Many small businesses are completing sales and reaching customers like never before thanks to eCommerce technology.
In this latest episode of Small Biz at :15, Steve Chou, the founder of MyWifeQuitHerJob.com, sits down with the executive editor of Small Business Trends and tells him the lowdown on ecommerce and small business.
Check out this edited transcript of their discussion:
Shawn Hessinger: When we talk about e-commerce, what kind of businesses are we talking about specifically?
Steve Chou: I mean, technically, e-commerce is really just selling things online, but the specific type of e-commerce that I refer to as e-commerce is the act of selling physical goods online.
Top 4 Ecommerce Business Models
During the show, Chou discusses 4 common eCommerce business models.
Shawn Hessinger: There are all kinds of e-commerce businesses. Could you give us an overview of what you have seen?
Steve Chou: Essentially, it’s about selling physical products, but that’s sourcing. And the delivery mechanism will change. There are different models for that.
For one, there is drop shipping. Drop shipping is when you take orders from your store and have this agreement with the supplier when an order arrives. The supplier stores the inventory and ships it to the end customer.
And a good drop shipper will put their brand name on the packaging to make it look like it came from their store. And the drop shipper is really just a vendor. Essentially, this is the cheapest way to get started in eCommerce because you don’t have to worry about inventory. You basically take the sale and do the customer service.
The second type is the one most people are familiar with. This is where you buy someone else’s product. Let’s say I want to carry iPhones and buy them at the wholesale price, which is usually 50% off. Then I save it.
Later, when a sale arrives, I deliver it to the final customer. That has a much higher margin than drop shipping. But obviously, you are responsible and you have to deal with the inventory.
The next business model is called private label. This is where you create your own branded product. Like you are literally working with the factory. You create something that you call your own, you put your brand on it, you have to buy in bulk, and then you sell it.
But the margins are infinitely higher in this business model, and you have full control over the entire process, including sales, customer service, and the entire supply chain. By the way, private label is probably the best way to start a business long term because at this point you are building your own brand.
And then the final business model is what I would call selling on Amazon or relying on a marketplace. So I classify it as Etsy, eBay, Amazon, Walmart, etc. They are all in this category. This is where you basically outsource your customer base.
Here, I’m leveraging traffic from Amazon, right? So, I list something on Amazon. Amazon already gets a ton of traffic. I get a sale, they take a big chunk, and in Amazon’s case, they’ll take care of your fulfillment for you, too.
I would say those are the four main e-commerce business models.
How to start your ecommerce business
Shawn Hessinger: If you were to give advice to someone just starting out, what would you say to start them off?
Steve Chou: For starters, the type of ecommerce model will depend on what your initial budget will be.
One, if you have less than a hundred dollars, you’re pretty limited to drop shipping. Two, if you have $1,000, go wholesale. In the US, minimum orders are on the order of $100 or $200 per product. Three, if you have $3,000, it’s a good idea to go private label. I think private label should be everyone’s ultimate goal because you want your own brand.
Now, that’s not to say you can’t do all three, right?
Shawn Hessinger: When someone asks you, “What are the best products to sell online?” what do you say?
Steve Chou: I think it just depends on your skill set. I would say that the best way to start is by thinking of a product that you yourself need.
I can think of a lot of things you could potentially want to sell. Like, right now it’s cold in California. I like to play Ultimate Frisbee, but when I play, my hands get very cold and numb.
If I go out and buy football gloves or soccer gloves for that, they are too thick. So, I lose the feeling of the record. I don’t know if anyone is selling these latest Frisbee gloves. And that’s something I could pursue.
So, scratch your own itch. That is one way to do it.
Another way to do it is by using tools. There are tools like Jungle Scout that pull all the Amazon listings and will tell you roughly how much money they are making in any given month.
And what you can do if you want to do some research on Amazon is look at a couple of products. You can look at the sales numbers and you can look at the number of reviews. The number of reviews reflects the maturity of a particular Amazon listing. And what you want to see in general are listings that have fewer than 100 reviews indicating that that product isn’t that mature.
You also want to see an even distribution of income. And most importantly, you want to make sure that if you see a product that’s selling pretty well, you can put your own spin on it. And again, this all leads into the realm of private labels. You want to sell something better than everyone else or different. You have to stand out. And by doing that and using a tool, you can make the vetting process much faster.
Be sure to check out the full episode where Steve Chou gives listeners more secrets on starting an ecommerce business, including:
- Where to find a supplier if you have an original idea for a product and want to go the private label route.
- How to find a good drop shipper or where to get inventory if you are not making it.
- Why it’s a good idea to validate your product on eCommerce platforms like eBay and Amazon before building your own eCommerce website.
Get the latest headlines from Small Business Trends. Follow us on Google News.