E-commerce is the decision by a consumer to purchase goods or services online. The “E” stands for “electronic.” Over $4 trillion in sales globally are expected in 2020. The United States is responsible for approximately 25% of these transactions. Because there are so many selling platforms available to small business owners, partnerships, and sole proprietors, now is the perfect time to start a company because it can be a low-cost endeavor.
E-commerce comes with plenty of advantages that are worth considering, ranging from an ability to sell goods or services internationally to a 100% customization opportunity. As with any business activities, there is always a risk of failure that owners must consider. If you operate as a partnership or sole proprietor, there is also the issue of having your personal finances mixed with your corporate money.
If you are thinking about getting involved with an online store or creating a website for your brand, then these are the e-commerce advantages and disadvantages that you will want to review before going live with your idea.
List of the Advantages of Ecommerce
1. It offers a lower startup cost when compared to other business opportunities.
Selling goods or services online is a lot cheaper as a new company then it is to secure a physical retail store or office. You would need to pay several thousand dollars in rent and invest in inventory to draw people into your business. Then you would need to pay for interior design services, store signs, equipment, a point of sale asset, and more for every location you operate. Retail outlets often need security personnel to counter the threat of shoplifting.
If you want to start an e-commerce business, then you can do sell for less than $500 in most jurisdictions. You can then work with a platform like Shopify to create an all-around service opportunity for your customers at a price that is less than rent. When you provide services, then a platform like Fiverr has no upfront costs beyond the equipment you need to make money. You simply provide a commission on every sale you generate.
2. You have 24/7 income potential.
When you operate a store in your community, then there is an excellent chance that you will close your doors during the overnight hours. If you use an e-commerce solution instead, then you have an opportunity to earn money all day, every day. You can attract someone from any part of the world during their peak time for browsing. ‘Then you can process their order at a time that works into your schedule so that you can maximize your productivity.
An e-commerce platform also gives you the opportunity to target potential customers who work at odd hours. If you automate your ordering system so that it doesn’t need direct attention, then this benefit is always present.
3. Selling internationally is easy with an e-commerce platform.
An e-commerce platform gives you the opportunity to start selling internationally from the first day that you are open for business. It is an easy way to begin growing your brand while having access to a broad marketplace that welcomes your goods and services. Many small businesses find that having drop shipping services available can lead them toward profitability much faster than if they started a company that focused only on local needs.
You can even take advantage of this benefit when working with platforms like Etsy or eBay to sell your items. It is a simple way to price your items competitively while shipping products without experiencing a drop in profitability.
4. You can always show off your best items.
Have you ever been greeted by a sales representative at a store and left because the encounter didn’t feel positive? When you have an e-commerce platform, then you can always showcase your best products or services without saying anything else to the consumer. It is much easier for customers to find their favorite items online than it is to hunt them down at a physical location.
Some stores even have the ability to remember orders previously placed by customers so that reorders are a simple and straightforward process. You can also include photography, product descriptions, and public reviews as a way to entice an immediate sale.
5. It is easier to create a personalized experience with e-commerce.
You can create personalized landing pages for different audiences when you operate a business on an e-commerce platform. That means you don’t need to nurture the individual from the first moment that they walk into a physical location. You can do all of the hard work before you even launch the website, which means you can sit back and relax a little while watching visitors convert into customers.
A majority of consumers shop online because they want to find the best deal possible. If you provide product bundles that people can purchase, then it will create a higher average order value while securing a better percentage of the market.
6. You can do all of the work by yourself if you want.
When you run an e-commerce business, then it is up to you to decide if you want to hire employees. Many small companies operate with a single person (the owner) controlling everything because of how much automation is available today. If you do need to have some additional help, then you can choose to outsource some duties to virtual assistants, freelancers, and others in the gig economy.
At launch, there is no need to hire employees. That means your startup costs are going to stay low.
7. It is easier to encourage impulsive purchases through e-commerce.
Grocery stores place sugary snacks and drinks in the checkout line as a way to encourage impulsive purchases. When someone is bored and waiting for their turn, comfort foods and entertainment options become a top priority. When you run an e-commerce site, then vibrant colors, attractive products, and creative content can drive human emotion toward a purchase that wasn’t intended when the website first loaded.
E-commerce platforms provide a variety of features, such as countdown timers, that can encourage more purchases through the tactics of scarcity.
8. You can retarget the customers that left your store easily.
If a potential customer walks out of a physical storefront, then there is a good possibility that you will never see that individual again. When your business has an e-commerce solution, then you can reach out to prospective customers with retargeting ads to encourage them to come back. Collecting email addresses can be an effective way to return someone to an abandoned cart. Continuation marketing and lead magnets help after you’ve made the sale so that another one could happen.
9. E-commerce provides fewer invasive experiences.
Some people hate walking into a store because it forces them to interact with the employees who are waiting there to sell them something. This issue is even worse when those workers earn a paycheck based on commissions. When your business operates from an e-commerce perspective, then the customer is the person who is in control of the shopping experience. They can choose to contact you, or a designated party, based on the information provided on your site.
10. You can process a high number of orders by yourself.
Although order processing and inventory control are extensive time commitments that you must manage with an e-commerce business, you can still process a significant number of orders without hiring anyone. You don’t need to physically have the product to sell it to someone if you choose to use dropshipping techniques, which means you can even avoid problems with stock control. Customers have the opportunity to place orders based on their schedule without experiencing a delay.
List of the Disadvantages of Ecommerce
1. Your website could crash.
When you run an e-commerce business, there is always a risk that your website could go down. That’s why you need to have the site hosted on a reliable platform. Although you can work with companies that offer cheap hosting fees, one surge in traffic could be enough to bring everything down.
This disadvantage is the reason why you see many e-commerce businesses using platforms like Shopify to meet their needs. Free house thing comes with the monthly fee you pay so that you have access to reliable servers.
2. Customers can’t try a product before purchase.
E-commerce solutions do not provide customers with an authentic way to interact with products before they need to make the decision to buy them. Although augmented reality will reduce the issues with this disadvantage in the future, the problem is not going to go away entirely. Physical stores allow customers to handle samples and experiment with items to see if a product can match the value proposition suggested by its manufacturer.
Some platforms have experimented with the idea of allowing free returns for customers to let them try certain products, but this effort often leads to a significantly higher rate of returns.
3. Online businesses face a highly competitive environment.
Finding the correct niche for your e-commerce business isn’t the easiest task in the world to complete. If your industry is in a highly competitive sector, then the number of businesses who will fight for the same customers that you need is going to be exceptionally high. There are marketing techniques that you can use, such as SEO, that can help you to stand out from the rest of the pack, but that isn’t a guarantee of success.
Some of the advertising options that can give you a competitive edge are surprisingly expensive. You can retarget customers and send traffic to blog posts, but there is never a guarantee that your light is going to shine brighter than what someone else is currently offering.
4. Customers expect fast and efficient service when shopping online.
Most businesses experience a delay when responding to questions that potential customers have about products or services. A salesperson in a physical store can provide immediate answers. If you receive a query through a social media outlet for your e-commerce business, then the average person is going to expect a response within 60 minutes. If there is a delay for any reason, then there is an excellent chance that you just lost a sale. That means you must be online 24/7 to avoid this disadvantage – and that’s not really feasible if you’re a one-person show.
This disadvantage is the reason why many brands, including large companies, are moving toward artificial intelligence, automation, and chatbots. These tools can help more customers find the answers they need, but it isn’t a solution that works 100% of the time.
5. Shipped products run the risk of being lost by your delivery companies.
One of the worst disadvantages of operating an e-commerce platform involves shipping processes. When someone visits a store to purchase something, then they can walk out with the items they needed. That doesn’t happen when you buy something online. Some businesses take over a week to deliver ordered items but expect upfront payment to begin the delivery process. If a delivery company loses the package, then the customer doesn’t receive their order and you lose the inventory.
Amazon offers same-day shipping, and several stores are providing two-day options. The cost of using services at this level may not be feasible as a new company, but transparent policies in this area can help tremendously. When you let people know when to expect their packages, then you can avoid some of the issues with this disadvantage.
6. Physical retail shopping is still more popular than e-commerce.
Even though e-commerce platforms may bring in over $4 trillion in 2020, that figure represents only 20% of the overall retail market. The industry accumulated over $22 trillion in revenues – and that was in 2014. Most of the money is still going to be made at a physical location because of the advantages that a storefront provides. When you look at the figures from online shopping, a significant portion of the earned revenues come from Amazon. That means you have a small window where your expertise can start to shine.
7. Customers can shop instantly for a better deal.
Most consumers will complete at least 90% of your sales funnel without any prompting from your company. The amount of information that is available online today allows anyone to research any product at their convenience. A customer who shops on your e-commerce platform has likely already looked at your brand, competitor pricing, and the reputations of every business in your industry.
If you don’t receive a lot of business every day, then there is an excellent chance that your prices are higher than what a competitor offers. When you can’t compete with that pricing scheme, then you must find some other way to provide value to consumers. That isn’t always easy to do.
8. There is a higher risk for credit card and delivery fraud.
Most customers will work with your e-commerce business in ethical ways. A physical storefront runs the risk of shoplifting. An online company deals with credit card and delivery fraud. A small fraction of buyers will notify their card provider that a purchase with your company was fraudulent. After an investigation occurs, you might experience a chargeback on your account. That means you lose the revenues from the inventory – and the item you shipped.
Some customers will also report that they never received the item in question after you notified them of delivery. This practice hopes to duplicate the items to add value to the order. This issue can be tempered by providing tracking information every time you send an item out. Shipping insurance is also a fantastic investment to make.
9. It forces you to put everything into a single basket.
You can operate from a shoestring budget when you start an e-commerce business by yourself. That also means that all of your income relies on a single resource. Technology hiccups and downtime problems can create a substantial loss of revenue, even if the incident only lasts for a few minutes. Customers are going to blame your company for any issues there encounter, so it may be helpful to create a small physical storefront if you can afford to do so to create multiple sales possibilities.
E-commerce is a way to provide customers with instant gratification. People will come to you with high expectations. If you can meet or exceed what they envision your products or services can offer, then you will have a loyal consumer who promotes your brand at every opportunity.
If you deliver a poor experience with an e-commerce platform, then the customer will do more than buy something from a competitor. Online reviews give consumers the opportunity to talk about their experiences with your company, and a majority of people today treat this information as if it was a personal recommendation from a family member or friend. The problem is that some of the elements of each transaction fall outside of your personal control.
That means the advantages and disadvantages of e-commerce present an all-or-nothing scenario. If you can meet the pain points of your target demographics effectively, affordably, and efficiently, then you can find a great deal of success while staying as a single-person operation. When you don’t provide that outcome, then it can be challenging to find anyone wanting to do business with you.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.