With e-commerce growing at a rapid rate, businesses are quickly learning that they need to be operating online in order to survive.
Beyond simply having a website, businesses today are seeing the benefits of actually selling their goods online. Whether it is operating strictly online or adding an online store to an existing brick-and-mortar business, there are many steps business owners must take to set up an e-commerce operation.
E-commerce sites give shoppers the ability to browse and purchase products and services directly from the website. That means a robust website, complete with shopping cart software and credit card processing services, is a must. Other necessities include a Web hosting service, merchant account and a comprehensive marketing strategy.
If that seems like too much trouble, business owners also have the option of setting up shop in one of the numerous online marketplaces. EBay, Etsy, Amazon and others offer the opportunity to start selling products online within minutes.
Pros of e-commerce
Selling goods and services online comes with a wide variety of benefits. The most significant is that it opens a business up to a much larger customer base than only a brick-and-mortar location. With an e-commerce site, businesses aren't limited to selling their merchandise to those in and around their local community. Shoppers all around the globe can access the sites, notably boosting the potential for profit.
Another plus to operating an e-commerce business is that the site is always open. While most brick-and-mortar locations may stay open eight to 10 hours a day, e-commerce businesses run around the clock. Being able to makes sales and money at all hours of the day is a big advantage for e-commerce businesses.
There are also reduced costs that come with running an online business. Specifically, online-only businesses don't have to pay rent on a physical location and don’t have to pay employees. E-commerce businesses don't require the same amount of manpower to run, creating a huge cost savings.
Another cost savings can be seen with inventory. E-commerce businesses don't face the same demands of brick-and-mortar businesses, which must be fully stocked at all times. They can keep inventory low by using drop-shipping methods, in which products are shipped to consumers straight from the manufacturer.
E-commerce operations are also easily scalable, meaning it is easy to start off small and expand as needed. That can be much tougher with brick-and-mortar businesses, since growing in that case often means finding a new, larger location to house the businesses. With that comes an added expense that e-commerce businesses don't face when they are growing.
Cons of e-commerce
It's not all perfect with e-commerce businesses. Among the drawbacks are that they often lose out on the ability to interact with their customers in person. Brick-and-mortar businesses can build their customer base by building personal relationships with customers. E-commerce businesses don't have that option, which makes it even more critical for them to ensure a smooth business transaction.
Another negative to running an e-commerce venture is that competition is cutthroat. For each online business, there are at least another 10 businesses selling the same thing. There are hundreds of thousands e-commerce sites worldwide, meaning online businesses are forced to work even harder than brick-and-mortar businesses to stand out from the crowd.
Finally, e-commerce businesses are subject to technical issues that brick-and-mortar locations aren't. E-commerce businesses are run completely online, so if something goes wrong with the website, credit card processor or any of the other aspect of the operation, the business has to shut down to be fixed. While some of these problems may be out of the business owner's hands, they still can end in the same result: lost money and lost customers.
What's needed for an e-commerce business
While opening an e-commerce business can be relatively easy, there are a number of things needed to get started. Here is a rundown of everything an entrepreneur must have to open an e-commerce business:
- Product to sell: Most importantly, small business owners need something they can sell. The good news is that with the Internet, this can be basically anything. Big or small, expensive or cheap, small business can sell anything online. Also, since the business is run online, e-commerce owners have the option of selling "soft" goods: those that can be downloaded straight to a customer's computer, like new computer software.
- Domain name: Before a small business owner can start building an e-commerce website, they need a domain name. This is the online address at which shoppers can find the business's website. Most online business domain names end in either ".com" or ".net". The domain name selected should match, to some extent, the business's name.
- Web hosting service: Another item necessary before building an e-commerce site is a Web hosting service. Web hosting services are needed to publish the website online for shoppers to see. Specifically, Web hosting service store the data files that make up websites, and then upload those files to the Web for viewing by those who visit the site through its official domain name.
- Website: The website will serves as a business's online home. The website, which can be created with the help of either Web hosting services or e-commerce software, must feature the products the business wants to sell and offer a way to sell those items directly to consumers. The website should be designed in a way that will encourage shoppers to stay and make purchases. It should also include links to the business' social media pages, ways to subscribe to electronic newsletters and deals and offer places to learn about other news going on in the company.
- Shopping cart software: In order to give shoppers the ability to purchase items from an e-commerce website, shopping cart software is needed. This software gives shoppers the chance to search the business's inventory to see what’s available, select items they want to purchase and eventually buy them. In addition to assisting with transactions, many shopping cart software options include additional features for controlling inventory, setting up shipping and calculating taxes.
- Merchant services provider: Since online businesses don't have the ability to accept cash as payments via the website, they will need a merchant services provider to handle their credit and debit card needs. This acts as a link between the business, customer and credit card company by providing the services to process the payments and actually take the money from a credit card account and place it into the business's account, also known as a merchant account. Most merchant service providers offer this type of bank account, which acts as a holding location for the debit and credit card payments an e-commerce business collects. Once the funds have been approved, the merchant services provider transfers the money, minus a commission, to the business owner's bank account. Without a merchant services provider, a small business has no way of collecting money from customers.
- Marketing: All successful e-commerce businesses have a strategy on how they are going to attract customers to their site. Without a carefully thought-out plan, it will be much harder to turn a profit. Various marketing options online businesses have at their disposal include search engine optimization (SEO), pay-per-click advertising, and email and social media campaigns.
The good news is that while online business owners do need a number of things to get up and running, there is a one-stop shop for nearly all those needs. E-commerce software simplifies the process of opening an online store by walking owners through each step of the process, including registering a domain name, designing a website, uploading and managing inventory, connecting to a shopping cart and providing secure payment options for shoppers.
When choosing e-commerce software, there are a number of things small business owners should consider. The software should incorporate all aspects of creating and maintaining an e-commerce website, such as hosting, website design and SEO integration. In addition, business owners should ensure the software they choose offers a shopping cart capable of accepting a variety of payments, including credit cards, PayPal and eChecks. Finally, the software should provide top-notch security, such as fraud and secure socket layer protection, to give consumers peace of mind that their personal information won't end up in the wrong hands.
Most e-commerce software providers charge online businesses a monthly fee for their services. While most of the top software providers waive a setup fee, there are monthly costs that can range from $15 to $300 a month depending on several factors, including how large the online store is and how many of the software's services the business owner needs.
For small business owners who feel creating their own e-commerce site is too difficult, there are other options for selling goods online. An increasingly popular option many entrepreneurs are choosing is to go through a third-party provider, like eBay or Etsy. These are large-scale online marketplaces where each individual business has its own page within the third-party provider's site.
The benefit of going with such sites is that business owners avoid the trouble of having to set up an extensive e-commerce website and avoid the hassle of dealing with accepting payments. The process is very simple. Within hours, any business owner can register in the marketplace, set up their page and start selling.
The negatives of using sites like these are the costs. Most online marketplaces charge a host of fees, including those to list items, generally 20 to 25 cents per item, plus a percentage of each sale, which can be anywhere from 3 to 10 percent of the total sale price. Additionally, shoppers have to search for the business within the huge marketplace. While a regular e-commerce site only has products listed for that business, shoppers will see a wide variety of goods when they visit a site such as eBay or Amazon. Even though each seller has their own Web page on these sites, it is extremely easy for a shopper to get lured in another direction. Closing sales in this manner can be much more difficult.
Some of the highly rated online marketplaces today include eBay, Etsy, Amazon, Ruby Lane, eBid and Webstore.com.