Mark E. Buckley

Is Ecommerce Profitable?

The Short answer is NO.

The causes are several. First is consumer reluctance. Consumers do use the interent to research products and services. However, many are still reluctant to provide personal and financial information over the internet. They are justified in this concern. Many sites are in fact insecure. While you certainly can increase your revenue and reduce your servicing costs by having a web site, a full blown ecommerce site might not create the amount of sales you hope for.

The second issue is site security. Ecommerce sites are complex, data base driven, and require access controls they are expensive to create and maintain. Building your own ecommerce site might involve hiring a full or part time network administrator to handle all the security and database issues.

The third related issue is certification. You will need to purchase a certificate to enable https secure transactions. The cost is several hundred dollars per year.

So you may not get the sales you expect, plus the upfront and ongoing costs are considerable.

Does anybody make money on Ecommerce?

Certainly there are several types of businesses that have made money from this trend. Primarily they are shipping companies, credit card processing companies, auction web sites, web hosting companies, ecommerce software companies, and other related businesses.

Do any of the businesses actually selling on the web make money?

Perhaps there are a few. If you could sell your product through catalogue sales, then you are a good candidate for launching an ecommerce business. In fact many companies that do catalogue sales have invested heavily in ecommerce sites. If you can provide your product or service over the internet you are a good candidate for an ecommerce business. Examples of this would include Internet Service Providers, Web Site Hosting, Software Companies, and other similar businesses.

So I shouldn't have a web site.

You should have a web site. However a web site is an expense. It is a way to advertise and promote an existing business. Very few companies make a profit with their entire business model based on the internet. By avoiding the lure of an ecommerce site you will save yourself a tremendous amount of time and money.

So, why are there so many Ecommerce sites?

One strong reason to create a site is for defensive purposes. If your nearest competitor has an ecommerce site, then you are almost forced to have one just to avoid losing business. Many sites are created for defensive reasons.

What factors should be considered for an Ecommerce site.

It is a numbers game not a computer game. Determine your existing cost structure. What is your profit margin? What are your overhead costs. Get proposals on several options. Calculate how much you would have to sell in order to recover your investement. Look for soft costs. What additional internal staffing would you require to handle the orders and ship the products.

Are there any low cost options?

There are several paths you can go down. A complete but simple Ecommerce site will cost you at least $10,000 to get up and running. The ongoing costs will be significant. You can buy off the shelf solutions. Some vendors charge you up front fees plus a percentage of each sale. I would recommend looking for a solution that charges nothing up front. In exchange they may charge as much as 15% of your sales. This is really the best option until you get your feet wet. Once you have a handle on what your actual revenues are, then you could opt for buying or building a solution with a lower variable, higher fixed cost.