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Starting Your eCommerce Business

When I started looking into selling online years ago, there was no shortage of options from web hosting companies.  They mostly focused on the mechanics of running the web site – having a template to create your web store, a ready to go system for accepting cash payments, etc.  Those are all necessary things, but if you’re going to be running your eCommerce business by yourself (or just you and your spouse), spending your time on the minutia of putting a web store together will eat up all of your time.

I think of my eCommerce business in terms of:

1) The mechanics of running the web site

2) Finding products to sell that people will actually buy online

3) Getting shoppers to my web store

4) Shipping products to customers (Order fulfillment)

If you want to sell online successfully you have to optimize all of them or you’ll run out of time, money, or both.  As you can see, web hosting companies typically help you with the first one, and leave the final three entirely up to you.

If you’re just getting started, I recommend going with an online marketplace, specifically eBay or Amazon, so you can focus on finding products to sell, which is where as a retailer you can add value for the customer.

In terms of the mechanics of running the web site, eBay and Amazon make it easier than any web hosting company I’ve found.  They also have better technical support if things go wrong, which you can never underestimate.  At one point I tried to open a store hosted by Yahoo.  The templates for posting products were cumbersome, products weren’t displayed properly on the site, and technical support was all but non-existent. 

The problem is that web hosting companies make their money selling the web hosting service, not on your success, so they don’t put much effort into the software they provide for free.  I’m sure they expect you to pay someone else for the software to actually create and run the web site if you’re a serious retailer, they’re just providing something for free as a hook to get your business.  Don’t waste your time with their free web site templates.

Finding good products to sell is a lot of legwork on your part no matter where you sell, but selling on a marketplace at least tells you the type of products people shop for on that marketplace.  Just look at what other people are selling.  If there’s a wide selection of shoes, most likely people are buying shoes on that marketplace.  That doesn’t mean you should sell the exact same thing that is already offered by a lot of sellers on that marketplace, there will be heavy price competition for those items.  But you at least know what types of things to sell (and not to sell).  It’s easy to tie up a lot of money in inventory that simply doesn’t sell online, using what others sell as a guide line will help you avoid that trap.

If you’re not a marketing person, getting people to your web store will be one of your biggest challenges.  How will you get them there?  Most people say either Search Engine Optimization (SEO), or paid search advertising (e.g., Google).  If you’re not an SEO expert SEO will be extremely time consuming, expensive, or both.  Paid search isn’t usually time consuming, but it is extremely expensive.  Prepare yourself to spend a lot of money on this if you go down the paid search path. 

Marketplaces bring the customers to you without spending anything on advertising.  I hear complaints about how much marketplaces charge, often taking 15% of your sales.  But 15% is a bargain considering you don’t have to pay for advertising.  And it’s only 15% of what you sell; if you don’t sell you don’t pay.  With SEO or paid search you have to spend the time and money regardless of the results, it’s an expensive way to learn how to sell online.

Order fulfillment is easy, but time consuming.  Suppose it takes you 5 minutes to print the order, pick the item out of inventory, get the packaging supplies, and package it all up (5 minutes would be extraordinarily good, it will take you a lot of practice to get there).  Suppose further that you’re making $2 on each item you sell.  You can package 12 items per hour, so you’re working for $24 per hour.  You can hire someone to help, but you’ll have to pay them, say $7 per hour in a low cost of living area, so now you’re making $17 per hour, and you have the risk of having to pay someone when you don’t have enough sales to keep them busy.

Of course, if you sell higher priced items you’ll get more than $2 of gross profit on each item, but I’ve found the more expensive something is the less willing people are to buy it online from someone they’ve never met.  So your unit sales will be much lower, and you have to make up for that by selling a lot more products, which takes a large investment in inventory.

Selling on eBay doesn’t help with order fulfillment, it’s purely a marketplace.  But Amazon can help you with order fulfillment through their Fulfillment By Amazon program.  You can ship your inventory to Amazon, they store it in their warehouses, and they directly fill orders that come in through the Amazon website.  There are also companies that do order fulfillment as a business (they are not a marketplace though, they strictly do order fulfillment).  It isn’t as automated as Amazon’s program, you still have to be involved in every order (sending them the product and shipping information), but it’s an option.

Eventually you’ll want to graduate to selling on your own web store, which is very different than selling through a marketplace like Amazon or eBay.  But at that point you’ll be paying to learn out of the profits of your marketplace sales, rather than out of your own pocket.

Random Observations

Most manufacturers have some sort of application for new retailers.  Mostly they want basic information like credit references and bank account numbers, though some want to know about the principal people running your store, competitors’ products you sell, etc. 

The longest one I remember getting was 12 pages long.  This immediately raised a red flag – some manufacturers don’t want to sell to online-only retailers, anyone wanting that much information is probably one of them.  Before spending the time to fill it out, I sent a note back asking if they worked with online-only retailers.  They sent me back a very polite note saying that, yes, they do work with online-only retailers.

Assured of this, I plowed into filling out the application, starting with a first pass to fill in the parts I could answer off the top of my head.  Unfortunately, this still left about 11.5 pages.  The scary part, though, was that much of what was left was asking about the store itself – size, location, layout, number of sales people on the floor, on and on (and on).  The red flags went up again.

I sent another note (I’ll paraphrase here), “A lot of the application is about a physical store, but I don’t have one, I only sell online.  I want to confirm that you work with online-only retailers.”  My correspondent probably thought I had a 3-minute memory, since she had just answered this question for me.  Yes, she assured me again, they work with online-only retailers all the time; just put N/A for the parts about the physical store.

I made a second pass, filling in the information I had readily available (like financial statements and government IDs).  Over the course of the next couple of days I dug up the information that wasn’t readily available and filled that in as well.  At last, with some sense of accomplishment, I sent my application in.

After a few days, I received an email with some follow-up questions, which I dutifully replied to promptly.  That was followed by a deafening silence.

I sent a note asking for the status of my application, but got no reply.  I sent another note a few days later.  I finally got a response (again paraphrasing), “We’re very sorry, but we don’t sell to online-only retailers.  If you open up a physical store please submit a new application.”

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