Starting an online business – where do you start?

Starting an online business – where do you start?

If you’re thinking of starting an online store in Australia, where do you start?

Starting an online business is an exciting prospect but where do you start? There are plenty of things to consider, from what you will be selling, to how you will configure your shopping cart, and what your policies will be and how you will respond to both offline and online competitors.

Choosing your product

The most obvious place to start with establishing an online store is to choose the right product to sell, and targeting the right people to sell it to. Products can have multiple uses, and even a product that is already being sold by a large number of other businesses can still be an effective product for you to sell online if you add value to it, or market it in just the right way. An ideal product to sell online is one that:

  • Is easy for you to post – small, lightweight and easily packable products that travel well in the post make excellent products to sell online as they do not take up a lot of room for you to store and lower the risk to you of getting damaged in the post, and therefore the cost of posting them. Postage companies like Australia Post charge for delivery based on both the item’s weight and dimensions, and if the size of the item is outside the “standard” size that they allow for an object of that size, they can charge you extra. Small, lightweight objects can therefore be excellent ones to sell online.
  • Is easy for you to obtain and re-order – finding a reliable supplier for a product sounds like something that should be relatively straightforward, but it can sometimes be much more difficult than it seems. If a product is selling really well, what happens if your supplier cannot provide a reliable source of that item so that when your stocks are getting low you can easily obtain more? What if the quality of the items you obtain from your supplier is not always reliable and you get a number of faulty products that lead to customer refunds?
  • Does not require specialised cart features – the costs of getting your ecommerce store online will be considerably higher if you need special functionality like a T-shirt product designer, delivery date picker or a formula-based pricing calculator based on customer groups and/or product combinations. If you do not have very specialised needs, a hosted shopping cart can save you a lot of money in terms of designer fees and set up time – the ecommerce provider sets up the technology environment for your business and maintains the technology while you can focus on running your business. It’s cheaper than commercial rent for space in a shopping building as well.
  • You can find a way of using that product that is unique and innovative, and that use is hard to reproduce – if you can find an innovative way of adding value to a product that is hard for other businesses to reproduce (e.g. you have a design that is exclusive to you, or have combined two products together to make a new product), then that can give you a source of competitive advantage that you can use to generate considerable online sales if marketed well.
Understanding your customer is the absolute key to finding the right product to sell in an online store. What need can the product fill that isn’t being filled by existing competitors or products? Have these customers purchased this product before? How much involvement will customers have in the purchase process – is it a product where customers will shop around looking for a particular feature or design, or is it something that is generally purchased on convenience or price? You should also consider what might happen in the future – for example, could future government policies, technology changes, or coming events make this product or the way you envisage using it more popular?

Know your costs

Besides the cost of purchasing the product from your supplier, there are a number of costs you should consider in starting an online business. These include:

  • Registering your business: If you register a business name with ASIC it costs $34 for a one-year registration, or $79 for a three-year registration (these costs correct at the time of writing – for the latest costs see http://asic.gov.au/for-business/registering-a-business-name/before-you-start/business-name-registration-fees-and-payment-methods/ ). If you set up a company, the costs will be greater than this as registering a limited liability company currently costs $463 (for latest costs see http://asic.gov.au/regulatory-resources/forms/forms-folder/201-application-for-registration-as-an-australian-company/
  • Setting up your online store: you will usually have to balance up-front costs, the ongoing costs and most importantly the costs of your time. Plus your regular business expenses. If you are purchasing a shopping cart from an overseas provider, you will need to take the exchange rate into account. If the Australian dollar falls against the currency of the country where you obtain your
    cart service from, then the cost to you every month will go up even if your provider hasn’t increased their price.
  • Bank fees – you will want to have a separate bank account for your business revenue and expenses as this will make it easier for you to manage when it comes to doing your accounting. In addition to your business bank account, if you are accepting credit cards you will need to have a Merchant Bank account as well, which is a special type of account that you can accept funds from credit card transactions. Banks generally charge a monthly or annual fee, and a transaction fee for these accounts and may have a minimum spend. You should make sure you know exactly what you are getting and being charged for, and at what rate.
  • Gateway service fees – shopping cart software works in conjunction with payment gateway software to process an online transaction securely and transfer the money from the customer to your business bank account via your merchant bank account. The major banks offer merchant account and payment gateway service combinations, and there are third party specialists like SecurePay and eWAY who also offer these services as third party specialists. Gateway services are structured with different plans and ways of charging so it definitely pays to shop around to get the best and most appropriate deal for your business.
  • Postage costs: these will be one of the most considerable costs of your online business unless you are offering services or downloadable products like ebooks. Understanding exactly how your postage company will charge you will help you know what to expect when you start making sales. Is your product easy to package? What type of package will it be sent in? What does the postage company that you are using charge for this type of package? Does the cost vary to different parts of Australia and if so, what are the “best case” and worst case scenarios? Do you want to offer postage to everywhere in Australia? Will you offer international shipping? These are some of the considerations that you need to make.
  • GST – if you are expecting to turn over more than $75,000 AUD in a financial year, then you will need to be registered for Goods and Services Tax (GST). You will charge GST on the sales you make and be able to claim back GST from the Australian purchases that you make from GST-registered businesses. When you first register for GST, make sure that you choose the accounting period that you want to account for carefully and most appropriate for your business. You’ll be registered for GST for the relevant period you choose – annual will date back to the start of the current financial year, monthly you’ll submit returns on a monthly basis.

Setting up an online store – things to consider

What will be the best shopping cart for your business? One factor that will significantly influence what your overall costs are and where they are spent is whether you are buying shopping cart software outright and managing it yourself on a hosting plan, or whether you are paying for a hosted solution on a monthly basis. Do it yourself (DIY) ecommerce websites like free carts:
  • Have a low up-front cost as you usually do not have to buy an up-front license.
  • Require a lot of hands-on time to manage. First you have to find a hosting provider that is compatible, install the software yourself, configure all of the options you want (often having to choose from many different or similar variations), apply security patches as they are required yourself and fix bugs.
  • Usually require a strong level of technical expertise to deal with problems when things go wrong and you are left searching the forums of the various components that make up your software looking for other people who have encountered those problems and the required solutions. What if you have a unique combination of components or a never-seen-before problem? What if your hosting provider makes a server change that affects the performance of your site? Your customers won’t be as tolerant as you are of issues.
  • If you wish to customise the design of your store, you will either need graphic design skills or need to pay a freelance designer by the hour. This could cost up to $200 or more if you are making considerable changes.
  • May put you at the mercy of third party developers to develop security fixes, add-ons, bug fixes and new versions of the cart software. You may need to pay for security and bug fixes yourself if they are not publicly available. Would you know how to remove a cross-site-scripting vulnerability if it was found in your store software?
  • Your hosting provider will charge you a monthly fee – you will need to know what that covers and what you get for your money.
  • If you are using a security scanner for PCI compliance you will need to pay a third-party to scan your website for vulnerabilities and certify you for your bank.  This can cost $500+. Daily scanning through highly recognised security providers like McAfee Secure can cost upwards of $1,000 US per annum.
On the other hand, hosted ecommerce solutions:
  • Have a setup cost and monthly fee. These vary considerably based on what you get out of them. Sites without a setup cost give you no setup service – you get the software installed but you have to set up the design and configuration yourself.
  • Provide you support for your ecommerce website. When you have errors in store, can’t find something, or what to know what’s possible, help is at hand. You can also request custom development.
  • Take care of server management, security and performance issues without your intervention.  You’ll know that the ecommerce solution you are running works on that server because the server is optimised for it and monitored. You won’t be paying per hour costs for security patches to the server.
  • Give you an ecommerce provider at-hand to ask for help and tips, upgrades provide additional information about payment gateways and additional services.
  • You will need to budget for third party services like marketing (as you would with any business). Marketing is often overlooked but a smart use of budget can significantly improve your chances of business success.
If you are accepting credit cards and looking to gain PCI compliance, hosted solutions will generally be more convenient to you, less time consuming and possibly cheaper too.

 What are the other costs?

On top of the costs of setting up your website and managing it, you should also consider the following when running an online shop:
  • A domain name – Australian domain names are $49.95 incl gst for two years when purchased from us. Other companies have different .com.au domain name prices.  If you already have a domain name you may wish to transfer it, or keep it with your current provider and ‘point’ it at the server your ecommerce provider is using</
  • Merchant, gateway or Paypal costs (if you are accepting credit cards) – the payment provider you use will charge fees to accept credit cards regardless of who you use. Live transaction processing through your store will mean you will need to sign up with a payment gateway provider like eWAY or SecurePay as well as a merchant account at a bank. Alternatively, live processing through Paypal or Paymate will require an account through these providers. Each have their own fee structures.
  • Business expenses – GST, income tax, business registration (e.g. ABN or company) and other business costs
  • Production and Stock costs – you will usually on charge these to your customers
  • Shipping costs – you will usually on charge these to your customers. If you dropship your cost structure will be different than if you hold stock and send it out as orders are received.
  • Storage costs – if you have a warehouse or storage facility for your stock, you will need to take into account these costs too.
  • SSL Encryption – if you are accepting credit cards directly in your store you will need to purchase a SSL Certificate for your store from a recognised third party provider to enable your store to process orders securely. SSL encryption puts a “padlock” on to the checkout of the store in the browser that your customers use, and gives them more confidence in purchasing from you. All Ozcart stores have SSL certificates. For the first year with us it’s free and then you pay annually from there on in.

Ask questions

Starting an online business can be quite exciting and profitable, and it’s important that your clear on your accounting, legal and taxation obligations as well as the costs. If you do your planning you can set up a solid platform for success. Ask questions from your peers running businesses, from business advisors, from your accountant, and from your shopping cart provider. Think about the business marketing tools that you will need. If you have any questions about setting up an online shopping cart for your store, just contact us.