This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
Selling products online uses the same basic principles and strategies as offline (or "brick & mortar") retailing. Provide a good product, at a reasonable price, with some exceptional customer service. Buy low, sell high. Repeat and profit. Online retailing involves the same principles, but the tactics and mechanics are different. Here's a look at 8 facets of ecommerce that will affect your retail business' finances and processes.
When you’re the only widget seller within 10 miles, you can charge list prices. When you’re competing online in a global marketplace, prices tend to fall. Add the additional cost of shipping, not to mention the expectations Amazon’s low prices and fast, cheap shipping have created, and you’ll have no choice but to lower prices.
New online retailers often experience sticker shock when they start looking at the cost of shipping and packaging. Suddenly, your buyers are paying 20-100% more to get your product, and all that revenue goes to your shipping provider. Here are a few tips for keeping your shipping costs under control and keeping you competitive.
For a transaction with a customer far away, you'll want to avoid troublesome and manually intensive payment options like personal checks, cashier’s checks, money orders, COD, and wire transfers. The much higher chance of fraud associated with these payment options makes them not worth the hassle.
Buyers pay for merchandise online using credit cards or online payment options like PayPal and Google Checkout. Your current credit card processor can probably handle online transaction — for example, American Express Merchant Services. PayPal and Google Checkout are easy to setup and start making sales, but they have higher transaction costs than if you accepted credit cards via your merchant account.
Tip: Even if you accept credit cards, it may be worthwhile to keep PayPal and Google Checkout available as options because they’re easier to use for the buyer. With the online wallets, buyers just need to enter a password to make a purchase (versus typing in all that information with a credit card). Easier transactions reduce cart abandonment and increase conversions.
There are basically two ways to sell products online — go to where buyers are, or bring the buyers to you.
If you want your own store at your own website, expect to pay for a hefty up-front setup cost or a monthly subscription. In addition to the cost of software, hosting, and domain registration, there is the human cost of web designers, developers, and webmasters.
Top commercial ecommerce software include Miva Merchant and X-Cart. With enough technical skills, you can use free, open source choices like Zen Cart, Magento and Prestashop. (See this list of 35+ shopping carts at Mashable for more.)
Self-hosted won't cost you a dime in transaction fees, but there are other costs. You’re taking on the significant technical burden of building and maintaining the platform yourself, or hiring help at $50-100+ per hour. Not to mention that nobody will know your store/website exists unless you go out there and tell them.
On the other hand, if you go to the marketplace (i.e., list products for sale at eBay and/or Amazon), expect low startup costs but high sales commissions of over 10%. The combination of huge marketplaces but high transaction fees makes eBay and Amazon great for starting out and marketing, but not as your only primary online outlet.
A middle ground is provided by hosted online stores like Yahoo! or Shopify. They maintain the software (nothing to install or upgrade) and let you have a store at your own website. They charge a monthly subscription plus a 0-2% transaction fee. They're much cheaper shelves to rent, but like self-hosted software, they don't come with built-in traffic.
Tip: Use the strengths of eBay/Amazon and your-own-store to complement each other. Have a "home base" store at your own website to maximize your margins, and also have a presence at all the major online marketplaces to maximize exposure.
By the way, there's a small and quirky ecommerce provider called eCrater. They offer online stores for free. There are no listing fees, no sales commissions. They make money by selling premium listings on the main eCrater.com site. So far, eCrater only has a tiny fraction of eBay and Amazon’s traffic, but since there’s little risk to setting up shop and the admin interface is a joy to use, the product catalog at eCrater is growing quickly. It’ll be interesting to see how the eCrater marketplace is doing in a couple of years.
Here's some basic equipment you'll need to effectively sell online:
There is a ton of material out there about online marketing (the practice of getting people to come visit your online store). Much of it is conflicting, some of it is sales hyperbole, and too many are just flat out wrong. Don’t get sucked in to all the contradictory “advice” — just keep these three fundamental principles in mind and you'll be fine.
In addition to the mechanics of online marketing, it’s helpful to understand some best practices.
Tip: these fancy new online marketing tactics should be employed in addition to good old retailing best practices. Coupons and sales still work. Unbelievably helpful pre-sales service still closes sales. Exceptional customer service will still be spread by word of mouth (or email or blog post or tweet).
The Internet is, by definition, the largest marketplace in the world. It allows buyers and sellers from halfway around the world to conduct business. If you're not already selling online, start soon. There are customers across the country or even around the world that want to buy from you.
Tip: if you're a mom & pop retailer, and can't figure out how to compete with the rock bottom prices you're finding online, consider serving a very narrow niche. Become an expert in one product line or category, and be the go-to retailer for that niche.
If you're already online, is there anything you can do to improve operations? The software you used to setup shop 5 years ago may be antiquated compared to modern shopping carts — take a look around. How about exploring new marketplaces, or perhaps you can streamline fulfillment to reduce shipping costs.
Ecommerce is still evolving, and we could all learn from each other. So please share your ecommerce experiences and best tips in the comments!
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