So you want to open your own online retail store. You have visions of web orders rolling in while you take business calls and ship products all in your pajamas. What may sound like a quick and easy idea may prove to be a long road of fruitless searches and monetary loss. Too many people have your same ideas and they may either be more experienced, have a better handle on the web or simple sell the right product at the right time. With the explosion of ecommerce sites, it is now very difficult to carve out your own identity on the web. I have provided a number tips and pointers that I have learned along the way in creating my own site: The Stork Store. I hope that you can learn from my many mistakes and feel more educated about the steps needed to become a successful online business.
Tips for starting a small business online:
Research the competition:
Before you spend any money on the new business idea, research your online competition to make sure this is a profitable venture. Every company has a different business philosophy. Some companies play to the wealthy and upscale by offering higher prices, a more sophisticated website and special perks for spending at their site. Other companies offer extremely low prices on their products in an attempt to undercut their competitors. They are willing to accept lower profit margins if it means an increased sales volume. Make sure that you can find a niche within your product market and it will still be profitable. You want to find a middle ground that will allow you to make money as well as attract customers. There are a few products that I refuse to sell on the web strictly because my competitors are offering the products at wholesale prices. Their trick is to charge a higher shipping rate to make up for the monetary loss. Find out about their return policies and if you can match their ability to accept returns. Do a keyword search on three of your top items you want to sell and see if your product can compete price-wise with the search results. Make sure that the internet is not flooded with your product because it will be harder to gain a ranking among the search engines. It is easier to sell a product that is targeted at a smaller audience than the general public. For example, you may do better selling ceramic pink frogs than selling dog leashes. Fewer people are in the market for a ceramic frog and you may be able to move higher on Yahoo or Google.
Next, register your business and receive a tax id number. Tax identification numbers allow you to purchase a product from a manufacturer (without having to pay tax) and sell it to a consumer. This is known as a “reseller.” The tax id number is a federally regulated and used to help the government monitor your business. This number is also required if you have any employees. If you are a sole proprietor, or a person who is personally liable for all obligations, you are able to use your social security number. This may sound like an easier venture, however, if your business is sued, they have the ability to access your personal assets. Don’t forget that banks and credit card companies will also require a tax id number in order to open a business account.
Once you have decided that your idea may just float, you need to locate the product vendors. Use the internet, catalogs and yellow pages to locate their phone numbers and websites. Not all vendors will sell to an online store so you need to spend time talking to each company. First, find out if the vendor offers a wholesale program and at what type of discount. It is common for a company to charge you 50% of the consumer’s cost. If the product sells in the store for $100, then you should be able to purchase it for $50. Smaller companies or artists may offer a smaller discount such as 30%-45% so make sure those products will still be profitable for you to sell. Some companies will recommend that you stay within a certain price point so that you don’t undercut the competition or grossly profit from a sale.
Find out how they sell to vendors. Many companies sell their products in cases so for example, you would need to purchase six of the same picture frames. Some companies allow you to order one item at a time as long as it adds up to a certain dollar amount. You can purchase 6 different frames but the order must reach $100. This affects how you order inventory. If you believe a product can sell easily, you are safe buying in terms of cases. If you are trying a new product, you may not want to commit to 12 of the same pillow. Some companies will allow you to return products that don’t sell so make sure to check with their return policy. Typically, if a company accepts a returned product, you are given a store credit towards a future purchase. It is rare that a company will issue a credit check for unsold/returned merchandise but it can happen.
Ask them if they are able to drop ship the product directly to the customer. Drop ship means that the customer places the order through you and you pass it along to the vendor. The vendor ships the product to the customer and charges your account for each order. This is the best solution so you are not responsible for carrying inventory that may not be sold. Most companies require that you carry inventory or place a minimum order so they are guaranteed a certain sales percent. I have one company that required a $250 minimum purchase. They still shipped directly to the customer one order at a time and deducted the money from my initial $250 order. I still didn’t carry inventory and they knew they had a set sales amount.
Some companies are able to blind drop ship so the package looks like it came from your store. The company includes your business cards, invoice, brochures and return address labels at no additional charge. That way a customer can track the order back to you and not to the company. This will help with reoccurring sales from the same customer. They grow to trust you as a supplier and not the vendor directly.
Make sure to ask how the company would like to be paid and what type of terms you can negotiate. Terms are the schedule of your payments. Some vendors will give you discount if you pay immediately. Others will demand that you pay immediately, and some will let you pay over 30 or 60 days. This flexibility will allow you to “float” the cost of the inventory. If you get paid immediately, but don’t have to pay the vendor for 30 days, then you benefit. Money has an intrinsic value, and the longer you have it the better you are. If you are carrying inventory then longer terms gives you a chance to sell it and collect the money from your customers before paying the vendor. I had a product that in my mind was a winner. I order 3 cases of them and paid the costs. Two years later I was selling the item at my acquisition cost. So dollar for dollar it looks like I was even, however, I lost the value of the money (interest in the bank, or option to invest in another product) for two years. Check to see if you can pay via credit card so you gain the rewards on your credit card or if they only accept a check. When starting with a new vendor, many require references that show you have purchased items before and are reliable for payments. It is OK if you have never sold a product. Let the company know that you are a start up and ask if they can either keep a credit card on file or will waive the required references.
Double check that you can use the company’s product images on your site. Some companies allow you to pull images directly from their site, some will send you the picture files and others will not allow pictures to be added to your site. Companies that restrict use of their images are typically concerned that you will distort or modify the picture so that it no longer resembles their product.
Questions to ask the vendor
1. Do you offer a wholesale program?
2. Do you sell to online retailers?
3. What is the acquisition price/ recommended retail price?
4. Is there a minimum order required (either a monetary figure or amount of product)?
5. Can they drop ship to your customers?
6. Can they include your information in their packaging?
7. Is there any pricing restrictions on the item?
8. What type of payment is accepted?
9. What type of terms do they offer?
10. Can you use their images on your website?
11. Can you use their product wording on your website?
Create a Website:
The first step in creating a website is to think of your domain name, or the name people will use to look up your site. For example, my store is called The Stork Store and my domain name is http://www.thestorkstore.com. I searched for a registrar company that provides domain names (I used GoDaddy due to cheap rates). Many times, your name is taken and you need to play around with spelling or find a new company name. I recommend using a simple name that explains your business and is spelled correctly. Go with a .com ending instead of other endings to your name as this is more common and less confusing. Once your name is registered, you can either begin to develop your website or locate a hosting company.
The hosting company is where you will house your website files and data. They charge a monthly fee and typically provide you with e-mail addresses related to your site, customer support, secure transmission of data and storage space. Look into several companies and ask their fees, whether they allow pop ups, banner ads or annual commitments. Your web designer will need the hosting information when it is time for your site to go live.
There are several ways to go about designing a website. Two of the least expensive routes are to purchase an e-commerce template from an existing company or create your own site. Many companies on the net have created basic templates that allow you to simply drag and drop your information into a pre-made site. These sites are designed to handle e-commerce and make the process very easy. The drawback to a template is that you cannot alter the website or customize the site to your needs. It also makes it difficult to optimize a pre-existing site or rewrite any of the codes if necessary. As a result, you may not rank as high in the search engines or receive a significant amount of traffic or orders. The benefit to the templates is that it may not cost a lot of money to begin your online store. This is a low risk solution and once your store is established, you can then move to a custom made site.
You can also design your own website using programs such as dreamweaver or frontpage. These sites are more technical and require either knowledge of the program or pairing with someone who can help you through the difficult parts. I have found that these programs are great for beginners who are creating basic web pages that do not sell products. The e-commerce and shopping cart side of the website can be difficult to manage if you are inexperienced. This is not to say that they cannot create functional web pages, this is simply advice for someone who does not have extensive web design knowledge. The positive side of designing your own site is that you can change your code at will and are not subject to a programmer’s time schedule or payment fees. The web is constantly changing and websites need to keep up with new search engine optimization techniques. By joining optimization listservs and attending classes, you can gain the knowledge to improve your own site and maintain its integrity.
A more expensive route, but one that I highly recommend is to hire a professional web design company that is capable of specifically handling e-commerce. These companies should be up to date on the latest codes and techniques to make your site not only professional but easy to use by the consumer. They should also know how to write the code so search engines such as Google have an easy time finding and crawling your site. They may be able to create your site in a short amount of time due to programmers assigned solely to your site. Many of the companies also have a variety of employees that do everything from write copy, upload products, proof read, generate marketing ideas and create graphically appealing pages.
When hiring a web design company, make sure to ask a lot of questions so you are fully educated about the type of site they are creating. During my searches, I found companies that ranged from a few thousand dollars to companies that demanded over $20,000 and a portion of my profits. I happened to go with a less expensive company for purely financial reasons and my website suffered in the end. My site took over 2 years to complete and I had to fight to get ownership of my codes. In the end, I ended up with a beautiful site that is not functional from a search engine optimization standpoint and search engines have trouble finding me.
It is OK to lack knowledge in the area of web design. Talk to a lot of different companies and gain knowledge through them. You need to make sure that your code is easy to read by search engine spiders and they use a program that is easily modified. If you feel daunted by the task of finding the right site design and company, I recommend that you pair with a web consultant that is specially trained in web site optimization. Many web design companies are looking to create an aesthetically appealing site; however, you need a practical site that Google and other major search engines can rank. I have been working with two consultants, Ron Castle (www.roncastle.com) and Blair Stephens (e2solutions, llc. http://www.e2-llc.com) who have provided solid web site optimization tips that will help gain exposure. Their ideal role is to use them to monitor the site as it is being created. Let the consultant check each page and code as it is completed to ensure that proper wording, page structure and code are used. If you already have a site, they can create a list of suggestions to modify your site to reach optimization within the search engines. I cannot stress the importance of spending a few extra dollars to guarantee that your site is done correctly – the first time!
Accepting credit cards:
Accepting credit cards is the last component for creating a successful online store. People use the internet for the convenience of purchasing a product at home. They want to enter a credit card number and receive a receipt for their records saying the payment was accepted. Accepting credit cards works to your benefit as well. By accepting credit cards, you are guaranteed payment for your services and you don’t have to wait for a check to arrive and then clear.
There are several steps necessary to accepting credit cards online. First and most important, you need to find a credit card processing company. Their role is to allow you to accept all forms of payment including: major credit cards, debit cards, electronic checks and traditional checks. There are many companies that process cards so you need to continue with your research. Each company will typically charge a monthly maintenance fee, statement fee and a percentage of your sales. There may be an additional start up fee and/or a gateway fee for transmitting the credit card information. We use Cocard.net due to their reduced fees and customer support. When we initially began the business, I created a chart that compared each fee charged by the company. I was able to use this information, plus a referral from a current customer to choose Cocard.
Once you have chosen a credit card processing company, you need a safe way to transmit the credit card information. Merchants use a Secure Sockets Layer (SSL) that is able to encode the credit card number so that it cannot be stolen by a third party. I use Authorize.net because of the great rates, amazing customer service, and the free logo that can be added to your web pages explaining that you use a secure processing company. Authorize.net sends automatic receipts to each customer and allows me to enter transactions online. I do not need a terminal in my home to accept credit cards. Authorize.net’s role is to process the card number and send it directly to your credit card processing company.
The next step is to determine how you are going to ship your products. The easiest method is for the manufacturer to blind ship the products directly to your customer. This way, you don’t have to carry inventory and the blind drop ship means that your name is on the shipping labels and not the manufacturer’s names. Very few companies are willing to drop ship or they may charge an extra fee for their time. Typically, you would keep the inventory at your home or store and ship it directly to the customer. I recommend that you take one average size package to the different shipping companies and see what they charge. I took one package to FedEx, DHL, UPS and UPSP and asked about shipping rates. I also asked about insurance on the package, tracking and signature confirmation charges. I could then compare each company and see which one would be the least expensive.
Several companies allow you to print and ship directly from your home. This allows you to have a more professional label attached to the package that also includes your return address information. They may automatically include tracking information for free when you create the labels at home. You typically have to set up an account and you may have to pay an initial set up fee. I purchased a scale that weighed my packages so I knew how much postage to purchase.
Many companies offer free shipping or combined shipping costs to entice their customers. The company is losing money on the product but they understand that consumers are afraid of high shipping fees. Remember, almost all of the products sold on the internet can be purchased at a brick and mortar store for no shipping. People simply use the internet for convenience and the possibility of a lower price – use this to your advantage!
Starting an online business takes dedication, determination, the right support system and a good dose of luck. Hopefully this article will help guide you in making the decision to open an online store. Remember, you are the expert in your field. Use your knowledge and common sense to find the right vendors, products and customers to become profitable and successful.