Benefits and drawbacks of starting an ecommerce business

Ecommerce businesses have become increasingly popular in recent years, offering businesses the opportunity to reach a larger market and scale their business. However, simply setting up shop and running an ecommerce business is not as straight forward as it might initially sound. There are some challenges that need to be addressed, such as establishing trust and competing against more prominent businesses.

Additionally, there are extra expenses involved in maintaining a website and shipping products. This article will look at the advantages and disadvantages of launching an online business.

What is an ecommerce business?

An ecommerce business is simply an online store that sells products or services online. An Ecommerce business gives customers the opportunity to browse, select, and purchase items or services at any time, from any location. An ecommerce business is the perfect opportunity for businesses looking to expand or to reach a larger market.

So what are the benefits of ecommerce?

Benefits

You can reach a Larger Market

The ecommerce platform provides multiple opportunities for businesses to reach a larger market.

One of the most significant benefits of ecommerce is that it allows businesses to reach a global audience. With a brick and mortar store, the business is limited to the customers that can physically visit the location. However, with ecommerce can reach customers all over the world.

This has created an added sense of convenience; one study states that ‘some marketplaces or even individual stores offer everything from scents to tables and electronics. The world truly is your oyster online.’ There has never been a better time or opportunity to own an ecommerce store.

An added benefit of this is also that an ecommerce business is accessible 24/7. Customers can browse and make purchases at any time of the day, regardless of their location. This is especially true when you consider the amount of people with mobile devices.

Ecommerce businesses also have the ability to offer a wider variety of products, which can attract a broader audience, this is likely due to not having to worry about the limited shelf space that a normal in-store business would have. This, in turn, increases the possibility of customers exploring new products or categories, leading to more sales and a larger customer base.

Business Scale

Businesses can more easily scale an ecommerce store, than a physical store. This means, should a small business find themselves becoming larger they can scale their ecommerce store accordingly.

In addition to this, businesses also have the ability to offer a wider variety of products, which can attract a broader audience, as businesses won’t have to worry about the limited shelf space that a normal store might have. This, in turn, increases the possibility of customers exploring new products or categories, leading to more sales and a larger customer base.

With this in mind, businesses can become bigger or smaller depending on their stock and products, but also their company success.

Opportunities

One of the main benefits to owning an online business is the opportunities it creates for tracking. One study notes that ‘You have an electronic record of everything which makes it easy to track sales and look for trends’. This creates the opportunity to see where your clients are going, what they are looking for on your website and more. Businesses can then adapt and grow from this information.

Outside of this, ecommerce businesses create more selling opportunities, and give businesses the freedom to incorporate personalisation, whether this is a personalised message to customers or a personal product descriptions, it will all tie in with creating emphasising your brand and boosting your online presence.

Customer loyalty

One of the many benefits to an ecommerce business is the positive impact that it has on customers. One study found that ‘loyal customers spend 67% more on products and services than new customers’ . This is why having an ecommerce business is so beneficial, it has made gaining loyal customers easier. Some of the ways businesses might gain customer loyalty is through customer service, personalisation, loyalty programmes, and social media.

A great customer experience begins with excellent customer service. Ecommerce businesses can make sure their customer service is easily accessible, and fast, this can be done through a range of methods. Ecommerce customer service doesn’t just begin and end at helping customers resolve issues, it also includes things like encouraging online purchase decisions, and for 95% of consumers, customer service is crucial for brand loyalty. Ecommerce businesses can create positive customer service experiences through multiple channels, including email, phone or live chat. All of which can work towards creating customer loyalty.

Outside of this, one of the benefits of ecommerce is that it allows businesses to collect data about their customers and use that data to provide a personalised shopping experience. Businesses can use customer data to recommend products, send personalised emails, and offer tailored promotions. Personalisation makes customers feel valued, which can go a long way in creating loyalty.

Creating and maintaining customer loyalty is essential for the success of any ecommerce business. More businesses can build a strong base of loyal customers that will support their business for years to come.

Drawbacks

Added Costs

One of the first things you'll need when setting up an online store is an ecommerce website. Here you will have to design and manage your online store, or alternatively go somewhere that will do this for you. There will be a range of features such as shopping cart integration, payment processing, and customer service support that you will have to decide.

An ecommerce website will come at a cost. One study found that ‘The average cost of a basic ecommerce website can range between £1500-£2500’, this cost can increase depending on the scale of your store, any custom functionality and many other factors like hosting and maintenance.

Shipping is a necessary cost for any online store that sells physical products. Shipping rates can vary greatly depending on the shipping carrier you use, the weight and size of your products, and the destination of the shipment. If you want to ship internationally it’s likely that shipping costs are going to increase. In addition to this, returns and refunds can also be costly for any online store. Customers will expect a hassle-free return process if they receive a faulty item, this can make returns and paying for return shipping fees add to the cost of running an online store.

While opening an online store is a great way to reach a large audience and increase sales, it's important to consider the added costs beyond just setting up a website and listing products.

Competition

As ecommerce becomes more and more popular, so does the competition. With the explosion of online shopping, (especially on mobile) businesses face increased competition from not only other online retailers, but also traditional retailers who have expanded their online presence.

As physical stores continue to see a decline in foot traffic, many in person stores are looking to online sales as a way to stay in business. Businesses are facing a lot more competition from established companies with existing brand recognition, customer loyalty, and more resources to build out their online stores.

This is before you even begin to consider the amount of competition already online, businesses face the challenge of having to build their online presence against already established businesses. To stay relevant businesses may turn to online advertising which can end up increasing costs.

Building Trust

Ecommerce Businesses face the challenge in gaining the trust of their customers. With no physical shop, customers must rely on the website and reviews to make purchasing decisions.

Customer reviews are one of the most valuable tools ecommerce businesses have for building trust with potential customers. Reviews from previous buyers can offer social proof for an ecommerce business, showing new visitors that other individuals have had successful transactions with the company.

However, first gaining these reviews for a new ecommerce business might feel like a double edged sword as businesses need customers to gain reviews, but you will need the reviews to help gain new customers.

With so many stores online, customers are likely to choose what they know, picking larger trusted retail stores such as Amazon.

Technical and security

With the increase in online stores comes the risk of cyber and security threats. Protecting the information of customers is crucial as a single security breach can compromise a company’s reputation. One study notes that ‘Cyber attacks can lead to loss of money, data, and overall business viability’. Therefore, if you are starting an ecommerce business ensuring your website is secure will be one of the biggest challenges.

One of the biggest concerns for an ecommerce business is online security. Customers are hesitant to input their sensitive information such as credit card details if they are not sure that their data is safe from hackers. Therefore, as an ecommerce business owner, you need to ensure that your website is fully secure with the latest security protocols in place, such as having an SSL certification.

Outside of this, you will need to monitor your site for any vulnerabilities or threats. To keep up to date on this, any ecommerce websites will require maintenance to function and be secure. Failing to keep a website up-to-date with regular patches and updates can leave the website vulnerable to attacks, or could lead to crashing which will all impact your business success. Regularly checking and maintaining a secure ecommerce website is crucial for success.

The bottom line

Ecommerce has allowed businesses to reach a larger market and create a range of opportunities. However, there are both pros and cons that should be considered before starting an ecommerce business. On one hand, it offers benefits such as being open to larger markets and scalability opportunities while on the other hand it poses challenges such as budget constraints and competition.

If you are starting an ecommerce business, you should consider the pros and cons before you take the plunge, to ensure that it’s the right decision for you.

If you need help with choosing a web platform and creating an ecommerce website, get in touch.