Building a Profitable E-Commerce Retail Business: A Dream or a Possibility?
The e-commerce industry in India has seen a tremendous growth in these last few years. It was valued at USD 12.6 billion in 2013 and is expected to be a USD 50 billion industry by 2023. The shopper base in India is expected to cross 100 million by 2016 and mobile commerce is expected to drive this growth. With so much scope for growth, e-commerce start-ups are still shutting down everyday. E-commerce giants, in spite of growing revenues are facing heavy losses that are widening each year.
Everyone wants to get on to the e-commerce wagon today, but it is clear that the e-commerce pie is not one that is up for sharing. It is a game of survival by all means. Smaller players without deep pockets are facing the heat, and eventually burning out. So, the question remains. Is it really possible to build a profitable e-commerce business in the current scenario? While there is no miracle method to this, here are some points that we feel could lead to sustainable profitability.
Keep an Eye on the Bottom line
Most e-commerce companies today work on the premise that profits will become important only after a certain scale is achieved. While this is an unconventional method of doing business, it is not exactly a sustainable one. The topline might be important in order to raise money from investors, but the bottomline is more important if the business wants to become self sustainable. While its counterparts in India are struggling, Alibaba in China has been able to consistently make profits. The basic reason is simple. Alibaba understood its customers from the get go and created a business model that was profit driven instead of revenue driven.
Focus on the Profits
Simply put, a company is said to be making profits when it is earning more money than it is spending. At a transactional level, you could say your products are selling at a profit, if your product’s selling price is more than the cost price.
In an e-commerce business, the cost per transaction is twofold. It includes:
- The cost of the product (manufacturing/procuring)
- Operational costs in delivering the product to the customer.
The operational costs in ecommerce include at least the following:
- Real estate costs – Rent for warehouse, office/shop, electricity, water, etc.
- Human resources – Employee salary, CA/lawyer charges
- Logistics – Courier charges, packaging charges, etc.
- Marketing – The heaviest spend of the lot, in order to get the attention of your customers.
In today’s e-commerce world, the maximum spend for any company is towards the human resources and marketing. Just in the 2 months leading up to Diwali, Flipkart and Snapdeal spent over Rs. 200 crores on marketing. While both companies saw a surge in their sales during the 2 months, it is not clear if either made a profit out of the same.
Even at a smaller scale, an e-commerce business needs to keep in mind the operational costs while pricing their products. To reduce the effects of operational costs, an e-commerce business should look at increasing the number of transactions as much as possible. For an e-commerce website, increase in transaction is again, directly proportional to the marketing spend. Sounds like a vicious circle doesn’t it?
But there is a way out
Many brands that are selling on their own e-stores also sell on marketplaces today. Basics, a popular retail brand, which has been promoting their online store heavily, has also listed its products Flipkart. Popular online brands like Chumbak, Cbazaar and Happily Unmarried, who are doing well with their own e-stores, also have presence on top marketplaces. Young Indian brands like Rangrage that are gaining popularity on their own e-commerce websites, also list their products on marketplaces like Snapdeal, Flipkart etc.
While listing your products on marketplaces doesn’t exactly rule out marketing spends completely, it exposes your brands to the millions of loyal customers that have already been acquired by the said marketplaces, for no extra cost. Being present on as many online channels possible increases sale prospects and thereby revenue.
Take Advantage of Multi Marketplace Customers
While selling on multiple marketplaces exposes you to multiple customers, it also requires work. According to expert sellers, a loss leader strategy works best for the short run. Pick out 10-15% of your catalog where you feel the demand is high, and keep your prices super competitive. While you might make very small profits at a transactional level, your reputation and star rating as a marketplace seller will increase and lead to further sales of other products.
Your reputation on a marketplaces is very important. Pay special attention to it. Treat your marketplace customers the same way you’d treat your loyal or repeat customer. While it might look like a very small thing, sending emails to your customer at every step of the order process helps greatly in impressing them. It might be a good idea to automate these processes by investing in a good multi marketplace management software for the purpose.
Successful multi marketplace sellers also send brand material and personal notes to customers to create brand awareness. In the long term, customers who have been served multiple times turn into loyal customers for the said brands. Also, selling on marketplaces puts you directly in touch with actual customers, who you can shift to your own websites with coupons, email marketing, etc.
According to Browntape’s category managers, people who have their presences on the right mix of marketplaces seem to do better in terms of revenue and profits than people who concentrate solely on their own online stores. The marketing and running costs of multi marketplace selling is lesser and the sales generated from marketplaces, especially during deals and sales are much higher. But the profitability that they add for each business is different and the more hands-on a brand is, the better success they achieve online.
Building a profitable e-commerce company definitely looks possible, and in a fairly short period of time. The trick is to utilize the opportunity and exposure that existing popular marketplaces present and building the business slowly and steadily, with a cautious eye on the bottom line of the business.