Starting out on online marketplaces takes a lot of effort, but when done right, you can turn this effort into momentum – taking your business forward faster even when you step off the gas.
Made famous by Amazon, any merchant can use the flywheel effect of selling across marketplaces to build long-term organic growth.
What is the flywheel effect?
The flywheel effect is all about momentum; Putting in a large amount of initial effort to gain business traction and sales that continue growing on their own while reducing the amount of effort.
For the flywheel effect to take effect, you need the following to work together:
- Momentum – initial work, time, and money to get the wheel turning
- Feedback loops – initial results that make the wheel turn faster
- Organic results – traction that enables the wheel to start spinning on its own
The flywheel effect of selling on marketplaces
The flywheel effect of selling on marketplaces is very similar. Merchants can invest initial effort and funds into aggressive advertising that builds:
- Brand awareness – more people becoming aware of your brand and products
- Sales – online shoppers starting to buy your products
- Reviews – more people talking about your brand in reviews and on social media
- Seller ranking – improved seller ranking, increasing your organic growth
- Long-term sales – more online shoppers becoming aware of and starting to buy your products
Each of these stages results in feedback loops, fueling further, and faster growth. For example, the more people become aware of your brand, the more people who buy your products, which leads to more online reviews increasing your seller ranking and organic search result placement, which increases your brand awareness, and so on.
How to apply the flywheel effect to your eCommerce business
Successfully applying the flywheel effect to your eCommerce business requires time, money, and dedication, but the results make it more than worthwhile.
Here’s how to start:
1. Pick your marketplaces
The success of the eCommerce flywheel effect requires you to focus all of your efforts in the same direction. For this reason, we recommend starting the flywheel effect with just one of your online marketplaces – the best ones to start with are:
- Amazon – hugely popular with online shoppers and retailers, Amazon is the perfect place to test the flywheel effect (especially as they use it themselves)
- Walmart – with 40% revenue growth in the past year and 100 million shoppers, Walmart is an attractive marketplace for any growing online business
- eBay – low fees and high customers numbers make eBay a popular alternative for many online retailers
2. Invest in your operations
Before the flywheel takes effect, it is crucial that your internal operations can handle it. In other words, can you meet a sudden rise in sales orders?
You can achieve this through:
- In-house fulfillment – investing in warehousing space, staff, and shipping carrier services to deliver items quickly
- Outsourced fulfillment – Outsourcing to a fulfillment partner to handle order volume growth and peaks confidently, quickly, and cost-effectively
- Sales channel fulfillment – using sales channel-specific fulfillment options such as Amazon FBA or a Walmart trusted fulfillment provider
3. Overcome cart abandonment issues
Your customer journey should be as seamless as possible, which means pre-empting cart abandonment issues and increasing the chances of customer conversions by:
- Using psychological hacks to bypass shopper concerns and win over buyers
- Implementing visual queues in your listings to entice customers by optimizing your product photographs
- Overcoming the top reasons for cart abandonment by offering fast and free shipping
4. Invest in advertising
Heavy advertising investment is a key step in the flywheel effect. Start by implementing CPC advertising campaigns, such as Walmart Performance Ads or Amazon Sponsored Products, to increase your visibility across the marketplace and in the search results.
5. Optimize your product listings
Your organic search ranking should start increasing as your CPC advertisements generate more views, sales, and reviews.
Help this along with some quick wins that can boost your organic placement and maintain long-term ranking.
a) Fast shipping programs
- Improved search ranking, with highlighted fast shipping tags
- Inclusion in fast shipping filtered search results
- Eligibility for the buy box
b) SEO optimization
SEO optimization aids search result placement and discoverability and can be improved by:
- Targeting longtail keyword strategies
- Creating mobile-optimized listings
- Increasing your customer review scores with fast shipping, low delivery costs, and outstanding customer service
6. Measure the results
It’s important to measure the results of the flywheel effect regularly to ensure that your hard work is creating momentum, positive feedback loops, and incremental gains.
The main metrics that you want to track are:
- Total advertising cost of sale: The cost of advertising vs. the revenue generated
- Advertising cost of sale AKA return on ad spend: The cost of ad spend vs. ad revenue
7. Keep pushing
Throughout all of these steps, it’s essential to remain focused and keep pushing in the same direction. Getting a flywheel started takes time, but is worth the investment once it starts rolling.
8. Reset your goals
Congratulations! Your flywheel effect is in motion, and your hard work is generating substantial organic growth.
Now, it’s time to realign your efforts and reset your goals. This might include:
- Reducing your advertising spend and relying on organic growth
- Resetting your advertising strategies to focus on other avenues, such as social media
- Exploring the flywheel effect on other online marketplaces
The flywheel effect is an interesting business strategy for eCommerce retailers. It’s not just the method attributed to Amazon’s tremendous success, but also produces substantial results for businesses of all sizes
But, this isn’t a quick or easy strategy to implement – it’s one for eCommerce businesses serious about growth and ready to put in the hard work now for significant rewards later.