E-Commerce Is A Lifestyle Business!
This is a subject that many many people are not talking about and asking themselves before they start an e-Commerce business and couple of months down the road, they felt that e-Commerce is not the kind of business they want, and it’s not “suitable” for them. They may be spending too much time and effort than they thought it would cost them, and they couldn’t juggle their own lives in hand with the business. Or it could be that they are spending too much money on the business which was affecting their quality of life. You may have heard of these “nightmare stories” from possibly your friend or family and they sound so terribly convincing. I can passionately tell you that, this is absolutely not true. There are different permutation of e-Commerce businesses and I’m sure there is one right fit for you to create the kind of wealth or lifestyle you wish.
As you read on, you will often see me commenting on customer service. It is one of the most tedious but yet core function of your business. If your customer service level is not satisfactory, you will lose out on returning customers but most of the time, unless you have a highly experienced customer service manager, you will still have to handle the bigger customer service cases, which means that it will take up some of your time.
There are mainly 2 different e-Commerce business components if you’re taking what’s in the market right now and sell them, instead of inventing a whole new product altogether.
Good: Low capital to start, no inventory risk
Bad: A lot of effort needed due to no control over inventory, product quality and shipping lead time, may also run the risk of having Stripe and Paypal accounts suspended.
The most basic supply model is dropshipping. The word isn’t even registered in my computer’s spell check. It is such a new business concept which caught the hype years ago, and then resurface recently again.
Dropshipping is a simple model, where you collect the orders from customers, and then have the supplier deliver it to them directly. The beauty of this model, which was why everyone was so into it recently is because, you do not have to pay and hold inventory right at the start, especially when you do not have an idea of your sales volume, as well as you not needing to fulfill the order yourself, saving yourself from the pick, pack and shipping.
However, a handful of dropshipping store owners come to realise that it is a trap. It sounded almost perfect because nobody was talking about the problems or downsides of dropshipping. Dropshipping has multiple areas of weakness. You don’t have control over the inventory and quality of the product as they are held by your supplier. You don’t have control over the quality of shipping and the shipping time. Customers are waiting too long to receive their order, and sometimes the quality of the product is so bad that your customer lost the desire for the product already. You get tons of customer complaints, customer asking on the status of their orders, customers demanding refund from you.
If you let all these issues go out of hand, you’ll have minimal customers coming back to you to shop again and Paypal and Stripe may put in place high reserves or refuse to work with you anymore. Without customers shopping with your store again, you lack customer lifetime value, and when you run paid ads, they have to make money on the front-end. With the rising cost of paid ads, it will get tougher to find profitable product opportunities. You’ll need more cash in place to continue operating your dropshipping store if Paypal and Stripe are holding your money and should they stop working with you, your store will be harder to run as they are the 2 biggest payment gateway out there. It will also be more difficult for you, should you wish to run any other online businesses where you need Paypal or Stripe.
Personally, I do run some dropshipping stores, but I make sure that I have control over the supply and lead time. Otherwise, I do not do dropshipping at all, due to the high level of customer support needed. My recommendation is that for dropshipping stores, it is a good fit for someone who is new to e-Commerce, has a lot of time or do not have the capital to be holding inventory. Risk of holding inventory should not be a reason for considering dropshipping at all, which I will elaborate more next.
Good: Have control over inventory and shipping lead time, also have better control over product quality. Less customer service related issues.
Bad: Some capital needed to start and you may need storage space if your goods are substantial.
I’m sure it scares many of you. Let me talk about the good points first. Holding inventory is great because you have control of your inventory, you can prepare in advance before there are periods of huge sales volume, such as the Halloween, Black Friday, Cyber Monday, Christmas, 11/11 period which are mostly towards the end of the year. You can purchase inventory and still have your orders reach your customers early. With dropshipping, once your supplier runs out of stock, you won’t be making much sales by then.
Next, is that you can check the batch of goods before they even reach the customers, and see if they are of acceptable quality before selling it to your customer. If the product is not up to the standard of quality required, you can always switch to a new supplier. You will be able to ask for samples before you place your orders with your suppliers which reduces your risk. This reduces the bad reviews, returns, exchanges and refund cases you’ll be getting, and you’ll also have control over your shipping lead time. These advantages significantly reduces the amount of effort needed in the customer service division.
Of course, the downside is that there is the risk of holding inventory. If you are renting a storage facility, you’ll be paying for storing your goods and there is also the cost of goods itself. However, bear in mind that you are always purchasing these goods below retail price which means in a bad scenario where the products don’t sell well, you can always sell them off at a discount or on consumer to consumer marketplaces such as Craigslist, LetGo or Carousell to recover back your cost. This is actually a huge plus point which is always easily missed out because people don’t understand that physical products are actually not that difficult to off-load for cash when you’re selling them at a discount.
Also with proper SEO on long tail keywords, you’ll never have to be afraid that you’re products are not going to sell. The only factor that is not entirely within your control is the velocity of the sales.
Before I move on,
What we have covered up till now, are business models dealing with re-selling of other people’s products. Moving on, I’ll be talking about distributorship, private labeling, customising and branding.
Distributorship and Private Labeling
Good: No direct competition, market protected, control over product quality, shipping lead time and inventory
Bad: High capital, minimum order value required to keep distributorship
They are very similar in many ways, the only difference is the level of control you have over the brand. With distributorship, you may be restricted by the principle brand from selling the products below a certain price, or portraying the brand in a certain way that is not of the brand values.
Distributorship is an assignment of exclusive rights to a particular sales channel or market. For example, if Sony awards the distributorship of it’s Playstation products to Company Z in China, that means that Sony will only supply to Company Z to sell in China, which means that there are no other competitors for the Playstation products in China as only Company Z is allowed to sell it. The biggest benefit of acquiring distributorship rights to brands is that, you will be able to leverage on the brand’s popularity and the marketing invested in them by the principal brand owner.
Private labeling however, is you taking a product, that’s already manufactured by other factories, and then putting your own brand and packaging on it. Making your product differentiated from the rest.
With re-selling of other people’s products, the suppliers would also be supplying the same products to other stores, resulting in direct competition. The benefits of the distributorship and private labeling models allows you have differentiation of your product and remove the tension of direct competition. However, the downside of distributorship is there is a minimum order value to achieve otherwise you will lose the distributorship. With private labeling however, it is literally the same as re-selling other people’s product, just that you print your own packaging on them. The cost needed is just slightly more than what you need compared to holding inventory.
The next step in branding is actually to take differentiation to the next level by improving the current product and/or making the product stand out from the rest in terms of design, so that it is highly recognisable that the product is your brand. This is where you can market even wider and deeper in terms of the product benefits as other similar products looks just the same as any other ones.
The downside is of course, the cost, as the factory has to create the product from scratch for you, and usually there will be a minimum order quantity to be fulfilled.
Type of Product
There are different products out there that you can have access to selling. However, the nature of the product will affect the course of distributing it and that will actually affect the scalability of your business. There are advantages and disadvantages to the different types of products, and I will cover them accordingly.
Bulky, Heavy or Restricted Products
Good: Less competitions, high barrier of entry for new competitors
Bad: Minimal scalability or require a lot of capital to expand, a lot of government and custom regulations to adhere to, may have health risk to your customers
Bulky and heavy products have much higher shipping cost. This usually makes it feasible most of the time to sell them with local delivery methods only as the cost of shipping these products overseas, can often cost more than the product itself. This will often turn overseas customers away, which has a double whammy effect, firstly on the low volume of customers resulting in not able to secure competitive shipping rates, which then result in customers even more unwilling to purchase. To sell outside of your country, you will often need to find warehousing and fulfillment services within the country you wish to expand to.
Even with local delivery methods, there are not many choices as well, and they can be more tedious to store and process for orders.
However, with both bulky, heavy products as well as restricted the products, the benefits actually lie in the difficulty of fulfilling them. Due to the difficulty of selling these products, there are often less competition, leaving you wide open for the market to purchase your products.
With restricted products however, such as but not only health products, cosmetics, battery included products, hazardous and animal or plants, their issue doesn’t lie with the shipping cost. The problem is on the customer’s country’s customs requiring some types of licensing or approval documents to allow the products to enter their country for overseas customers. There can also be high tariffs that is passed on to the customer.
For yourself as the business dealing with such products, there is also an issue of having those licenses or approval documents that allow you to sell such products. There can be some special storage requirements that is set by the necessary authorities in your country as well that contributes to the product cost. You may also be required to document all the customers that have purchase your products for auditing. The nature of the product may also require a specialized more expensive shipping method to import them if you are sourcing overseas. There may be health risk to your customers which you may have to purchase insurance to protect yourself.
Small and General Products
Good: Easy to import, easy to export, easy to scale up, minimal risk
Bad: High level of competition
They are easy to import and easy to export. Fulfillment is simple as they can be stored in any warehouse and the packaging materials required are minimal, the delivery can in fact often be done by a rider or through postal methods which is the cheapest form of delivery. They are easy to ship overseas and easy to scale up. They do not have any health risk. You can pretty much sell them with a peace of mind.
However, because it has almost no barriers of entry at all, there are bound to have plenty of competitors selling the same products. More marketing is required to have visibility to your products.
Customer Acquisition Marketing
In this section, I’m talking about marketing for new customers. It doesn’t take into account the cost for your re-targeting advertisements and email marketing efforts(We always run re-targeting ads and email marketing for customer lifetime value).
Good: High volume of traffic, no need to acquire traffic yourself
Bad: Restricted by the marketplace policies such as capturing customer data(emails), directing traffic to your website. Plenty of competitors and minimal returning customers.
I have a huge love-hate relationship with marketplaces. They account for 75% of my overall revenue in my e-Commerce business and I do not pay them any fees until the product is sold. However, I frequently get into price wars with competitors, competitors stealing my product listings and images, the inability to extract customer emails to re-market to them or directing them to my own e-Commerce site for them to purchase where I pay lower fees and have their email addresses.
In fact I started my journey in e-Commerce through marketplaces. They require a totally different strategy but they are definitely a great source of quick and fast sales coming in. However, once you’re starting to do well, you appear in the best seller lists, competitions will still swarming in to try and carve your slice of the pie for themselves. I still highly recommend people new into e-Commerce to start on the platform, as you can get sales very quickly once your listing goes live. It is a great source of motivation to fuel you to keep going on in e-Commerce.
Nonetheless, once you have your business stabilised on the marketplace, be quick to start building out your own e-Commerce site so that you do not depend solely on the marketplace for sales as well as build more depth in the sales of your product range. Ultimately, you do not have control over your business on the marketplace, and you could be restricted to sell or have your seller account banned due to disputes or non-compliance which can happen especially if you are doing dropshipping.
Free Traffic and Search Engine Optimization
Good: Decent and stable volume of traffic, will not experience turbulent high and low sales period. Doesn’t cost money.
Bad: Takes time and effort to build up, and requires SEO and content writing skills
It is my favorite form of traffic. It costs me practically zero dollars to acquire a customer. The traffic is stable as long as you are building your SEO using whitehat methods so that you don’t suffer from any Google algorithm update. This means that your sales and profits are stable month after month. You don’t have to be constantly worried about your sales for the next month.
However, you need to be able to write and do it consistently to build up your SEO for more traffic to be flowing into your website.
Good: Fast and highly scalable. Able to generate huge volume of traffic in a short period of time.
Bad: Burns cash out of your pocket really quickly if you’re not sure what you’re doing. Once audience is exhausted, you need to look for new audiences to keep the traffic alive.
I highly recommend you to be well versed into paid ads before you start because if you’re unsure of what you’re doing, every day that the ad is running, you’re paying for it. It is one of the best traffic methods out there to quickly scale your business and it can be life-changing at times. You can be starting a new store today, and be doing 7 figures in the new couple of months.
Paid ads require a high level of focus when you’re scaling up your business quickly. You want to only be focusing in not more than 2 tasks including media buying. You will have a lot of non-profitable ads that you will need to kill off or maintain, and scale up the profitable ones while starting more new ads with different audiences.
Bonus Section: Credit Terms
Here’s something that most e-Commerce business owners don’t actually talk about, and that’s credit terms. You want to strive to build credit terms with your suppliers, allowing you to pay them later, freeing up more cashflow for your business. Common credit terms, go by consignment, 30 days, 45 days and 90 days credit. The charm of credit terms is that, the supplier is figuratively giving you goods for free to sell everything off then pay them back the amount that you took from them. Credit terms is something that you build over time, when the supplier has trusted you. It is not easy to have credit terms right at the start of your business unless you are able to prove to them your credibility. Credit terms also allow you to run your business with a smaller working capital.
Whether you are planning to start an e-Commerce business or have already started one. It is important for you to ask yourself, what kind of lifestyle you want at this stage of your life.
If you are a young student with not much capital, dropshipping might be the way for you to start as you can start a business with minimal investment, and you may be more than willing to serve these customers yourself. Then transition to a more stable business model by holding inventory or starting out your own brand as you build your resources.
If you are a working adult that is more stable with your finances but have minimal time to spend in your business, you may want to consider going straight into holding inventory or starting out your own brand, and you will just need to hire probably 1-2 staff to execute for you while you manage the operations and business development part of the business.
I truly believe that e-Commerce is a great business model that can give you the kind of lifestyle you want. It is much simpler to automate and the scalability is much better than most other businesses especially service-based business. You have the option of not serving customers directly as e-Commerce usually does not require high level of skill or understanding. It is an internet business which can be operated from anywhere in the world. With the availability of remote workers, you will be able outsource most of the tasks away even as a small setup.
I hope this in-depth article has given you good insights of what you can achieve with e-Commerce and how e-Commerce can work for you.