your target customer, you need this product to be “desired” and therefore researched online by your target audience; if it’s not researched on Google there maybe not demand for that specific product.

Then you need an ecommerce website that is well designed, easy to use and fast. It also needs to be optimised for mobile. There are several software solutions you can choose from to build your ecommerce website, some of them don’t require particular skills to configure, a really popular one is Shopify. But for corporate solutions there are also some ecommerce platforms that can be customised more in deep to meet your brand requirements. Some of these are Salesforce Commerce Cloud, Adobe Magento and others.

Within your website you will need your product to be fully digitalised, since you will be essentially selling photos, information and services. As your customer will not be able to touch your product or to try it on, you will need to convert as much as possible the characteristics of your product into digital information.

Some customers will still need to ask questions before they actually purchase the product online, they may enquire about shipping costs, returns conditions, payment methods and many other questions, therefore you need also an effective customer service team and perhaps a chatbot that can handle the basic questions without impacting too much on your customer service costs.

Build the commercial offer and business plan

Now that you have an overview of how a fashion e-commerce business functions , let’s look a the business plan and it’s core elements.

The first thing you need to know is how to estimate revenues that you will generate through your website. To do so you need to take the traffic that your website has i.e. the monthly visits and multiply them for the the conversion rate that for this purpose will assume is 1%. The result will be number of orders on a time period, for example 100.000 visits per month, times 1% Conversion Rate equals 1.000 orders.

It’s important to know that the Visits in Google Analytics are called Sessions and the Orders are called Transactions. If you know it you will understand better the reports that we are going to explain later on in this course.

The other variable that you need to calculate your gross revenues is the average order value (AOV). The average order value is the result of the average price of the products sold on your site and the number of products bought in every single order. So for example if the average price of your products is 100 Euros and people on average buy two items, let’s say that people buy 2 jumpers in two different sizes on average, your AOV will be 200 Euros.

Therefore your monthly gross revenue will be the result of 1.000 orders times 200 Euros that makes 200.000 Euros. This value will be referred to as Gross Revenue including VAT and Returns. To have the net revenues, on which you will calculate your margin and profit at the end of the year, you will need first to wait for the returns to come back to your warehouse and refund your customers. If we assume that you may have 30% returns, your net revenue (incl. VAT) will be 140.000 Euros.

• Conversion rate
• Traffic generation and growth
• Average price considerations
• Cost of Goods Sold COGS
• Cost of selling
• Administrative costs
• Digital Marketing investiment
• Gross Margin, EBITDA and EBIT

Now we need to put all the data into a spreadsheet to estimate our monthly and yearly revenues, costs and margin.

Overview of ecommerce operational costs. 

We are going to analyze the costs that an ecommerce business has to sustain in order to run its operations.

We are also going to present a cost structure and numbers in a way that the ecommerce business is sustainable and profitable for the company.

We examine a company whose website generate 500.000 visits per month on average and a total net revenue of almost 9 mln. It doesn’t matter which currency.

We will look at the costs that this company needs to sustain to run the ecommerce website

And we will analyse and calculate the profitability of the ecommerce business.

As we can see from the Business Plan this company generate almost 9mln in ecommerce sales.

But in order to determine if the business is sustainable and profitable we need to analyse the costs.

Fashion ecommerce cost categories and cost estimation. 

The first big cost chapter that needs to be considered is the cost of the products we sell. This cost is called Cost of goods sold or COGS, it is an account and financial terms and you need to be familiar with that as you will see it in most of the companies P&L.

The value of the cost of products can vary significantly depending on whether you manufacture the products you sell or you buy them from wholesalers and you resell them. If you manufacture them yourself you will probably have a lower Cost of Goods Sold, in this case we use a fix percentage to calculate our cost of products, in this case 30%.

The Cost of Goods Sold is always the first line of cost in any P&L. The difference between the Net Revenues and the COGS determines the Gross Margin, which is the first Financial Indicator of business health and profitability.

Below the Cost of Goods Sold we need to add the costs that we will need to sustain in order to sell our products online. 

For example we will need to invest in digital marketing to acquire traffic;

We will need a technology to set up our ecommerce platform;

We will need to take photos of our products, create descriptions of them and perhaps translate them into several different languages.