With global online sales predicted to reach $6.3 trillion in 2024 and to continue growing in the years that follow, the allure of the ecommerce business model for aspiring entrepreneurs is clear.
Ecommerce allows you to start a business with relatively low overhead costs. However, it comes with a set of benefits and drawbacks that can affect your decision to pursue this venture.
Let‘s look at the main advantages and disadvantages of ecommerce to help you decide whether it‘s the right option for you and your business.
What is ecommerce?
Ecommerce refers to the sale and purchase of goods over the internet. It‘s a method of retailing where businesses and consumers interact digitally. Sellers list products or services online, and buyers can shop from anywhere, anytime. This system enables transactions to happen quickly and securely, with payments made online through various methods like credit cards, digital wallets, or online banking.
Advantages of ecommerce
Low startup cost
Starting an online store is usually cheaper and easier than setting up a brick-and-mortar business. Brick-and-mortar stores have many upfront costs, such as renting space, stocking up, buying equipment for sales, and possibly hiring workers. On the other hand, online stores mainly require a domain name, web hosting, and an ecommerce platform service, which costs less at the start.
Also, creating a brand online can be less expensive. For example, making a logo for your online store typically costs less than getting a sign made for a physical store. Hiring good graphic designers for your website often comes at a lower price than doing a paint job for a physical location. In general, the costs of running an online shop are lower, which is great for new business owners.
Broad reach
Online businesses can serve customers far beyond their local area. This vast reach means access to a larger pool of potential buyers. Consider choosing a platform that supports international sales and multilingual communication to fully capitalize on this opportunity.
Before, setting up a website to cater to different languages and regions was a complex task. Now, platforms like Shopify make it easy to reach and engage with customers worldwide.
Efficient order processing
When doing business online, you have a few ways to process a high number of orders. One of them involves using dropshipping suppliers. This method lets you sell products without having to stock them physically, eliminating concerns over inventory management that traditional stores face.
As your online venture grows, you might also look into hiring staff to manage the increased order flow. Unlike physical retail environments, where long queues can turn customers away, ecommerce offers the convenience of placing orders at any time, facilitating the handling of a high volume of orders efficiently.
Personalization
It‘s easier to personalize the online shopping experience than an in-store one. Ecommerce businesses can use data and technology to tailor their offerings and marketing. For example, you can segment your email list based on customer activity, such as past purchases or how much they‘ve spent, to send more targeted emails.
You can also show personalized ads to customers who visited your site but left items in their cart. If your site has a login feature, you can greet users by name when they return. Additionally, suggesting product bundles or upsells based on their browsing history or purchases helps you offer more value and enhances their shopping experience.
24/7 operation
Another perk of ecommerce is that your online store is open 24/7. This means you can serve customers at any hour, not just between 9 a.m. and 9 p.m., like most physical stores. This gives you an edge by reaching those who shop at unusual hours.
Additionally, having your store available all the time offers convenience that could match well with the lifestyle of many customers. Whether they‘re night owls or early birds, your online shop is always ready to welcome them. This accessibility can enhance customer satisfaction and potentially increase visits to your site.
Impulse buying
In ecommerce, you have a better chance of driving impulse purchases since online shopping lets customers quickly act on their desires. Consider a time like the holidays, when people are often looking to indulge in a bit of self-love. They can just visit an online store and buy their favorite skin care product or gourmet snack in just a few clicks. This immediate satisfaction is harder to achieve in physical stores, where long lines and limited stock are common barriers.
Bestsellers showcase
Ecommerce makes it easy to highlight best-sellers to customers. In a physical store, customers might need to wander through aisles and shelves to find these products. Online, it‘s simpler for a customer to spot bestsellers.
You want customers to buy your bestsellers because these items are proven. They‘ve been bought and liked by others. To introduce new products, you can use upselling, email marketing, or retargeting ads. An ecommerce store allows you to use great photos and detailed descriptions to help sway customers‘ choices.
Scalability
One key advantage of ecommerce over traditional retail is scalability. With a physical store, there‘s a limit to how much your business can expand before needing a bigger space. Moving inventory and setting up in a new location is also challenging and expensive. In contrast, ecommerce stores are easier to expand and adapt. You can add more products, serve more customers, and even enter new markets with just a few clicks.
Granular insights
Ecommerce lets you get to know your customers. With Google Analytics, you learn how people find and explore your site. Then, your online store‘s own tools tell you what items people buy, how they browse, and whether they complete their purchases. Putting all this customer data together helps you see patterns, figure out which products are popular, and adjust your marketing to fit your customers‘ interests.
Customer retargeting
Retargeting means showing ads to people who visited your site but didn‘t buy anything. Ecommerce simplifies retargeting by feeding data about customer visits and actions directly to advertising tools. For example, you can add a Facebook Pixel to your Shopify store to track visitors‘ actions, such as the products they viewed or added to their cart. With this information, you can then create targeted ads that appear in the Facebook feeds of those visitors, reminding them of the products. This makes ecommerce retargeting a powerful tool for recovering lost sales and driving repeat business.
Disadvantages of ecommerce
High competition
Ecommerce is a highly competitive field with thousands of sellers in nearly every niche. This competition means you usually have to spend more on advertising to get noticed. However, there are strategies to avoid high ad costs.
For example, if your competitors are targeting customers with Facebook ads, consider using SEO to improve your natural search rankings. If they‘re using SEO, maybe try email marketing to connect with customers differently. Improving your site‘s ability to convert visitors into buyers, known as conversion optimization, can also make a big difference without a huge ad spend.
Technical challenges
Configuring an online store can pose challenges for individuals who are not tech savvy. You might need some technical skills to ensure your website loads fast or to address any issues with its functionality. The same applies for consumers visiting your site—it may require some technical expertise to connect digital wallets and troubleshoot browser compatibility problems.
Shipping costs
When people shop online, they often need to pay extra for shipping so their items can get delivered. How much the shipping costs depends on where the customer lives and what kind of delivery they choose. For instance, getting your order on the same day costs more than if you‘re willing to wait for standard delivery. These shipping fees add to the total price of your item. If the fee is high, it could prevent customers from completing their purchase.
Security risk
Online retailers often manage credit card information and other sensitive data from customers. Cybercriminals are aware of this, which is why they frequently target ecommerce sites with phishing and DDOS attacks. An essential step in safeguarding your data is choosing an ecommerce host that prioritizes security features such as SSL certification and secure payment gateways.
Less immersive experience
While technologies like augmented reality and live shopping have made ecommerce more immersive, there are still areas where it doesn‘t quite measure up to shopping in a brick-and-mortar store.
For example, when shopping for clothes, many people want to feel the fabric and see the colors in natural light. Despite virtual fitting rooms and detailed product descriptions, this physical interaction is hard to replicate online. As a result, businesses focused solely on online sales might not capture customers who prioritize these in-store experiences.
Does ecommerce fit your needs?
Evaluating whether to venture into ecommerce requires understanding your product and who buys it. Look at these areas of your business to decide if selling online is right for you:
Business goals
Begin by evaluating your future plans. If you‘re aiming for rapid expansion or reaching a wider audience, the digital marketplace can provide these opportunities. However, if your vision is more about being an integral part of the local community, a physical store might better suit your needs.
Product type
Next, think about what you‘re selling. Some items, especially perishables or those with shipping restrictions, might not do well online due to delivery challenges. It‘s important to research shipping regulations for your products before deciding to sell online.
Competitors
Then, look at your competitors. If they are successfully selling online, not having an online presence could put you at a disadvantage. Understanding the competition helps you figure out if you need to be online to keep up or stand out.
Target audience
Finally, consider who you are selling to. Different groups have different shopping preferences. For example, Gen Z audiences may prefer shopping online, while older customers might like to shop in person. Doing research on your target audience will help you decide whether ecommerce fits your business strategy.
Making the decision
There you have it—a list of ecommerce advantages and disadvantages that reveal the true nature of running an online business. Although the benefits outweigh the challenges, it‘s important to do your research and proceed with your vision clearly in mind. Are you looking to establish a presence in multiple markets? Does offering a personalized shopping experience sit at the top of your agenda? If you can answer yes to these questions, then venturing into ecommerce might just be the right move for you.
