Making Money With E-Commerce

E-commerce sites can be extremely profitable, but a successful e-commerce site will take as much or more time to run than a physical business, and the competition is fierce. Remember that there are only 10 places on a Google search results page, and they're increasingly being taken up by pages Google owns or gets paid to display. For any commercially valuable term there are hundreds of people competing for the top positions. You can use PPC to promote your e-commerce site, but often times there isn't enough money left over for salaries and profit. With that said, if you do have a product to sell and can get your site ranking or have enough margin to make PPC work, e-commerce can be even more profitable than Adsense or affiliate marketing.

Product Selection

If you already have a physical store with sufficient inventory, an e-commerce site can be a great addition. If you don't have a product to sell you can either make one (anything from e-books and software to physical products) or find a wholesaler that's willing to sell to you. Going to a big trade show and looking at the products on offer is an excellent place to start.

Inventory Management

In order to run a successful e-commerce site, if you're selling physical products you'll need to have an inventory management system in place. You don't want to take an order only to realize you don't have enough product to fulfill it. Your inventory management system will depend on who is shipping your products.

Drop Shipping vs. Warehousing

You can store and ship your products in your own warehouse or storage facility (or rent space in a fulfillment center), or you can arrange to have your products shipped to your customers directly from the manufacturer (drop shipping). At first, most people think drop shipping is easier and safer. While there are advantages to drop shipping, there are also disadvantages. Neither method is necessarily better. Drop shipping is great because you never have to touch your products. You don't have to ship your orders or personally deal with the physical side of returns and exchanges. You may also be able to sell your products for less since total shipping costs will be less, as there will be no shipping to you prior to reshipping to your customer. However with drop shipping you have almost no control over inventory. If your suppliers are drop shipping for you, they're probably doing it for your competitors too. This leads to more competition via less barriers to entry, and an inability to fulfill orders when the supplier is out of or low on stock. In addition, you'll have to have your inventory integrated with your supplier's inventory to know when to add and remove products from your website.

Stocking your own products will cost more than drop shipping up front since you'll have to buy the products and pay to store them. However you may get better pricing by bringing in large quantities of merchandise at once, especially if you go straight to the source rather than through a middle man. Carrying your own inventory can save you up to 50%. Consider that you'll also have 100% control over your inventory and shipping.

If you're just starting out, drop shipping is likely an easier way to go. But over time you may decide to bring in products yourself to save both money and the frustration of dealing with suppliers. In any case, you should consider the pros and cons of both before making a decision.

Payment Processing

Before you ship or deliver products to your customers you'll need to get paid. For small scale operations or electronic products PayPal can be a very easy, quick option. E-junkie and DeliveryScript are excellent programs that allow you to add "buy now" buttons to any page of your website and provide the secure delivery of electronic products. For larger operations and especially when physical products are involved, customers may feel your business is more legitimate if you're able to accept credit cards on your own site.

In order to accept credit card payments you'll need to set up a merchant account and integrate a payment gateway into your website or shopping cart. Many off the shelf shopping carts include modules for payment gateway integration so all you have to do is sign up, check a box, and you're done. Well, almost. In order to accept credit cards you'll have to make sure your operation is PCI Compliant. This involves at least quarterly scans of your site by an authorized scanning company and that you fix any security issues that arise. PCI compliance can be a real pain, so you may be better off starting with a service like PayPal before your business takes off.

Site Design

If you're only going to be selling a few products or less and you don't need a large site, you may be better off with a static site with PayPal integrated to accept payments. That way you won't have to bother with the security issues that come with payment processing and content management systems. If you're going to sell a larger number of products with frequent inventory changes, you'll be much better off with a content management system and/or shopping cart. There are free and paid shopping carts you can use, and many aren't that difficult to customize to your specifications. Some of the better known free shopping carts are:

Here are some of the most highly regarded paid shopping carts:

All of the above shopping carts are designed to be self hosted, meaning that you own the cart, have it on your own server, and are responsible for any maintenance or issues you might have with it. Alternatively, you can choose to use a "hosted solution" where the shopping cart provider is also your host. There are pros and cons to hosted solutions. One benefit is that you don't have to mess with coding or software problems yourself. But on the flip side, the company that owns your cart can make changes that negatively affect your business at any time. Before deciding on whether to use a hosted solution or not, you should ask yourself if you're ok with another company having a relatively high degree of control of your business. A popular option for hosted shopping carts is BigCommerce.

For more on e-commerce, see our blog post on e-commerce challenges and solutions.