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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.

If you’re trying to create a multi-channel sales strategy for your retail or small business, one of the challenges you’ll face early on is what to do about product pricing.

There’s a popularly-held belief that online selling is all about discounting, price-slashing and under-cutting businesses that retail to the same market. It’s a belief that causes many retailers to hesitate about selling their products through an e-commerce channel. They don’t sell online because they think that in order to compete on the Internet, their web site pricing will have to be set below price levels found in their retail store.

Good news for you: That popularly-held belief is wrong.

True enough, some of the big-brand E-tailers make a lot of money selling to the discount market. But if you pay close attention, you’ll notice that even most of the biggest names on the Internet don’t offer consistently deep discounts on everything they sell. And they don’t sell everything, do they?

Profit is profit

In fact, pricing strategies for E-commerce differ very little from standard retail pricing strategies. Businesses that sell products all have to solve the same problem: They have to find that happy spot between the floor (what they pay) and the ceiling (what consumers will pay) where they can make money.

E-commerce only businesses (those without a bricks-and-mortar store) don’t have as many advantages in calculating their ‘floor’ as you might think. They don’t have to pay for a storefront - but most of them still have some sort of physical overhead for offices, computers, warehousing and the like. The small percentage of E-commerce sites that are truly garage or home-office businesses have to pay for somebody else to warehouse and handle product (drop-shipping or pick-and-pack, typically). They also have to pay additional overhead for many of the staff-provided and general business services that a bricks-and-mortar store already supports through retail sales. If you’re a retailer, there is seldom a meaningful difference between the total loaded costs of the goods you sell, and the loaded costs of the same goods to an E-commerce only storefront.

Perception is reality

So what is it about online pricing that creates the belief that the Internet is one big discount warehouse?

The broader picture is colored by well-known brand names like Amazon and New Egg that offer fat discounts on volume product ranges like books, videos, music and electronics. (The trick here is to avoid competing with the big E-tailers.) To an extent, the perception of pricing on the Internet is also skewed by something of a flash-in-the-pan syndrome - E-commerce start-ups that don’t really understand their loaded costs and quickly go out of business because they underprice goods and services.

Also, consider that the most successful E-commerce operations are masters of loss-leader marketing.  Typically, they’ll couple a product that’s highly-promoted at cost with a qualifying purchase of a set order amount or with a secondary product that is sold at a profit. The idea that they profit on loss-leaders by sales volume is pure myth - whether you sell retail or E-commerce, no matter how much of a product you sell at cost, you’re not going to make money on it.

In an earlier post, I cautioned that some E-commerce ideas fail because they run afoul of the multiple sales channels created by large manufacturers and distributors.

But a strategy that works for the ‘big players’ in E-commerce can also work for businesses with fewer resources. With the proper planning and investment, you can develop a multi-channel sales strategy that will help your business grow.

Since 1998, E-commerce in the U.S. has matured from around $8 billion in total sales into a thriving marketplace with over $100 billion in sales. The recent economic downturn has certainly had an impact, but the key number here is that the growth in E-commerce has only slowed to a projected rate of somewhere between 7 and 9 percent for the next couple of years. E-commerce is still an expanding marketplace that businesses need to utilize.

Three ’starter’ channels

A multi-channel strategy is especially well-suited for small-to-medium sized retailers who either serve a specific niche market or sell with expertise into a limited number of product categories. A typical approach involves three sales channels: 1) Retail (their bricks-and-mortar store); 2) E-tail (their own E-commerce web site); and 3) E-marketplace (sites like Ebay and Amazon).

Quite a few retail businesses take advantage of at least one of the other available sales channels. The struggle comes in adding the third sales channels - or, just as often, they wrestle with making their additional sales channels profitable. Over the course of the next few posts I’d like to share some ideas on how you can maximize the bottom-line impact of your own multi-channel sales efforts.

Retailers who want to succeed at E-commerce and on E-marketplace sites need to plan ahead before they jump into online selling. Because people aren’t walking into a store and interacting with your staff, when you sell online whatever you display about your products and services has to meet customer expectations in advance. Otherwise, you probably won’t be making very many sales.

Meeting expectations

The two customer expectations I see overlooked most frequently are depth of inventory and detailed product information. Four or five years ago those may not have been key considerations (people were more interested in finding sites that didn’t crash all of the time), but the technology and the market have both matured to the point where online shoppers have come to expect both.

Think along these lines: Even if you sell into a very limited niche market, surely you have more than 15 items in your store? Hobby widgets, rare books, specialized tools, miracle cosmetics - it doesn’t matter. Customers expect to have choices and selection. Put as much of your stuff online as you can. In some circumstances you might be able to succeed with a limited online inventory (maybe you really do sell only one item in your store…), but that’s becoming the exception rather than the rule.

With the E-commerce tools that are available now, there’s really no excuse for online product listings that lack detailed product information. Your regular retail customers may know all of the details about the “X-Widget Model 275″ - but when you sell online you’re reaching into a new (perhaps global) audience that might be just as interested in buying, but is probably less knowledgable. You can’t answer their questions face-to-face, so you need to have as much information as possible in your online product listing. Consumers tend to do more business with web sites that give them more information and establish credibility.

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.