Let’s Compare Different Home Based and Online Businesses
This is part 2 of the series on How To Pick The Best Online Business
In the first article we compared traditional bricks and mortar businesses with online and home based businesses in general. Read Part 1 – Click Here
I will share what I have experienced from 35+ years of being involved in all types of online and home based businesses. I also have the added experience of 17+ years as a web designer, helping hundreds of people either start an online business or improve their websites exposure.
Lets Start with Shopping Cart Businesses
I have developed many shopping carts for clients, so they can sell their stuff online. What I have experienced, is that the online store, is no were near as profitable as the online store owner expects.
- The online store owner normally thinks that they put up a fancy website and the orders just come rolling in, with out doing anything else…
It is as if they didn’t heard what I said from the start. Yes the website will be very SEO friendly (Search Engine Optimized). Need to create awareness, using Facebook and other social media, write blog articles, engage conversions on related forums etc. Marketing needs to be done, online and off line.
- Marketing needs to be done for a new shopping cart. Now marketing can be paid for in 2 ways either with your time or your money. So with a very experienced and cheap marketing package should be budgeted for at least 150% (in the first year) of the development cost (if this is mostly outsourced to India or the Philippines) other wise the cost will be probably be much higher.
As a side note, there are good, bad and terrible SEO and Marketing people from India or the Philippines. You need to filter out the shonks… (from any country).
- That makes the initial outlay about $7,000 to $10,000 (at least) in the first 12 months to set up a good Shopping Cart Website and marketing it online. Plus the shopping cart owners still need to update the website, create regular articles, send out newsletters to clients, to keep customers and potential customer, connected.
- Now the Online Store needs Stock. The stock normally needs to be purchased upfront, before any sales are made, so the business owners are out of pocket again before they make a sale!
- Storage, Packing and Shipping, we need to ask! Does their car sit in the weather and the Online Store Stock live in the garage?
What is the turn around time from the order being placed to shipping?
If it is ordered today and it needs to be shipped withing say 24 hours so the customer gets it within 5 days of placing the order. Then how do you have a long weekend, let alone having a week away…
- Gross Profit and Mark Up. Yes you don’t have as many overheads, like a bricks and mortar store. You still have overheads and there is your time. BUT so often I see the Store Owner thinking like a consumer, not realizing what the Gross Profit should be on each item. They need to think as a business owner.
Many business owners, (of all types) think that Mark Up on an Item they purchase to sale of that product is the same as Gross Profit!
HA! ha! Here is an example, you buy stock in at 50 cents each and you sell that same product for $1.00. That is a 100% Mark Up, right!
BUT the Gross Profit on that Sale is only 50%. So by the time you add all the costs to have it and sell it (website, marketing, your time etc) the Net Profit is much less.
The Gross Profit:
The Gross Profit is the difference between the cost to purchase/make a product C and the selling price or revenue R.
P = R – C
The Mark Up percentage:
The Mark Up is the profit P, divided by the cost C, to make the product.
M = P / C = ( R – C ) / C
- Downward Pressure… It is a fact that when people shop on line they expect to pay much less for an item, that they can get at the local shopping centre. BUT again with every man, women and dog selling the same stuff from all corners of the globe online. Price wars being and everyone looses, except the consumer. The business owners Gross Profit shrinks even more.
- As a business owner you need to know the CPA (Cost Per Acquisition) of a customer. The cost to acquire a customer needs to be less than the Net Profit (profit after everything is paid out) made on the sale.
So yes having a shopping cart home based business can be great and quite profitable.
BUT only if you treat it like a real business, have a specific target market and you can do a lot of the online marketing yourself.
Plus you need to have a Plan B so you can have that long weekend, or weeks away enjoying life.
As you can see that having an Online Shopping Cart Business is just a JOB. However you do have the flexibility and you are your own boss. The other option is become hugely successful and move the business to a big warehouse and have staff!!! More and Bigger Headaches…
Lets Look at Drop Shipping as a Business
Drop Shipping is a smarter way of having an Online Store. Some of the reasons are;
- You don’t have to buy your stock, you are selling someone another companies product. So one less overhead and the car can live in the garage!
- You don’t normally do the invoicing or customer support. That is to be done by the company that you are selling the product for.
- You can have that long weekend or holiday. As you are not the person doing the packing and shipping.
There is another Drop Shipping Model, let me explain how it works.
- You source a hot, new, trending product.
- Find a reputable manufacturer, say from China. They copy it, make it, package it and ship it to say Amazon.
- Meanwhile they keep their finger crossed that the quality, packaging, spelling and the delivery to Amazon are all OK.
- Then from there it relies again on Marketing, however on Amazon customers Reviews carry a lot of the social proof to help other people make that purchase and you can’t buy Reviews!
- The product life is normally short lived, as it needs to be a new hot in demand product.
- So you start all over again, find a product have a replicated, made and shipped. Then build the marketing and social proof around it. Wow that can be a lot of work.
- It’s a Gamble as you have no previous history of sales for a particular item. It’s a big gamble. I know people that have been stuck with a garage full of unsaleable items. Do you know anyone?
However most Drop Shipping Businesses have to;
- Have a shopping cart type website set up. Which is linked to the company supplying the product(s), so stock levels and invoicing are reflected and done by the supplier.
- Drop Shipping websites are marketed online (or off line).
- Limited market potential, normally a drop shipping sale, is a once off sale.
That once off sale is either to be one large up front product, like a garden shed. Then you have the smaller add ons, door locks, extra tie downs, pick up or delivered etc.
Or to be a smaller product that is consumer-able, lower profit per sale, however they could be repeat orders. You need to re-market (email follow up etc) for all online, or for that mater off line product sales.
- Then the supplying company may also become your competitor! They normally also market to the customers you found for them. The supplying company may offer back end products, that are more profitable and you miss out.
- As a business owner you need to know the CPA (Cost Per Acquisition) of a customer. Cost to acquire a customer needs to be less than the Net Profit (profit after everything is paid out) made on the sale.
Another 3 groups of Home Based / Online Business types
- MLM (Multi Level Marketing) also referred to as Network Marketing.
- Other online opportunities, like an automated Bitcoin Trading site, or an online gambling scheme. Some come close to being a Ponzi Schemes, so please be careful.
- Then there is Affiliate Marketing. In these 3 groups of business/opportunities.
Traditionally there is a high turnover of Distributors or Affiliates and lots of the time the Opportunity/Scheme/Program it’s self-folds.Why?
The important thing is to understand what makes the Best Online Business the Best for You!
In tomorrows article I will expose, the good and not so good aspects of these 3 types of Businesses/Opportunities.
You Need a Plan B….
If you have any business online or off line, it’s survival and profitability relies heavily on Marketing. Stay tuned and I will show you a Plan B that will also teach you critical Marketing strategies.