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.