IT TAKES MONEY TO MAKE MONEY: CAPITAL AND ECOMMERCE
Many startup eCommerce sellers are excessively optimistic in their expectations for future sales. In fact, it is quite common for novice entrepreneurs to forecast reaching a thousand or more orders per month within a mere 90-180 days of launch — though the hard truth is that few will ever hit such numbers (let alone in the first 3-6 months of operations), largely due to capital constraints. This leads to a seemingly obvious but all-too-frequently ignored point: growth in eCommerce requires capital. In this article, we explore the capital requirements associated with the following:
Returns, replacements, and exchanges
Fulfillment and shipping
When it comes to products, you need to do your homework, buy samples, tweak and test alternatives. All of this takes time — and cash.
Start Small: Invest in samples, prototypes, and testing to create a quality product — or suite of products — before outlaying a substantial amount of capital for bulk inventory purchases.
Emphasize Going to Market ASAP: Success doesn’t demand perfection – put a premium on getting to market sooner and continually testing and reworking to find out what works.
Think Beyond the Product: Many sellers become stuck at the research/selection stage for months and even years. If you research a product to perfection but either don’t know how to sell it or miss the window of opportunity, the money you have invested in this stage will be lost.
If you are going to be a legitimate player in the eCommerce space, you have to maintain inventory — which almost always requires an upfront investment.
Avoid Overselling: If you cut inventory levels too close, you are very likely to run out of core SKUs – at which time your store is likely to dip in performance.
Find a Winner: Developing a winning product – preferably several – is critical for conversion. As is generally the case in life, the 80/20 rule very much applies in eCommerce.
The Supporting Cast Matters: In addition to your winner(s), you also need a supporting cast of secondary products and upsell options to drive average order value. When the winners are sold out, or you don’t have enough secondary SKUs to carry each order, stores often become unprofitable.
Marketing is hard — and, absent an existing audience, generally expensive.
Be Thoughtful: Once more: marketing is expensive. You have to test different sales and marketing channels – all of which costs money. You also have to test different products, creative, and copy – all of which requires money, too. The more money you are able to invest in good, thoughtful marketing, the more likely you are going to be able to scale your business.
Invest in Quality: Investing in a reputable marketing partner can reliably get your eCommerce store moving at a faster clip, but don’t be surprised if it takes time for sales to develop.
Returns, Replacements, and Exchanges
Returns, replacements, and exchanges can add up quickly (in some industries like clothing and apparel, return rates are as high as 30%). There are ways to minimize the costs associated with returns, but you have to be prepared to absorb the bulk of them.
Be Aware:Be prepared either to pay for return shipping and handling or to simply refund customers without requiring the product back (if you can afford to do this).
Be Clear: By setting the right expectations with your customers, you can minimize the likelihood of conflict. Relying on fine print to avoid a return or exchange may help you win a chargeback; however, it won’t protect you from poor reviews.
Fulfillment and Shipping
When order levels are low, fulfillment and shipping aren’t that big of a deal; however, as volume rises, so do the costs associated with picking, packing, shipping, and other fulfillment-related tasks.
Weigh & Measure: We see a lot of sellers make significant mistakes on this front. In the world of shipping, an ounce or an inch too much can have an outsized impact on costs. Whenever possible, minimize — anything and everything.
Understand International Limitations: Ultra-light products aren’t too expensive to ship internationally; however, as weights climb, so does the pricing. Also, international tracking is hit-or-miss, so expect a higher number of lost or delayed shipments.
Manage Growth Wisely: Handling 5-10 orders per day from the kitchen table is manageable on a daily basis; however, at scale, this will absorb so much space and time that it will be difficult to work on the rest of the business. Imagine what a Monday will feel like if 100 orders per day have batched up since the second half of Friday.
When order levels are low, customer support is pretty easy to handle; however, as order levels rise, your customer support apparatus will need to expand quickly to deal with an influx of questions relating to your products, delays, damage, concerns, and myriad other inquiries.
Limit Phone Support: Managing phone calls is a significant time commitment. While some customers might prefer phone calls, there are very good reasons — including your sanity — for not taking them.
Offer Email and Chat-based Support: Responding quickly to electronic queries and concerns helps you get ahead of most problems.
Find Third-Party Support: Consider using overseas VAs and providing them with templates to handle common scenarios. Believe it or not, you can find a lot of very inexpensive help overseas with acceptable English language skills (or, at least, the ability to know which templates to use and which not to).
Scaling your business quickly requires you to budget and invest effectively. Contact IronLinx today to learn more about how a third-party fulfillment provider can help you to affordably grow.