This promising trend makes investing in an ecommerce business a possibility for many aspirants. Since the competition in this industry is nothing short of fierce with many businesses offering a range of similar products and services, the challenge lies in standing out from the crowd and reaching your target audience virtually. Experts claim that despite the competition, the industry is ready to accommodate more players in the field.
Skills needed to set up an ecommerce business
On the communication front, you will have to possess strong writing skills as you’ll probably have an inbox full of messages awaiting replies every day. Your social skills too need to be sharpened if you intend to promote your business on social networking mediums with personal blogs and the likes. And to top it all off, you should know how to sell. In fact, an experience in selling should point you in the right direction on the ecommerce front.
Your ability to plan and execute is a key skill and one that is expected of any successful entrepreneur. This includes strategizing, project management, risk evaluation, financial planning and working out logistics.
Ultimately, what makes your products and services sell is your creative quotient. Ask yourself if you follow the herd or lead it.
How to set up?
You will have to begin by setting up a website, investing in inventory, finding suppliers, a warehouse to store your goods and work out the logistics behind shipment.
As a low investment option, drop shipping offers ecommerce entrepreneurs an easier alternative. In to this business model, the entrepreneur has to create a website and find manufacturers to put up their products there. When the orders come in, you simply have to undertake payment and coordinate the pickup and delivery of the products. This is by far the easiest system to operate a start up ecommerce business.
Setting up the website
Your website is pretty much a lifeline to your success. Whether your business is to solely offer products and services online or if you are looking to make additional income from your products and services that are more prominently marketed in a retail outlet, your website reflects your operational style.
The first step towards setting up your website would be to find an easy to remember domain name (like flipkart.com or ebay.com) and register it. You will have to pay a fee for this registration with the appropriate national registry. For patent and trademark on your products, services, logos, etc., you will have to consult a lawyer.
When it comes to hosting your website, you can either buy a network server or opt for website hosting services that lease this space like godaddy.com. This is a good option if you are new to the business: the web hosting services can take care of the technical aspects of your website and offer you additional services like tracking visitors while you can focus on the content in your website and on promoting your products.
You’ll have to opt for an ecommerce shopping cart software to take care of your payment and processing needs. The software also helps calculate sales tax, shipping charges, and processing fees and also helps receive orders. It should be a user friendly tool allowing customers to track orders, view related products, track items when they are back in stock and flexible enough to price shipping charges based on weight of the product and its price.
Next on your setup list should be a payment gateway or an internet merchant account. If your current banker does not provide you with the facility, you might want to shift all your business accounts with one that does offer you the option just to make things easier. For start up businesses, an online payment processing service or a payment gateway is a better idea. Many Indian ecommerce websites are offering the option of cash on delivery too to woo customers.
You’ll certainly need a team to manage your site, be it for security issues, SEO (Search Engine Optimization) purposes or to ensure overall maintenance. Again, for a low investment option, you can probably outsource your website design and maintenance for a more competitive price than pay web designers on a regular basis.
Type of business set up
You can opt to set up as a sole proprietor, a private limited enterprise, a partnership firm, or as a limited liability partnership (LLP). Most people opt to set up as a private company to validate ecommerce activities.
For a private company set up, the course to follow would be:
•To get approval for the business’ name and office address
•To have at the very least two directors
•To ensure they get a DIN (Director Identification Number)
•To have a minimum authorized capital of rupees one lakh
•To have an MOA (Memorandum of Association), AOA (Articles of Association) and DSCs (Digital Signature Certificates)
After fulfilling these stipulations, you will receive a Certificate of Incorporation by post to your registered office address.
Further, you will have tax related obligations like obtaining PAN (Permanent Account Number), TAN (Tax Deduction Account Number) and TIN (Tax Identification Number) numbers, and ensuring VAT (Value Added Tax) registration.
A chartered accountant can help you verify your professional tax and service tax obligations as well.
Although India’s ecommerce regulations are evolving, you still have to adhere to many legal formalities enforced by the Information Technology Act 2000. This act dictates strict pecuniary and penal penalties for violating any of its provisions while transacting online. Under this act, there are several ‘due diligence requirements’ that have to be fulfilled by companies as well.
Investment and workforce
For the operational set up alone, you will need two or more persons. Going into website design and maintenance requirements and server needs, your staffing requirements depend on whether you want to set up teams for the same or opt to outsource these needs.
For incorporating your company (PAN, TAN, MOA, etc), you will need the assistance of an accountant, or chartered accountant or a company secretary. This incorporation process could cost you around Rs.50,000 or more. For payment gateway services, you will need to pay an initial fee of around Rs.25,000, a negotiable transaction fee between 2% and 4%, and a monthly fee ranging between Rs.500 to Rs.1,500 that can be waived.
The shopping cart software companies can charge you anywhere between Rs.1, 000 and Rs.10,000 a month for the services they provide. If you intend to have an ecommerce team for off-the-shelf hosted software, a team of two members can cost you between Rs.1.5 lakhs to Rs.2.5 lakhs a month.
If you have a team of developers, you will also spend around Rs.50, 000 for computers, other peripherals and servers. A basic monthly plan for hosting will cost you around Rs.10, 000. The rent for office space depends on your location, size of the rented space and the amenities available in the building.
Your other expenses include factoring in shipping charges, which could cost around Rs.20,000 to setup. This fee can be waived depending on other terms under negotiation like fee per shipment. The fee per shipment could also vary depending on the weight of the package. You may also have to spend Rs.20, 000 or more a month for high speed internet and phone services.
Challenges and difficulties to overcome
Finding a market – It’s easier to market a horde of products, but when you offer only a select few items as a startup venture, finding the right niche for it is tough.
Cost of advertising – To make sure customers are aware of your presence, it is important to advertise your services. Advertisements in newspapers, radio or television tend to stick better with customers than internet ads.
Precise customer service – It does not take much to get bad publicity online with irate customers taking to blogs and social networking sites to vent out on unsatisfactory services.
Competing with the big fish – One of your biggest challenges will be competing with established players in the field. Since they buy or sell in bulk, they can get better offers from suppliers and pass it on to their customers. As a start up firm, you’ll have trouble funding bulk purchases or enticing better prices from suppliers.
Acquiring funds for scaling up – Once you’ve established yourself to an extent, establishing your brand is quite important for your growth. And for this you will need reliable funding. Most investment groups are wary about the changes in the industry and are not likely to give all budding enterprises a chance.
Promoting an ecommerce business at a marginal cost and attracting customersThe easiest way to advertise economically will be online. Sending newsletters and updates through email and phone come at an easy price but needs to be extremely well strategized to ensure that customers take you seriously. Banners and hoardings placed strategically can also do the trick.
The most common strategy employed by ecommerce sites though is to offer competitive rates and deals for their products and services.
As always, the above advice is meant as a guide. If you are serious about opening a ecommerce business in India then we recommend you also take professional advice.
To read about more ideas for low investment business ideas in India read these.