This week’s “Ask the Mompreneur” features an interview with Robert Waddell, Web Development Manager at Limelight Web Development, a full-service web development firm specializing in ecommerce websites based in Charlotte, NC.
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For our readers who are selling online, or who are thinking about starting to sell online, what advice do you have about how to get started? What are the pros and cons of various ecommerce solutions?
Selling something online can be as easy as selling a used textbook on Craigslist, but those one-off experiences are a far cry from building a profitable ecommerce business. Fortunately, there are many businesses, such as my own, that are dedicated to supporting today’s online entrepreneurs.
My personal experience with ecommerce began in 1999, when I started selling my own used auto parts on eBay. I was immediately hooked on ecommerce and a few years later I found my opportunity to build a real business. I had a source that could supply the parts at wholesale cost, so back to eBay I went.
I tested the waters with a couple of brand new items, personally buying them from my supplier and reselling them on eBay. Then I applied for my first business license and I was off and running. Over the course of 7 years, I dabbled in countless ecommerce solutions and built upon the ones that worked until I ultimately sold the business to become an ecommerce solution provider myself. Here are the lessons I picked up along the way, organized by phase.
Ecommerce Phase One - Testing the waters
Every entrepreneur is unique, but one thing remains the same: you should always test the waters before diving in. One of the easiest, cheapest, and fastest solutions available for testing the waters is selling on a marketplace. This is a no-commitment way to get up and running. You’ll incur high transactional fees and face stringent seller policies, but you’ll reap the benefits of huge exposure, quick setup, and validation of your ecommerce concept.
Are you ready to allocate up to 15% (or even more) of your gross margin toward transactional costs when testing the waters? You can ultimately cut that allowance to around 2%, but not at this stage.
When selecting an ecommerce solution for testing the waters with your products, you should consider TEMP:
- Transactional cost: Be prepared to pay a transactional cost no matter what marketplace you utilize.
- Exposure: Make sure that your solution for testing the waters has lots of exposure. This is the hardest advantage to achieve even long term, but a good solution for testing the waters will offer instant exposure to a large audience of buyers.
- Monthly cost: You will inevitably have a monthly cost for your ecommerce business, but some solutions for testing the waters let you skate past that for now.
- Payment: Getting paid costs you money. You will always have to pay for payment processing to get money from the customer to your bank account though some marketplaces include this with the base transactional fees.
All that being said, let’s take a look at some of the best marketplaces for testing the waters.
- eBay: Testing the waters couldn’t be easier than with eBay, but brace for massive selling fees. You can list 50-100 items per month for free (depending on category), but the fees for sold items are as much as 10%. Subscribing to eBay Stores will allow you to list more products for free and knock the selling fees down to 4-9% based on category. eBay Stores shouldn’t be an option if you are just testing the waters. eBay currently requires you to accept Paypal as the payment method (this is likely changing as eBay and PayPal split, but not yet). PayPal will charge you 2.9% + $0.30 per payment received. You can reduce these fees over time by selling in higher volume. A good trick with PayPal is to use their cash back debit card for business purchases which will work against the transactional fees you incur when receiving payments. Also, beware that eBay is not as seller-friendly as they claim. Any seller protection offered is trumped by the respective buyer protection. You will never receive the benefit of the doubt as a seller and since PayPal and eBay are the same company, your funds can be grabbed up in a dispute without notice and little hope of favorable resolution.
- Amazon: When it comes to trust, Amazon simply dominates the ecommerce world. You can sell your products on Amazon and benefit from that same trust and massive exposure. Getting a product listed isn’t quite as brainless as with eBay, but it is still quick and easy. Again, expect massive selling fees (or referral fees as they call them) as much as 20% depending on category and item price. Their Independent Design category is an exception where fees are current 25%, but going up to an incomprehensible 40% in May 2015. You’ll also pay a $0.99 per item free if you do not opt for a seller subscription plan ($39.99/month). If you want to offer Amazon Prime shipping, you’ll need to sign up for Fulfillment by Amazon which will incur yet another fee per item shipped, scaled by weight, and require you to warehouse your items at an Amazon warehouse. Payments are handled directly by Amazon, so you don’t have to worry about paying another payment provider any fees. After your first disbursement, which will take 14 days, you will receive disbursements daily to your bank account. As with eBay, disputes fall in the customer’s favor with Amazon and they control your funds so you are left a bit helpless as a seller when it comes to fraud protection.
- Etsy: When it comes to hand-made goods, Etsy is the go-to marketplace. You’ll be able to tap into a large community of buyers in your target market, but you’ll need to stick to hand-made products only. Fees are reasonable, but you do need to put some skin in the game to get listed ($0.20 per item). Selling fees are a reasonable 3.5%. If you utilize Etsy as the payment processor, you can expect additional fees of 3% + $0.25 per item, which is still reasonable. Etsy is a bit of an outlier in the context of this article as only a fraction of you may be looking to sell hand-made goods, though those that are may be well served to stick with Etsy for the long haul. Marketing your own hand-made goods can be a costly uphill battle and Etsy offers a huge value in that concern.
Ecommerce Phase Two - Your first ecommerce website
If you’ve tested the waters and have a growing customer base, you may be ready to setup your own dedicated ecommerce website. At this phase, hosted platforms are a great place to start. Be warned that testing the waters with a hosted platform is bigger time commitment than marketplaces and will set you on the path of monthly expenses right away. If you have no plans of turning back and are ready to start investing real dollars, you might want to skip straight to full-custom website (see below).
With a hosted platform, you’ll be getting your own dedicated website. This means you will be responsible for getting traffic to your store. If you’ve already tested the waters on a marketplace, you can continue doing that as you build your customer base on your website. You’ll need your own domain name and should be prepared to do a few hours of setup to get started. Initial setup will include selecting a theme, setting up shipping and payments, writing some content, and creating products. Most hosted platforms include a step-by-step guide to help you cover all the bases. From that point, you’ll be in for lots more optimization and customization.
You can get started on a hosted platform for free (trial period) and most plans will not incur transactional fees (aside from payment processing). Most solutions allow you to cancel at any time, though you can get discounts for some by pre-paying for a whole year. The trade-off here is that you’ll be putting many hours of work into customizing your own store, but will be stuck on a platform that you cannot truly modify to suit your vision and long-term needs. The solution will work how it works, end of story. There will be functionality you don’t like and limitations you can’t foresee. You will be at the mercy of the platform’s own development plan and schedule when it comes to bug fixes or new functionality. Your options for customization and integration vary from platform to platform, but will always be limited.
- BigCommerce: Starting with my top suggestion for a hosted platform, BigCommerce is well funded and keeps their platform updated with bug fixes and feature enhancements regularly. They have a wide array of shipping and payment gateway support, lots of value-adding add-ons, and great service. Their theme system and API are developer friendly and actively-supported (as opposed to some competitors). The setup process is quick and you’ll find no shortage of help and support from the customer service reps. You can start with a free month, then pick from plans starting at $29.95/month. The lowest priced plan will incur 1.5% transaction fees as well, but higher plans have no transaction fees. Your trial will be free of transaction fees. You will be able to create unlimited products and bandwidth on all plans. You’ll be limited on storage space, though it is plenty. While you don’t need to purchase an SSL (around $100/year), it is highly recommended if you don’t want shoppers leaving your domain during part of the checkout process. You will need to bring your own payment gateway. Email hosting is included. With some theme customization and branding you can achieve a custom looking website. With the API, you can tie the website into your own system or leverage 3rd party tools and add-ons.
- Shopify: Certainly one of the most mainstream hosted platforms, Shopify offers theming, unlimited products (except for starter plan), unlimited bandwidth, and a fair amount of storage. Their platform is well-polished and stable. Plans start at $29/month (starter is $14/month for 25 products), but you’ll need to use their payment gateway. This means an added 2.25-2.9% + $0.30 per transaction depending on your monthly plan. A unique selling point for Shopify is their support for in-store selling. You’ll get a lower transaction fee on in-store sales and some special features tailored to in-person sales such as an iPad interface for processing sales in-person. In-store support incurs a higher monthly fee which, if coupled with ecommerce functionality, starts at $69/month. Getting a custom SSL and hosting the checkout on your own domain has proven to be quite contentious. Email hosting is not included, but you can set it up via Google Apps for an additional monthly charge. All-in-all, you can achieve a custom looking website via Shopify and with their API and add-ons, you can tie into your own system or 3rd party tools.
- Volusion: Volusion is comparable to BigCommerce, but more like an under-achieving copy-cat promising many of the same features but not delivering to the same level. The theme customization system is very limiting, the API is largely broken and inefficient, and updates to these and other features have been long-promised and continually delayed. Setup is quick and plans start at only $15/month with a free trial. Plans are limited by number of products, but there are no transaction fees. You also receive unlimited storage, but there is a reason for that. Volusion charges excessive bandwidth fees. If you get any decent amount of traffic to your site, you’ll start racking up bandwidth charges. This will show up on your bill as quite the surprise increase in cost. The only way to mitigate these fees is to upgrade your plan, but even higher plans offer stingy amounts of bandwidth. Volusion offers their own payment gateway (separate fee structure) and integrates with other payment gateways. You’ll need an SSL for your Volusion store, which will cost at least $89/year. Email hosting is included. Overall, the API and add-on front is weak and Volusion’s technology is outdated, but Volusion can be one of the most affordable solutions if you are looking to use a hosted platform for your new ecommerce business. With a lot of patience, you could end up with a store like Chalk Ink via Volusion.
Ecommerce Phase Three – Leveling up to a full-custom ecommerce website
You’ve come up through the ranks of marketplaces and now you have revenue coming in from your own hosted ecommerce website. You will likely find at this phase that you want your website to do things it can’t do, a faster server, and administrative functionality that doesn’t exist on your hosted platform. What now?
The next step is full-control. You need an ecommerce solution that can be formed to your vision, rather than limiting your vision by the boundaries of your solution.
Some consider out-of-the-box software like Magento, PrestaShop, ASPdotNetStoreFront, or even WordPress a full custom ecommerce solution since you can download, control, modify, and host all the code and the database yourself. The hard truth is that these out-of-the-box solutions have been built to serve the mass market, not your specific needs. You can modify them to do exactly what you want, but you are building on lots of obfuscated and unnecessary code. The end result is an inefficient, slow ecommerce website.
These semi-custom software solutions have become behemoths over time and gotten slower and slower, full of features and support you don’t need while still missing things you’ll want to develop yourself. One of the ugliest truths is that all of these solutions are constantly susceptible to security attacks due to the ROI seen by hackers in exploiting vulnerabilities of widely used systems.
At this phase, the ideal ecommerce solution is a full custom website, built with an experienced and reliable development partner. This kind of ecommerce partner should be able to provide personalized service and excellent response times, as well as custom solutions for your front-end (such as integrating review or recommendation tools) and back-end (such as accounting and warehouse integrations).
Think of your relationship with this partner as a long-term resource for your business. They should support your existing functionality, build whatever enhancements you need, and offer value-added insights and suggestions based on your business objectives. Good development shops will work with your budget by helping you prioritize your wish-list and break it down into affordable phases, with a view of helping your grow your business over the long haul. At Limelight Web Development, we have many customers that have been with us for 8, 9, and 10 years or more, always a good sign when choosing a vendor.
If you’ve already setup a hosted solution or are currently using out-of-the-box software, you should be able to salvage much of your work and assets when you transition to a full custom website. The design can be replicated, the products can be imported, the orders and customers can be synced, and your requirements can be met for that new functionality you’ve been wanting.
I spent 7 years on marketplaces, hosted platforms, and out-of-the-box software to ultimately end up with a full custom website solution. Sure, I could have jumped straight into the full custom solution, but I wouldn’t have known what I needed or how to prioritize my expenditures. Skipping the out-of-the-box software would have been ideal, but selling on marketplaces and hosted solutions while I grew my venture into a sustainable business is something I would recommend to anyone looking to test the waters of their own ecommerce vision.
Jennie Wong, Ph.D. is the CEO of www.ShoppingQuizzes.com, an ecommerce conversion tool for online retailers. Dr. Wong is also a certified executive coach and nationally syndicated columnist.