Ecommerce simply means doing business electronically. Internet growth has brought with it countless opportunities, making eCommerce a trillion-dollar industry! According to eMarketer, global eCommerce sales are set to go beyond $27 trillion only in the retail sector by 2020. With this kind of growth, it is no wonder that businesses focused on thriving are taking advantage of the opportunities the internet is offering.
If you are already looking to invest in an eCommerce business, you are already familiar with all its goodness! Just in case you need additional reasons why an eCommerce business serves you better than a traditional brick and mortar business, here are a few pointers.
1. The growth of online purchases is shocking, and it is set to keep rising to unprecedented levels in future. Statistics show rising numbers of online shoppers thanks to the convenience of online purchases. Statistics have shown that the majority of shoppers today do their research for products and services online before they make a purchase. As such, businesses that do not have an online presence are losing out big time on visibility to their target customers and potentially exponential sales and business growth.
2. When your business is online, you keep making money at any time of day or night, unlike a brick and mortar store where you have to be open to make sales. An online business never closes. Additionally, the business keeps getting traffic (business leads and potential customers) every second from platforms such as search engines and social media sites. Who wouldn’t want to make money while asleep?
3. An online business has lower costs of operation compared to businesses with physical stores. For starters, an online business doesn’t have overhead costs such as rent and utilities. Additionally, you may not need to hold inventory or even handle sales and work orders, especially when working with third parties such as Amazon.
4. Tracking customer needs and feedback is easier and faster. You get access to endless analytics of your client’s behaviors – insights that they may not tell you, or are not even aware of. You can then tailor your marketing efforts and product positioning to make the most of this information to grow your business. Additionally, online platforms give clients the opportunity to give feedback on their experience with the business and the products they bought, anonymously or otherwise.
5. Business branding on the internet is almost free or at least more affordable compared to traditional branding. Here is how it goes; you can use online platforms such as social media to build a brand and interact with your customers. These platforms are normally free; you can set up profiles and interact with customers, even nurture leads to conversion without paying a penny. However, if you want to reach more people faster, you can always pay for ads. The costs of the ads depend on your budget; you can go as high or low as you can afford to and still get results. More than anything, building a reputable online brand image for the business boosts sales exponentially, thanks to today’s shoppers’ habits.
There are endless opportunities when it comes to eCommerce businesses. You can start your own from scratch or you can purchase an existing business. Starting an online business can be as simple as you’d like it to be. You will find a lot of resources online teaching you how to start and run your business online. Additionally, there is an extensive list of tools, free and otherwise, that you can use to establish an online presence as well as grow your business. It is also important to know the challenges when investing in ecomerce business.
If you prefer purchasing a business whose concept is already tested and proven, there are a few things you need to be aware of. While the general rules of purchasing a business apply, there are additional features that are unique to online businesses that you need to learn, especially if you are not familiar with the rules of eCommerce. Here is a brief guide to some basics.
Yes, there are different types of eCommerce merchants. If you are looking for the right opportunity to invest in, you need to compare the trends in eCommerce and decide which type of merchant you want to be. Here is a brief look into the types of thriving online businesses today. For starters, the type of merchant is determined by what they sell (goods or services), who they transact with and the platforms on which they conduct business.
Classification by type of business has the following merchants;
• Online businesses with physical stores selling physical goods
• E-tailers dealing with service-based products
• Online businesses that deal in exporting digital products
Classification by parties the businesses deals with;
• Businesses selling directly to customers (B2C)
• Businesses transacting with other businesses (B2B)
• Customers who are selling to other customers (C2C)
• Government transacting with businesses (G2B)
• Businesses offering products to the government (B2G)
• Consumers transacting with the government (B2G)
Classification on the platforms on which the businesses are based;
• Online storefronts refer to a system where a business sells directly to its clients through an ecommerce site. The ecommerce site can be a simple website featuring a shopping cart in addition to other ecommerce solutions. The right ecommerce solution/software depends on the products on offer. Different products need different software solutions to thrive. The most common online storefronts include Magento, Shopify, Drupal, WooCommerce, Oracle Commerce, BigCommerce, Demandware, and Volution among several others.
• Online marketplaces refer to sites that facilitate ecommerce transactions between buyers and sellers. It is notable that a majority of these marketplaces do not have inventory of their own; they only offer a platform for business transactions. Some of the most common marketplaces include Amazon, eBay, Alibaba, Etsy,Upwork, Fiverr among others.
• Social media platforms facilitate marketing and/or sales of products. While most social media platforms are not used as ecommerce sites (they do not facilitate payments through their sites), they play a vital role in online business success.
It is important that you familiarize yourself with the different options available to you when it comes to eCommerce businesses. This helps to narrow down your choices to the one that is most relevant to your situation. Now that you have the basics, and have narrowed down your options to the type of merchant you want to be, it is time to investigate the nitty-gritty of each business.
It is common practice to do due diligence on any business you wish to invest in, whether eCommerce or otherwise. This background research on any investment should give you information such as the true position of the business financially, its operational procedures as well as it future growth plans. Due diligence also helps you to identify the right profitable opportunities. Here are the most important issues to look out for when performing due diligence on a potential eCommerce opportunity.
• Business domain, type, traffic, trends, concentration, industry trends
• The financials of the business and moat
• Operational procedures, security measures against cyber attacks
• The technical assets of the business,
• The legal framework under which the business operates
• The owner of the business
Insights on the business domain, type, traffic, trends, concentration, and industry trends are extremely essential as they form the backbone of the eCommerce business. Aged domain names are better as they will give analytics on the trends of the business. However, be sure to look out for information on the duration the domain name has been a real website. Resources such as archive.org can show how long a domain name has been an active business in addition to other vital registration details.
It is important to look at the industry trends of the business you want to invest in. There are businesses that are passing fads, and they do really well for a time then die down. Additionally, look at the traffic trends to the business. It is important to look at the type and source of traffic. Look out for SEO analytics – stay clear of sites with bad SEO. Businesses whose paid traffic is higher than organic traffic might be troublesome in the long run, especially if it has been operational for a while.
The financial report should be for each day the business has been in operation since the beginning. Look at the trends such as spikes and drops of sales. Are there steady sales or is the business seasonal? Look at the gross profit margins as well as recurrent operational and web development expenditure, assets, and liabilities. Always countercheck the information provided by the seller; their books should match up the website back-end analytics. At this stage, you can engage a professional who is experienced in eCommerce businesses to conduct a financial audit as well as help in taking advantage of opportunities such as tax benefits of doing business globally.
Needless to say, the business should have security systems that protect its operations and clients from outside manipulations such as hacking, data loss/theft, identity theft, technical outage and vulnerabilities that are associated with unpatched systems.
Business operational procedures and costs should also be among the top priorities. For starters, what are the tasks involved in fulfilling a sale, and how much resources (time, money and effort) are adequate to fulfill each sale? The seller should be able to break down the business task and responsibilities, as well as the resources needed in terms of effort and time. This information prepares you for the size and requirements of the tasks associated with keeping the business profitable.
Ecommerce business is built on its technical assets. Look at the business operations and how the current technical framework will affect the future growth of the business. It is advisable to conduct a technical audit of the site. Check out the extensions, plug-ins, and coding that supports the business. A plugin audit also reveals whether the seller is properly licensed and a source code audit reveals the authenticity of the business. Can you quickly and cleanly customize the code to suit any future developments or advancements without messing with the current operations? It is very helpful to get a business whose code makes future amendments painless and seamless.
First things first; are the current business processes and assets legal? Additionally, will the business be legal in all the areas you’d wish to expand/scale to? The beauty of online businesses is that it is open to all countries in the world. The downside is that different countries have varying laws on what is legal and what isn’t. Additionally, tax frameworks differ from one country to another. You can always run basic searches of aspects such as trademarks and content authenticity to check if the business is licensed to do what it does in the way it does. Additionally, you can check out the legalities and advantages that come with different business processes. For example, Amazon is not subject to corporation tax. You can be doing business with China by importing white label or private label products and selling them on Amazon at a profit.
While this may sound a bit odd, owner verification is as important as any of the aforementioned aspects of an online business. In addition to verifying that you are dealing with a reputable person, a verification process helps point out any traces of fraud or scam. You do not want to be scammed off your hard-earned money by individuals fraudulently posing as owners. Essentially, owner due diligence is meant to assess the owner’s character, key man risk as well as the authenticity of intent to sell the business.
Due diligence is a critical step in any business transaction, online or not. It also brings out any risks and opportunities that may not have been too apparent from the beginning and gives both sellers and buyers the opportunity to discuss. Due diligence gives you, the investor, a clearer picture of how the business is as well as how it is likely to be in case of any changes or upscaling. If you are not very sure about your skills in performing due diligence in any of these areas, it is advisable to enlist the services of experienced professionals. You cannot afford to make any investment without a clear picture of all the facts pertaining to the business.
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