This is part 1 of the 2 part series where I’ll explain every aspect for starting an eCommerce business online. Click here to jump to part 2 where I explain how to create an eCommerce Website.
eCommerce or online business is the largest growing market in India. Infact a recent survey has revealed that 73% of the brick-and-mortar business owners claim that they’ve been hit hard with the “shop online” trend across India. From groceries to prescription glasses and now even medicines can be bought online at the user’s convenience.
So to boost the bottom lines, every business needs to get in on the action. Whether shifting completely to online business or supplementing your profits with online sales, businesses needs to find some way to sell their goods via the internet and business owners need to know how to start an online store.
Recent statistics show that eCommerce sales have gone up from $2.3 billion in 2012 to $17.5 billion in 2015 which is almost 8 fold. This figure is expected to rise by at least another 40% by 2018. And since the whole world is your potential customer base, let me allow you to squeeze some international facts as well.
A research from RetailMeNot and the Centre for Retail Research shows that consumers are spending 10% more on internet shopping in the year 2014-2015 compared to previous year.
Pros of eCommerce
There are numerous obvious reasons for this shift and some of them cited most by customers include that it saves time, provides a large variety of items to view, compare and purchase, making price comparison easy and avoiding crowded stores.
As a business owner there are a lot of advantages to you here as well. Most significantly, it opens up your business to a much larger customer base, the whole world essentially. Try doing that with your store branches all over the world, and you can see it’ll cost you billions of dollars.
While a brick-and-mortar business can only serve its local community and neighborhood, having an online store open to the world means now you have access to exponentially more potential customers. And with the advancement and reduced costs in the logistics services, shipping worldwide is not such a bad idea at all.
Another benefit is your online store is always open and taking orders, at 6 in the morning and at 11 pm. With the busy schedule and laziness prevalent in the Indian societies, shopping online is a much better solution because customers can shop when they find time for it. Being there to make those sales is a big advantage.
Running an online business can also reduce costs. As mentioned earlier, physical stores all over the world would cost billions of dollars and only the biggest players can afford to do that, but you can get as much reach with a website. With an online store, you don’t pay rent on a physical location and don’t have to pay employees, at least not as many as you’d need with a regular store.
Inventory costs falls down as well. Brick-and-mortar businesses must stay fully stocked at all times and have an unspoken obligation to organize and display their stock strategically to make the sales. This requires increased space to shelve the products and long aisles for browsing them. In contrast, ecommerce businesses can do well with tightly packed warehouses requiring less space for the same goods.
Ecommerce businesses can further reduce costs with drop-shipping methods in which products are shipped to consumers straight from the manufacturer saving cost in storage as well as transportation.
Ecommerce businesses are also easy to scale so you can start off small and expand as your business grows. Comparatively, it’s much harder to do with a brick-and-mortar business where expansion would mean finding a new, larger location and possibly more employees, which comes with added expenses.
Cons of eCommerce
There are drawbacks to eCommerce as well. Brick-and-mortar businesses get a chance to build their customer base by creating personal relationships with face to face interactions. Online stores don’t have that option and thus rely on making sure the transactions are as smooth as possible and customer’s experience is as positive as possible throughout the process.
Ecommerce websites also face cutthroat competition. For every product on the web at least 10 businesses are selling the same thing and comparison is easy online. This means eCommerce businesses have to work even harder to stand out from the crowd.
Finally, eCommerce businesses face more technical problems than a brick-and-mortar business. All operations here are run online and the process of buying online requires several parties including payment processors, logistics processor, hosting provider, and maybe more. Although their problems are out of control of the business owner, shutting down of anyone can shut down your business in the process – for minutes to hours. These problems, if they occur can only be fixed by the respective party but they result in loss of business for the eCommerce business.
How to Start an eCommerce Business
When we say eCommerce, we generally mean business to customer (B2C) eCommerce however other varieties include business to business (B2B) eCommerce, for example manufacturers selling to wholesalers like Indiamart.com or Alibaba.com; and customer to customer (C2C) like OLX.in and Quikr.com
Businesses have two major options for selling their products online and I’ll try to walk you through each of these as much detail as I can.
A. Sell on Established Marketplaces
One of them is to sell your products via already established marketplaces like eBay, Amazon or Flipkart. The pros of this option is that you don’t need to worry yourself with the technical challenges of running your own store which require a web hosting, shopping cart software, a payment processor and a delivery system.
The benefit of these marketplaces is that you don’t have to setup an extensive ecommerce website and deal with the hassle of accepting payments. The process is simple and business owner can be in business within hours or days. Another benefit is that they enjoy the already large influx of customers these brands receive from day one which results in greater exposure and potential sales with effectively no advertising at all.
On the other hand, the downside is the cost. All marketplaces charge a host of fees including those to list items, a percentage of all sales and more (discussed below). Additionally, marketplaces list items from all sellers thus it’s very easy to lose a customer to another seller. On the other hand, an eCommerce website lists products from your inventory only.
Another hurdle is that most marketplaces use a system of rating of sellers, so when you start, you have no rating or reviews and you compete with the oldest sellers in your category. This makes your initial sales very difficult.
Some of the most popular options are discusses below, take a look:
1. Amazon: An international brand and one of the oldest marketplaces, Amazon takes the cake for the most well established and trusted marketplace in the world. With increased advertising in India, Amazon is really stepping in to the Indian markets and increasing its market share every day.
A sign up with them will require you to part with
- a monthly subscription fee of INR 499,
- a closing fee to be paid on every sale (INR 5 – 10)
- Referral Fee that Amazon takes on every sale. It depends on the category of product sold and is around 12% on most,
- A 2.5% of the order value if the order gets cancelled by the buyer
- Service tax of 14.5% on all the above mentioned fees
2. EBay: One of the most popular websites in the world, eBay allows anyone to sell practically anything along with options to host Auctions. To run an online business on eBay, you’ll have to pay
- Insertion Fees which is charged per item that is added on the site (INR 2 -5 depending upon the duration of listing)
- Monthly Subscription which is an optional charge if you chose to have an eBay shop. EBay shop is your own page on eBay where you can list all your items in one place. These charges range from INR 499-3999 per month. These subscriptions also reduce Insertion fees mentioned above.
- Final Value Fee is the eBay’s commission for every sale you do on eBay. It varies from 2%-7% depending on the category, although its 5% on most.
- Paisapay Facility Charges are charged to sellers if they process a payment through Paisapay which is 4.5%
- Listing upgrades: Besides insertion fees, you can opt to upgrade your listing to list an item internationally which range from INR 5-40
- Subscription Fees: Finally there are subscriptions that give you access to management and reporting tools. Many of them are free and other costs INR 99 – 399
- Service tax of 14.5% is charged on everything above. Want more?!
3. Flipkart: Last and the newest installment in Indian markets is Flipkart. It gained national popularity by providing great offers and building trust in Indian citizen. This is the site that basically started the eCommerce boom in this country. To sell on Flipkart, the following fees will apply to you:
- Fixed Closing Fee which is INR 10 charged on every sale made on Flipkart
- Shipping fee starting from INR 20 and increases based on weight
- Seller Commission of 5% that Flipkart takes for every sale
- Service Tax of 14.5% on all the fees mentioned above
Selling on these marketplaces has advantages as well as disadvantages (mainly the cost that you’ll keep paying them as long as you’re in business) and deciding to go this route depends on your unique situation.
Let’s take a look at the other option to create your own online store. Coming up in Part 2