Is e-commerce passive income?

E-commerce, especially with the acceptance and growth it has enjoyed over the last 20 years is still a great way to make money. But… and you know there is always a But with every question. E-commerce is about more than just throwing a few items to sell on a website or sales platform like Amazon or eBay. It is hard work and definitely not Passive Income.

Your success will depend on several things:

  1. Finding a unique product to sell. The competition for selling common items is intense. On all of the major sales platforms, you will find lots of sellers of similar products and razor thin profit margins unless you have something unique to sell.
  2. Developing unique and creative ways to advertise and market your product. You must figure out a way to make your products stand out from all the other similar products. You must give your customer a reason to buy from you instead of all the other competition. Write unique and creative sales copy. Take high-quality photos showing your products in their best way possible.
  3. Customer service. You must be able to answer customer questions in a timely manner, ship goods quickly, and handle any follow-up issues the customer may have. Be knowledgeable about your products so you can offer assembly or installation tips. You must appear professional and trustworthy before you can expect to give your customer sensitive information like credit card numbers.
  4. If you are going to sell from your own website you must market the hell out of your products so people know you exist. Customers can’t find you if they don’t know your name or if you even exist. You must be willing to use free marketing, social media marketing, paid advertising, email marketing, and whatever else it takes to drive traffic to your website.
  5. You must continually strive to improve. Add new products, seek out new marketing opportunities, and stay ahead of the competition.

Now when going thru all of the above points, nowhere do I mention passive income. E-commerce is not a passive business even with all of the advances made in the field of automation and performance apps. E-commerce takes hard work all the time. Researching and sourcing new products and new suppliers, writing and creating attractive advertising, and most importantly developing hands-on customer service.

Why you should try and sell higher priced items when you have a Niche.

Welcome to the world of retail. You will always have to remember that you have costs associated with any order. Then remember that it costs the same to process a $15.00 order as it does to process a $50.00 order.

When you have a niche, hopefully, you have chosen one that is unique that will allow you to sell higher priced items and make higher profits. If your product isn’t really unique or low competition, you really don’t have a “ Niche”.

You will pay someone to process an order, review it, make sure the payment has cleared, print a label and send it to your shipping department. They then must pick the merchandise from your inventory, choose the right sized box, package the merchandise securely, and ship it out. You then have to pay your customer service staff to notify the customer with a tracking number and to handle any customer service issues that might come up. You must also factor in the cost of potential returns.

Even if you are a solo operation and do all of these things yourself, you pay with your time and effort, because after all, time and your effort are valuable.

Here is a basic example. The numbers are just guesstimated to use as an example. I will assume you use Amazon to sell your merchandise.If you don’t use Amazon replace that selling fee with your sales, advertising, and marketing costs per order.

Item # 1 Sells for $15.00. The cost of goods, $7.50. Amazon selling fees ( estimated 15%), $2.25, order processing costs $3.00. carton costs, $1.00. Gross profit before fixed overhead and taxes= $1.25. That’s a lot of work to make $1.25.

Item # 2 sells for $50.00. The cost of goods, $25.00, Amazon selling fees, $7.50, order processing costs, $3.00, carton, $1.00. Gross profit before fixed overhead and taxes= $13.50. Decide for yourself. Which priced item would you rather sell?

You have to sell over 10 pieces of that $15.00 item to make the same gross profit as selling one $50.00 item. That is 10 times the effort and order handling.

Some people will say, “Let’s sell the low priced item and make it up on bigger sales volume”. It can be done but why work that hard?

You are young, you have a head full of ideas, but no money. How do you proceed?

Your young, your mind is filled with ideas but you have no money. Why not continue to work at your 9 to 5 job, use the time to learn about how a business is run and gain experience to help you when you are ready to execute some of your ideas? Take the time to live below your means and save as much as you can so you have some money to fund your ideas when you are ready. Everybody has to start somewhere and seldom do people have the skills to start at the top. Take your 9 to 5 job seriously, be curious and learn all you can, and you will find that you might even earn the respect of someone who can eventually be your mentor to help you succeed. Remember, you don’t find mentors, mentors find you based on what they see from your performance and dedication.

While you are developing your skills, take the time to firm up some of your ideas. Start making a plan or even a simple outline to determine what you want to do, what skills you will need to execute your idea, and how much it will take in terms of investment or time. Taking the time to commit your ideas to paper gives you something to build on, something to turn into an executable business. If you only keep your business ideas in your head they will never be more than simple ideas.

What should you do when you get a drop ship order?

When you use the drop shipping model for e-commerce here are some things you should always do.

  1. When you process payment send your customer a receipt of the transaction by email. If you are using a sales platforms like Amazon or eBay/ PayPal they will do this for you.

2. Process a purchase order to send to your supplier with customer shipping info so supplier can ship item. Do not include your selling price on this purchase order.

3. Make sure your drop ship supplier uses your company name as the shipper on the mailing label. This is really important. You are the seller. You want your customer to remember your company and come back to you for future business.

4. Once your supplier has shipped, send your customer the tracking number and a nice message like “we appreciate your business” or “thank you for your order”. Ask your customer if they would like to receive your news letter by email. Keep in touch with your customers regularly. Make sure you include your website link and maybe a discount promotion to encourage your customer to take a look at your website for possible new orders, new items, etc. This type of marketing is the cheapest advertising you can ever get.

5. If you can, try and make arrangements with your supplier to include some promotional literature or brochures featuring your company, website, products, and promotions. Good drop ship suppliers will do this for you. Most will not want to be bothered with this extra work.

Use every opportunity you can to keep in touch with your customers. Build an email mailing list. Send them regular mailings featuring special promotions, new items, customer testimonials, pictures of satisfied customers using their new item, etc.

How you can keep up with your competition.

Being a retail entrepreneur, whether you choose e-commerce or brick and mortar, is not a passive business. Especially since the internet makes it so easy for potential customers to shop and compare.

To stay ahead of your competition you must continually study, research, and learn about your market, your chosen product categories, the market trends, and your competition. It is not an easy task.

Every major retailer like Walmart, Target, or Amazon, among all the others, have hundreds of employees whose job is to monitor their assigned product categories for new products, market trends,pricing, promotions, and competition so they can stay competitive. These employees go by many different names depending on the company. They could be called buyers, merchandisers, category managers, product managers, etc.

I suggest you limit your product offerings to a few categories to make it easier for you to keep up with what is going on with your industry. Just about every product category has a trade association. These trade associations sponsor trade fairs or shows to allow their members to exhibit their merchandise and give potential customers the opportunity to view many companies all in one place. The trade associations also produce newsletters to keep their members up to date. It is a great idea to subscribe to them for the latest industry news. Also, make regular shopping trips to major retailers to review what they are offering in your chosen product category. It’s ok to take advantage of their expertise.

Often, the first piece of advice given to new retailers is to sell products you already have knowledge about. Having an interest or prior knowledge about a product category makes your learning curve so much easier.

Can you make money selling items for $1.00 each?

The real answer is that no matter how much, or how little, you pay for that item you sell for a dollar, you are going to lose money if you only sell a single item. You must consider all of the other costs you must pay just to do business.

I will use the example that others have used. You pay $0.50 for an item that you sell for $1.00. You make $0.50 gross markup each. Not a bad markup in general.

If you have a brick and mortar store you pay rent and utilities. You pay employees. You have everyday business costs like advertising or marketing. If you have a dollar store and a customer walks in and buys one item for $1.00 you lose money. The cost to handle that transaction is just too high. Hopefully, your customer will buy 10 or 15 items at $1.00 each and allow you to make a little profit.

The same principle holds true for e-commerce stores. Your overhead may be lower but you still have to pay for someone to process the order, print the label, put the item in a box, and ship it. You need to pay shipping charges. You need customer service to notify the customer about tracking numbers, handle questions and returns. All this costs money.

Only you can determine how much it costs to process each order. Calculate how long it takes to process an order, print a label and pack and ship an item. Next calculate your labor rate and apply the cost of labor to the time spent to process an order. Add in credit card or Paypal processing fees, selling fees, advertising and marketing costs, and the allocation to overhead you charge for each order. All those business costs add up pretty fast. You will find there is not much left of the $0.50 “Profit” you think you may make.

I guess is you sell an item for $1.00 each, are completely automated in your order processing, and you sell thousands every month, you may be able to squeak out a little profit at the end of the month, but it will be really tough.

Good luck finding that item!

What are some great niche products for YouTube?

One of the hardest facts to realize is that a Niche is a Unique, specialized segment of a market. This makes it low competition and allows the seller to make a larger profit margin on the items in the niche. Once anyone announces a popular niche, especially on a public forum like Quora, it is no longer a niche. New sellers will jump in to take advantage of unique marketing and selling opportunities and the extra competition drawn to the niche usually results in fierce price competition.

Take the time to do your in-depth research and use your product knowledge to find that special niche you are looking for. YouTube videos offer a very special and unique way to advertise and market. Look for products that have a special “magic” or visual appeal and opportunities to create fun, in use videos. You may only be selling a common item like shoes or other similar items but try and create some buzz. Show real people using the product in real yet creative ways. If you get lucky and have a video go viral, sit back and enjoy the ride.

How do customers choose whether to purchase an item from you instead of from Alibaba when the price is cheaper?

Why should someone buy from your website instead of direct from a trading company on Alibaba? Let me count the ways.

  1. Convenience- Companies on Alibaba sell mostly in larger quantities. On your website, possible you sell one piece at a time.
  2. Shoppers experience- Ability to combine an order and buy multiple items at the same time. Your website may also be easier to shop from.
  3. Location- Your company may be located in the same time zone or at least similar time zones so customer service may actually be conducted in real time or at least more convenient times for you as a customer.
  4. Trust and professional image= The quality and professionalism of your website will make a big difference in the level of trust a customer places with you. They can see by your address and contact details where you are located and how to contact you in the case of a problem. If your website is done correctly your potential customer should see that you are an “expert” in the products you are selling. FAQ, installation or usage tips and tricks, customer testimonials, etc.
  5. Shipping methods- You may be able to offer more speed based delivery service options than a Chinese supplier.
  6. Delivery Times- Shipping from China can take 4 to 6 weeks or more depending on the product, inventory levels, and shipping method used. You may be able to offer next day delivery or other quicker methods.
  7. Payment methods available- Customers may be more comfortable using credit cards with your company, rather than sending secure data to an unknown company in a foreign country.
  8. Customer service- Have a question or a problem? With a local company website you can pick up the phone or even send a text and expect fairly rapid solutions to your problem. Or, get up in the middle of the night to call an Alibaba supplier who may or may not be able to communicate easily in English. They all will tell you, “Yes I speak English”, but the level of understanding may be difficult.
  9. Return policy- Did you ever try to return something to a Chinese supplier? Getting return authorization may be difficult, cost to ship back high, and don’t even think about trying to get a refund for any customs duties you may have paid.

Remember, when you talk about buying from Alibaba you are not really buying from Alibaba at all. You are buying from a third party vendor using Alibaba to list and market their items.

Keep in mind that price is not always the only consideration shoppers use to justify a purchase. If the price is the only consideration you are worried about, and it doesn’t matter about the speed of delivery, possible returns, trust or scam potential, and little details like those, then go ahead and buy based on the lowest price available.

Buyer beware!

What are the downsides of drop shipping?

Drop shipping is an easy way to get involved with e-commerce. No need to have a warehouse, no need to carry inventory, no need to package and ship orders. How much easier can it get?

Despite all of the pluses, drop shipping does have a big downside.

Here are some of the downsides:

  1. Price- you pay for the convenience of having someone else handle inventory and service, and often you pay a heavy premium for that convenience. Suppliers add a markup to the cost of packing materials, they will add a markup to shipping costs, and often they will markup their labor costs. After all, nothing is free.
  2. Information- Your drop ship supplier must keep you informed about inventory levels and any price changes. If you are selling on Amazon, eBay, or other similar sales platforms and you cancel too many orders because of a back order situation from your supplier, your service ranking will be affected and if your metrics drop too low your selling account may be suspended or even cancelled.
  3. Convenience- The number one reason to use drop shipping is also its biggest downside. Drop shipping makes it easy for just about anyone to enter the market. This easy entry results in massive competition since sellers don’t need any investment to start a business.This massive competition often results in sellers competing on price only. Profits suffer for everyone
  4. Control- When you drop ship you give up control of all of your order handling.  How do you ensure your orders will be shipped quickly?  How do you ensure good quality? How will your supplier handle problems or returns when they occur?  You have to find trustworthy suppliers.  That is a difficult thing to do.  Some suppliers will be excellent, some just good, and some totally terrible.  You have to hope you have made the correct choice.
  5. Your effort and involvement- Again, drop shipping is a good way to get started but it is not as easy as a lot of the companies trying to sell you tutorials or drop shipping services would like you to believe.It is not passive income.  It is not a low effort way to do business.  You have to pay attention and actually put a lot of effort into the business to succeed. You have to process orders.  You have to provide customer service and answer questions. You have to communicate with your customers about shipping, tracking numbers, possible service issues and more.  You also have to keep aware of your competition and monitor prices, monitor new items, and make sure nothing is happening to disrupt your market.

How Do You Convince A Customer To Buy From You Instead Of Your Competition?

To convince a customer to buy from you instead of from someone else, you offer them something of value that your competition does not offer. This is one of the hardest tasks many business owners face. How do you convince someone to buy from you instead of any of your competitors?

  • Offer better, quicker order processing and shipping service.
  • Offer better technical support and sales training for your products.
  • Offer quantity pricing incentives for a higher volume of sales.
  • In a worst case scenario, offer a lower price than your competition if you can afford it. If you can only compete on price, you will probably not be very successful since your competition can also cut prices to keep their current customers from moving to you.