This post is written by Sleek, an all-in-one digital platform that helps entrepreneurs to manage their governance, accounting and tax compliance online conveniently.
If you have a business idea, starting your own business can be an exciting and fruitful experience. With the ease of digitalisation and growth in online marketplaces, starting an eCommerce business is becoming the preferred model of choice for budding entrepreneurs.
Asia Pacific’s eCommerce sales are expected to double to US$2 trillion by 2025, with the region anticipating the highest growth in retail sales.
But just with any other business model, starting an eCommerce business comes with its own risks and rewards. Understanding these advantages and disadvantages over more traditional models of commerce will help you in optimising your business for greater success.
What is an eCommerce business?
Before we jump into the pros and cons of eCommerce, we first have to understand what exactly eCommerce is.
eCommerce, also known as electronic commerce or internet commerce, primarily uses the internet to buy or sell goods and services. This can include physical products, digital products and online services. Online retail is just one example of eCommerce. An eCommerce business may use internet marketplaces – such as eBay, Amazon or Alibaba.com – to promote their offerings to a wider (digital) audience.
As the popularity of eCommerce continues to grow, so do the types of business.
To date, there are five common types of eCommerce business models.
- Business to Consumer (B2C): The most popular of the lot, B2C refers to a sale that happens between a business and a consumer. For example, Lazada.
- Business to Business (B2B): B2B involves a business selling goods or services to another business. Unlike B2C, B2B does not involve direct contact with consumers and typically comprises of goods such as softwares and products. For example, CloudBric.
- Consumer to Consumer (C2C): C2C e-commerce refers to a consumer promoting their goods or services to another consumer. For example, Carousell, a consumer marketplace for the selling of new and used goods.
- Consumer to Business (C2B): C2B is when an individual offers their services or products to a larger business organization. For example, a freelancer providing his or her services on a project basis on Fiverr, a platform for procuring creative services.
- Direct to Consumer (D2C): D2C is a relatively new and emerging eCommerce model and refers to a brand directly selling to consumers without the need for a retailer or distributor. For example, Zenyum, a cosmetics dentistry brand.
While this list is non-exhaustive, there are so many different types of eCommerce business models for you to choose from depending on your business goals and needs.
Advantages of eCommerce businesses
With that, let’s jump deeper into the advantages of eCommerce businesses. An online business can be attractive for the following reasons.
- Low financial cost. Starting an eCommerce store involves a lower financial startup cost when compared to a physical store. Depending on your business objective, you can easily find an eCommerce platform that can accommodate your budget. Not to mention the costs that you save on store fronts, shop designs and electricity!
- Wider audience reach. Go international and sell your products to anywhere in the world with eCommerce. This is a great advantage as it helps you build your brand faster, broaden your marketplace exponentially and thereby potentially see profits more quickly. Consider WorldFirst for a more secure method of transferring payments across borders.
- Potential sales 24/7. Unlike a store with operational hours, your eCommerce is open throughout the day and night. With digital ads (such as Facebook ads), you can attract potential customers constantly. You can also automate your ordering systems to provide customers with a confirmation email after making their purchase. This could provide higher sales figures as compared to a physical store as you are constantly operating.
- Gain insights on your customers quickly. Compared to a brick-and-mortar store, you would receive your customers’ contact information to reach them more readily, as well as discover trends and popular products. This would help you customise your products and services, thereby making your offer more attractive to them.
- Easily scale up at your convenience. It is easy to scale up your business online. You can simply adjust your ad budget based on your needs and not worry about other factors such as physical space, or hiring more staff.
Disadvantages of eCommerce
However, an eCommerce business comes with its own downfalls too.
- Reliance on technology. Nobody will be able to buy from you if your website crashes. It’s the unfortunate double-edged sword of technology. Thankfully, you can prevent major website crashes with trusted service providers and enhanced security.
- High level of competition. The reality is that eCommerce has become incredibly popular in recent years. While quick and convenient, it also means that anyone can dive into selling online. Standing out in a crowd full of similar products may prove to be a challenge for some.
- Security concerns. Consumers are increasingly wary of divulging personal information online and with the rise in cyber attacks, it’s no wonder why. From names, contact details and credit card information in the list of details that could become compromised, consumers may hesitate to shop online and prefer the security of physical shopping instead.
- Added cost of operating an online store. While web hosting is not expensive, the costs of setting up and maintaining an eCommerce site do add up. You might also need more skilled labour, such as digital marketers and web designers, to ensure that you get the most out of your business. These might prove to be too much for small businesses just starting out.
- The novelty of brick and mortar stores. As convenient as eCommerce may be, nothing quite beats trying on a product and seeing it up close. Having an eCommerce business may also require a different return policy with delivery procedures for customers dissatisfied with their purchase.
It’s hard to deny the ease, popularity and prominence of eCommerce in recent years. In light of the recent COVID-19 pandemic, many businesses have also found themselves pivoting towards eCommerce as an alternative means for growth.
With these considerations in mind, you’ll hopefully have a clearer understanding of what eCommerce is and the potential benefits (and challenges) to operating one along the way.
For further information or any questions related to starting, incorporating or managing a business, including the best business structure for your needs, reach out to our partners at Sleek.
Sleek is the SMEs’ operating system. It enables entrepreneurs and investors to incorporate their company and manage their corporate, accounting and tax compliance online. Incorporate a company in Singapore 100% remotely, file requests to your company secretary 24/7, sign documents digitally with our eSignature platform SleekSign and manage your company through our secure online portal. Sleek works with startups and SMEs wanting to streamline their ACRA and IRAS compliance and get rid of the hassle of company admin.