If e-commerce was a real shop, you'd close it by lunchtime

Here's a thought experiment I keep coming back to.

Picture a physical store. A nice one. Good fit-out, good lighting, staff who say hello. Now imagine 100 people walk through the door and 3 of them buy something. The other 97 wander around, pick things up, put them back, and walk out. You paid for every one of them to come in. You paid the rent. You paid the staff. You paid for the Point-of-Sale system by the till... You'd shut the store. You'd call it a disaster. You'd never open another one.

And yet that store is e-commerce.

That's the whole industry. The global average conversion rate sits between 2 and 3 out of every 100 visits. In Australia we're quoted around 1.8%. The average Shopify store converts around 1.4%. So no, it isn't 3 in 100 who buy. For a lot of stores it's closer to 1 or 2. We have spent 15 years and untold billions building the most beautifully optimised, A/B tested, version of a shop where 98 people walk straight back out the door. Is e-commerce insanely inefficient? Yes. Gloriously, structurally, on-purpose inefficient. And once you accept that, you can actually start to win.

Here's what's really uncomfortable, though. The conversion rate isn't moving much. But the cost of getting those 100 people through the door has been climbing every single year, and it isn't slowing down. A few numbers that should make any retailer wince. E-commerce CAC has risen more than 60% in five years, and Facebook CPMs alone are up roughly 89% since 2020. Meta's CPMs hit all-time highs through 2025, peaking north of $25 during the Black Friday window. Google Shopping CPCs jumped over 30% in 2025. And the kicker, the one I can't stop thinking about, is that there's now research suggesting the average brand loses money on the first order. You pay to acquire the customer, the first sale is underwater, and the only way you climb out is if they come back and buy again.

So the model is this. Pay more than ever to bring someone in, convert 1 or 2 of every 100, lose money on the ones who do buy, and pray they come back. Then layer free shipping on top because the customer expects it and "everyone offers it". Then a 70% cart abandonment rate at checkout for good measure. Written down like that, it reads like a dare.

People love to say lifetime value is dying. It's more subtle than that. The thing that's broken isn't LTV itself, it's the ratio. The healthy benchmark is an LTV to CAC ratio of 3:1. Most scaling brands today are sitting at 1.5 to 2.5x. Same LTV, but a CAC that keeps inflating eats the ratio alive. And a lot of that inflation has nothing to do with you.

Temu and Shein spent enormous sums chasing growth, Temu alone reportedly over a billion dollars on Meta in 2023. Etsy's then-CEO said on a 2023 earnings call that the two were taking share and driving cost-per-click to unsustainable levels in certain channels. You are bidding in the same auction as companies who do not seem to care if they lose money to buy attention. That's not a strategy problem on your end. That's structural.

And then someone always pipes up with "but SEO is dead now too," and honestly, what the actual. I wrote about this a while back and it's only got worse. The content flywheel, the one we all built our top-of-funnel on for a decade, write a blog, rank on Google, get free clicks, convert, repeat, is collapsing. Google's AI Overviews now answer the question right there on the results page. The traffic never arrives. Cloudflare's CEO put numbers on it that genuinely stopped me. Google used to scrape roughly 2 of your pages to send 1 visit. Now it scrapes around 18 pages to send 1 visit. For OpenAI the scrape-to-visit ratio went from about 250:1 to 1,500:1 in six months. Your content is being absorbed and regurgitated, and it isn't coming back with a click attached. So the cheap channel is drying up and the expensive channel is getting more expensive. If your reaction is "what the actual" too, congratulations, you've read the room correctly. But here's the thing nobody says clearly enough. This is bad news for everybody equally, which means it's only really bad news for the brands who have no other plan.

So how does anyone win from here? I don't think the answer is a clever checkout tweak that lifts you from 1.8% to 2.1%. Take the tweak, sure, free money is free money. But it won't save a broken model. The answer is to stop playing the rented-attention game on its own terms.

The first lever, and the one I'd bet the house on, is owning the audience instead of renting it. Email and SMS are the boring, unsexy, undefeated channels. Australian e-commerce email open rates are among the highest in the world, near 47%. Email converts at over 5%, referral traffic even higher, while Facebook traffic converts under 1%. A first-party list doesn't get more expensive when Temu shows up to the auction. It's the one asset that's actually yours. The second is making the first order not be a loss. If you're paying to lose money on order one, your AOV and your repeat rate aren't a nice-to-have, they're the entire business. Bundles, thoughtful upsells, a reason to come back. The brands surviving high CAC are the ones with the LTV to absorb it.

The third is brand, which now comes before discovery. When discovery is rigged and search is a zero-click walled garden, being memorable stops being fluffy. People type your name into the box, or ask the AI for you by name, or they don't. Brand is becoming the cheapest acquisition you have, because it's the one channel that doesn't run through an auction. The fourth is people, not logos. Audiences follow humans. Creators, founders, trusted voices, partnerships, the messy authentic stuff. Distribution through people you trust beats another perfectly targeted ad nobody asked for. And the fifth is being the answer the AI gives. Search as we knew it is fading, but the new game is being the source that gets cited and summarised. If your content is the clearest, most useful, most trustworthy answer on a topic, you want to be the thing the machine repeats back. Different game, same craft.

Now the honest bit. Is it harder to get traction as a retailer today than it's ever been? Yes. I won't dress that up. The cheap traffic is gone, the auction is hostile, the search engine ate your blog, and you're converting 2 in 100 while paying a premium for all 100. But I keep coming back to that imaginary shop with 98 people walking out the door. We built that. On purpose. And the brands that win from here aren't the ones with the biggest ad budget. They're the ones who quietly understood their unit economics cold, owned their audience, built a brand worth remembering, and stopped trying to win an auction they were always going to lose.

It isn't doom and gloom. That isn't helpful. The engine just changed. Time to build a smarter one.