Launching a successful eCommerce business can be quite challenging. Some estimates peg the failure rate of eCommerce to be over 80%.
There are a few reasons why so many businesses fail. Firstly, running an online store requires expertise in several independent functions like supply chain, marketing, technology and accounting. It also requires capital investment in procuring products that you wish to sell.
Another important issue is working capital. One way eCommerce businesses price competitively is by procuring their products on wholesale. This also promises them better margins. However, as it often happens, you may not always clear your inventory on time to pay your suppliers back. This causes a working capital deficit which forces store owners to take on debt. Over time, the debt you raise accumulates and can even threaten to shut down your operations.
One of the most effective ways to launch an eCommerce store is by keeping capital expenditure low. Here are a few strategies to help your startup online commerce store launch with minimal capital.
Outsource technology: Building an online store from the ground up can be a lot of work and is completely unnecessary unless you are a large enterprise with highly customized product requirements. For most small and large organizations, eCommerce platforms like Shopify and Magento come equipped with all the necessary product features that you can simply plug and play. More importantly, these are subscription based tools. You do not have to spend thousands of dollars in website development before you sell your first product.
Dropship: As noted earlier in this article, procuring products from a supplier can contribute to working capital issues. In addition to this, you may also need to spend money on warehouses to stock your inventory. All this can require a lot of financial investment. As a startup store, you may avoid all of this by dropshipping your products.
Dropshipping is essentially a supply-chain strategy where you do not personally stock inventory. Instead, you partner with suppliers who handle all stocking and shipping from their end. In effect, your responsibility here is merely to market your website and sharing incoming orders to your supplier.
Dropshipping has a few advantages. For one, you only pay your supplier after a customer has paid you for the product. Also, by outsourcing logistics to a third party, you may focus on things that matter – like growing your business and improving customer experience.
It is however worth pointing out that your brand and credibility among customers relies heavily on your supplier. The blame for delayed shipments and substandard products fall on you and not the supplier. It is hence important to spend time vetting your supplier. If you make use of third party platforms like AliExpress, make sure that you only engage with suppliers who have a feedback score of more than 200 and a 95%+ positive feedback rating.
Marketplace: If finding a reliable supplier is hard, you may look at establishing a marketplace instead. One key difference between dropshipping and a marketplace is that your customers are aware of the fact that your store is not responsible for shipping. The onus of finding the right seller falls on the customer. This does not make the job of a store owner any easier. Bad sellers can still bring down the brand of your organization. You may hence be responsible for the sellers you work with.
For the long-term however, it may not be a good idea to rely solely on third party suppliers for your business. There are a few reasons why. Firstly, customers demand good experience and it is important to maintain control over this aspect of business. Secondly, your margins are higher when you own your products and logistics. While it may still be necessary to use third party suppliers for some product categories, you may look at owning and shipping the most popular products yourself. This helps you retain control over user experience while also maximizing your business margins.