12 Pros and Cons of an Online Retail Business

An online retail business is an easy way to begin promoting specific products that you’re passionate about. You can let the general public know what you have to offer, how much those products happen to be, and when they can expect to have them shipped out. Online retail businesses like Amazon or Zulily, which are exclusively online, prove that the brick and mortar store doesn’t have to be the only place to get the stuff people need.

Are you thinking about increasing the presence of your business? Do you have a new product you’d like to get people to know about? Here are the pros and cons of an online retail business to consider so that you can make a choice that works best for your needs.

Here Are the Pros of an Online Retail Business

1. It gives customers the chance to experience instant gratification at home.
The whole shopping experience is about the instant gratification that comes when you solve a problem you’ve got. When a customer has the chance to click a “buy” button at home, they get the gratification in knowing that they are about to save time, save money, or make their lives better in some way. The time it takes to ship the product just further increases the anticipation that is experienced.

2. It lets new customers find you even if you’re not a local business.
Customers today are looking for the best deal possible. A common thinking error in this area is that an online retail business has to undercut prices in order to create this value. It doesn’t. Customers want the best combination of quality and price that is available. People are willing to spend a bit more if it means the quality of their product is better. Customers who are researching products can therefore find you when you’ve got an online retail business even if you’re not local to their market.

3. It is a way to test niche products in a safe, affordable way.
If you are thinking about expanding your retail presence, it can sometimes be difficult to know which products are going to work and which ones will not. An online retail business gives you the opportunity to explore niche products that could compliment your primary sales line. If something is popular online, then there’s a better chance that it can sell at your traditional store if you have one.

4. It allows you to run lower inventory levels.
This is especially beneficial for the small business owner. If you’ve got a high level of inventory when tax time comes around, then you’re going to take a financial hit based on the value of that product. An online retail business allows you to run with lower inventory levels without compromising the levels of service that you’re providing so you don’t have to take this financial hit as often.

5. You get the chance to compete globally while still staying local.
An online retail business can literally be run from a home office that has a garage large enough to store inventory. You can even offer global shipping options if you wish for a wide variety of products without needing an export license [though there are products that do require additional licensing]. Even if you don’t want to go global, you can still reach new demographics of customers without the same level of effort a traditional store typically faces.


6. It’s fun!
When you can work from home and have a store open 24/7 online, life becomes a little more fun. It’s because you get to be working for yourself on your own terms.

Here Are the Cons of an Online Retail Business

1. It takes a lot of time to operate.
Having an online retail business that only sells a few products can be hugely beneficial and create some huge passive income opportunities. Having an online retail store that has hundreds or thousands of products requires full-time maintenance. You’re in there changing product pictures, marketing descriptions, and even how products are groups to entice visitors to click the “buy” button. These hours have to get put in without a guarantee of a return.

2. Chargebacks are more common than in person.
It is rather difficult to verify a person’s identity online even still today. Although this negative aspect of an online retail business has improved over the years, it is still easier for a customer to have a successful chargeback even though you’ve shipped out your products to them. Even when you insure a package or require a signature, the credit card agency may rule against you and refund the payment, leaving you with a loss of product and a loss of income.

3. You must be accurate with your shipping costs.
Many online retail stores will offer free shipping at a certain level. Customers often think this is a way to get them to spend more money, but the fact is that it is more about self-preservation. Estimating the weight of a shipping order online when multiple products are ordered is time consuming and can become very expensive if there is a miscalculation. That’s why “free” is just offered. It saves time and customers might buy more stuff. That’s a win/win.

4. Search engine penalties can dramatically reduce the amount of natural traffic you receive.
Many products that are sold retail are required to have a specific item description assigned to them. When there could be dozens of retailers online that are selling the same thing you are, the search engines are forced into a canonical conundrum. Which pages are the best? Most important? Most valuable? If your page doesn’t come out on top, then you might be completely forgotten about through canonical penalties.

5. There’s no way to accept cash.
Electronic payments are very common today, but those payments have a certain percentage of the final sales price taken out of them for that service. Retailers may lose between 1.5-3.0% on every sale [and sometimes more] just because someone is paying with a credit card. This forces the online retailer to adjust their prices by the same amount to reduce their losses, making their products potentially more expensive than the local brick and mortar store.

6. It requires overhead costs that can be equal to a physical store.
Your footprint is reduced with an online retail business, but the costs can actually be about the same as an actual building. You’ll need to pay for a website host large enough to handle your business. Payment purchasing is the same. Uptime costs can be thousands of dollars per month. You’ll need equipment to access your store and keep improving it. Unless you’ve got a product or two of your own development, it is important to compare the online retail costs to traditional costs to see what comes out ahead.

The pros and cons of an online retail business show that it can be an extremely profitable venture. Without marketing to a targeted demographic, however, it could also be a spectacular failure. Evaluate these key points and you’ll be able to know if the time is right to open up your own business.

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