When you start an online business, as well as deciding what to sell, you have to make some fundamental decisions about your “platform”. In other words – what technology and payment methods are you going to use.
Benefits of online marketplaces
The last few years has seen a dramatic rise in “online marketplaces” such as eBay and Amazon. These have helped tens of thousands of people to start ecommerce businesses and some have gone on to major success.
The great advantage of marketplaces is you don’t really need any technical knowledge to start selling and even more importantly, they deliver visitors to your store from day one, so you don’t need any knowledge of online marketing either.
The first marketplace downside is cost. Listing and transaction fees will take a big bite out of your profit margin – up to 15 per cent of sales in many cases.
The second is control. You must adhere to the marketplaces’ strict policies and your business can disappear overnight if they decide you have stepped out of line. And this really happens to some people. It may not be important when you’re a part-time start-up, but it’s critical once you have an established business.
The final disadvantage is slightly ironic. Because it’s so easy to get started, there is a constant stream of new competitors, many of whom are running their business in the evenings. The most common approach of these businesses is to compete on price, which puts pressure on margins for everyone. Most of these businesses do not last long, having exhausted their savings selling at a loss. Unfortunately, there are always new ones to take their place.
Owning your own store – pros and cons
The alternative is to register your own domain name and run your own store. If you are going to do this it’s sensible to choose one of the online store or shopping cart providers. Again, that pretty much eliminates the need for technical knowledge. Search for ‘ecommerce software’ to find the top providers.
You will need to learn how to attract traffic, probably using search engine optimisation and pay-per-click advertising through Google, but you will be rewarded with much better margins. I must declare an interest here as my company, provides a low-cost start-up online store called SellerDeck Express.
It’s also worth thinking about telephone ordering. This is more critical for certain demographics and products, particularly technically complex and higher priced items where customers want to be sure they are ordering the correct item. Telephone ordering won’t work through marketplaces, because they require their margins.
The final decision is how to take payment. The main choice is between using PayPal (which allows payment from a PayPal balance as well as by payment card) or having your own merchant account that allows you to accept card payments directly.
As a start-up, it’s best to use PayPal, because this gets you going quickly and easily. However, once you are up and running it’s best to add ‘merchant status’ from a bank. This enables you to accept card payments without going through PayPal, and it’s much cheaper.
It’s worth keeping the ability to accept PayPal balances because some online shoppers have a balance in their account, especially if they have sold items on eBay. This can burn a hole in their pockets and some sites report up to 10 per cent of more sales from accepting PayPal.
The choices are fairly clear, Marketplace versus own store, PayPal versus merchant status, or a combination of them all. Get your choice of platform right and you could end up on the high-speed train to success.