Steve Barbarich – How to Start an Ecommerce Company – Important Things to do Upfront

steven barbarich1- Picking your product line or line(s)

Most people start with just one line or a a limited set of product categories. Unless you have a large start-up budget of millions of dollars, trying to launch a general merchandise store with 100s of products (like Wayfair.com) is just too much at first.

Pick a product line or category that your are excited about, have knowledge, or are dedicated to sell online. Let’s pick luggage, for example.

Now you have to figure out at what level in the supply chain you want to be. The lower you are on the supply chain, the more gross margin you make, but the more financial backing you will need to launch your line:

Level 1 – Drop Ship from distributor (highest level)

Level 2 – Drop ship direct from factory

Level 3 – Stock product, you buy from the factory (domestic)

Level 4 – Import product from China, stock, and sell

Level 5 – Manufacture your own product in China, import and sell direct (lowest level)

Level 4 and 5 are the optimal levels for getting higher gross margins on your product. Plus you can also create your own unique product lines and brands which means you wont compete directly with anybody with the same products. A common issue if you choose Level 1 and 2, is that you will find anywhere between 5 and 100 internet retailers selling the same product at the same MAP pricing.

If you are going to do Level 1 and Level 2 you will most likely be competing with a lot of companies selling the same product. In this case you most focus on creating a better eCommerce web-site than your competitors, and building up better reviews than your competitors. You product pages must be very complete with multiple tabs describing technical information (including spec attachments), options, colors, measurements, testimonials and reviews, product demo videos tied in from your YouTube video posts.

If you are going to drop ship another brands product, you may find that many brands already have their selected online retailers because they don’t want too many companies selling their product. Those are the types of products you want to sell because they are not going to be overly competitive online. In those cases you must convince these companies there is room for one more by promising sales and volume, and home page advertising.
Getting Merchant Services

You will need credit card processing for your orders. These are the four important ones:

1) Visa/MC/Discover

2) Amex

3) Paypal

4) Google Checkout

So here are some tips from Steve Barbarich. You Google “merchant services” and many companies will come up. These companies will be able to take care of 1 and 2 above which are 95% of your transactions. Compare fees and pick both based on fees, and also risk tolerance of a merchant processor. Since your online, merchant processors consider you a risk, so you need to make sure you are dealing with a company that works with many eCommerce customers already. If you are selling items over $2000.00 you are in an even higher risk category, in those cases ask them if they have ever taken “reservers” from customers. Reserves are a way merchant service company mitigate their risks by taking a percentage of your sales. This is actually not a bad thing to agree on because it will give you more freedom to make mistakes if you are in a high risk area.

Creating Your Web-site / Shopping Cart Web-sites

Getting a ready made eCommerce platform to design your site on varies in cost. The higher end more serious ones have yearly licensing fees from $3000 (pinnaclecart.com) to $30,000 plus (magento.com). If you are real serious, Magento is the way to go. If not go for something cheaper. If you really have a limited budget, you can try WordPress. And if you are really limited you can use Yahoo Shopping cart (which is really the worst, and limited, but its free).
Also the more expensive cart you use, usually the harder the development, bu the better your site will be. So basically you get what you pay for. Don’t forget to take into account “Responsiveness”, which is the ability of your cart to have a separate layout for mobile and Ipad type devices. The lower end ones are always going to lack capabilities in this area.

What state will you incorporate in? Tax Considerations
Its best to locate your company in a state where there are no sales taxes AND state taxes. If you start a business in California for example when you sell product to customers in California your customers will have to pay for sales taxes which will cause you to lose customers there. State taxes are different than sales taxes. State taxes and federal taxes must be paid, but some states don’t have state taxes, like Washington or Nevada. So if you make profit, you may save from paying about 5 to 8 percent of taxes. Regarding sales taxes, if you sell over a $4 Million dollars in CA (depends on the state), you actually have to pay sales taxes in other too even though you are not located there. Generally you don’t have to pay sales taxes (or collect them) for the customers that are out of the state you are operating. The catch is, if you have employees in a certain state, than that’s pretty much where you have to incorporate and that’s where all your rules will apply. But if your company is virtual (people work from home), than you can really design the business the way you want.

Adwords / SEO – Showing Up For Your Keywords – and Driving Traffic

Adwords adds are the top 3 blue adds on the first page of Google and all the adds that show up on the right margin.
Now that you got your site up, you need to drive traffic to it. An adwords campaign is the quickest say to drive traffic and sales and in fact you can make a sale in the first day you launch an adwords campaign. There is an art to it, so you have to study up or hire an outside firm.

Part of Adwords are the product listing adds which are the pictures that show up of products on the first page of Google. That has been referred to as “Google Shopping” , Google products, PLAs, and seems Google changes what they call it often. These are a goldmine, and work better than keywords.

SEO – organic traffic are all the listings below the first 3 blue adds. These take about 1 to 2 years to build up. It’s a long term investment so you need to have some investment in this to get it working or else it won’t work well. There is also a whole art to doing as well, so either get outside help or read up and learn it over time.
If you want to learn about how to do internet marketing yourself, i suggest going to the professional trade shows, the two best ones being SEM and Pubcon.