Category Archives: E-commerce

Christmas Preparations

indexThe busy season for those of us who deal with games / toys and other knick-knacks that fit under the tree is coming up.  If you don’t think it’s time to start prepping for the season,you are definitely wrong.  Christmas can be as much as 50% of a business’s sales for the year, certainly for Fortress Geek, we see a significant (like 100-200% increase) in monthly sales volume.

What can you do to make your Christmas Season flow well? Here’s a few suggestions:

  • Advertising banners and on-site, in-season designs should be started immediately.  You want them ready for the Christmas season to put shoppers in the right mood and remind them to purchase what they need now!
  • It’s too late to start shipping Amazon for Toys & Games, but it’s worth considering places like eBay  and other 3rd party sites.  The bump in traffic during this period is definitely worth planning and grabbing at.
  • Get your shipping area ready.  Pick up all the necessary boxes, packing materials and tapes that you will need.   You don’t want to have to slow down / stop shipping just because you forgot to buy paper for the printer.
  • Pre-pack some of your best-selling items to prep for shipping.  If you know you sell 100 copies of the same item, all in single lots, you can pre-pack these to speed up shipping.
  • Make sure to organise multiple pick-ups / shipments as necessary with your courier company
  • If you are hiring extra help, make sure all documentation and processes are already in-place.  If possible, assign people to specific tasks that they can do continuously such that they can get good at that single task (pulling, packing, etc.) without having to learn the rest of your processes.

Do you have any other tips for e-commerce business’s during the upcoming business season?

Inventory Management Solutions

One of our biggest projects of the year has been an inventory managmenet system. or ERP system for our online stores.  We’ve tried using SaaS sytems before and found them a pain as they weren’t able to handle what we needed.  We considered (briefly) looking at a full ERP system, specifically OpenERP but the thought of using another Open Software system that isn’t stable and prone to breaking made us whimper.

So we ended up purchasing an inventory management system from Magestore.  I wish I could say it’s good, but it really isn’t.   There were (and still are) significant bugs in the system and there are significant gaps in the reporting and usefulness of the system.  Among our issues:

  • No way to track individual stock changes for individual items
  • Mystery stock changes
  • Available / Physical / Hold Quantities do not line up and often are wrong and can’t be adjusted at times
  • No way to use the software for shipping individual orders out
  • No COGs reporting

Truthfully, with the sheer volume of bugs involved; if we weren’t already invested in it’s use I’d dump it and go looking for a new system. I’m still considering dumping it.

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.

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.

It’s Not All About Price

I recently had a discussion with another redditor about pricing.  Specifically, someone asked what kind of margins other e-commerce owners had and what their markup should be. Instead of answering, the redditor posted that they should stop focusing on price as a number and the only way to compete and as a reflection of their brand.

I don’t disagree with that – it’s actually a decent way of looking at it.  However, it’s also worthwhile understanding that when you develop your business model, it’s not just about deciding on where you want to position yourself (and thus the price) but also the underlying business industry you are working in.

It’s even more important to understand this and your business resources when developing your business.

Let’s give an example – you sell Widget A. If you and your competitors are all selling Widget A, then you cannot afford to price yourself too far off from your online competitors. If they sell it for $10, it’s really, really difficult for you to sell it for $50 or $30. You might be able to pull off $20. Part of how much you can afford to price yourself away from them is based off how knowledgeable / fractured your market is. For example, if a significant portion of your market reads 2 magazines, and your competitors all advertise there, you can’t be too far off. If, however, your market is extremely fractured, then you can afford to price yourself at a higher rate.

Developing a brand will allow you to price at the $20 range and get customers – the number of customers really depends on the demand curve.  How brand (in)sensitive are your customers? How brand loyal?  If you sell sugar – the answer is almost negligible.   If you sell high end clothing, the answer is extremely high.

In addition, you need to take into account the various services and your resources – a high price generally requires a high level of service.  That level of service generally dictates a higher cost in time and money.  If you are a one man show with very little money, you might not be able to handle a lot of business – so your markup better be really, really good.  Again, at the higher ends it’s viable at the few hundred dollars and more range. If your product is only selling at $30 but that’s a 300% markup, things might get tricky.

In addition, there’s also the question on time.  Getting a $50 customer will likely take longer than getting the $10 customer.  In e-commerce terms, it might be the difference between a 1% conversion rate and a 0.01% conversion rate.   When traffic is hard to get, that 0.01% conversion rate might be a killer.

Business Valuation

For a number of reasons I’ve had to discuss / review business values.   Based on that, I thought I’d discuss business valuation in more detail.  Let’s start with the most common valuation method which is the earnings valuation method.

The Basic Calculation

The basic calculation was calculated as follows – net assets multiplied by the earnings multiplier. Or written out:

(Assets – Liabilities) + (Profit  x Earnings Multiplier) = Business Value

Things however get complicated for a number of reasons.

Assets

Assets for most e-commerce businesses include the stock, furniture, website and the accounts receivable amounts.

Note, however that things can get complicated if the company has decided to purchase assets like furniture outright or has already applied depreciation.  In addition, you’ve got t o assess the value of a website which can be tricky.

Goodwill theoretically should be there. but Goodwill is often disregarded in cases like this.

Liabilities

Liabilities are generally easier to do.  You have Loans and Accounts Payable to worry about, but not much else..  Shareholder loans can be tricky as you need to assess what the loan requirements are – many companies have a substantial shareholder loan but no documentation attached to it.

Profits

Profits at first seem pretty simple – just take the Net Profit right? However, it’s more complicated than that.  When selling, you want to include things like the Owner’s draw and discretionary expenses (Add Backs) that might have been taken out of the Net Profit that are not necessary to the running of the business.

Often, especially with smaller companies; a number of discretionary expenses are added to lower the tax burden.  These costs shouldn’t be part of the actual profit and thus, the sale price.

Profit Multiplier

How about the profit multiplier? Well, this is tricky.  The multiplier can be as low as 1 and as high as 10 depending on the industry and the growth (expected or historical) of the company.  This is a harder number to find though business brokers or business sites like BizBuySell, etc can be a good place to start.  Generally, multipliers of 2 to 3 are quite common for profitable businesses.

Other Factors

Are there other factors to take into account? Yes, a ton.

  • Growth potential of the company can drive up the profit multiplier
  • A history of profitable earnings can increase you general profit, not to mention your profit multiplier (if it’s shown to continually increase as well)
  • Documentation and processes – a well documented business with policies & procedures that make it turnkey can significantly increase the value of a company
  • Seller financing (i.e. you being willing to be paid out from the profits) can increase the value of the company
  • Market share / ease of entrance into marketplace.  If you are in an industry that is hard to enter and/or have a substantial market share (i.e. market leader); you can often command a higher premium for the company

Other Valuation Methods

Lastly, let’s talk other valuation methods:

  • Book value (what’s it worth on paper?)
  • Liquidation value (great if the company is liquidated and/or not an on-going concern)
  • Debt-paying ability / Free cash flow (how much free cash does the company provide, thus allowing the business to be bought for that value)
  • Capitilzation of earnings (basically, figuring out the return the buyer can expect)
  • Revenue multiple (for high growth companies, this could be viable if they are not making any profits).

At the end of the day, there are a ton of methods of valuing a company.  It’s worth noting why a company is being sold too – if you approach a company ‘blind’; unless the owner was intending to sell the company; you are likely to pay a premium compared to one that is actively looking for a buyer.

More than SEO

When you are building out an e-commerce site, you need to work on more than just SEO.  When you are building out a site, you need to look at not just traffic generation but traffic conversion.

So, let’s talk about the various ways to deal with traffic generation:

  • Search Engine Optimisation
  • Search Marketing
  • Banner Advertising
  • Paid Traffic via social media
  • Social Media generation (organic)
  • Public Relations
  • Blogging & Guest Posting

Lots of options.  Here’s some basic areas to look at for traffic conversion:

  • Design
  • Usability
  • Reviews
  • Trust signals
  • Peer validation / social signals
  • Shipping options / lack-of
  • Payment Options
  • Guest checkout