Advice for new ecommerce business start up - how much product? | Warrior Forum - The #1 Digital Marketing Forum & Marketplace

10 years ago

Originally Posted by ChantalVanderlaan

I realize that my first initial customers may end up waiting longer for their products but this really minimizes my risk by not having to buy stock in. If orders keep coming in steadily, then I wouldn't think twice about bringing in tons of stock.

Is this a bad way to start out?

Customers don't want to wait too long for their products. Some customers have very little patience and will open a complaint with paypal or their credit card if they don't get their item in a reasonable time. I have had people complain for not getting their items in 2 or 3 days when they ordered it on Saturday afternoon and they expect it on Monday. Another thing you have to worry about is if you don't have the stock and people are ordering it, when you go to purchase it from your supplier or where ever you are assuming they have stock. What happens if they don't, do you have an alternate supplier?

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kjamesnv

10 years ago

This model absolutely can work and I have used it myself but there are some caveats.

* You must clearly indicate how long order processing will take. If it takes you 2 days to receive merchandise from your supplier then you need to indicate 2+ days for order processing.

* Under this model you will spend a lot on inbound shipping. If your volume and profit margin are not sufficient then it will eat up your profits. Watch your number closely.

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Kakur007

10 years ago

Shipping is big issue if You are drop-shipping or not having Your own stock.
I'm using DHL myself most of the time because its cheapest express couriers out there at least when I need shipping to Europe. Client have received the package in 3 days from Asia to Europe but sometimes it takes 5-10 days. So yes shipping time may be the problem and always better to own a physical stock. Suppliers usually are not responsible for long delivery time.

There's no such thing as "free shipping". There are no free things in this world. Usually the full/partial shipping cost is added to the products prices and then offering "free shipping". Or bring down Your own margins to offer "free shipping".

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Importexport 10 years ago

@ChantalVanderlaan if your research has satisfied you that you really can sell those products and you know at what price you can sell (as well as cost of sales), why do you need 500 products to list?

If you buy direct from genuine manufacturers in China you can get such high profit margins that you can make very good money selling a small number of items, and you don't have to buy big quantities. You will have no trouble giving free postage to your customers and it need not be only for sales over $100.

Don't take any notice of the stories you so often see on the forum about the huge sales figures people are making. Instead ask them how much profit are they making.
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Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
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- John Matthew 10 years ago
  
  You may use thousands of products in your store when you use search filters. Helps your customers to easily find their product in your store by using product filter option. This attracts more number of customers and increase your business profit.
  
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tiana with ecomdash

10 years ago

I would order small stocks of a few different items to test out what sells well. In terms of webstore software, the company I work for integrates with Shopify, 3dCart, ZenCart and Magento, with BigCommerce on the way. They're all really good solutions, it just depends on what specifically you'd need. Shopify is great for sellers who want the ability to customize their site design, but aren't necessarily well versed in the back-end development of producing a site. Magento Community is great for customizing as well, but its completely up to the seller to build that site themselves, so some knowledge of development is required. I'd suggest reading EcommerceFuel's free ebook about starting an ecommerce business (downloadable from his blog). He is a fantastic source for advice. He built a successful business on his own, and willingly shares his tips and tricks from the trenches. Best of luck!

Tiana with ecomdash

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wmrwl 10 years ago

Holding stock is a terrible waste of precious funds if you are not required to place minimum quantities of orders.

You should definitely place the orders as you receive them and reship them. In order for this to work, you MUST quote an accurate shipping time otherwise you will have customer service issues.

The nominal cost of paying shipping twice (once to get to you and once to get to your customer) shouldn't be an issue if you have high enough margins and the items are not "oversize" or heavy. I would much rather pay a few bucks more per order than be stuck holding hundreds or thousands of dollars in inventory.
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ronrule

10 years ago

Originally Posted by ChantalVanderlaan

Hi there...I've been researching one niche market in particular which looks very promising....however, my problem is lack of funds. I do have access to some money though.

Originally, I was thinking of bringing in about $1000 worth of stock (which isn't much). However, this would only limit me to just a few products on an ecommerce site and my competitors have over 500 products I'm sure. I'm only planning on selling to Canadian residents for now so then I started thinking of building the site with all the products I want to carry from the beginning (even if I don't stock them). I figure this way, my site will rank for more keywords and I'll get more traffic. If someone orders something, then I'll place my order and then ship to my customer (my supplier is not willing to do dropshipping).

I realize that my first initial customers may end up waiting longer for their products but this really minimizes my risk by not having to buy stock in. If orders keep coming in steadily, then I wouldn't think twice about bringing in tons of stock.

Is this a bad way to start out?

Also, I was thinking of using BigCommerce....anyone deal with Volusion, 3DCart or Shopify? Any feedback on these companies?

One last thing....shipping seems to be a big issue when starting up an ecommerce site. How is it that some people can offer free shipping over $100 (as an example)?

Thanks for any input

First, start here: Download Hands Off eCommerce With Fiverr (PDF)

Even if you have no intention of ever using Fiverr, this will get you in the right mindset about eCommerce and how to handle inventory. There's also a section about how to choose the right shopping cart based on your long term goals, product, and technical needs.

To your question though, do you have a plan on how you're going to grow the site? SEO alone isn't going to cut it... you need a real marketing budget, and if your funds are that limited you won't be able to market your site if you spend your money on inventory. I don't know what your product or margin is, but do this calculation real quick and see how you come out:

1. How much do you want to earn (net earnings) with this site every month?
2. How many units will $1,000 buy you?
3. What's your markup per unit?
4. How many units do you need to sell per month to meet that goal?

You don't have to answer here, just do the math... Let's say your cost of goods is $38.50 and you can sell the item for $50, that's a 30% markup. Your $1,000 will buy you 26 units, and when you sell all 26 units you'll have made $298. How close to your goal are you? If your goal was to make an extra $500 per month, you're more than half way there... but if your goal is to make $2,000 per month, you would have to sell 120 units per month, or roughly 4 per day.

So the question is, can you get there without a marketing budget?

Thanks
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Ron Rule
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Importexport

10 years ago

Originally Posted by ronrule

You don't have to answer here, just do the math... Let's say your cost of goods is $38.50 and you can sell the item for $50, that's a 30% markup. Your $1,000 will buy you 26 units, and when you sell all 26 units you'll have made $298. How close to your goal are you? If your goal was to make an extra $500 per month, you're more than half way there... but if your goal is to make $2,000 per month, you would have to sell 120 units per month, or roughly 4 per day.

I see here the basis of a problem that many people have. They aim too low. In my opinion 30% is way too low.

Until I retired I ran an importing business that I franchised in 4 countries. My franchisees never looked at a product unless they could mark up the landed cost by 250%.

I am often asked how they could do that and the answer is very simple: By buying at the right price. In practice they often marked up more than that because they were able to buy at such low prices and they had a market in which they knew how much they could sell for. So if they bought better, they did not reduce their prices they increased their margin.

Just to give you some idea what is possible one of my book readers posted on the forum about buying items from China at $1, spending another $1 on packaging, and selling for $25. That is a markup of 1250%.

It is important to note that I am not talking about opportunity buying such as liquidations etc., but regular consistent buying of products from solid, genuine manufacturers in China. Also, is not necessary to place large orders to get big margins.

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Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com

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Larmore Smith 10 years ago

Import is giving you alot of valuable information. Don't fall into having beautiful ecommerce store with very few products. Customers like variety and they will most likely go to the more established ecommerce store with the bigger catalog.

Now you can build a tight niche store based around those few products. however, there have to be enough demand for those products for profits. You must also consider having the best prices in order to dominate your competitors that are selling those products and gain an edge. Also, you must have every single color, size, type, etc of those products if you only selling a few items.

I personally don't recommend taking the wholesale route because you don't have enough capital. I recommend starting off by finding a reliable & legitimate drop shipper and utilizing them . You can outsource the work of uploading images and having original product description (Very Important) to a freelancer for very cheap. Spend your time marketing and bringing traffic to your new store.

Now, i highly recommend Bigcommerce I use them for all of my stores. If you plan on drop shipping, just factor in the shipping fees into the prices and offer Free Shipping - this will make things alot easier for you.

If you do plan on wholesaling, many will tell you to go to the top manufacturers and distributors in your country. You know what, these manufacturers and distributors are buying directly from china. The only difference is the brand name on the product.

I wish you all the best

Larmore Smith
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- cashbiz 10 years ago
  
  Chantal,
  
  If you want to retail products you could use ebay or amazon affiliate programs. I would suggest which ever way you go that you join some drop ship companies. You don't have to purchase product until you have a buyer and they will "drop ship" directly to your customer with your name on the invoice. The buyer pays for the shipping.
  
  Hope this helps.
  
  Steven Paul
  
  Thanks
  
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  Importexport 10 years ago
  
  Larmore Smith makes some good points, in particular "If you do plan on wholesaling, many will tell you to go to the top manufacturers and distributors in your country. You know what, these manufacturers and distributors are buying directly from china. The only difference is the brand name on the product."
  
  It is a fact that many famous old established brands have been sold to Chinese companies who use that brand for credibility and big profits. They have not bought anything but the brand.
  
  Larmore also says: "I personally don't recommend taking the wholesale route because you don't have enough capital." and I would disagree with this. I have had many of my students start importing with a lot less than the $1,000 that Chantal has available. Less than $1,000 capital makes the process slower, but it is possible and many have succeeded, but with $1,000 wisely spent Chantal could be making good money a lot faster than if she dropships.
  
  If she starts her own eCommerce store, I believe that is going to be a slow process getting traffic and buying customers to her store. It would be quicker and easier to use eBay and/or Amazon where people are going in their millions because they are ready to buy.
  
  I know that there are good programs available at low cost to teach her how to select and market products. I don't get involved in that because my area of expertise is safe sourcing and easy importing.
  
  Wholesale is not the way to buy. For maximum profits you must buy direct from the manufacturers. Most of them are in China, but there are other countries too where you can get great products with huge margins. You might like to see my thread: Importers should consider countries other than China
  
  Thanks
  
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  Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
  
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ronrule

10 years ago

Originally Posted by Importexport

I see here the basis of a problem that many people have. They aim too low. In my opinion 30% is way too low.

Until I retired I ran an importing business that I franchised in 4 countries. My franchisees never looked at a product unless they could mark up the landed cost by 250%.

I am often asked how they could do that and the answer is very simple: By buying at the right price. In practice they often marked up more than that because they were able to buy at such low prices and they had a market in which they knew how much they could sell for. So if they bought better, they did not reduce their prices they increased their margin.

Just to give you some idea what is possible one of my book readers posted on the forum about buying items from China at $1, spending another $1 on packaging, and selling for $25. That is a markup of 1250%.

It is important to note that I am not talking about opportunity buying such as liquidations etc., but regular consistent buying of products from solid, genuine manufacturers in China. Also, is not necessary to place large orders to get big margins.

That mentality is fine for certain types of products, but keep in mind that the most stable and successful companies in the world tend to have significantly smaller margins. Around 8-17% for the top performers. Amazon, when it's all said and done, nets 1%. When you're selling online where competition is stiff, volume will beat margin every time. I'd take Amazon's 1% over my 30-42% any day of the week.

Smart companies don't worry about getting the "sale", it's all about getting the CUSTOMER. It's a million times easier to sell a second item to a person who's already bought from you than it is to find a new customer, and to do it online costs you nothing. Smaller margins coupled with consistent repeat business will increase your buying power with suppliers, getting you better pricing as you grow. It also increases your company value if you ever wanted to sell the business. A company that grosses $10 million a year with a 5% profit margin is worth more to a buyer than a company that grosses $1 million a year with a 250% margin, even though the owner of the $1 million company has more money in his pocket at the end of the day. I could sell that $10 million company for $20-$50 million depending on the sector, but I'd be lucky to get $2-3 million for the other one.

All depends on what your long term goals are.

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Ron Rule
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Importexport

10 years ago

@ronrule Thanks for your comments, and I agree that the first sale to a customer should be the start of a continuing business with them.

I would like to take up your closing comment: "All depends on what your long term goals are."

I see predominantly two very different kinds of entrepreneurs. Some want to make millions and others want to just make a comfortable income.

Although I have guided some who have set up what have become very big businesses, the majority of those who buy my book are mainly interested in enjoying the benefits of a comfortable income while working from home.

I was one of those, with no ambition to become a millionaire, but the business grew exponentially and while still working from home I built a business that operated in 4 countries, with multi-million dollar turnover and huge profits. I never worked on less than 250% markup.

The methods I teach are working well for most of the people who buy my book. Buying at best prices direct from manufacturers and selling at huge markups makes it easy for them to generate an income like they have never had before and to do it all from home.

If, like me, they find that the business grows on those high margins there are plenty of options open for them. I have one such who turned his small importing business into a large wholesaling operation. Others just turn everything over to Amazon FBA and continue to handle the growing sales with little effort and enjoy the big profits.

Thanks
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ronrule

10 years ago

Originally Posted by Importexport

@ronrule Thanks for your comments, and I agree that the first sale to a customer should be the start of a continuing business with them.

I would like to take up your closing comment: "All depends on what your long term goals are."

I see predominantly two very different kinds of entrepreneurs. Some want to make millions and others want to just make a comfortable income.

Although I have guided some who have set up what have become very big businesses, the majority of those who buy my book are mainly interested in enjoying the benefits of a comfortable income while working from home.

That's a great point, and is a big part of why I always teach people to "plan big" even if they only want to be small. The reason is because you're swimming with sharks... So let's say you find a cool product, you build a small audience for it, you're doing OK and reached your goal of earning a comfortable income. Then I find out about that product, realize it might be a fit for my audience, and in the process of doing my research I discover you've got a 1,000% markup... now I know I can sell it.

Here's what happens next: I buy a container direct from the manufacturer in China - a bigger quantity than you could ever afford, at a price lower than they'll ever give you, then put the product up on asseenontv.com with a 20-100% markup (over MY cost, which is already lower than yours), do an email blast to a couple million subscribers, and sell 5,000 of them in a week. My site will outrank your site within 24 hours. If that works, I'll shoot a commercial and put it on TV, selling even more.

I essentially just killed your business. It wasn't on purpose, targeted, or personal... it's not like I said "Man, I can CRUSH this dude.", it has nothing to do with you. I saw an opportunity on a product that I could sell to an audience I already have, and applied the normal formula I use to determine pricing - your loss of that sale was just an unfortunate side effect.

But ... if your margin was 10%, I might not bother with the product. Even if I could beat you buy a couple of points, it's out of line with my model and my "best price" really isn't that much better than yours. There are plenty of other products out there.

Stuff like that happens. It might not happen with ME, my products only cater to a certain type of buyer, but there's always someone out there. I have to fight the same battle with Amazon, they are always looking at what our best sellers are and trying to use their buying power to out price us. Sometimes they're successful. In our situation we're stable either way, we just focus on different products. But for the little guy, making a comfortable living doesn't guarantee it will be long term and all it takes is one aggressive buyer to offset that balance. That's why I say plan big... it's better to have money you don't need than need money you don't have.

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serpyre

10 years ago

Everyone will tell you 'you need an edge' - we will tell you 'you only need to do it better'. It is all coming down to trust - the more people can trust your site the more they will buy. It depends on your sector - but that is pretty much it. If you target <20% growth you will go negative by next year, so you need to target 20-50% YOY growth - 100s to 1,000s products will not give you much exposure - you need 10s thousands these days. Even then a lot is manual effort as SMEs do not understand enterprise techniques. We were just given access to a special closed group which multi-national consultants discuss with SMEs ways to generate this type of growth - the top 5% of stores generate 50% of all online revenue - so it depends where you want to position your store and how much effort you want to put in. If you want above average growth with average effort and be in the top 5% you need to do things very differently from the norm.

Inventory has the best margins, then dropshipping then being an affiliate for other sites - but very sector dependent. Amazon work on a 30% gross profit margin and 5% net - remember you are not competing with same size stores - you are competing against 'everyone' - it's the internet. The problem is you do not know what sells the most - so best to dropship or buy on demand with a few days delay - you can then keep bestsellers in stock.

Thanks

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Larmore Smith

10 years ago

If she take the eBay or Amazon route then $1,000 will be a good start. However, you have to do your research on how those products perform on eBay and Amazon. You also how to factor in prices, amount of listings, competitors, etc. Now she can take this route if she is looking for a faster way to make a profit off her products.

To my knowledge, Chantal is interested in starting an eCommerce store. I just don't think she should invest in wholesale if she planning on starting a new eCommerce store with $1,000.

If $1,000 is her budget or just the amount she planning on spending on wholesale. Then she will need to factor in other things to make that store successful besides inventory. Such as a Toll Free #, Reviews, SSL, Social Media Presence, Navigation, Structure, Marketing, Shipping Supplies, etc.

This is just a few, instead of investing in stock, carrying the stock, shipping the stock, etc. She can spend some of that money and time on other things. That is why I recommend drop shipping.

Let her get feet wet to see if this something she really wants to do. Once she got the hang of things and is making some decent money - then she should start looking into wholesale.

Larmore

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serpyre

10 years ago

Last time importing from China - with the original design, samples sent, quality control, adjustments and resend took 4-6mths, plus you have the problem of selling generics compared to brand names. Now, combing generics with brands is the best approach - but - the holiday season is almost upon us where a high proportion of sales are made - you will be lucky if you have everything in place before next year. Buying custom generics is fine, but you have to plan ahead - buying off-the-shelf generics you will likely have quality control issues. The problem with these open forums is that you cannot give enough information for business strategy and return on investment calculations - so it all becomes rather long winded.

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JamesMcLean

10 years ago

You are starting your e-commerce business buddy, so how much you want to store the product in your site you can store. But make sure that for every particular product you had made a different categories or not, it will make customers easy to search all the products which they want to buy.
Before starting your newly created biz, make some powerful strategies that will help your site to grow their popularity.

Thanks

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kjamesnv

10 years ago

This thread has gone WILDLY off topic. The OP asked if $1K of inventory was sufficient and now the discussion is about a $10 Million business and Amazon (multi-billion).

Amazon has Wall Street money and can afford to earn 1% margins while they expand. Very few business are in the same position and certainly not someone with $1K to invest in inventory.

Focus your efforts on things that will produce high profit margins. 1-5% is NOT high.

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ronrule

10 years ago

Originally Posted by kjamesnv

This thread has gone WILDLY off topic. The OP asked if $1K of inventory was sufficient and now the discussion is about a $10 Million business and Amazon (multi-billion).

I don't think it's off topic at all - the majority of small businesses fail because they fail to plan and define their goals properly. They put all of their focus in "getting up and running" without taking into account how they'll keep it going and stay afloat in the long run.

The question wasn't whether $1K of inventory was sufficient - it's whether that $1K should be spent on inventory or allocated elsewhere. I've bought warehouses full of products for pennies on the dollar because of owners who spent too much on inventory and weren't able to sell it. So yeah, I'd rather have a business with customers begging me for a product I don't have on hand (but can GET in a reasonable amount of time), than have a warehouse full of products, no customers standing in line to buy them, and no money to reach those customers because I spent my money on inventory instead of marketing...

In reality, it's a deeper question than the way it was asked - it's about defining the goals of your business before you make spending decisions. Where do you want to be in a year, two years, five years, and what do you want to do to get there? If your plan is to incubate the business and focus on the top line revenue so you can sell it later, you go for volume and don't worry about the margins. If your plan is to earn a personal income from it and only care to make a little spending money (a few hundred or a few thousand bucks a month) and don't want the challenges of running a bigger business, you would find a way to balance between margin and marketing. If your plan is to build it into a big business that you will continue to run and profit from, your primary focus will be customer acquisition, you'll put $0 in your own pocket and roll 100% of your profits back into marketing for the first year so you can grow the top line revenue.

Different answers for different goals. That's why we asked.

I also just realized that nobody addressed the second question about free shipping; there are two reasons companies do this. Sometimes they make money on it, sometimes it's a loss leader. Generally speaking, you'll have a reasonable expectation of what shipping will cost so rather than passing the shipping costs along, if you know you can afford to eat the shipping within your profit margin you'll absorb that cost to get buyers to spend more and move more product. Moving more product means you can negotiate better pricing at your next inventory acquisition, so you'll increase your margins next time around and build customer loyalty. Some companies eat that cost within their profit margins, others don't care and willingly lose money.

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serpyre

10 years ago

Actually it is completely on topic, it is called scaling - if you optimise at the lowest level you make many times more profit as you grow for less effort. Sure, SMEs work a 1:1 to 2:1 revenue:effort basis, but there are ways to get to 2:1 to 5:1 revenue to effort - you just need experience which is what - so we thought and perhaps naively - these forums we for. The forums were so much better when they were paid.

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serpyre

10 years ago

Good point, free shipping, Zalando do this and have ~70% returns - people buy to try, small businesses charge full amounts which puts customers off - the companies we worked with generally used fixed price shipping and built it in to the margins - it builds trust.

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bones46

10 years ago

Regarding your level of inventory, you will have to just do trial and error. Start with a $1,000 and see what happens - then modify from there. That is the only real way you will ever know.

Another post did say that you should always clearly state how long it will take before the customer buys - this way they know up front how long it will take. Add some additional time to each declaration of shipping so that when they get it early, they are really happy. Also allow them to track their order - that will always help.

Lastly, regarding free shipping - it is all about mark up. In time, you will have a better understanding of all your customer's shipping costs and will get a basic idea of averages. Which let say is $20 on average to ship anywhere in north America. Then, simply increase your mark up by that amount - either by raising prices or working your costs down - to cover that amount.

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Solid Commerce

10 years ago

There's a lot of solid information in this thread, and a ton of advice about your stock levels and how you run your business as you're getting started.

So I'll try and contribute to one of the aspects that has gotten a bit less attention - your shopping cart platform.

You say you're starting out with limited funds, so that would (for me, at least) immediately rule out something like Magento or Volusion. Don't get me wrong; they're both great solutions...but they're pricey.

I would recommend starting out by taking a good look at 3dCart and Bigcommerce. For the money, they're very highly-functional shopping carts, and they have a high degree of ease-of-use straight out of the box. Plus, they've got a ton of really pretty themes, many of which are responsive (a HUGE boon in today's mobile-heavy eCommerce atmosphere).

Hope this helps! Best of luck.

Thanks
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kjamesnv

10 years ago

Originally Posted by Solid Commerce

You say you're starting out with limited funds, so that would (for me, at least) immediately rule out something like Magento or Volusion. Don't get me wrong; they're both great solutions...but they're pricey.

Magento CE is actually free although it does require decent hosting.

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Importexport

10 years ago

That's a great point, and is a big part of why I always teach people to "plan big" even if they only want to be small. The reason is because you're swimming with sharks... So let's say you find a cool product, you build a small audience for it, you're doing OK and reached your goal of earning a comfortable income. Then I find out about that product, realize it might be a fit for my audience, and in the process of doing my research I discover you've got a 1,000% markup... now I know I can sell it.

You are quite right Ron, and that is why in my book I advise against keeping all your eggs in one basket.

Regarding the issue of Free Shipping, nobody has mentioned that a good reason for doing that is because it gets you higher up in eBay listings but more importantly it feeds on the almost universal desire to get something FREE.

My former importing business was originally all B2B, and it is worth noting that a free offer that was a constant part of our advertising raked in business. We were dealing with big and small businesses, and government departments, but they were all attracted by something for FREE.

When you have big margins it makes it so much easier to absorb such costs and still make high profits. In fact the 250% minimum markup we worked on was landed cost including the cost of the freebie x 250%.

Thanks

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Advice for new ecommerce business start up - how much product?

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