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Should a retail shop have its own e-commerce site?

Most Web agencies and online marketing strategists will advise any-size brick-and-mortar retailers to have their own online shop. The alleged reason is that online marketplaces ask for too large a fee and don't allow sellers to perfectly control their image online.

Our experience, however, tells us that having your own e-commerce site makes economic sense only for larger retail operations and for producers. Let's see why:

  1. Having your own e-commerce site built by a supplier will cost you anywhere between $5,000 and $20,000, unless you can do it yourself because you possess some graphic design skills and use a modern and efficient platform (like Shopify or Magento, for instance, which are both integrated with Nembol).
  2. Once your e-commerce website is built, you still have to select products, describe each of them, take pictures, and decide what price to set online. This requires the same effort as selling on a third-party channel such as Amazon, eBay, Storenvy, Etsy, or Jet.com.
  3. Once your online store is built and populated with products, you still need to attract potential buyers to it. You can buy visits from Google, Facebook, or other content sites or you can hire an SEO expert (Search Engine Optimization). One way or another, at the beginning you can expect to pay around $0.40 per visit.
  4. If your website is averagely made, your products are correctly priced and well described, and you have a decent online reputation, you may expect a conversion rate of around 1%. This means that 1 out of 100 people visiting your website will actually make an order. In other words, each order you receive requires on average 100 visits to your website.
  5. Because you are, one way or another, paying $0.40 a visit, each order will initially cost you $0.40x100 = $40.00. Your average ticket and/or margin must be pretty high to pay such a variable cost, repay a fraction of your investment, and (sooner or later) make some profit.
  6. This is true until your online operation is big enough, your experience wide enough, and your prices, pictures, product range, descriptions, and promotions good enough for your conversion rate to go up to 1.5% then 2% then 2.5%. This is really difficult and will take many years for many of us and forever for most. 

It now becomes clear that the destiny of smaller retailers' own online stores is to remain empty of traffic and void of orders unless they are willing to budget enough money to buy enough visits to convert into enough orders to sustain the store improvement.

Hence, the e-commerce site you see run by your competitor is probably just there because of bad planning or because it is considered a must-have and isn't really expected to turn a profit.

Still, e-commerce is growing 30% a year in most economies, so how can a traditional retailer successfully sell online?

We think that the solution is to start selling on one or more marketplaces, such as eBay, Amazon, Etsy, Storenvy, and a few more that invest millions of dollars to generate traffic to their Web pages and, as a consequence, to your listings. This is your best option until your turnover is big enough that you can afford a structured operation with a functional online marketing activity. 

Currently, eBay charges 8.7% on sale + 2.9% PayPal, while Amazon charges 15% on most categories. This seems a heavy toll for a retailer, but if you are selling an item priced at $150.00 for instance, then Amazon fees will be $22.50 and eBay+PayPal will be $17.40. In both cases, the fees are much lower than the approximate $40.00 estimated above for your own store.

If you are selling cheaper items, marketplace fees will be even cheaper, while your compared $40.00 of online marketing costs would not change. Only if you are selling items priced at $300 and up will marketplace fees match the estimated online marketing costs of your own e-commerce.

So marketplaces end up costing less than your own small store, at least at the beginning. In addition, their fees are almost entirely variable on sales so they are easy to finance and control.

A final note: while selling on most marketplaces, savvy sellers will be able to grow an audience as well as their online reputation and actual experience. All this will serve later to boost sales on their own subsequent, larger e-commerce enterprises.