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Steps to set up an online store, part l: How to define your business

09/05/2016 - Jordi Ordoñez

To start the season, every Monday well talk about the details of creating an online store, from which steps to follow to the errors to avoid, basic aspects like the definition of business, market research, legal topics, or market e-commerce tools and attracting traffic to make our first sale.

Chapter 1: How to define your business

 

To begin, we’ll focus on the definition of the business, the axis on which our online store will rotate.  Today, there is no longer a specific sector or a magic bean that make our products sell like hotcakes.  Gone are the times of scarce competition where you could sell your product without thinking about what your neighbor was doing and what people were doing outside of your own country.

Gone are the days where giants like Amazon or El Corte Inglés left a space for small or medium retailers to be able to sell.  Therefore, today the definition of business is vital to having a good base on which to build our online store.

Next, we’ll discuss a few things that, to us, are the five basic pillars when defining a business: know the product, forget about trendy products and fads, appeal, number crunching, and competitive analysis.

ecommerce-producto

1 Know the product

How do we define the business that is best for us?  Really, there’s no formula that works better than another.  One thing we do have to have clear is that to get involved in whichever business we’re involved in means things will be complicated.  Today we have direct and indirect competition everywhere, so one of the things we would recommend would be, at least, to know the product beforehand.

In no way would we recommend selling a product that we haven’t ever tried or one that we don’t know anything about.  If, for example, we have a hobby like fishing, we could put down a business idea of a store that sells fishing rods and reels.

Another worthwhile point about product knowledge is, without it, you won’t be able to give good customer service.  Ask yourself how you would answer certain questions from clients or what you would do if you ran into a customer who knew the product better than you.

1.2 Forget about fads

Let’s try to think in the medium and long term and not open a business because some product became fashionable like we saw with electronic cigarettes, erotic products or even those weird shops full of things from Star Wars because Disney came out with The Force Awakens.  A fishing store, for example, won’t stop being a niche market but we can ensure that whoever dedicates themselves to fishing will continue buying products over the next 10 years instead of whatever other passing fad that might be ahead.

1.3 Appeal

Tied to the previous point, this is the mother of all e-commerce battles: appeal.  Without appeal, there is no online store or we would depend too much on volume and what happens when we need volume?  We need new traffic and new users, which means a huge expenditure on recruitment.

On the contrary, making sure a (satisfied) client returns to make another purchase is infinitely cheaper and easier.  As such, we’re interested in concentrating on products that have appeal.  We’re thinking about consumer goods, food products, fishing reels (continuing on the topic of fishing), or of articles that you don’t only buy one of, like clothes and footwear.

Appeal is basic and without it, it’s very hard for an online store to have a future in the medium or long term.

1.4 Crunching the numbers

Another aspect that’s classically forgotten is crunching numbers.  We’re not just talking about product margin (obviously, the more the better) but rather, considering what we want our monthly salary to be from the outset  If we don’t have an objective to work towards, it will be complicated to create the numerology necessary to know if the business we’re creating is profitable or not.  We have to think about expenses such as:

  • Stock purchases
  • Money lost in returns
  • Costs derived from recruiting traffic (how much we can spend on recruiting clients)
  • Costs derived from development and store maintenance
  • Server costs
  • Autonomous quota costs
  • Taxes: VAT, personal income tax, equivalence surcharge, etc.
  • Cost of storage warehouse (to hold products)
  • Packaging and shipping costs
  • Logistics costs
  • Management and lawyer fees
  • Personal office costs (rent, water, electricity, gas, internet, telephone, etc.)

As you can see, we’re not talking about mild expenses.  All of these influence what we spend and as such, what we will earn at the end of the month.  We should crunch the numbers on this basis in order to figure out if we will be profitable, and if not, what should be our breaking point or break even point to start making a profit.

descuentos-smartphone

1.5 Analyze the competition

The last point, but no less important, is an analysis of what “the guy next door is doing”.  To begin, it’s important to be realistic.  Our competition isn’t Amazon or eBay and it’s possible that we will never be able to compete with them.  Our competition is who sells the same product as we do (or a similar product) and one that we can compete on the same level with.

The essential aspects when analyzing our competitors are:

  • Product
  • Price
  • Distribution / logistics (shipping costs, delivery speed)
  • Communication actions
  • Deals and discounts
  • Customer service
  • Loyalty programs
  • Adaptation of the shop to different devices
  • Expertise and product knowledge

 

These points are the ones we should keep in mind to see if we can compete with them or not.  For example:

  • Can we match their prices and still make money?
  • Are we as good as they are at solving clients’ problems?
  • Can we beat their shipping costs?
  • Can we send products faster than they can?
  • Do we manage Out of Stocks (OOS) better?
  • Is our store adapted for mobile devices and theirs not?
  • Are our deals better or worse than theirs?
  • Do we have a unique proposition for better sales?
  • Are our “key benefits” better or worse?

 

 

As seen, we can differentiate ourselves from the competition in many ways.  However, we can’t forget that the main driver in Spanish purchasing continues to be price, so we know where to start 😉

Read about it in the next chapter!

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