On the face of it, doing online business looks very easy. But the fact is that more than 80% of the online businesses fail. It’s not merely about sourcing and listing of your products. Online business is much more than that, and in fact it is a heavy lift like brick and mortar business. It also requires new age digital skills. Online business is highly competitive. We see primarily two models of doing it. One is building your own e-store and other is selling through marketplaces like Amazon, Flipkart, Nykaa, Meesho, Myntra etc.. And both models are worth exploring. Let’s understand the factors to consider to failsafe your online business.
Know the Size of the Market for Your Segment
On the click of a button, we get to see the options of similar products and their prices of what we plan to sell. We just tend to get overwhelmed about the market opportunity. However, it is very important to get the ground level data. It means collecting the information from various sources including suppliers, competition, digital agencies who are marketing similar products. This exercise is a meticulous and time consuming process. Such an exercise may not give you the exact data but will take you close to it. At this stage you should ascertain if there is enough business in the market and your largest target audience.
“If you want to grow you have to do something different from the majority of people.“
Know Your Competition to Plan and Strategize
The good thing about online business is that many things about the competition including products, USP’s and pricing is publically available. You can also learn good deal about their digital strategies and tactics as well they use to get the buyers and create their brand. Do a thorough analysis to derive USP’s of your product, pricing and the strategies and tactics to sell your product. At this stage, you will also know the broad level idea about the volume and marketing cost estimation of each key player.
Good Gross-Margins are Essential
Gross- Margin is extremely important in online business. There are a lot of expenses involved which are not out rightly visible. In a segment like wellness products, as a general rule, if your product price should be 2.5 times or more of your cost. Else you are not likely to have no or negative margin in your business. In small or mid volume segment, ideally, the price should be 4 times or above of the cost. Therefore sourcing cost of your product becomes very important. You need to do good ground work to ensure that you have right sources with you who give you the competitive prices. It’s important that you have optimal gross margins as your marketing and operational expenses are going to be covered from your gross margins only.
Correct Estimation of Digital Marketing Cost
Let’s start with the marketplaces first. Firstly, they charge you commission for every sale and consistent sales do not come without spending on marketing at online market places. The marketing and commission cost depends on the category.
In case of your own e-store, there is an expense in building an e-store. And there is on-going digital marketing cost of your store via channels like SMM and Google. To get the organic traffic, ongoing SEO activity is required. There is separate cost of content on an on-going basis.
In both the cases, the marketing cost data is not out rightly available. Here you can take help of an agency or a person having digital marketing expertise in your segment. Ascertaining the cost is very important even if this exercise costs you some money. Also, the sales volumes do not build up overnight. There is a gestation period which you need to take into account.
Do Not Under Budget Your Operational Expenses
This is one area where a lot of under budgeting is done. It’s not only about the warehousing cost alone. The order management involves managing marketplace panels, packaging, delivery, sales returns, trouble tickets, co-ordination, accounting etc.. There is cost of human resources and infrastructure which are likely to be under budgeted. Take extra care and do the right budgeting. There is no harm in keeping some extra buffer in this area.
Stitch All Elements and Check Business Feasibility
After you have done the above exercise, you will know all the revenue and cost elements. You should do the feasibility check thoroughly for a period of Year 1 and Year 2. Increase all your cost elements by 10% to keep a buffer as there are always some surprises. If the feasibility comes ok as per your expectation of return over period of time, then proceed. Else think twice before you start it. Also, nothing much is achieved in the short run even for best of the products with best of the marketing. A business should be evaluated on the window of 2 years, though 3 to 5 years window is advisable.
All OK, Make Detailed Business Plan
After the feasibility is ok, make a detailed sales and marketing plan. The plan should have quantifiable goals on monthly basis. Sales and Marketing plan should be the most emphasized area of the overall business plan.
Hire the Right Digital Marketing Team
The numbers will not deliver on their own. Even the best of the plans fail if you do not have right people. The most important area of importance in on-line business is digital marketing which includes SMM, SEO and Marketplaces. Having a knowledgeable and skilled team for respective areas is very important. The right digital marketing team is as most important arsenal for your online business. Yes, there is nothing on the fly in online business. It’s equally tough as brick and mortar business. It requires the same attention as any other business while it needs new age digital skills in addition.
