Why Don’t You Have an Ecommerce Site?

May 1st, 2007 by Chris

Ecommerce is solidly about half my business. Right now I have big projects in the works on both the ecommerce and publishing sides, and the success of those projects could tip the scales further, but right now it is around 50/50.

I’m speaking of profit, in total revenue ecommerce wins by a long shot thanks to the cost of goods sold. This actually has hidden benefits. Putting hundreds of thousands of dollars a year on a business credit card gets you all sorts of points or miles. I am spending 400,000 of my said miles, earned entirely from my business credit card, to fly my wife and myself to Rome, first class, in June. I’ve flown to Europe, and to Africa, and long flights in coach make my considerably long legs hurt. I’ve never quite been so happy to have so many necessary business expenditures.

That is just icing on the cake though, the really impressive thing about ecommerce is how immensely profitable it can be. So why don’t more people, like you, do it?

There is a larger barrier of entry certainly than just starting a content site. You need inventory, and that can require business credit. You need to form a business entity and setup for state sales tax withholding (at least here in the US, though I’m sure other countries have similar systems). You’ll need a merchant account, and while the hoops to get one of those are few, there are hoops you have to jump through. Additionally most of these things are out of reach for minors, and many publishers do start publishing when they’re underage.

Then there is finding a product. I recently discussed how many wannabe publishers fall into a trap of playing copycat and not doing anything original. This is even more important to avoid with ecommerce. You absolutely need to find as unique a product as you can, or else price competition from large stores, ebay, and the like will eat away at your profits.

So lets review, again, Chris’s criteria for ecommerce product selection:

1. If Wal-Mart sells it, you shouldn’t. It is far too commonly found and you won’t be able to compete on price.
2. It should be expensive enough that the shipping fee isn’t a large portion of the item cost. No one wants to pay $10 to ship a $10 item, but $10 to ship a $200 item, no problem. It’s a mental thing.
3. It should be expensive enough, with good enough profit margins, that you do not need huge numbers of sales to have a profitable site. I like to aim for at least $40 in profit per sale.
4. It should be expensive enough that people will look online for the best deal.
5. It should be durable and simple. No electronics, nothing complex. You’ll blow all your profit dealing with customer support, returns, warranties, etc.
6. Storage is a consideration, but we all have different limits. If you have an apartment, find something small, a house, something bigger. An old barn? Sell something really big. Of course, if you find a good reliable drop shipper you do not need to worry about storage.

I know I’ve mentioned these points many different times, but they bear repeating. Follow this formula and ecommerce success can fall into your lap.

So, how do you start out finding such items? Well, if you can manufacture it yourself you’re best off, that way you know no one out there has exactly the same thing and you can price it however you need to. However this can (although not always) cost a good deal of money. I am starting to have my own designs manufactured and it is going to cost me nearly $200k probably to bring the first item to market.

One step down from manufacturing is importing. You buy a large lot of goods from an overseas factory of wholesaler. For instance, a container of African wood carvings from a wholesaler in Tanzania, a container of dolls from a factory in China, or a container of home d├ęcor items from a manufacturer in India, you import this, and then sell it. The main cost here is the huge lot size, you’ll have to buy a large amount of inventory up front, but the benefit is you get it from a lower price than going through a domestic distributor. You’ll also have to pay for shipping and customs duties. This can be a headache of paperwork for neophytes, I know it was for me.

If you can’t make it yourself, and don’t feel up for importing, look local. If you can find a small local manufacturer, or even a craftsperson, you can often get a good deal on the item, you will have quick access to their inventory, and you won’t pay much if anything on shipping from the manufacturer to you.

If there are no good products produced locally, put your thinking cap on. Try to think of what you want to sell. The obvious choice is something related to your current sites, assuming you have them, so that you can cross promote. Keep my guidelines mentioned above in mind. Once you have an idea, search the Internet for it. Check for retailers, wholesalers, and manufacturers. How much does it typically sell for on eBay? Are lots of people selling it? Could you beat them in the search engines? If you cannot figure out who makes a product, buy it and look on the packaging.

The payoff for an ecommerce site can be huge. My newest site is making an eCPM of around $1000, albeit on very very low traffic. I’m sure the traffic will increase eventually, and even if it doesn’t, at the current rate alone it’ll earn in profit $5k-$10k per year, with me only spending 5-10 hours of further work in total for all the orders that make up that amount.

I really think any website publisher who doesn’t at least try to get into ecommerce is really doing themselves a disservice. There is no greater partnership than that between a content site and an ecommerce site. Ecommerce sites can also be less dependent on high volume traffic (ie good search rankings) for profitability, and so can be more stable in terms of revenue.

If you need any help vetting your ecommerce ideas, be sure to post in the forums.

2 Responses to “Why Don’t You Have an Ecommerce Site?”

  1. Nico  Says:

    To answer Chris question…i think the main reason that i didn’t get into ecommerce yet is because in my country there isn’t a very big eccomerce market, and to sell international is a little scary with all the Customs issues. I do have a product to sell, but i think selling only international would be very complicated.

  2. Ken Barbalace  Says:

    One thing I’d like to mention is that one had better have a keen business sense and track all of one’s costs very carefully. One really must know the total cost per sale to ensure one’s ecommerce endeavor is profitable. I’ve known too many people who go into business and don’t have the foggiest what there true profit margin is after all of the “hidden” expenses.

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