Spend money to make money
Ecommerce is about making money
Part 3 – Spend money to make money
By Curtis Johnson, Mananging Director – Salmon Asia Pacific
eCommerce (or Online Retail) is all about ‘making money’, first and foremost. If you do not want to do this, then do not invest in these strategies. If you do want to, then keep reading.
Part one of this three part article introduced you to the notion of the EIS Factor, however it was the writers intention not to go into detail about the External channels or Internet capabilities to get customers to your site (except for a brief description to create awareness that these items are required also, to be successful in Online Retail), there are many agencies specialising in these fields which will guide and assist the needs of Online Retail marketing, and many more informative articles to read.
Part two of the series went into the ‘Site’ factor of EIS, which answered the question: ‘…What are the essential components of an Online Retail site solution which will assist you to keep a customer on you site longer, returning more regularly and most importantly buying more a.k.a. making you money…?
This article, which is the final part of the series, will describe the type of costs that could be associated with building, operating and managing the EIS Factor for Online Retail?
There are many different solutions and components out there to fulfil the requirements stated in parts one and two, which can be a combination of freeware, shareware and proprietary software. It is not the intention of this article to state what solution is the best or leading or preferred, this article will state the types of costs that are typically associated with developing and operating an Online Retail business.
Everything which has been described in this article series is around creating a highly successful and profitable eCommerce Business, where the forecast return, at the minimum for any company, is $1 million Australian dollars within the first 6-12 months of operations, and if you have the stock there is no reason why anybody cannot do it, larger organisations should plan for a much higher return in the first 6-12 months, and have it competitively matched to their store channels, after all, online will be the biggest store with the greatest reach of visitors.
Software Solution; or Online Retail Platforms
There are many software solutions which are available to implement an online retail business, starting from freeware software and managed hosting, through to enterprise proprietary solutions on owned servers. However, nothing is free in the long term, and there are still costs to consider for all software solutions types, and usually the less a software solution costs for licences, the more is needed in development services, this is stated under the assumption that companies are wanting to implement a solution which caters for all requirements of the EIS Factor (see part 1 and 2).
The solution and/or service providers’ costs are usually the highest portion of any implementation, however there are other costs to consider, and these are related to integrated components which add value to your online retail solution, social interaction, payment gateways transactions or address/data validation, each one will place an additional cost (and benefit) for software and/or services.
The costs of solutions and development must be weighed against benefit and return, each solution provider (or partner) should be able to clearly forecast and estimate the return for any investment made in any area of a solution.
All that said, online retail solution licensing or costs usually do not cater for integration, which need to be developed separately for each business, as each business is different. Integrating the information from the Online Retail system to other informational systems in your business (e.g. Customer Relationship Management, Finance, Warehouse) can be as little as an export file or as big as real time transactional connections. This is a system design based upon your current IT policies, and size of your organisation, and will not directly affect the Online Retail system, however can impact fulfilment.
Hosting comes in all shapes and sizes, it can be fully managed with the retail solution included, you can ‘rent’ or ‘lease’ servers from a provider with your solution implemented on them, or you can own your own servers and host your own online retail solution, and a combination of. All of these options have an ongoing cost, and are usually calculated either on size of servers or on the amount of visitors or transactions that will be made on your online retail site. Any hosting solution should encompass monitoring and activity to ensure high performance and low downtime.
There are a number of payment gateway suppliers, that all support Visa, MasterCard and usually Amex. Some are even integrated with a Gift Card solution and/or PayPal. These can come as a whole solution or as components that you can choose to enable at any time. Unless you are going straight through your bank’s payment gateway, these come with a real-time transaction fee, on top of your banks transaction fees. Specialist gateways such as PayPal take higher percentages, however the benefit is the product and amount of customers which use it, so shop around to meet your needs.
As part of the EIS factor, we have the External (‘E’) and Internet (‘I’) parts, these are in relation to external and internet marketing capabilities to constantly bring new visitors to the site. Apart from the standard SEO compliant site, that will help with search site like Google and Yahoo!, there is an ongoing cost for marketing/advertising the site, the more you get to your site, the more money you make. There are costs associated for service providers to perform these activities, however these can be optional, depending on your needs.
There is a stream of business activities to plan for ongoing operations with supporting your online retail business, this starts with the online content, mainly the products (detail, pricing, inventory, images (photography) and associations for up/cross selling) where people will be needed to update these items and get them onto the site, some of the processes can be automated or integrated into the online solution to make them more efficient – the more turn around of stock or product the more labour resource is required.
Marketing departments will now be responsible for promotions and offers for eCommerce, including product, order or shipping discounts, deals or sales. This will also encompass the creation of banners and adverts, not only for online but to provide to the email campaigns, stores, magazines, and other press, which will need to be managed either by internal staff or an agency (at a cost).
The orders from the site will need to be managed and fulfilled, which could lead to additional resource and processes for your current warehouse or store in terms of picking and packing, as well as the management of transport and tracking.
Having the capability to handle returns and cancellations is a must for all online retailers, support consultants (or the role of) should be available to take calls from the public for these areas as well as general enquiries or complaints. This department or a marketing role will be responsible for customer care/management.
Ongoing maintenance of the software environment will be required from your IT department or a service provider, to manage and monitor the running or the site. Regardless of how good the solution is, there will always be minor issues with technology, depending on visitors, content, data or the developed solution which just cannot be anticipated, this is a fact of software, but it is an ongoing cost to be aware of. The maintenance can not only cater for issues, but also upgrades of software from time to time too.
Online Retail should not be budgeted as ‘part of online’ or ‘content management’, it should be seen as a new business and part of your revenue generating model – just like a store – one which can make a substantial return to your business. The costs for eCommerce are there for a reason, and there are true benefits and returns to be had by spending a little more with creating a flexible and scalable online retail business. Plan your strategy well, do not just add a basket to your site for the sake of it (and do not go the quick and cheap alternative, just because its there) and you will find success with online retail.