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When a small business owner makes the decision to enter into the world of E-commerce, the first decision that confronts them is usually whether they need to build a stand-alone E-commerce web site or sign-on with a hosted application provider like Monster Commerce (Network Solutions) or UltraCart.

Each approach has its advantages and disadvantages. What the small business owner has to decide is which method of online selling will provide the most value and return on investment. Today I’ll take a closer look at the plus and minus columns for online storefronts based on hosted applications.

The immediate advantage: Easy startup

Likely the first thing that will get you to take a closer look at a hosted E-commerce solution is the initial cost to get started. Typically, hosted E-commerce that’s aimed at the small business market will have a fairly low startup cost compared to the expense of developing a custom E-commerce web site.

Depending on the provider (and the cost), the startup fee will either give you access to a set of design templates that you can roughly customize through some sort of setup ‘wizard’ or it may buy you some time (usually a few hours) to work with an account specialist who can customize the store template for you.

Additional elements of the setup (including product entry) are typically wizard-driven, which means you don’t need any specialized knowledge of development languages like HTML in order to get your store running. You may need some patience to work step-by-step through multiple setup routines, but otherwise there’s no rocket science involved.

Hosted applications also offer simpler and less expensive payment options. Most of them will process payments for you, which means you don’t have to purchase a security certificate or sign up for a payment gateway account. In some cases you may not even need a merchant banking account.

The monthly bill

Of course, those payment services aren’t free. Hosted application providers charge a higher monthly fee than you’ll pay for almost any stand-alone hosting. Your essentially renting an E-commerce engine and a payment platform. Also be aware that some providers charge you a small percentage of your store sales in addition to their monthly fee, while others may have an escalating fee structure that’s based on either your sales volume or the scope of your store inventory.

It’s a moderate plus that your store is automatically updated with the newest features as the provider develops them - although the flip side is that you have no choice to opt-out of application upgrades that you think may not benefit your business.

Although it’s largely an aesthetic issue, the heavily template-driven nature of hosted applications makes your site design difficult (if not impossible) to customize in any large measure. That’s not to say all stores based on a specific application look alike, but if you want a unique design or specific ‘look’ then hosted E-commerce may not be the best solution.

Competitive disadvantages

To my way of thinking, the biggest disadvantage is that hosted E-commerce applications don’t provide you with all of the tools you need to give your site a competitive edge in the very crowded Internet marketplace.

Most hosted applications provide search visibility that’s mediocre at best, and they don’t give you many options for enhancing the site’s search optimization. In some cases you may be able to pay the application provider (or a skilled developer) for additional search engine optimization - but a good stand-alone E-commerce engine should have a lot of useful SEO tools built-in that you can make use of yourself.

In addition, hosted applications offer fairly limited sets of marketing tools and are usually difficult to interface with external CRM or marketing software suites. Some offer ‘advanced’ marketing features for an additional fee but - again - these are all features that should be included in the basic functionality of any good stand-alone E-commerce engine. Stand-alone sites that are built around industry-standard SQL databases are typically very open to a variety of data interchanges, while hosted application sites generally use more proprietary data structures that aren’t as open (or aren’t open at all) to advanced development work.

How important to the long-term success of your E-commerce site is your choice of hosting service? Pause for a moment and consider: Without reliable and secure web hosting, you don’t have an E-commerce site in the first place.

I touched briefly on the topic of web hosting in my previous post. Today I’ll take a bit deeper look at hosting and try to explain what makes your choice of hosting service such a mission-critical decision.

Uptime and much, much more

The standard talking points of uptime and cost aren’t entirely unimportant to your site’s hosting equation, obviously. Server uptime is a central consideration - but technology has progressed to the point that almost any service that manages to stay in business can claim impressive uptime statistics. Even more important to an E-commerce operation is the host’s error rate and error handling process. E-commerce stores seldom ‘crash’ these days - but if they’re improperly (or inattentively) hosted, they may throw critical errors that prevent your customers from completing their transactions. An experienced E-commerce host should have a very low error rate, and should also have a process in place for flagging errors when they do occur so that their technical staff can quickly run them down and correct them.

The simplest way to avoid a slew of technical issues is to select a service that has experience in hosting other stores that run the same E-commerce engine as yours. That insures that their hosting supports both your store’s chosen development language (such as ASP or PHP) and any specific server-side components that your E-commerce engine may require.

It’s a mistake that’s more common than you may think. I am frequently contacted by customers AFTER they have signed up for some sort of hosting account - and more often than not, it’s a hosting account that won’t support much in the way of E-commerce and doesn’t offer advanced security features. Essentially, they’ve wasted their money because the hosting they’ve paid for won’t work for their business.

Be careful out there

Security is an equally important concern. Ideally, your hosting company will be in compliance with the Payment Card Industry Data Security Standard  - a security protocol that establishes hosting requirements for network security mechanisms, data handling and storage and the handling of security certificates and encryption.  All but the very smallest E-commerce stores should also be hosted in an environment that maintains store data on a separate database server that is isolated from the actual ‘web’ server that is open to traffic from the Internet. This arrangement makes it very difficult for any type of security intrusion to gain access to your customer information or any other sensitive business information that may reside in your store’s databases.

[A quick side note: You should NEVER maintain customer credit-card information or other sensitive personal data (like Social Security numbers) in your store's databases. Even in the most secure hosting environment this is an enormous financial liability for your business, and it's a business practice that needlessly exposes your customers to identity theft and/or financial fraud. In fact, hosting companies that strictly adhere to the requirements of the PCIDSS won't allow retention of such sensitive information on their servers.]

The personal touch

Finally, one of the biggest differences between ‘budget’ hosting and a full-service hosting company is the level of support that they provide. Your E-commerce site is a money-making operation, and you should select a host that treats your company’s bottom line as a priority. With a good hosting partner you shouldn’t need a lot of technical intervention, but when you do you should be able to contact a technician personally in order to get your questions resolved. A good E-commerce hosting partner will also have procedures in place to monitor your site for errors and correct them quickly when they occur.

More than anything else, when you pay for a ‘premium’ hosting partner most of what you’re paying for is that personal level of service. Since the difference in cost between budget and full-service hosting is frequently less than $60-$70 a month, that seems like sort of a business no-brainer to me.

Translating your E-commerce idea from concept into reality requires an investment of time, money and resource. For the small-business entrepreneur, a first-time E-commerce project can generate a few unpleasant budget surprises.

Some of your project’s budget elements may be self-evident, but a few are less obvious.  An experienced and reputable E-commerce developer should work through a complete ‘first year’ budget with you before your project begins. In addition to the one-time development costs associated with getting your site built, tested and functioning properly there are continuing costs that should figure into your long-term calculations of profitability.

Here are six of the primary budget elements you need to consider when planning your E-commerce project:

 
1. Web site design and development. This is the most obvious budget element, and often it’s the only cost item many people are thinking about when they ask “How much will my E-commerce site cost?” Naturally, the development cost of your project will depend upon the scope and complexity of your site. The development cost should also include the cost of your E-commerce engine.

(Please note that I don’t use the term ’shopping cart software’. If you want your online store to be successful in today’s competitive marketplace, your selected E-commerce application should be much more than a simple ’shopping cart’. It should include tools that allow you to manage customer loyalty functions, maintain customer relations and share information with all of your online marketing programs.)

2. Photography and other artwork. Your company’s logo and the photos used on your various pages are important pieces of your web site’s graphic appeal. If your company doesn’t yet have a logo, you should strongly consider making the investment in having one created as part of your overall marketing plan.

In addition, note that the photos and images used on your site aren’t necessarily ‘free’. In order to avoid legal issues, most development companies will only use images that are either original images (photos or graphics) provided by the customer or images licensed for a fee from graphic services. If you’re not planning to take your own product photography, then you either need to arrange for approved use of images provided by a manufacturer/distributor or budget to acquire original product images from a professional photographer.

3. Data entry and data management. How many products are you selling online, and who’s going to enter product information into your E-commerce database? While most developers will provide data entry services at additional cost, many will offer you the option of entering production information into your E-commerce database yourself in order to reduce project cost. Entering your own product information is a good way to learn the ropes of your site’s management console, but it can be a bit time-consuming - so be prepared. If your product information is available in an organized electronic format (such as a database or an Excel spreadsheet), your developer may also offer programming services to import the information into your new E-commerce database.

You also need to budget staff time (or developer support time) for continuing maintenance of your product information and customer/sales data. E-commerce engines usually provide you with plenty of tools for maintaining your store; all you have to do is plan for the time you’ll need to keep everything up-to-date.

4. Web site hosting and security. There are a lot of ‘budget hosting’ services that can seem pretty attractive at first blush, but in the world of E-commerce hosting you usually get what you pay for. When your web site IS your business, you need uptime, service and data security and you would do well to pay a premium to get them. Inexpensive hosting services may have good uptime records in general, but E-commerce applications can be pretty demanding. Your best bet is to find a hosting company that successfully hosts other sites running the same E-commerce engine which also offers ‘real’ technical support people (not just a ‘trouble ticket’ system) who are easy to reach. Technical experience and personalized support usually come at a premium hosting rate, but when your business is at stake it’s the only option that makes sense.

5. Web site maintenance and updates. While your E-commerce engine should provide you with the tools you need to manage your products, customer data and marketing you still need to budget for ongoing support from your developer. E-commerce applications are often updated to provide new features and improved security, and those updates typically need to be applied by a knowledgable developer. A continuing partnership with your developer is also useful in maintaining your site’s overall security and in managing your site’s long-term search engine appeal.

6. Marketing. Traffic to your new web site is not going to magically materialize. Search the Internet and you’ll find millions (if not billions) of words devoted to online marketing, but strangely enough marketing is the budget element most frequently overlooked when a business plans a new E-commerce project. There are dozens of marketing options avaialable but they all carry a cost, either in time, money or both. Your E-commerce developer should work with you to develop a marketing plan for your site - just be prepared to devote additional resources to the task of attracting customers to your online store.

When you launch a new E-commerce web site - either as part of a multi-channel sales strategy or as a stand-alone operation - above all else there is one thing you need to be ready to face: Customers.

That might sound like a “Duh-uh” comment, but not every E-commerce operator is as prepared as they should be when their new store goes online and the first order (or ten or fifty orders) appears in their control panel. Turning those early orders into happy customers sometimes even proves an unexpected challenge for experienced retail business people.

Preparing a new online store for operation demands a lot of attention. If you’re not organized in advance, small details can be left undone. And it only takes a couple of small details to add up to a bigger problem.

Orders aren’t secrets

Does everyone you plan to have ‘in the loop’ have the appropriate access to your store’s control panel? For single-person operations it’s not a big deal, but in a larger business all of the people involved need to be able to see their part of the puzzle. For general site security, it’s not a good idea to distribute the main administrative login credentials to everybody - so the people who will be responsible for processing and fulfilling orders (and any other store-related functions) need to have separate login accounts that allow them access only to the functions they need.

A quick note: If third-party sources like drop-shippers or fulfillment services are critical to your operation, DO NOT depend entirely upon store-generated e-mails to deliver order information to them. If possible, they should have their own console access to the information they need and a protocol in place for regular account service. If that can’t be arranged, you should at the very least follow up by phone call to check on a summary of all orders placed each day.

Plan for the best

Are the items you have for sale actually ready to be sold? Do you (or your fulfillment partner) have your products in stock and do you have procedures in place for shipping? You and your staff need to be prepared for orders, just like a retail business has to be ready when the first customer walks through the door.

Take a moment to think about what would happen if you got 100 orders on your first day online. You’re tempted to think “that would be a great problem to have” - but I’ll point out that it IS a problem if you’re not prepared. If you can’t process orders accurately and ship products quickly, customer enthusiasm (and orders) might drain away before you know it - and then you’ll have a long haul to regain their confidence.

Get coordinated

Ideally, your site’s E-commerce engine will have features designed to interact with the systems you use for inventory management and customer care. Very expensive solutions may have some of these systems built in, but that’s atypical. E-commerce programmers tend to concentrate on E-commerce, and build in the common data interfaces that you need to exchange information with ‘off line’ programs dedicated to inventory, bookkeeping and marketing.

If you run a retail business in addition to an E-commerce site, then coordinating customer information becomes a more critical process. Centralizing contact information and purchase histories can be very helpful in the development of successful online marketing campaigns.

There are many different ways to build a successful E-commerce business, but they all have one thing in common.

Loyal customers.

I don’t mean ‘just’ happy customers. I mean customers who will come back to your web site and purchase from you again.

It’s not a revolutionary discovery. A lot of books and articles have been written on the same general business theme: Customer satisfaction means nothing; customer loyalty means everything.

One of the hallmarks of an experienced E-commerce developer is that they will push to keep a site project customer-focused. They understand that a web site which is too loaded down with bling and noise can distract customers from your essential business message and interrupt the buying cycle.

No tricks, just work

Building customer loyalty for your business’ web site isn’t a technology trick (although it helps if your E-commerce engine offers tools that support your goals). As with most things E-commerce, there’s no Easy Button.  Your web site should be designed with customers in mind. E-commerce isn’t about promotion. It’s about buying and you need to do everything possible to help your customers buy from you. Here are five things to think about that might help your customers in their quest to spend money with you:

1. No doubt you’ve encountered the phrase “user-friendly design and navigation” in many different places, but it’s an especially important concept for an E-commerce site. In a way, an E-commerce site is a lot like an airport: You want to get your customers into the landing pattern (your site), onto final approach (your product catalog) and then get them safely landed (”Thank You for Your Order!”). From the moment they enter the landing pattern, you don’t want to put anything in their way that distracts them from landing.

2. Your customers want a comprehensible (and comprehensive) product catalog. I mentioned this in a previous post. Detailed product descriptions are your primary selling tool. A logical category structure helps customers find your products. Also make sure that your chosen E-commerce engine has an easy-to-use search feature built in.

3. Your customers also want a checkout process that’s intuitive, stable and repeatable. In order to avoid the dreaded “dropped transaction”, checkout needs to be as streamlined as possible. Buttons, data entry fields, order details, shipping information and supplemental charges (like sales tax) all need to be clearly presented and easy to find. Any forms that customers need to complete should have all mandatory fields plainly indicated. Your E-commerce engine should utilize a database that saves customer registration information, which also offers automated password recovery for returning (and forgetful) customers.

4. Make use of the customer loyalty and promotional tools that are built in to your E-commerce engine. The big-brand E-tailers make extensive use of functions like wish lists, gift registries, reward point systems and discount coupon/codes. A number of commercially-available E-commerce applications offer exactly the same tools, and they are invaluable additions for both helping to build customer loyalty and enhancing your store’s promotional pricing strategies.

5. Above all, stay on top of customer service and feedback. Communicate quickly and clearly with your customers. Rapidly responding to their queries and complaints demonstrates that you’re focused on serving their needs and solving their problems. In addition to direct responses to customer contacts, also consider using broader communication tools to expand the reach of your service and expertise. E-mail newsleters, blogs and customer forums are all very handy tools for boosting your business online.

Here’s a clever idea: Build an E-commerce web site that you never really have to touch. Orders placed on the site are automatically forwarded to a larger distributor, who then processes the order and ships the product directly to your customer. You charge the customer money, pay the distributor their cost plus a shipping fee and pocket the difference.

That sounds like a great plan, doesn’t it? But there’s a problem. Do the math and you’ll quickly figure out that it’s not a very reliable way to make money.

A number of major E-tailers, wholesalers and distributors offer drop-shipping services to E-commerce providers. Some of them offer a broad range of goods, others serve fairly narrow niche markets. In a typical scenario, a drop-shipper offers a catalog of goods that are priced less than MSRP, most of which carry a fixed shipping fee of some sort or use a shipping fee structure based on the dollar amount of the order. The pricing that drop-shippers offer is seldom a ‘true’ wholesale price, but it’s usually good enough that you can offer products at a bit of a mark-up and still come in below retail price.

Eye on the bottom line

Therein lies the rub. What kind of margin can you build in to your products and still capture sales? Your customers are going to be looking at the total loaded cost – product price plus shipping (plus any applicable sales tax). After calculating for all of that, what can you reasonably expect to make from an average sale – and still price competitively enough that people will buy from you?

If that sounds a lot like a ‘real’ business question, that’s because it is. It’s the same question every store owner has to ask.

In addition, you need to consider the costs associated with your customer service loop. How does your drop-shipper handle returns, lost shipments and customer complaints? Do they charge an additional fee, or do you have to handle each of those issues yourself? When a customer calls with a problem – and they will, you can be certain – you can’t just tell them “I don’t actually touch the merchandise” and expect to stay in business very long.

It’s not impossible to make money by using a drop-shipping service for your E-commerce site – that’s not the point. But you need to be familiar with your target market, the prices and service offered by your competition and ALL of the costs involved before you start to turn your clever idea into E-commerce reality.

Spend some time surveying a variety of E-commerce sites (without spending money on them, that is…), and chances are you’ll come across some sites that offer name-brand gadgetry at incredibly good prices. Sites like this that I’ve come across recently sell items such as air-conditioning components, portable power equipment or computer hardware.

With a little bit of research you’ll discover that a number of those E-commerce sites sell in great volume and are quite profitable. For some private entrepreneurs, it’s tempting to try to jump into one of those niche markets with a deep-discount E-commerce site of their own.

Before you rush pell-mell into the discount E-tailing business, there’s one thing you have to understand: Most of the successful E-commerce sites that deeply discount name brand products are the online equivalent of a brightly lit storefront that stands at the end of a long and dark back alleyway. A large majority of them are dedicated outlets that are part of multi-channel sales strategies implemented by major brands and manufacturers.

It’s all about the relationship

Discount selling on the Internet is all about relationships. The most successful online discounters have the closest relationships with their manufacturers - and typically skip a ‘traditional’ distribution chain entirely. There are a number of companies that specialize in building multi-channel sales networks for large manufacturers.  Many of the discounter sites are even owned or partially owned by the manufacturers themselves, typically serving as outlets for slightly aged stock or refurbished goods.

You need to be aware of these ‘channel’ relationships before you try to sell into any given market niche, because you could be setting yourself up for some very stiff competition. It means, at the very least, you need to have a relationship with your supplier in place BEFORE you spend the first nickel on your E-commerce project.

Get it in writing

Here’s a tip about that supplier relationship: Get it in writing and get it for as long a term as possible. I’ve worked with a number of clients who were certain they had a good supplier relationship to build on, only to have the whole deal pulled out from under them after they had expended considerable time and money on their project. It typically happens when a manufacturer or distributor that a client has been working with (sometimes for many years) suddenly has a ‘light bulb moment’ and decides they can make more money if they dump their online partner and do it themselves.

I’ve seen equipment suppliers decide they want to build their own discount channel and announce that they’ll no longer provide warranty support for items that they don’t sell themselves. I’ve seen large material distributors scuttle a pending deal then proceed to implement a client’s concept on their own.

It’s a major peril (and expense) for the small business person who wants to build a supply relationship. Some of  the bigger companies in the game aren’t always entirely scrupulous. The sad fact is that unless you spend the time and money to get legal details like non-disclosure agreements, warranty and supply contracts sorted out in advance, you don’t really have a ‘relationship’ at all.

Multi-channel selling and supply relationships often inhabit one of the shadier back alleys of E-commerce. Make sure you have your details in place before you start spending money on technology, or you just might find yourself getting mugged.

Just like a bricks-and-mortar store needs somebody behind the counter, an E-commerce web site requires somebody behind the scenes to make things run smoothly.

Except in rare circumstances, your E-commerce site is not going to be a fire-and-forget operation. Somebody has to process the orders. Somebody has to insure payment has been made. Somebody has to manage inventory and pricing. Somebody has to handle fulfillment and shipping.

In a fairly standard small business scenario for E-commerce, a living, breathing person at your operation has to keep up with all those tasks (and usually more). It’s a lot of work that too frequently gets overlooked when people first sit down to develop their E-commerce concept. Very few things in E-commerce happen ‘automatically’. The Easy Button for it hasn’t yet been invented.

Most of the popular ’stock’ E-commerce engines (like Early Impact’s ProductCart or OSCommerce) are designed to a fairly simple operational model. You (or your staff) access an administrative control panel to view and process orders, manage inventory and keep the site’s catalog up to date. Most of them assume a single ship-from point (your business or warehouse). The best ones integrate shipping tools that allow your customers to get shipping rates from standard carriers like US Postal Service, UPS and FedEx - and some even provide admin tools that let you generate shipping labels and handle other details.

Remote inventory takes work too

Here’s an important point: The theme that successful E-commerce should be run like a ‘real’ business holds true regardless of your order fulfillment scheme. Even if you’re planning to use a Pick-and-Pack service, that only provides one link in the E-commerce chain - the handling and shipping of inventory. Your site still needs to have somebody minding the store.

In some ways, using a Pick-and-Pack can be more complex - simply because you (and your web site) are physically remote from your inventory. A lot of additional communications is required. Are payments working correctly and are your orders being transmitted properly to your handling service? Does the inventory in your online store match the inventory available at their warehouse? Are prices on your site updated when the warehouse service updates?

An experienced E-commerce development company can modify a stock engine or build custom programming to handle almost any special requirement you may have. The trick is to engage a proven developer early enough in your planning process so they can help you avoid common problems and unnecessary expenses. An investment in planning can provide considerable return in time and money by the time your E-commerce project is ready to launch.