Tag: Costing

Let us imagine that you have an offline business and because it is in trend, you feel it is the time for you to take your business online. Because, why not? You will have global audience; more people will know about your product line and your sales might just explode.

But hang on. This is not an article about going online. In fact, here I would be talking about why you should not go that way, i.e. do not take your business online. It would be anti-consulting advice.

Not what you want to hear?

Well, like any business needs commitment, going online is often a big commitment and while I do not wish to discourage you, I feel that you need to keep your hopes realistic.

Here are a few challenges I feel you should be aware before even you think about putting a single $ online. And these challenges are substantial.

Planning challenges

Planning an ecommerce store is not easy. Would you want to pay more fixed costs or more running costs. Would you want a large marketplace as your shop or would you go for your own store. How would you handle orders? How would you handle customer complaints. How would you handle social media grievances?

Well, trust me these are some of the possibilities that can happen with an online business.  And planning for every aspect will cost you money.

Local/Global

Let us say you are comfortable selling in your industry. Your processes are running as optimized as possible. You can fulfil your orders and handle your complaints because your customer segment comprise mostly of local clientele who walk into your shop or call you by phone. It may seem interesting to add a web channel, but you need to ask if it really is feasible in terms of cost benefit.

At this moment, maybe you are not comfortable serving outside the region. Having a website is good enough. You may not need an E Commerce store for your operations.

Technical requirements

Once you move from offline to online , you will realize how much of a vast world it is, With so many vendors, technologies and tools to choose from, it is a hugely confusing array of things. And unless you have basic knowledge of technology, vendors might lock you into software you may not need.

You would also need to select from the right e commerce tools to tools that do work of email marketing, search engine optimization and customer complaint system. As of now you are probably maintaining most of them in an excel sheet in a local system (which has its own issues, nevertheless). But then you would need to worry about the availability of website, technical issues, software that doesn’t work the way you want them to. Unless you have a competent team or a vendor, you will be in a difficult position to handle all the headaches that come with an e commerce store.

High costs

At the first glance, the E Commerce looks easy to get into but with time and experience people running a store may realize that costs add up quickly.

You would need to pay for software tools, domain names, hosting space in terms of technical needs.

Then you would need to pay for marketing tools such as email management and lead generation.

You would need to pay for the vendors to help you install these tools or you would need to invest a significant amount of your own time to learn them.

You would need support staff to manage aspects of delivery and fulfilment.

You would need a social media manager to handle all the posts on your behalf and in addition work on any customer grievances arising on social media.

So you can see there are significant costs to every component of E Commerce business.

Risk of frauds and legal challenges

As an e commerce store, you are responsible not only for listing your own product but also you are a custodian of your customer’s data. You would need to institute strong policies if for example you plan to sell in places like European Union. You would need to comply with GDPR.

In addition, you need to secure the site against cyber frauds, credit card frauds and data breaches. In some place you could be held responsible for data breaches and penalties could be heavy.

You would also need to teach your customers about safe email practices so that they do not fall prey to attacks like phishing leading to revealing their data.

Competition

E Commerce is often touted as easy to start. Thus, you have very serious large competitors which can take away your lunch money completely to small startups which are nimble enough to take off small bites from your lunch.

The competition is not just from independent websites but also from social media platforms such as Facebook, Pinterest, Instagram etc where someone can create catchy content and instantly drive traffic away from your webstore.

The price of the product is also no longer an advantage because anyone can see and compare your prices with a million of other listings. There are now AI tools which can help scrape sites completely and thus nullify any competitive pricing advantage.

Sometimes large competitors can play unfairly and lower the price of products in a popular niche down by so much that it may become impossible to compete with them.

In addition, large competitors have much heft over suppliers, and they can easily create similar products in your category leading to sales losses.

Conclusion

The purpose of the article is not to discourage an average seller from starting an e commerce store. But like all businesses, easy entry means higher competition and lesser margin and often higher unintended expenses.

As with every business, one needs to be aware of the benefits and risks of starting a business. Hopefully, this article helped you understand the risks well.
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