E-commerce beginners often hesitate to start an online business. It’s understandable – such a step requires long and thorough market analysis, learning the advantages and disadvantages of e-commerce in detail, business strategy preparation, and a healthy dose of adventurism. That’s enough to scare anyone off, and definitely dampen any further enthusiasm about going down this path!
However, if opening your own online store is something you’ve always wanted to invest in, don’t let the challenges put you off! With the right development partner at hand, you can’t go wrong. At Whidegroup, we have more than 9 years of experience working in e-commerce. We build online stores for merchants all over the world. In this article, we provide an analysis of the pros and cons of the e-commerce sphere. If we’ve done our job right, after reading this article, you’ll be one step closer to opening your own online store. Let’s go on exploring this together!
Advantages of an E-Commerce Business
#1 Less Risk in Comparison With Traditional Retail
Opening any business is full of risks – that’s no secret. The major stop-factor here is the fear of money loss. The more money a business owner contributes – the stronger the fear is. In our opinion, one of the most crucial benefits of e-commerce business is that it requires minimum funds to get started. By taking your business online, you’re absolutely free from such expenditures as:
- Leasing commercial real estate – no brick and mortar means no rent payments.
- Renovations and fixtures – no need to worry about preparing any new retail space for work!
- Managerial and inventory costs – initially you can do all the managerial work yourself.
Impactful, isn’t it?
Truthfully, that’s the main reason opening an e-commerce store is so popular among business newbies – risks are fewer, and the amount of money required for opening and running a business is less.
One of our customers had been thinking about starting his own business for a long time. After a profound study of the industry, he found that e-commerce is the most optimal choice.
Why? One of the main benefits of e-commerce is cost. To open and run an e-commerce store you need a lot less money than a regular brick and mortar shop would require. So, our client opened his online coffee store, with minimum experience and the desire to succeed in hand. Three years later, he has since grown his venture into an authoritative online store that is quite significant in its sphere. Currently, the daily volume of orders varies in the range of 300 to 400, with the average purchase order value of $160.
#2 Potential Income 24/7/365
Shopping has become a new type of leisure. Many people enjoy shopping after work, because they find it relaxing and enjoyable. However, most brick-and-mortar stores operate within regular business hours, which means they aren’t often open in the evening or at night. With an online shop, you can enable your customers to shop around the clock and from the comfort of their own home. It’s a win-win!
Our recent US-based client previously ran a brick-and-mortar store that sold Hawaiian style apparel & accessories. The store was very successful over the years. However, the owner dreamed big. He was attracted to the flourishing e-commerce boom and thought of the benefits of e-commerce to the business and how they could be useful for him. Our client reached out to us and shared his expectations. From there, we decided to start with the creation of a simple online store.
After a while, the owner noticed that his products were really popular, and people were happy to buy them day and night. The store has international reach, and purchases are made round the clock. His only regret is not doing it sooner!
We’ve even had to step in again to revamp the website due to dramatic traffic growth. Not a bad problem to have!
#3 Selling Globally
The geographical restrictions that are obvious and inevitable for a physical store, have no standing when it comes to e-commerce! Further, some goods or services may not be available locally, and in such cases, an e-commerce store works like a portal into a great world of access to all of one’s desired products! Visibility over a global market is a great chance for your business to be discoverable and accessible around the globe. With an online store, you can sell globally and forget about any boundaries.
One of our clients sells office furniture online from Norway. After experiencing serious issues with the site such as poor page load speed and an unoptimized checkout, the client decided to enhance his website. The consequence? A lot more cart abandonment and higher bounce rates. Fortunately, he contacted us.
We revamped the website, concentrating on removing performance bottlenecks. Our engagement resulted in a dramatic decrease in bounce rate, as well as the number of abandoned carts. The new consequence? The website doesn’t only attract customers from Norway, but also from abroad.
#4 Gathering Useful Analytics
This advantage may not seem as crucial as the other advantages of e-commerce, but you’d be remiss to underestimate its impact. Gathering data about your customers and their behavior can give your business a powerful boost. Brick-and-mortar stores can’t even dream about this! With customer data at hand, you can customize and personalize the buyer’s journey through your online store. By affecting the pressure points of your customers, you can adjust the buying process to increase sales, conversion rates, return on investment (ROI) and more.
Adding Google Analytics and CrazyEgg to the website for another client of ours allowed her to get a device breakdown report, which clearly illustrated that the website is mainly accessed through mobile devices. This gave our client the idea to make a progressive web application (PWA). She also noticed that her e-commerce website is popular among women aged 21-35, and these customers are interested in purchasing cocktail dresses even though initially, the website was focused on selling wedding dresses. This opening prompted her to target one more group of shoppers in addition to brides, and create a new product assortment for their needs.
#5 Building Trustworthy Relationship
The powerful duo of trust and confidence is everything when it comes to business relationships. What better way to build such a relationship than providing a customer with all the needed information, letting them know about your business, your guarantees, and what responsibility you take? Undoubtedly, a customer will appreciate having detailed information about your products, complete with customer reviews and ratings. An e-commerce store is just perfect from this perspective.
Recently we recommended one business owner to consider adding Trustpilot – a popular review platform, to his website. The owner didn’t believe in the effectiveness of reviews and he was pleasantly surprised when some of his previous customers left positive reviews about a product. A tick later and he let us know that his conversion rate has grown. The only change on his website? Adding Trustpilot reviews.
#6 An Opportunity to Build a Marketplace
A discussion about the advantages and disadvantages of e-commerce for a business would be incomplete without mentioning marketplaces. Currently, marketplaces are considered to be an extremely popular business model, and the thought of building a marketplace occupies the minds of many business owners, both beginners and seasoned ones. It’s no wonder since marketplaces are beneficial for all the parties engaged.
Currently, most marketplaces are built upon the eBay operating model, i.e. various merchants sell their products via a single platform that charges a commission fee for every purchase. We urge you to use the same model for your marketplace since it has proved its sustainability and reliability.
The marketplace can be easily developed from a simple online store with a single merchant. Marketplaces are growing worldwide, and your future marketplace, if well managed, has a great chance of success.
Over the past five years, we’ve developed 14 marketplaces. All of them were online stores in the past. The marketplace owners claimed that starting from a simple online store allowed them to gain the necessary expertise.
#7 … and a Whole Community in the Future!
After a while, your marketplace may grow into a community – an online platform is the next step in the marketplace development. Since a community is a group of people united by common interests, they can offer vast benefits of e-commerce to an organization. Such benefits include an opportunity to watch consumer habits and interests, reducing costs for advertisement, enhancing your e-commerce brand, and more.
Truthfully, we haven’t worked with communities yet. Maybe yours will be the first one?
Either way, we can’t leave you without showcasing such a successful online community as Lego Ideas, launched in 2008 by the worldwide-known toy company, Lego Group. Lego Ideas unites people together who are passionate about Lego products and lets them unearth their creative potential by coming forward with ideas for new Lego sets. In fact, we have Lego Ideas to thank for the creation of these sets: The DeLorean Time Machine, NASA Mars Science Laboratory Curiosity Rover, and Ghostbusters Ecto-1. The community is flourishing and customers are strongly motivated by the 1% of the royalties they can look forward to. Thus, they’re glad to share their vision, ideas, and creativity.
Disadvantages of Starting an E-commerce Business
The disadvantages of e-commerce business are a far departure from the advantages. However, when starting an online business you should be aware of the possible pitfalls on your way. So, let’s begin:
#1 Technical Issues
Running an e-commerce store makes you reliant on both soft- and hardware. In addition to actions that can be planned, such as migrations and upgrades, you may face sudden server issues, problems with security, various downtimes and more. Even the slightest problem can cause growth in the bounce rate, and, consequently, the loss of potential profits.
Troubleshooting: You can prevent this problem by choosing reliable e-commerce development service providers to cooperate with. Don’t fall for low prices. Rely on testimonials and a solid portfolio to find a credible partner.
#2 Shipping Issues
Shipping is one of the biggest headaches for every e-commerce business owner. In contrast to traditional retail where the customer contacts the seller directly, e-commerce means you need to arrange the shipment of products. This can be tricky because even if you firmly stand by your product, you can’t vouch for the shipping. Your customers can face delays at the very least. In the more frustrating cases, they may be on the receiving end of wrinkled, untidy, or even broken parcels.
Troubleshooting: Choose only the best-reputed shipping carriers such as: USPS, FedEX and UPS. You should use your local carriers and learn their terms of cooperation.
#3 Complicated Tax Situations
Running an e-commerce business requires you to be knowledgeable about legal aspects such as taxes, accounting and regulation – all of which may vary dramatically depending on the country. Complicated? Indeed.
Troubleshooting: To overcome this issue, you should set the time aside for detailed research and compile a list of questions that need to be clarified. Figure out how to act according to the law of the countries you’re planning to sell your products to. You can also turn to a lawyer and/or accountant in order to get qualified assistance.
#4 Security Issues
Handling transactions is always a headache. Running an e-commerce business means you’ll have to deal with sensitive data, such as credit card numbers, CVV/CVV2 codes, credit card expiration dates, and so on. You need to ensure the security and privacy of your online transactions.
Troubleshooting: For preventing possible security issues, you should concentrate on obtaining the following:
- Payment card industry (PCI) compliance – a set of standards that set the rules for every merchant engaged in processing online payments.
- Secure socket layer (SSL) certificate – small data files that are installed on the server and ensure secure communication between you and your customers.
#5 Competition With the Behemoths of the Industry
Amazon and eBay. We all know about them and how GREAT they are. We also know that they own the lion’s share of the market. When beginning an e-commerce business, many entrepreneurs strive to take a small share of the market that belongs to these two giants. Others believe that this is impossible. One way or another, their impact on the whole sphere is powerful, and you have to take this into account.
Troubleshooting: Keep calm first of all! Toppling eBay and Amazon from their thrones is impossible, but you can keep your business from being destroyed. How? Well, you can find your specific niche, you can offer great customer service, and you can work on the quality of shipping. These are some basic tips, however, very useful at square one. Don’t worry! You’ll make your own way ahead.
As you might have considered from everything we discussed above, opening an e-commerce store is pretty advantageous, despite the few potential disadvantages that you can overcome with the right approach. So, it’s up to you to make the final decision about starting an e-commerce business.
Running any kind of business is a pretty tricky endeavor, but it’s an exciting adventure you can take. We hope you’ve got a clear understanding of the pros and cons of an e-commerce for business. If you’re looking forward to starting your own online business and still have some questions about the advantages and disadvantages of using e-commerce, we’ll be happy to help you. Feel free to drop us a line, any time!