1. Costs and Margins
When starting a new business or venture, it’s important to get an overview of your costs. There are, of course, those costs incurred from the start — your overhead and running costs; what essentially are your administrative expenses. In some cases, that includes all aspects of weekly minimum costs; everything from customer service and storage costs to stock and software.
Another element is the cost of goods sold. You need to consider the end-to-end cost of onboarding a product and fulfilling an order; this includes all your storage costs, transaction and credit processing fees along with postage and packaging. This all feeds into your overall margins — how much profit is left over. Make sure you’re taking all costs into account so you have a clear picture of your bottom line.
2. Financial Projections
It can be difficult to make accurate financial projections before you’ve launched an eCommerce platform. Getting a solid understanding of where you’ll break even — when that will occur and what you need to do to get there — is the best place to start. When we make financial projections for our clients, we take advantage of all the data that’s available to us; this is then used to explore different potential outcomes should we put a function, like paid social or search marketing, into place.
Once you’ve established some numbers (conversion rates, for example) then you can start to develop a solid grasp of what you’ll receive over a certain period of time — and more importantly, what you need to do to impact and improve your profit margins.
This one should be a given, but it is essential to get solid legal agreements in place before launching an eCommerce platform. Having a master service agreement in place between all parties — client, agency and any providers or suppliers — is a good way of keeping everyone involved in the project accountable. It helps dictate how all parties act and collaborate, as well as the roles and responsibilities for various actions.
Ideally, you’ll never have to return to a legal agreement once its in place. But they’re an integral element to the commercial aspects of an eCommerce platform; if something does happen to go wrong, then you’ll have a clear roadmap for resolving it.
The implications that VAT has on your business can feel daunting.
Costs can either be inclusive or exclusive of VAT. Certain products, like food and children’s clothing are exempt from VAT; fulfilment of storage, services and products need to have VAT added on. Some costs, like transaction fees for Shopify and Paypal, don’t charge for VAT as they’re registered in different territories. And every EU territory has their own VAT threshold; if you’re over the threshold in a particular EU country, you need to register as a corporate entity for VAT in that territory.
The idea of working globally can feel very overwhelming due to the tax implications and legal obligations that needed to be considered. But we’re experts in this field and can absorb this responsibility as part of our role as digital partners. Being in the position where you have to register for VAT in multiple EU territories means your eCommerce platform is doing well; it’s a nice problem to have, and an easy one to manage with the help of a professional.
Something that’s come to the forefront of conversations in the industry is the prevalence of startup banks. Many of these banks aren’t compliant with some of the regulations that global eCommerce requires, like cross-border payments. Some of the more traditional banks can offer more in terms of internationalisation — but unlike the startup banks, it can take longer to set up an account.
Another aspect of banking to consider is currency. If there are changes to exchange rates, for example, you can run into issues with your margins; stock might end up costing you more than the price you’re selling it for. We recommend always keeping an eye on exchange rates and adjusting the price accordingly.
From an eCommerce perspective, the main insurance consideration is stock. We work with top-of-the-line insurance brokers and always ensure a comprehensive view of a situation — including products and potential risks — is outlined fully.
Other things to consider are professional indemnity and public liability — especially if you’re selling battery products or food products, which require specific product certifications. This is in addition to business-related insurance, including health and safety for staff.
7. Commercial Agreements
There are several different ways to manage a commercial relationship with your suppliers.
A consignment agreement is a good example; it involves each product partner or supplier shifting an amount of stock into a warehouse free of charge. You then invoice for what you’ve sold after the fact. Sale of return can be added on to assignment agreements; it gives you the right to send the stock back to a product partner if it doesn’t happen to sell.
One alternative is to buy a block of stock at a wholesale price. It has advantages, like getting a better deal on a wholesale rate. If you’re anticipating that you’re going to sell a lot of a product, this method ensures you’ll be able to fulfill orders as efficiently as possible and mitigates the risk of running out of stock at a key moment.
Another alternative is a dropshipping approach. This involves an arrangement with your product suppliers whereby you accept payment on your platform and send the order forward to have it fulfilled on their side. This alleviates responsibility for carrying stock — as well as any fulfillment or shipping issues that may occur.
The main expense after supplier costs for products is postage. Considerations include the weight and dimensions of the product, where it’s going to be shipped, the speed at which it will be received and security — whether it’s being tracked or signed for.
Postage costs can make or break an eCommerce platform; many customers will get to the point of checkout and not place their order based on the shipping price. Once you’ve accumulated enough customer data, you can better understand the financial impact of postage on your margins and evaluate the best options for your business.
Having comprehensive list from a third-party logistics company, which includes all the costs that will be incurred to post various products around the world is a must. The next task is to work through and assess what risk is involved with postage — as well as how much to charge for postage, or if it should be charged at all. Our process is to examine all the costs for posting products in every territory of the world, and then group them together by continent.
Many eCommerce businesses will begin with a shipping base from their home territory. This is an important consideration when working through the fulfilment process, especially if you are likely to attract overseas customers.
Reporting is dictated by the commercial terms you have in place with your product partner; keeping them up to speed with what you’ve sold and when, as well as how much money you’ve made.
We prefer to automate the entire reporting process for our clients by creating a spreadsheet for suppliers, so that they can evaluate and input on stock lists; and at the end, invoice us what they’re owed for that sales period.
When it comes to growing your eCommerce business, it’s all about accessing the right audiences and getting your message to them. There are a multitude of channels to consider; this includes everything from SEO and influencer marketing to paid social and different kinds of content. From a commercial perspective, we’ve found that organic search and direct traffic (closely followed by email marketing) are the best channels for acquiring consumers who actually place orders on eCommerce websites.
We recommend that our clients reinvest the profit they make from paid marketing activity. Eventually, they grow to the point where they’re returned the original capital investment they allocated for this kind of growth.
It’s important to remember that when you’re growing a business, the metrics can be different depending on where you are in your eCommerce journey. Maybe when you start out - it’s about understanding where your audience is - your KPIs might focus on email sign ups rather than overall transactions, which will undoubtedly become your main concern when your business begins to mature.
We always recommend persisting with a digital marketing plan for a 6 to 12 month period to get a good understanding of what’s getting results for your business, and what isn’t. This data is invaluable and has been key to the growth of our clients’ eCommerce platforms.
Launching eCommerce platforms isn’t just our passion — it’s also our area of expertise. If you’re looking for advice and guidance for any aspect of your eCommerce project, please get in contact; we’d love to help.