Income Generation Series: Partial E-Commerce Websites
Overview
The business models of partial e-commerce websites are somewhat different than their full e-commerce counterparts. To the consumer, there is often no recognizable differentiator between the two. The differences can be found in the operational procedures of the websites. Partial e-commerce typically uses drop shippers to outsource the shipping logistics and inventory concerns of the full e-commerce model.
The primary benefits of using drop shippers is to streamline procedures, minimize inventory overhead, and increase product offerings without capital investment. This comes at a cost, as the profit margins per sale are much lower than those in the full e-commerce model. Conversely the associated overhead is also much lower, which makes this model attractive to companies with limited investment capital.
When an order is placed on a partial e-commerce website, the webmaster then places an order with the drop shipper to send the product. The webmasters profit is the difference between the price of the sale and the cost of the product through the drop shipper. Using this model allows the webmaster to focus more resources and time on advertising their website, and can potentially utilize economies of scale with large drop shipping operations.
There are several drawbacks assoicated with this model. Websites are generally limited to products only offered through drop shippers. This leads to higher competition which can directly impact margins through increased advertising costs. There is also concerns with reputation management. The drop shipper is usually transparent to the consumer, so if the drop shipper provide poor service, it directly impacts your reputation.
Analysis
- Time: The time commitment to running a partial e-commerce store can be significant, although much less than the full e-commerce model. Much of the marketing can be outsourced, and the sales notification to the drop shipper can potentially be automated. However, there will still be issues inherent to the e-commerce model; refunds, billing, inquiries, customer support, and marketing.
- Capital: Generally minimal. Once a website is constructed, capital may need to be spent on marketing. Content on e-commerce sites tend to be lean, so paid advertising is often a preferred method to attract visitors.
- Scaling: The partial e-commerce model can be somewhat scaled. The key would be to look for automation potential and harness the existing customer base for continual sales. Marketing efforts can generally be scaled as well.
- Outsourcing: Much of the partial e-commerce model can be outsourced. Web design, content creation, marketing, and customer contacts can all be outsourced if managed correctly.
- ROI: The ROI potential is highly dependent upon offers available, drop shippers, and the level of competition.
Recommendation
Partial e-commerce websites have potential to be integrated into my business plan. If built correctly they can be outsourced, scaled, and require minimal capital requirements. Although not the highest priority opportunities, these will be examined. In terms of acquiring these websites, they would generally tend to have a lower valuation than other opportunities in my portfolio. This would be due to the potential for high levels of competition and the difficulty of assessing the existing relationship and performance of the drop shipper.
Income Generation Series: Overview
Income Generation Series: Niche Marketing
Income Generation Series: Website Acquisitions
Income Generation Series: Informational Products
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