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There’s no denying that ecommerce is big business. In 2017, it was responsible for $2.3 trillion in sales worldwide, and is expected to reach $4.5 trillion by 2021.
In the US alone, ecommerce represents almost 10% of ALL retail sales and that number is expected to jump by nearly 15% every year.
Faced with statistics like these, setting up an ecommerce store seems like a logical step for every small business! However, just because the opportunity to take your business online is there, it doesn’t automatically follow that it’s a good idea for you.
Do the costs involved outweigh the benefits? Will your brand really benefit from an online store? Have you got the necessary capability to successfully manage an ecommerce business?
Carefully considering the following questions will help you decide whether ecommerce is a viable option for your small business...
Does ecommerce work for a service business?
If you don’t have a physical product to sell, setting up an ecommerce site for your business may seem pointless.
But service businesses can also benefit from an ecommerce presence, and most types of business, from graphic designers to restaurants and digital consultants, will be able to sell online through a shopping cart.
Items service businesses can sell online include:
- Vouchers and gift certificates offer customers digital certificates to exchange for your services — a popular option for people looking to gift experiences
- Videos that teach a skill can be monetized through subscriptions or a pay-per-view model.
- Sell your expertise through training packages. Online platforms make it easy to set this up for your business yourself.
- Digital goods such as software, whitepapers, photographs and eBooks are increasingly popular and can be a cost-effective way to seed your brand and content with a willing audience.
Will it require start up costs?
Yes. There’s no getting around the fact that you will have to spend some money to set up your store. However, the costs will vary, depending on the type of business you run. For example, if you run a service business and are only offering vouchers and gift certificates online, your start up costs will be less than if you’re selling physical products that require a complex selling platform.
Investing funds at the initial brand development stage will give your ecommerce business a greater chance of succeeding.
Some of the start up costs you need to consider are:
- State registration and licensing fees. Each state has specific registration and licensing requirements. Check with your municipality to ensure you’ve acquired everything you need to comply with your local authorities.
- Domain name registration. Fees for domain name registration can vary from $5 to $1000s a year, though many ecommerce platforms offer a domain for free when you use their site to build your store.
- Web hosting. As with a domain name, many platforms will offer hosting as part of the deal. If you choose separate hosting, make sure the package offers a secure server certificate to protect credit card data.
- Site development. These costs will vary depending on whether you choose an off-the-shelf solution or go for a custom-designed store, and most ecommerce platforms will charge a monthly fee. Think about the realistic ROI you are going to get from the tech you invest in —some platforms have more longevity than others. Big ecommerce leaders are investing a lot in their build-it-yourself store product, but open-source options offer you the ability to build somethingcompletely custom if you have complex development needs.
- Marketing and promotion. If you are unable to drive traffic to your site, you won’t receive any sales, so make sure you budget accordingly. Start with Google Adwords, Facebook ads, and set up a blog where you can market your products and brand.
Do all products ship well?
The problem some ecommerce stores have is with delivery. Large, bulky items can cost a huge amount of money to ship, a cost that has to be paid by either the customer or the supplier. Research shows that 14.4% of Americans prefer to shop offline to save on shipping costs, a figure that’s worth careful consideration. Free shipping is often a worthwhile sweetener for a potential customer.
Another problem is perishable and fragile items that may not make it to the customer in the condition they were sent and may require expensive and unecological packaging. You should also be careful when selling licensed substances such as alcohol, as it’s illegal to ship it in some US states. Sales tax calculations across state borders can be a massive nightmare to deal with — it’s best to automate a lot of the accountancy tasks.
Whilst selling online potentially allows your small business to reach a much wider audience, think carefully about whether you will be throwing money at a venture that won’t give you a good return on investment.
Will the cost of returns be sustainable?
Research has found that 22% of ‘bricks and mortar’ retailers are choosing not to sell online due to concerns about the costs of managing returns. The survey by Barclaycard found that ‘serial returners’ – people who order things and then take advantage of free delivery to send them back – is having a negative effect on businesses.
Three in ten (31%) retailers say that managing the returns process has an impact on their profit margin, leaving them no choice but to try and recover the cost by starting to charge for returns. However, this can cause its own problems because six in ten people (58%) say a retailer’s returns policy impacts their decision to make a purchase online.
A small business that works well in physical premises can’t necessarily be replicated as a digital equivalent without some degree of difficulty and change. Consider whether it would be better for your small business to establish an effective online presence through a blogging website or social media channels, instead of immediately starting an ecommerce store.
Is an already established marketplace a better option?
If you are unsure about starting your own ecommerce website, using already established marketplaces like Amazon, eBay and Etsy can be a good way of testing the waters. Marketplaces are middlemen that position your product or service in front of customers, without you having to worry about start up costs or marketing (though they do take a fee for their service). The benefits of selling on a marketplace are:
- Less investment. As described above, building your own web store means investing both time and money. You will need to spend a lot less of both setting up a store with Amazon or eBay.
- Engaged audience. Customers are already aware of marketplaces.
- Simplified and well-tested approach. Amazon and eBay have been going for many years and have streamlined their services, making dealing with order processing and customer inquiries very easy.
- SERP & SEO friendly. Popular marketplaces carry a lot of authority online and are more likely to rank well in search engine page results.
Obviously there are also downsides to using marketplaces, such as fierce competition and fees, but it could be a better ecommerce solution for many small businesses.
Does an ecommerce store need dedicated staff?
Managing an ecommerce store takes up a lot of time. If you are also running a bricks and mortar store or your small business at the same time, you should consider whether it’s necessary to employ new staff to run your ecommerce arm. On top of processing orders, the site needs to be updated with new products, and customer inquiries need to be answered promptly. Your ecommerce site also needs to be marketed and any related social media must be kept fresh and engaging.
If you don’t have time to carry out all these tasks, you will end up with an out of date store and unhappy customers. Weigh up the benefits and decide whether your ecommerce store could support a new member of staff whilst also making a profit.
Before setting up an ecommerce store, it’s crucial that you ask yourself why you’re doing it. If the answer is ‘because everyone else is’, then stop and consider whether it is genuinely viable for your small business.
Do plenty of research, write a business plan and budget carefully before you launch your store, as putting in the groundwork makes it more likely to succeed.
If you aren’t ready to open an independent store online, try selling through a marketplace first to gain experience; and if it turns out that an ecommerce store doesn’t work for you, just concentrate on making your small business the best it can be.
Kayleigh Alexandra is a community writer for Micro Startups — a network dedicated to giving through growth hacking. Visit the blog for your latest dose of startup, entrepreneur, and charity insights from top experts around the globe. Follow us on Twitter @getmicrostarted.
This communication is provided for informational purposes only. It is not intended to be an advertisement, a solicitation, or constitute professional advice, including legal, financial, or tax advice, nor is StreetShares providing advice on any particular situation.