Our second annual State of the Merchant report is here. Hundreds of store owners weighed in on our survey on everything from the health of their business to the impact Amazon has on their store, as well as how satisfied they are in their lives as eCommerce store owners.
There’s lots of good news (conversion rates are up, the U.S. economy is solid) and there’s some surprises too. Read on to learn more from our latest survey. Or skip on ahead and check out the official report right here.
(With your host Andrew Youderian of eCommerceFuel.com)
Welcome to the eCommerceFuel Podcast, the show dedicated to helping high six and seven-figure entrepreneurs build amazing online companies, and incredible lives. I’m your host, and fellow ecommerce entrepreneur, Andrew Youderian.
Hey, guys, it’s Andrew here, and welcome to the “eCommerceFuel Podcast.” Thanks so much for joining me on the show today. And today, it’s just myself, yours truly, flying solo on the mic, and actually recording this from the mobile eCommerceFuel offices, a.k.a. my van. We’re on the annual Youderian family run-away from the death winters of Montana.
Drove the family down to Tucson, Arizona. I heard it’s a cool town, it is indeed a cool town. And just checking it out for a few weeks, I really enjoy that. So if you hear any knocking on the windows, or people yelling at me, it’s either neighbors trying to scare me off, or law officers coming to flush me out of the van, it’s probably because I look pretty sketchy.
So, assuming that doesn’t happen, I wanna talk about, today, a report that I just released. It’s called “The State of the Merchant Report,” and it’s where I go out and survey a bunch of store owners, figure out what’s going on in the ecommerce world: everything from growth rates, to stats, to Amazon figures, to conversion rates. A whole bunch of things. And so I’m gonna talk about some of the key findings from that report in today’s episode.
So before we dive in, a big thank you to our two sponsors, first to Klaviyo, who makes email marketing incredibly easy and powerful. And if you’re not using Klaviyo, you’re leaving money on the table. You’ve almost certainly heard of these guys by now. Their ability to let you get more out of your existing list by creating amazingly targeted automated campaigns are second to none. So check them out. You can give them a test drive for free at ecommercefuel.com/klaviyo.
And secondly, Liquid Web, who does WooCommerce hosting better than anyone else in the world. They do regular hosting really well, and they take it even a step higher with WooCommerce with entire environment dedicated to optimizing Woo, the code base, the upgrades, the plug-in upgrades, and the scalability for your Woo store. So if you want a rock solid platform for your WooCommerce store, check them out at ecommercefuel.com/liquidweb.
All right, so let’s go ahead and get into this. This is the second time recording this podcast, for me. I recorded the first one, and I get done and it was 25 minutes and I thought to myself, “I’m gonna cause at least seven or eight car crashes if people have to listen to me talk about statistics for 25 minutes.” And so I hit, “Delete,” and said, “Okay, I gotta get this under, you know, 15 minutes at the most, maybe more like 10,” because I was starting to nod off at the time, and, you know, maybe…yeah, so I’ll try to spare you.
So let’s go through just the high points. I’m gonna try to hit those. And if this sounds interesting, I’ll tell you where you can find the whole report at the end of this. So I asked about, you know, I get about 450 responses this year, which was great, from people. And the average store size of people responding was $2.3 million, which was cool because the stores are actually getting bigger. Last year it was $1.6 million, this year it’s $2.3 million.
So larger companies are starting to reply. Most, I’d say probably two thirds of respondents are members of the eCommerceFuel private forum, so this kind of the tracking, that’s something we’re seeing in the community too, is people getting bigger and larger, and so that was cool to see about a billion dollars in average, in total revenue rather, reported for the survey. And most of the sellers, about, you know, more than two thirds, about 70%, are in the US, with the rest being, you know, scattered throughout the world.
So number one thing I noticed was revenue growth was up sharply this year, in 2018. So last year I did this, the annual growth was about 25%, and this year, it was up almost 50% from last year. So 25% year-over-year growth last year on revenue. This year it was 37% year-over-year growth, so pretty impressive jump. The fastest growing categories were stores that were private labeling, or who were manufacturing something. They were leading the charge at well above 40% growth rates. And the slowest growing segment was reselling.
So you look at the average, you know, it depends, but ecommerce in general, grows around 20-ish percent, 22%, depends on the numbers in the study. Pretty cool to see that. And granted, we’re gonna be smaller than, I would guess, you know, big ecommerce companies, but a good year for growth, which is cool.
Second big takeaway that surprised me was, I was expecting, you know, in a world where Jeff Bezos in his muscle man shirts likes to, you know, remind us that our margin is his opportunity, margins didn’t erode this much despite Amazon growing, and continuing to just gobble up market share. I thought for sure, with the world getting more competitive, and like I said, Amazon getting bigger, we’d see a big hit there, and we did it.
So, we’re gonna look at two margins here to give you a sense of that. First is gross margin. This is just the margin that you have after you sell a product, just purely on the product without any of your other overhead expenses. Last year, it was 39.6%, this year, it was 39.2%. So it dropped a tiny bit, but not much.
And on the net margin side, net margin is what you have at the end of the day after you pay all your overhead employees, the sushi lunches for your team, all that kind of stuff. Last year, 17.7%, this year, 17.4%. So, small slips, but not much. I was surprised. I thought we’d see more impression there, which is good news, at least for us, if you’re a merchant.
So, third thing I noticed was conversion rates were up massively this year. So, last year, the average conversion rate was 2.10%, this year it jumped almost 25% to 2.62%. You talk to any conversion rate expert, and they’ll tell you to get a 25% boost across your site is a pretty impressive, feat let alone for a collection of 450 merchants.
And, you know, granted, given how big of a jump this was, I was a little hesitant to share it because I was like, “I must have got the data wrong,” you know, something is amiss here. This can’t be right, and I’m gonna get called out on it. But I looked through the data, it seemed right. Actually, I’ll talk about it in the end here. I’ll share all the data, so if you wanna go in and check it out as well, you can.
But conversion was up massively this year, and, you know, the biggest thing I think to explain this is maybe one or two things. One, again, with merchants, a lot of the merchants in our community, replying to the survey, getting more sophisticated. I think there’s a chance that maybe they just are getting better at converting customers.
And the other thing is it was just a good year, economically, at least in the states, in America. You look at the stock market, you look at kind of the employment numbers, economically, it was a good year, and confidence seemed to be at least on the upswing. So I wonder if that contributed to people just buying, you know, having the purse strings a little more open. So that was the third thing.
The fourth big takeaway was just the percentage which, you know, the level at which Amazon is growing. And so to give you a sense of how much of our collective revenue comes from Amazon, let’s use that one billion figure. If you look at all the revenue from all the people who responded to the survey, it was right around a billion dollars, with a ‘B.’ I feel like I should do a Dr. Evil impression here, but I’ll spare you.
So last year, of that billion dollars, $200 million would have come from Amazon. This year, $280 would have come from Amazon. So over a quarter. Definitely growing up more than 20% year-over-year. So Amazon, you know, obviously, no surprise here, is becoming a, you know, we’re becoming more reliant on them as a channel as merchants.
The only thing growing faster than Amazon’s revenue, actually is complaints about Amazon. You know, one thing I asked every guy is, “What’s the biggest struggle, or worry, in your business?” And this year, the number of people who mentioned Amazon in some regard or another, was up almost 3X from the year before. And this wasn’t people complaining about Amazon putting them out of business, like people saying, “Oh, I run a brick and mortar selling teacups, now everyone buys their teacups on Amazon.”
Sorry, if you own a teacup business, I don’t mean to make you sound whiny. It wasn’t those people, it was people selling…80% was people selling on Amazon, complaining about Amazon, either saying like, “I feel like I’m overly reliant on it,” or “The Terms of Service are becoming a pain, and the policies are becoming obnoxious,” or, “It’s getting too competitive, I’m having to fight with people for my listings.”
So that was interesting. I don’t think we’re gonna see that go away. I don’t know if it’s gonna go up at the same rate, but things are getting, you know, trickier in Amazon. And the data kind of proves that out.
So, final big takeaway, at least I’ll share on the podcast is, shockingly, we are not all obsessed workaholics in the ecommerce world. And this was really refreshing for me to see, because I, you know, being an entrepreneur there’s a lot of perks. One of them, generally, isn’t, you know, a 20-hour work week, at least not until, you know, you’ve put in five hours of 80-hour weeks.
So my dad will sometimes tease me that, you know, “How’s that four-hour work week going?” he’s like, “Yeah, you work, you know…” and I don’t work a crazy amount, but he teases me about the four-hour work week because it’s not what I aspire to, and it’s also not, you know, what I do.
Anyway, getting back to the point here, I asked, you know, a lot of people like what the average amount of time that you worked? And the average number of hours worked per store owner was about 46 hours per week, so a little bit over full time, but not too bad. And what really surprised me is I thought that once you got into that, you know, $5 million to $10 million range, you know, having a meaningful business like that would really consume your life, and I was wrong.
So I looked at, you know, I looked at stores with over five million in sales, they worked an average of 52 hours per week. And that number, you know, of hours really didn’t change even when you went past the $10 million in revenue.
So granted, yes, you gotta bust your butt, especially in the early days, but I thought it was cool that, you know, you could have a very meaningful, even eight-figure business, and, you know, not be having to work yourself just to the bone to make it realistic, and to keep it running. Which I thought that was really cool, because, I, you know, I think I tend to sometimes tell myself otherwise.
So those are the stats at the, you know, the interest of, again, sparing you myself talking stats nonstop for too long. Those are the big takeaways from the survey that I took out, but there’s a lot more stuff that I wrote about. I asked you who your favorite billionaire was between, you know, between Bezos, Cuban, Elon Musk, and Richard Branson. I talked a lot about software winners and losers this year, between shopping carts review platforms, email marketing providers.
I dug into international ecommerce stats, which countries and areas have the highest conversion rates, and the highest growth rates, and all those kind of things. And also really don’t even to some stats on Amazon sellers versus store owners, in terms of like who has better margins, average order values, all those kind of things.
So if you wanna check that out, I spent a ton of time on this report. Tried to make it not only, hopefully, insightful, but entertaining and easy to digest. Put a huge infographic, and huge report together over on ecommercefuel.com, and you can get to it by going to ecommercefuel.com/2018-report, or just hit the blog button and scroll down to a couple of posts. But again, ecommercefuel.com/2018-report. I want to encourage you to check it out.
And a couple of quick “Thank yous.” Thank you, to Brad Maggard [SP], or congratulations rather, who won the international plane ticket to anywhere in the world. I always give that away every year to bribe them, I mean, there’s no other way to say it, to take the survey. So Brad, congratulations on winning that, I’d be excited to see where you go.
A big thank you to Michael Tremeer at Malou Consulting who helped me crunch some of the data, to David at ripenecommerce.com for helping spread the survey, and everyone else who was kind enough to help spread the word about the survey when I reached out. And finally, to Steve Chou, who just struggles mightily every year to complete the survey.
I hear from him two or three times about how painful it is. Steve thanks for hydrating, staying strong, getting to that final “Submit” button. Man, you’re a good friend. I really appreciate it. So if you see him, please thank him for me. I’d appreciate that.
That’s it. So, I hope you do well. Hope I kept this at a reasonable length, and I hope you check out the report because there’s a lot of good stuff in there. All right, I’ll talk to you next time. Thanks.
That’s gonna do it for this week’s episode, but if you enjoyed what you heard and are interested in plugged into a dynamic community of experienced store owners, check us out at ecommercefuel.com.
eCommerceFuel is the private, vetted community for ecommerce entrepreneurs, and what makes this different is that we really heavily vet everyone that is a member to make sure that they’re a great fit, that they can add value to a broader community. Everyone the joins has to be doing at least a quarter million dollars in sales via their store, and our average member does over seven figures in sales annually.
So if you’d like to learn more, if that sounds interesting, you can learn more and apply for membership at ecommercefuel.com.
And also have to thank our two sponsors that make this show possible, Liquid Web. If you are on WooCommerce, or you’re thinking about getting on to WooCommerce, Liquid Web is who you should have host your store, particularly with their managed WooCommerce hosting. It’s highly elastic and scalable, it’s got built-in tools to performance test your store so you can be confident it’s gonna work well, and it’s built from the ground up for WooCommerce. You can learn more about their offering at ecommercefuel.com/liquidweb.
And finally, Klaviyo, for email marketing. They make email segmentation easy and powerful, integrate with just about every cart out there, and help you build, you know, build incredibly automated, powerful segments that make you money on autopilot. You can check them out, and get start for free at klaviyo.com.
Thanks so much for listening, and looking forward to seeing again next time.
Want to connect with, and learn from other proven ecommerce entrepreneurs? Join us in the eCommerceFuel private community. It’s our tight-knit, vetted community for store owners with at least a quarter million dollars in annual sales. You can learn more and apply for membership at ecommercefuel.com. Thanks so much for listening, and I’m looking forward to seeing you again next time.
Flickr: Todd Huffman