Some people consider e-commerce the holy grail of online business models, and it’s with good reason. Amazon, the largest Ecommerce store on the planet, had total revenues of $386.1 billion in 2020 alone, with a 37.62% increase from 2019.
Statista reports that
In 2019, retail e-commerce sales worldwide amounted to 3.53 trillion US dollars, and e-retail revenues are projected to grow to 6.54 trillion US dollars in 2022. Online shopping is one of the most popular online activities worldwide.
Ecommerce can be defined as buying and selling goods and services or the transmission of funds or data over an electronic network, primarily the internet.
It doesn’t matter if it’s personal or business, anything bought, sold, or transferred over the internet is considered Ecommerce.
Because that definition is so broad, we will focus on Ecommerce stores with a shopping cart as an online business model.
Like all business models, eCommerce has its ups and downs. It’s important to get a good handle on the pros and cons so you can be informed when making your strategic decisions:
Advantages of an E-commerce business:
1. You can reach a worldwide audience
E-Commerce allows you to reach customers all over the country and around the world. Your customers can make a purchase anywhere and anytime. As long as you can ship it to them, then the people there are your potential market.
2. Affordable cost
With the advance in eCommerce platform technologies, it has become very easy and affordable to set up and maintain an eCommerce store with low overhead. Merchants no longer have to spend a large budget on ads, nor worry about the expense for personnel and real estate.
3. You can upsell
When someone is in the checkout process or looking at an item on an Ecommerce store’s website, it’s straightforward to suggest related items for them to buy. This method is focused on increasing the sale value of every customer.
4. Increased sales with low or no shipping costs
For businesses that sell digital goods, E-Commerce allows the delivery of products within seconds of making a purchase. This satisfies consumers’ need for instant gratification and helps increase sales.
This customer behaviour applies also when shipping costs are low. The graphic below shows that 47% of shopping cart abandonment is due to shipping costs perceived as too high and 32% due to shipping costs charges.
4. Flexibility to scale up (or down) quickly & unlimited “shelf & information space”
Unlike local shops where merchants can only provide a limited amount of information on a physical store product, eCommerce websites allow the space to include more information such as demo videos, reviews, and customer testimonials to help increase conversion.
Moreover, the growth of an online business is not limited by the availability of physical space. Even though logistics can become an issue as one grows, it’s less of a challenge than running a brick-and-mortar store. E-Commerce merchants can scale up or down their operation quickly and take advantage of the unlimited “shelf space” to respond to market trend and consumer demands.
5. Personalization Marketing
eCommerce platforms allow merchants to serve up personalized content and product recommendations to registered customers. These targeted communications can help increase conversion by showing the most relevant content to each visitor.
6. Customer Tracking And Analytics
With an Ecommerce store, it’s so easy to track things in real-time. You can understand what marketing channels are bringing the best return, which ones are burning cash, and which customers are coming back over and over again.
Indeed, whether you’re sending visitors to your eCommerce website through SEO, PPC ads or through word of mouth, you have tools to track your traffic and customers’ entire user journey to get insights into keywords, user experience, marketing message, pricing strategy, and more.
Disadvantages of E-Commerce business:
1. Lack of physical contact
Some consumers appreciate the personal touch they get when visiting a physical store and interacting with salespeople. This personal touch is especially important for companies selling high-end products, as customers not only want to buy the merchandise but also have a great experience during the process.
2. No way to test out your purchase before buying it
I know you’ve experienced it, and so have I. You buy something online, and when it arrives at your doorstep, it’s quite different from the picture you saw. Or it doesn’t fit you correctly. It happens, and it doesn’t seem like that trend is going to change anytime soon.
The way savvy internet retailers are getting around this is through generous return policies.
3. Credit & debit cards fraud
The number one complaint made to the internet business is around nondelivery and credit or debit cards fraud.
Indeed, credit and debit cards fraud is a real and growing problem for online businesses. It can lead to chargebacks that result in the loss of revenue, penalties, and a bad reputation.
4. Cyber security
More and more businesses and organizations have fallen prey to malicious hackers who have stolen customer information from their databases. This could not only have legal and financial implications but also decease customer confidence in the business and especially in the company.
Cybercrime Magazine reveals “Cybercrime to cost the world $10.5 trillion annually by 2025”
Cybercrime costs (shown below) include damage and destruction of data, stolen money, lost productivity, theft of intellectual property, theft of personal and financial data, embezzlement, fraud, post-attack disruption to the normal course of business, forensic investigation, restoration and deletion of hacked data and systems, and reputational harm.
5. Complexity in taxation, regulations, and compliance
If an online business sells to customers in different territories, they’ll have to adhere to regulations not only in their own states/countries but also in their customers’ place of residence. This could create a lot of complexities in accounting, compliance, and taxation.
E-commerce is accessible to every entrepreneur with an internet connection. Experts project that by 2025, the global e-commerce market will be worth more than $24 trillion. If you’ve been holding onto the idea of starting an online business, now is a good time.
Do some market research, come up with a solid business plan, stay focused on driving traffic to your site, and you’ll be off to a great start.