Free, flat or variable shiping costs

Let’s talk about shipping.  Now, we all know that you need to let customers or potential customers know what the cost of shipping is before they hit checkout.  So you put in the necessary shipping estimators on the shopping cart and otherwise.

However, what kind of shipping methods do you use? The various options have pros and cons.

Free shipping (pure) generally means you put the cost of the shipping items in the cost of your products. This works quite well if, for example; you have a high margin product with a low shipping cost.  It also does well if you can get customers to purchase more than 1 of the item at the time, to save on shipping costs.

However, the cons are that you generally have to put a much higher price on your product which could make you seem uncompetitive.  I’d say this type of shipping method works best for really high value products (where shipping is a small portion of your actual price) or low value products  (where you can ship the order really cheaply).

Secondly, you can do a combined free / variable shipping method. Basically, you provide free shipping at a certain level.  Now, this shipping option pushes people to purchase a certain amount and if set right, can push people to the next ‘level’ of purchasing.  This kind of method requires more calculation but in many cases can be quite profitable.

Flat rate shipping on the other hand is perhaps the easiest for customers to understand.  It’s a simple number that they can work with, but has the disadvantage of requiring to you know your shipping cost quite well.  It also means that if a customer does a large order, and a lot of customers do that, you cost is going to go much higher than you expected.  Depending on how you price it, you might also be losing money on each order.

Lastly, you have variable – or actual – cost of shipping.  Here you charge everybody the actual cost of what it costs to customer to ship. This is of course the most fair method, but the customers that you really want – the large order customers might decide to go elsewhere because other businesses are offering them free shipping.

Building a Magento site for Canada

Let’s talk about Magento and building a Magento site in Canada.  For the most part, the things that you require are going to be the same at the basic level – theme, gateways, etc.  However, there are a few things that are very specific that is needed for a Canadian store.

Shipping

You are going to need a Canada Post shipping module. Sure, you could ship via FedEx or UPS, but Canada Post is by far the cheapest system in Canada itself.  Purolator comes as a close second, but it’s still pretty expensive.  If you are shipping B2B though, I’d definitely look at either Purolator or one of the other companies rather than Canada Post as their combined shipping options (i.e. multiple parcels to same location) can drive costs down.

Accounting

You are going to need to figure out your accounting.  Now, if you are purchasing only in Canada, you don’t really need anything major or different – however, if you are importing products from the States or elsewhere, you will need to tie-in purchasing and logistics with your sales.  Quickbooks works well for this, but understand you’ll need a software to import the stock/etc in – it doesn’t connect directly very well.  Webtex is one option – but again, once you hit a certain volume of products, you’ll definitely want a better solution.

That’s where things get tricky- very few systems out there tie-in accounting with Magento very well.  Look for a dedicated system that deals with Magento and multiple currencies.

Domain names .ca

You will want a .ca domain name.  Purchasing one is pretty cheap per year – about $10 per year.  In the beginning, you might want to just redirect the .ca to your .com; but not having it is a bad idea.

Google Webmaster

Okay, here’s an interesting thing to do – make sure to connect Google Webmaster Tools to your site and then target your site to Canada.  It’s an immediate boost for your listings in Canada but

Currency / Canadaisms

Don’t forget to mention what currency you are selling everything in.  Not only is this necessary for your payment gateway, you’ll also want to keep your precious Canadian consumers on-board for longer.  Definitely consider flying the Canadian flag somewhere prominent – it’ll keep your target market on your site longer.

French / English

Have only a few products? Seriously consider putting up a French translation of your site.  It’s a great way to get customers from Quebec and help you rank higher for a certain demographic.  Of course, the problem is if you have a lot of different products, you might want to avoid this due to the huge costs of implementation.

Analytics – Details Matter

Recently did an analysis of one our businesses – Starlit Citadel - and noticed that conversion rates had taken a drastic turn down.  It went from 1.56% to 1.15%.  That’s a horrid, horrid drop and even though we had a lot of competition show up recently, it seemed like a truly significant drop.

Now there’s a few things we could do.  Drop our prices and kill our margins, which if it had allowed our conversion rates to stay the same would have resulted in overall higher sales and a marginal improvement in profits (before taking into account additional staffing costs, etc.).

On the other hand, perhaps we should look more closely first.  So, here’s what we looked at to figure out the change:

  • Compared it to previous year stats – nope, still a drop for sure
  • Compared it against traffic sources – all over drop pretty much. Not good…
  • Compared it across new and old visitors – hmmm… new visitors were the one who killed it most
  • Compared it based on location – ah, this is more interesting.  Traffic had gone up significantly in countries outside of Canada.  This pushed down our conversion rates because people who aren’t Canadian just aren’t that interested in us.

As we said, details matter.  If we had decided to take steps to decrease our prices and increase our conversion rate, it would have helped but only a bit.  Instead, we’d have suffered more of a loss because the traffic from outside of Canada just don’t care about us. A price drop just wouldn’t help.

So, details matter.  Dig, dig, dig to understand what happened and is happening.

Bitcoins for E-Commerce in Canada

Ever wondered if you should integrate Bitcoins onto your site? Well, while Starlit Citadel isn’t the largest site around, we do have a significant presence.  Here’s a quick pie chart comparing the number of orders we received using Bitcoin as a payment method compared to our other payment methods.

Pie chart of bitcoin sales vs other payment methods

Bitcoin sales for half of 2014 compared to other payment methods

This pie chart consists of our sales from Q1 to Q2 2014 on Starlit Citadel.    We have Bitcoins on Fortress Geek too, but since SC is much larger, we figured it would be a better chart.  There’s not a significant difference between the two.

I don’t have to say much – Bitcoin’s a nice idea, but right now; at least in Canada, the uptake has not reached a point where it’s a significant payment method.  It might be different in the US where the population numbers are much higher as usual, but in Canada it’s probably not worth the time (unless you have nothing better to do).

Revenue Streams Online (2) – Affiliate Marketing

Affiliate marketing; boiled down to its essence is the process of trading eyeballs for sales on other people’s sites.  It’s not always sales – sometimes you get paid for an action (signing up to a newsletter, visiting a certain page, etc.) but it’s mostly about sales.   It’s also one of the more popular revenue streams available, so let’s do the Pros and Cons.

Pros

  • Low cost of entry. All you need is a website to start.  Once you generate the traffic, you can get the links for the various affiliate sites to develop your sales.
  • No inventory or customer service hassles
  • Can be an extremely passive form of income – once the website is up, the processing of sales/etc is left up to the affiliated company, not yours
  • Easy to enter / work with  multiple websites with multiple industries, allowing you to experiment with profitability
  • Can be mixed with other revenue streams like advertising very easily

Cons

  • Extremely competitive marketplace partly due to the low cost of entry
  • Can take a long time to develop sufficient traffic to generate decent revenue.  As you are sending traffic away, you get approximately 50% of all visitors at best to the affiliated site.  Those then convert at between 1-3%; so traffic must be significant.
  • You are dependent on 3rd party sites, for both payments as well as the processing of the orders and overall conversion rates / usability of other sites
  • As majority traffic is often generated directly from search engines / referrals (especially for smaller sized sites); you are most liable to Google algorithm changes

 

E-Commerce Ain’t Rocket Science

As much as people might wish it to be.  At least with rocket science there’s a lot more science than art to it, a lot less guesswork and a lot more fixed variables.  It might be incredibly difficult but the vast majority of the factors are known.

E-Commerce Isn’t Brick & Mortar Retail

We don’t deal with walk-in customers.  We don’t have to worry about displays or shelving or the appropriate amount of space between racks.  We don’t worry about the butt brush effect or seeming too crowded for customers.

If you are coming for retail, you have a great handle on logistics and inventory and what to order and when.  You have no idea about site design, usability, conversion rates and marketing.

E-Commerce Isn’t a Service Business

I have a friend. He runs a service business doing IT consulting.  He charges hundreds of dollars an hour consulting on IT.   His problems are very different from ours.  He never has to deal with inventory, but time management is important.  He can only ever sell a fixed amount of time unless he hires more staff.  He doesn’t have to worry about uploading products or designing new sites or generating a thousand customers a  month- just 2.   If you run a service business, your experiences are important but they aren’t part of the equation here.

E-Commerce Isn’t Affiliate Marketing

Affiliates create sites, they generate content, they sell space on their sites and eyeballs and clicks.  They are the front-face and the beginning advertising platform.  Developing a strong affiliate business is very different from developing a strong e-commerce business.  You could potentially develop a strong passive income from affiliate marketing.  E-commerce is all about fulfilling that order – because whether you drop-ship or hold inventory yourself, you got to have stock to sell it which means you have to active in managing stock.

Affiliate marketing isn’t e-commerce.  The skills might help, but it isn’t everything.

So What is It?

It’s not rocket science.  It’s not unique skills.  It’s a series of skills that are required, that you need to put together to make the business work.  You can gain those skills from a variety of areas, but learning to put them together requires time and money and if you’re lucky, assistance.

Canadian Anti-Spam Law & E-commerce

Canadian Anti-Spam Law (S.C. 2010, c. 23) is coming into effect very soon (July 1, 2015) in its first part with the final part coming into force July 1, 2017.

The law is actually relatively straight-forward especially if you have been following best practices (and the CAN-SPAM act down in the States) and should require few changes in any e-commerce business dealings.  For most e-commerce companies, the area they should be most concerned with are ‘commercial messages’.

Commercial Messages

Commercial messages are defined by asking oneself Is one of the purposes to encourage the recipient to participate in commercial activity? 

When determining whether a purpose is to encourage participation in commercial activity, some parts of the message to look at are:

  • the content of the message
  • any hyperlinks in the message to website content or a database, and
  • contact information in the message.

If you are sending a CEM, you need to comply with three requirements. You need to:

(1) obtain consent,

(2) provide identification information, and

(3) provide an unsubscribe mechanism.

Pretty straight-forward for the most part.  Now, about obtaining consent…

Obtaining Consent

Consent can be obtained via implied or express consent.  Implied consent boils down to the individual having provided you with a way to contact them / have contacted / bought from you before.  Now, consent is tricky so I’d recommend you read the entire bulletin yourself since frankly, it makes no sense to summarise a sumary.

However, one thing to note – you can’t get express consent via a pre-checked box anymore.  That’s right, you  need to opt-in customers, not use an opt-out method which is allowed under CAN-SPAM. So, one major change.

Abandoned Cart E-mails

One major promotional method used by some e-commerce businesses are abandoned cart e-mails.  However, under the new regulations this is a commercial electronic message and since no purchase has been made, there is no existing commercial relationship.  Which means that you don’t have implied consent, which would make abandoned cart e-mails illegal.

Fun isn’t it? So, turn it off before 2017 when you can be fined for up to a million a person.

Revenue Streams Online (1) – E-Commerce

Let’s talk about the various ways you can generate revenue online when you have a website.  I’m just going to do a comparison between eCommerce vs Affiliate Marketing vs Advertising vs Subscription revenue streams and we’ll start with eCommerce.

eCommerce Sales

For those of you who don’t know, it’s where you sell a product on your site and send it to them.  Generally, a physical product but it can be digital and you can drop-ship (have someone else carry the product for you).

Profit margin breakdown using ‘normal’ retail markup for holding stock on your own compared to drop-shipping is 50% to 20-30%.  That is, for every $1 you either get $0.50 or $0.20-30 back.

With digital products of course, if you own the copyright the markup is enormous since your cost of good sold is insignificant (marginal cost that is, not upfront).

Pros:

  • Easier to build a brand, especially if you have products or a product mix that is unique
  • Conversion rates can be significantly better as you are not sending traffic away first – that is you get 1-3% conversion from all your traffic, not just the one’s that travel to the affiliate marketer
  • More control – you can adjust your site to better convert your traffic and have a much better understanding of the needs of that traffic than an external site
  • Lifetime customer value – you are drawing the full lifetime value of each customer especially in a business of repeat purchases.  Unlike affiliate sites where you generally only receive the revenue for a fixed amount of time.

Cons:

  • Inventory can be extremely expensive (requiring tens of thousands of dollars)
  • Building the website is often much more complicated than an affiliate site
  • Developing the brand can be a much longer process
  • A more complicated business model as more ‘moving parts’ from inventory, site updates, design, customer service and more.
  • Generally not a passive income stream as orders must be fulfilled, customer service completed, etc.
  • Ongoing customer service issues compared to affiliate sites (e.g. questions, returns, exchanges, etc.)

Building a site – the cost of using Magento

Over the years, we’ve built multiple e-commerce sites.  We first started on osCommerce and then moved to Magento when it was still pretty early – 1.3 I believe.  Since then, we’ve built over 8 sites on Magento so I thought I’d write about our experience and the costs involved.

The Cheap

Let’s start with the basics – a basic installation of Magento should only cost about $500 with a theme purchased from another company and an installation by the developer.  It’s easy to install the basic system and Magento has a lot of basic, good functionality at that price.

The Basic

So, next up we have what I would consider a basic installation.  A purchased responsive theme, a few minor adjustments to the theme to make it to your liking, a new Search module, social button integrations, Mailchimp integration, Gift card modules and that should be it.  Perhaps add a one page checkout to the system too.

This looks something like Fortress Geek right this moment.  Lots of nice designs and additions, looks professional but isn’t too expensive to set-up and run.

Total cost: $2,000 – $3,000

The Complex

Here, we start looking at a custom theme and design (easily $3 – $5k to start), social button integrations, reward point integration, gift cards, a one page checkout, custom reports, custom product page design and automated upsell / crossell modules.   We’ve also got bestsellers lists, an integrated WordPress blog, multiple payment methods and a shipping module.

That’s what Starlit Citadel is.

We’ve spent over $20,000 easily over the course of a couple of years on this site.  We’ve upgraded, tweaked, upgraded again.  That’s a lot of money, but we think it’s worth it.  These days, we don’t spend much on the site though – it’s just upkeep.

5 Analytic Key Performance Indiactors

Let’s talk about analytics.  If you own an e-commerce store, you want to know what to track.  So, let’s talk about the key perfomance indicators you’ll want to watch.  Remember, if your focus is a specific geographic region, you’ll want to track both for that region and overall with particular emphasis on your target region.

1. Sessions

Sessions or visitors if your analytics program uses visitors instead.  This is the top of the line metric, and will give you an idea of how many people are ‘coming to your store’ each day.  It’s always good to move this number up, especially if you are sorting by your target market already.

2. New Users %

Here’s one that most people don’t think of.  As a rule of thumb, you want to get around 50% new users coming to your site on a regular basis.  Any fewer and it means you aren’t generating enough new leads to sustain and grow your business.  Any fewer and your site is not ‘sticky’ enough. Of course, new sites will find their New User % really high, but you do want people to come back and you need to move those returning customers % up.

3. E-Commerce Conversion Rate

Industry average is 2%.  Frankly, I’ve never been in an industry where I’ve managed to get 2%.  Now, this might mean I’m just really bad at it – but it can also be an artefact of the industries I work in.  Realise that an overall benchmark like 2% can only give you the roughest of numbers to begin with.  You should however be able to hit between 1- 2% for the most part.

Most importantly, what you do want to do is adjust your site and site design to push your e-commerce conversion rate up.  Whatever you do, you want it to go up – not down.

4. Average Order Value

With this, sessions and e-commerce conversion rate you can work out what your revenue is.  More importantly, you know what your average order amount is and what you need to do adjust the value up.  In general, you want your average order value to go up (unless you figure out a way to increase volume transactions instead).  If this number goes down though, then your product mix needs fixing.

5.  Average Pages Viewed

Lastly, average pages viewed shows how engaging your site is.  Bounce rate will tell you if a customer will stay pass the first page, but it’s average pages viewed that tells you how far they have gone in the site.  The deeper they go into your site, the more likely they are to buy from you and/or add more products to their shopping cart.

I find this number better than time on site because if you improve your site’s speed (performance); you’ll find that the time on site will drop but average pages viewed should stay the same (or more likely, go up).