Needing to know the advantages of e commerce? If you're asking the question there's a good reason. You're wanting to get started with your own store and just need to be convinced that little bit more whether it's the right move.
Whilst any style of selling whether it be an established bricks & mortar or trading those bricks for clicks, there will be advantages and disadvantages.
Ecommerce however, has unlimited potential, no restriction on the amount of customers that can come through your door or having to shut your shop for the evening.
With that in mind lets take it back a notch and focus for a moment on the disadvantage.
Disadvantages of e Commerce
It's always good to finish on a positive note, so before we get started on the advantages, we are going to take a look at a few of the disadvantages of e commerce and why it may not be for you.
Dropshipping – Overcrowded market
One of the main drawbacks to dropshipping is the ease with which you can get started. As soon as you've signed up for your Shopify account one of the very first messages you'll see on your dash is for Oberlo.
Oberlo allows you to plug straight into the Chinese Super Highway of wholesale products. A highway that allows you to sell pretty much anything in the world…all by clicking a button or two to have it available in your store. Personally I am not a fan of that as more and more rubbish products are being pumped out into the marketplace.
The unfortunate problem with this scenario is that it is very difficult to find reliable suppliers and the likelihood of another seller finding the same company is incredibly high. With an overcrowded market comes price wars and a race to zero is not a race you should be running.
Discounts are fine, so long as they're done strategically. If however, you find you're constantly dropping your prices to match a competitor you have a very week value proposition.
Dropshipping – Reliance on fulfilling agent.
Once you have found a supplier your faith is put in their ability to actually fulfil on their promise. Which is, to provide your customer with the product in a timely manner. While this might be fine initially and it is done without a problem, scaling may bring unwanted issues.
If you can't rely on the quality or their ability to fulfil may bring untold consequences. Having to refund orders is not fun and chargebacks are incredibly difficult to navigate. Particularly if you have to refund hundreds of orders at a time.
You need to ensure that you are working with reputable companies, companies that are willing to work hard for your business. Spending the time sussing out which company is right for you and not being led primarily by a certain products will have a better outcome for your business.
Dropshipping – Rolling Reserves Placed on Shopify Payments and PayPal
Having a reserve placed on your account is not only incredibly inconvenient, it can be debilitating, if not devastating. Working with companies through AliExpress is a surefire way to having your account limited.
Paypal uses 2 types of reserves as explained below;
“A rolling reserve is a percentage of daily transaction volume held and then released on a scheduled basis. For example, if your reserve is set at 10% and held for a 90-day rolling period, 10% of the money you receive on day one is held for 90 days and then released on day 91 and another 10% of the money you receive on day two is held until day 92, etc. Rolling reserves are the most common type of reserve.
A minimum reserve is a specific minimum amount of money that you’re required to keep in your reserve balance at all times. The minimum reserve is either taken as an upfront amount deposited all at once or as a percentage of money held until a certain amount has been reached. For example, 5% of your daily transaction volume is held until a balance of $5,000 is reached, or a one-time amount of $5,000 is taken from the available balance and deposited in the reserve balance.
An account can have both a minimum and a rolling reserve at the same time.”
So why do both Shopify Payments and PayPal have these reserves?
Reserves create a much safer environment for transactions to take place online. As marketers this makes it safer for us to operate as well as keeping others out that aren't concerned about their customers or the product quality…but not always.
If an operator was to go out of business, having a reserve in place allows for the gateways to refund the buyers.
The reason a limit is placed on accounts is done on a case-by-case basis and typically comes into effect when an account has a high level of risk associated with it.
PayPal defines these risk issues as follows;
- Your length of time in business.
- Whether or not the industry has a high level of chargebacks, fraud or refunds.
- If an account has had a higher than average activity around payment disputes, refunds or chargebacks.
- If you're pre-selling. Think kickstarter type selling.
- Processing history from payment providers.
- Delivery time frames. These will be monitored closely if shipping from China.
- If theres been notable changes in your business. Changes in amount of income, price increase, disputes refunds etc.
PayPal will review your account every 180 days. To help them reduce the amount of the reserve focus on improving the risk factors in that time. In order to do that you will need to show at least 3 months of continued improvements in the identified risk areas. Also making sure no new risk areas are coming into play and you've reduced refunds and chargebacks.
Dropshipping – Customer service issues
Running your own store must be done with a customer first mentality. However, in order for you to focus on growing your business you must outsource this aspect of your store quickly.
It is important to ensure you keep a positive mindset. If you're building a brand and having to put up with needy customers you will be struggling. Attracting the right customer service reps can be difficult and rightly so. A well trained, highly skilled rep will be a key asset to building a repeat customer base.
Spend your time wisely and interview each prospect on a video call. You need to get a good understanding of their personality, their fluency with english and be sure that you can manage their personality.
FitSmallBiz has written a great article to help you find the right employee. Click here to read the “Top 25 Customer Service Skills To Look For in Your Next Hire”.
Considerations when hiring;
- High fluency in english. Native speakers are best as they can more readily communicate and have fun with customers.
- Skillset. Can they use the platforms and tools you use in your business?
- Personality. Do they have a friendly disposition? Do they communicate clearly and effectively?
Dropshipping – Can increase the COGS.
Cost of goods sold can increase due to manufacturing, warehousing, picking and packing. Whilst the convenience of not having to be overly concerned with the warehousing side of things, a cost is certainly incurred.
You will need to weigh up the opportunity-cost and work out whether warehousing your own product is within your ability. Having to take care of leases, employee costs, money in inventory etc may increase your overall margin, but it makes starting up incredibly expensive.
Spending a few extra cents to have another company take care of this allows you to focus on building and scaling as opposed to more managerial tasks.
As most people are, the lure of low start-up costs allows for greater focus on specific areas. I have always been of the belief that the less moving parts in a business allows for greater focus and efficiency overall.
Dropshipping – Can limit product selection.
Sounds funny doesn't it? AliExpress being as big as it is and we're claiming it can limit product selection? But hear us out.
Ethical eCommerce requires us as business operators to only work with companies that are reputable and true to their word. This reduces the amount of products we have available to us. And that's before you take into consideration your niche. Drilling down into these key aspects will reduce the amount of products to you greatly.
Which is why, selecting a style of product i.e. Jewellery over an actual niche i.e. Skirmish will allow you to keep your product selection wide.
Think of it this way. Jewellery allows you to focus on hundreds of different niches from racquet ball to paint ball. You can literally find a piece of jewellery for any hobby under the sun. Whereas you are limited by what the niche requires by focusing on the one hobby.
That isn't to say however, that being hobby focused isn't a smart way of doing business. Being the one stop shop for all things skirmish could in fact be a big winner.
Dropshipping – Very hard to brand.
Competing against hundreds of other stores with a fidget spinner will make your task of branding incredibly difficult. What makes you stand out over someone else selling the exact same product?
In the Shopify Ecommerce Forums the most common question we have seen is. “I have lot's of traffic, but no sales…please help”.
Apart from it being the most common question, what's happening with the store is almost always identical. By taking a look at what the store owner has set up, you can quickly see that it is just an aggregated product page of AliExpress, often without any similarity of products across the store. Branding is important, so is an idea of what you want to sell.
Believe it or not, to take advantage of e commerce you need to invest a lot of time and much more money than you think.
When you have the same product as everyone else in your niche, the only way you can stand out is by creating your own “style”.
That means, ordering the products yourself and taking lots of different photos. From product photography to lifestyle photography, you need to stand out. But that's fine. That's what every successful business does differently to all the other fly-by-nighters.
If you want to learn how to brand check out BigCommerce's article “Ecommerce Branding: 11 Examples and 27 Expert Tips to Help Build Your Brand Online”
Dropshipping – Low margins, particularly if you’re competing in the same niche with the same products
If you're not branding your business, guess what you'll be doing a lot of. You guessed it… Discounting. The only way for an unbranded business to compete is by slashing prices.
Don't get sucked in purely to compete on price. You will certainly learn some important lessons but you need to make your capital work for you and driving prices down is not the way to create more.
So how do you stand out in a crowded marketplace? Check out Oberlo's article “How to Stand Out When Selling the Same Products as Everyone Else”
Dropshipping – Difficult to communicate with suppliers that are overseas.
Do you know mandarin? No? Same here. Guess what that means. It means if you're dropshipping from AliExpress you're going to have a ton of fun trying to decipher what your supplier is saying to you.
Miscommunication can not only be a massive pain, but a major problem. I love communication and understanding exactly what's being said. The other concern with AliExpress is the difference in time zones and holidays. When they don't marry up it can be incredibly cumbersome to even speak to someone in real time.
For this reason, I have always gravitated towards print on demand as the advantages of e commerce in this space is fraught with less danger, the product quality is much higher and the companies actually care.
Advantages of e Commerce
Having been a part of e commerce now for over 7 years I am much more fond of the advantages over anything else. The advantages of e commerce by far and away blow any negative aspects out of the water. And with that in mind, here is the list…
Advantages of e Commerce #1 – Make Money Around the Clock
The number 1 reason and always will be. No matter where in the world you are you can be making money at any time of the day. There is no better feeling in e commerce than going to bed and waking up with more sales on your dash than when you went to bed.
There isn't much to say on this other than it is a great feeling knowing you can provide for your family by providing something that someone, somewhere just needs to have.
Advantages of e Commerce #2 – Sell Worldwide
Speaking of the world. I've been living on the Sunshine Coast in Australia for the last 11 years and barely sold anything locally. Why? Because the size of the American and European populations allow for much more scale.
The world really is your oyster. Don't be limited to just those locations either as we have had a lot of success selling more specifically into Germany, Brazil, Canada etc. If you have products that are in need of scaling make sure you take them worldwide.
Advantages of e Commerce #3 – Traffic Potential from Multiple Platforms
Unlike a bricks and mortar store who's limited to foot traffic and those who drive past. The advantages of e commerce allows us to market across multiple streams. Pinterest, Instagram, Snapchat, LinkedIn, Tumblr, Tinder, Google, Bing and so on. All these platforms open sales channels and further increase our volume of traffic.
I would say Facebook, but that ol' beast is making it harder for you to sell water to a thirsty man.
Advantages of e Commerce #4 – Affordable Employees
Working remotely online certainly has it's perks. Being able to hire cheap employees is a massive benefit to your bottom line. Unfortunately due to the scale of which the e commerce industry is rising the cost of labor has down the same.
You can still find relatively cheap help on Onlinejobs.ph and is the service we have used most predominantly over the years. It is still cheap to get highly skilled workers, workers that have graduate degrees in any number of specialties.
Unlike UpWork however, OnlineJobs.ph doesn't allow for the tracking of hours for your employees/freelancers. It is on you to build trust with them to ensure they are completing the work you set. If you are willing to spend a little more UpWork certainly gives you reassurance as all hours are tracked and recorded.
Advantages of e Commerce #5 – Enable Promotions Quickly
Bricks and mortar need to plan, remove pricing labels and set up for any new sales with billboards and posters. Online is much different. Installing an app like Bulk Product Edit makes updating prices incredibly easy.
Then it's a matter of getting your design assets, social media platforms and email flows updated ready for the sales push. All in all, much cheaper than having to update a bricks and mortar store.
Advantages of e Commerce #6 – Retargeting
My favourite part of marketing. Being able to retarget someone after they've viewed an offer or product is a fantastic way of increasing your bottom line. Whilst there are ways for businesses to retarget visitors that have wandered in to their physical stores it is much more cumbersome than setting up a dynamic product ad.
Retargeting also allows you to focus on building your brand, helping people to fall in love with your business. While Facebook is making it more difficult for businesses to be as profitable as they once were, retargeting helps to bring down the acquisition cost.
Advantages of e Commerce #7 – Decreased Cost of Inventory Management
Until you're scaling the store up in to high 6 and 7 figures the need to be warehousing your own products in somewhat unnecessary. That means, no money is being put into leases for warehouses, no contracts for employees and no money being tied up in inventory.
The less money spent in the backend will allow you to spend more on the front.
Advantages of e Commerce #8 – Low barrier to entry
How could we forget the number 1 reason everyone gets sucked into e commerce? We couldn't. From the very start with the likes of Teespring the barrier to entry for anyone is basically non-existent.
Anyone that wants to do a little bit more for themselves or their families can easily start a side hustle and be educated in the ways of marketing. As a starting point eCommerce provides so much upside that any low barrier is quickly foregone for the pursuit of a brighter future.
Advantages of e Commerce #9 – Able to Process a Much Higher Number or Purchases
Unless you're Safeway or any other grocery store, the chances that you could process more than 1 transaction with one staff member at a time would be unlikely.
The advantage of e commerce allows you to constantly have customers checking out all without the necessity of a checkout chick. Not to mention that you can do it around the clock and not be hit with penalty wages etc.
Advantages of e Commerce #10 – Convenient for Customers
As AdExchager noted, “The No. 1 reason consumers shop online is because it’s convenient, yet online commerce still represents less than 10% of overall sales.”
That truly is an incredibly stat, particularly when you think that it's the convenience that has super-powered the growth of the industry.
Have a read of the article and see how Amazon and Starbucks are taking the inconvenience out of their businesses. Truly remarkable.
Whilst every industry has their own disadvantages, the upside with ecommerce is far greater. We truly are living in the age of the entrepreneur with every Tom, Dick and Harriette opening a new store.
With more sellers in the market it's no longer as easy to be as successful as it once was, that does not mean that it can't be done. Just that you need to stick at it longer and be prepared to put in the hard yards to make the success come to you.