E-commerce is a big step up from a basic website. How can small business owners ensure an online sales channel pays its way and helps grow the business? Vikki Bland talks to those in the know.
Small businesses contemplating an e-commerce website would do well to start with a realistic budget. Whilst it is possible to launch a basic e-commerce site for a few thousand dollars; customised features, site tools, marketing and legal expenses soon add costs. David Kelly, a director for e-commerce consultants Zeald, says it’s surprising how many customers have unrealistic ideas about e-commerce site costs. “We’re amazed how many times people tell us they ‘want a site like TradeMe.’ When we tell them a site with that functionality would cost around $750,000 to $1 million to develop, they say ‘but we thought it would be about $5000’!” Duncan Shand, an online consultant for Inside Out, agrees small businesses underestimate the capital needed for e-commerce as opposed to a simple ‘information only’ site. “As sites get bigger and there is more integration with back-end databases, it can get much more expensive. However, it’s worth comparing the cost of establishing an e-commerce site with say just one full page print advertisement,” says Shand. And James Wigglesworth, a consultant for eMedia says before outlaying money for e-commerce, businesses first need to know how to drive people to the site, what path visitors will take through the site, and how search engine optimisation will be achieved. Getting it right All three consultants believe e-commerce is an excellent and successful channel for business – but this depends on how it is set up and operated, and how well the business understands what its customers want from online sales. “Product and service information and a payment facility are not enough. An e-commerce site needs to be structured so that visitors are persuaded to buy online,” adds Kelly. He says visitors have to trust an online business, and there are different ways to build that trust. Examples include testimonials, guarantees or certifications, and providing enough information through the ‘About’ button on the site. “The more you know about someone, the more you trust them. So you need plenty of detail in that area – there is a common misperception that one paragraph will do it. Tell visitors everything they would want to know, including business vision, time in operation, and areas of operation,” says Kelly. Rod Drury, director for online accounting service Xero.co.nz, agrees the number one goal of an e-commerce business is to build trust. When people buy from a smaller e-commerce site they understand it might be a part-time venture, but that’s no excuse for not communicating with customers regarding delivery times and any problems. Drury, who is also a member of the TradeMe board, says e-commerce sellers also need to ensure supply chain issues are sorted – where will the business hold stock, do you have to pay money up front for it? And online service providers also need to be funded properly because it can take a long time to build up customer commitment. “We did a public offering to raise the money to run our online business properly,” he says. Drury says e-commerce entrepreneurs also need to look at international trends and opportunities. “Most New Zealand e-commerce ventures put too much focus on technology, when they need to focus more on selling,” says Drury. One example of an online retailer looking internationally is www.shopnewzealand.co.nz which offers New Zealand-made product lines and spends $20,000 a month on Google and Yahoo advertising. Managing director Chris Berryman says he markets his products in several different languages because people’s qualities and desires are different according to location (for example, while the Japanese love sheepskin products, the Koreans enjoy health products – and the company’s Manuka Honey range is a best seller in Europe). Berryman says employing a large multi-lingual workforce, well educated in marketing and IT expertise, is also an integral part of the strategic business plan. And it’s working – around 60 percent of the company’s business now comes from non-English speaking customers. Tips and realities Businesses often underestimate the amount of product and service information needed for online sales. Instead of one paragraph and one picture per item, site owners should think about four pages and ten pictures, says Kelly. Shand, who has consulted for e-commerce sites such as House of Travel, Barkers, and Vodafone, says site owners need to know what their online proposition is, and if it is significantly different from other, more established sites. And Wigglesworth says e-commerce sites should offer either unique niche products or services or an excessively large product range – for example books or DVDs. Shand adds that it’s important to attract natural Google search engine traffic as soon as possible; creating a Google ad words campaign can be useful because it can take a while for a site to come up in Google’s natural searches. And e-commerce businesses also need to pay attention to customer service. “Try to over-deliver; do something surprising; email as a follow up, or call customers and thank them,” says Shand. He says the ‘Web 2.0’ features of e-commerce sites – those inviting interaction – can be a two-edged sword. Whilst testimonials, customer reviews and allowing blogs and forums onto a site can be beneficial, site owners have to be prepared to take the good with the bad. However, Shand says receiving bad feedback can be a useful learning curve. Besides online sales, e-commerce sites can also be used for business to business transactions, such as sales between wholesale business partners, says Wigglesworth. “There’s no reason e-commerce can’t be used to lower manual ordering, faxes, phone calls, and numbers of back-end staff; it’s about leveraging the power of the Internet,” he says. One business doing just that is taxi billing service, TaxiCharge NZ. TaxiCharge processes some 250,000 taxi transactions per month and lets customers view scanned copies of their used vouchers, and current and past invoices. The online facility has dramatically cut the number of calls to customer service staff, says general manager Mark Lines. When Louise Tanquay started her business Thesleepstore.co.nz from home, her previous e-commerce knowledge was limited to ordering theatre tickets online and using TradeMe. “I have found the learning curve fascin-ating and am amazed how quickly I have been able to learn things that make a significant difference to the business,” she says. Tanquay and husband Matt have two pre-school age children and another baby due this year. Their business, which sells sleep-aid devices for babies, including a wrap of their own design, employs them both full time, with a part time person employed three days per week. The business is fully online; it broke even on the cost of set up at around six months, and at two years old is at the point of being able to support the family. “Matt is working on an affiliated marketing programme to grow our market share and I try to keep on top of the emails every day. These are not only sales and product related enquiries; we also get a large number of enquiries for free sleep advice,” says Tanquay. This is indicative of where the web has evolved to in recent years. The phrase ‘Web 2.0’ relates to the use of the Internet as an online meeting place where people can share ideas and feedback and interact – site owners are beginning to work out ways to evolve their sites through the inclusion of free advice, blogs and forums. However, Tanquay says peoples’ enquiries can be quite personal and, depending on the topic, not necessarily something they would be comfortable placing in a public forum. Additionally, administrating the Web 2.0 aspects of a site can be time consuming. “For personalised sleep advice, it can take up to a week to get back to people, so we have a lot of articles on the website designed to offer help. I also do a blog on Nappies.co.nz, but I find I just don’t have a lot of time which is why I don’t do a blog on my site – in the longer term it is a possibility.” Products sold on thesleepstore.co.nz include a wide range of devices designed to help babies and toddlers sleep, including sleeping bags, swaddling wraps, and ‘white noise’ machines. Products are sourced nationally and internationally, usually arriving in cartons which congregate in Tanquay’s hallway. Keeping accounts up to date, setting up e-commerce site payment facilities, dealing with customs and ensuring supply are all challenges to be overcome, says Tanquay. “Initially I did all the bookwork myself and I still do all my own customs clearance. But I now have an accountant, because otherwise you spend so much time you could be spending growing your sales, filling out spreadsheets.” She says there are hidden costs to e-commerce. Around 90 percent of customers prefer to pay by credit card, with the rest making an online banking deposit. Tanquay’s web consultant Zeald, which built the site, took care of setting up the payment side of the e-commerce site after Tanquay approached her bank and was told the bank was unable to provide an interface between its card systems and the e-commerce payment vehicle on the site. “[When] processing credit card transactions, you pay your payment gateway and your merchant fee to the bank; and that can be up to nine percent commission; then you pay your site hosting fee. It is far easier to go with the solution your web developer integrates,” says Tanquay. She says it’s a good idea to learn as much as possible about e-commerce, including using free courses such as those offered by Trade and Enterprise New Zealand. “They have provided wonderful free training. We have also had a lot of help and advice from Zeald.” One area of e-commerce new site owners may miss is the legalities of online trading. Because Tanquay imports baby care products, she is responsible for ensuring these meet legal health and safety guidelines. “I did take some legal advice and we do have public liability insurance. But there’s not much more you can do except ensure your products meet legislation regarding health and safety. You have to be on top of that if you are importing.” Thesleepstore.co.nz has had a stand at the Parent and Child Show for the past two years and Tanquay says she has put a lot of effort into search engine optimisation with guidance from Zeald. The site also advertises through parenting related print media, and asks site visitors how they came to hear of the business. “Over half our business comes from web searches and about five percent of that is international sales. Long term we would like to expand more into Australia; there’s massive potential there and in New Zealand, especially with the current baby boom,” says Tanquay. She says if the business suddenly took off or received an unexpectedly large order, supplier relationships come to the fore. “I would be on the phone to our suppliers in the US, Australia and Canada and New Zealand. Some of them [can] have the cartons on my doorstep the next day.” Not a chilly idea When Melissa Hay, her husband Chris, and friend Rosie Henderson got together to launch an online site selling uniquely Kiwi photographic images for advertising agencies and others, they decided to do it properly. Rosie, a graphic designer, and Melissa, who has a background in the HR industry, were frustrated by the lack of quality Kiwi imagery at affordable prices and set out to research the market as well as the e-commerce scene. “As part of our research, we spoke to a number of photographers and designers about the concept and functionality of the site. This dialog was beneficial as we were able to modify the site to suit the needs of our customers from the outset,” says Hay. Each time a customer – usually an advertising agency or graphic designer – chooses to download an image, they pay a set fee according to the size of the image. The photographer who uploaded the image then receives part of the payment. Images are checked and graded before they are accepted or rejected, and they need to adhere to the market the site specialises in. Photographers retain copyright of the images. Once they realised they had struck a market niche, the directors of mychillybin.co.nz went looking for a web consultant and quotes for the cost of building the website and setting up payment systems. While the site eventually cost between $50,000 and $65,000 to establish, the quotes the women received from five different web development companies ranged from $25,000 to $200,000. “The cost was a bit more than what we thought it would be; but it is a robust and quite complex site as far as the back-end and functions go; we also have a robust search engine, with all our images available online,” says Hay. Hay says because website developers use image libraries themselves, they anticipated what the directors wanted to achieve, including an online database for photographers to upload images, cataloguing tools and water marks to protect the images from ending up in the public domain. The professionalism of the directors doesn’t end there. After selecting their web development partner Hot Creative, a public relations consultant was also hired. “The PR company was also a good investment; it has given us lots of ideas – for example, running competitions within photography schools and helping photographers to get exposure and cash for course fees,” says Hay. She says with the site fairly new (it was launched in February) print advertising has yet to appear; in the meantime the site is being promoted via GoogleAdwords and the Google search engine. “As our library gets larger and we develop specific categories we would target, for example, fishing magazines for fishing images. Also certain design magazines,” says Hay. She says the directors are looking at the community or ‘Web 2.0’ aspect of the site, investigating blogs, forums, and including photographer details and competitions. The ongoing costs of e-commerce are manageable, says Hay. There are fees attached to online credit card payment facilities, but as no images are paid for up front, supplier costs to the business are mitigated. Less straightforward is the legal and privacy ramifications of dealing in images: those with identifiable people in them require a ‘model release form’ from each photographer to demonstrate the person in the photo has given consent to their image being used. Images of people under 18 have to be approved by a guardian. “We had lawyers who specialise in Net business go over contracts and site legalities with a fine tooth comb; there are also unique aspects of the site that can’t be copied,” says Hay.