We see it happen often – and often go wrong. What then, exactly? Companies that set up a webshop without a clear goal or e-commerce business plan. There are never any good arguments to postpone such a plan. An ‘ordinary’ company also starts with a business plan, a framework that you also extend to your online business. Postponing such a plan is never a good idea, because it is the foundation of all your (e-commerce) efforts. This article will give you a push in the right direction. We share tips to develop a solid e-commerce business plan.
First and foremost
A business plan is first and foremost an estimate, an idea of what the future of a project might look like. You gain insight into your objectives and into the potential costs of achieving them. Only then, you really know when you will be able to start selling.
An e-commerce business plan is in fact not that different from a regular business plan. You write out which major costs you will have to incur, which margins you will have to take … You then link this to a marketing plan, in which you concretely establish how exactly you want to achieve your business goals and what efforts (and costs) you will have to make to do so. It is crucial to be actively present on various channels and to promote your webshop. Seems logical to you? So do we – and yet many companies lose sight of the importance of a marketing strategy.
Not to mention: your business plan is never set in stone. So is your e-commerce business plan. You learn a lot during the start of your webshop. Who really buys? What sells and what doesn’t? What marketing is catching on? Based on this data, you can refine your business plan to improve your efforts, reach better prospects and thus generate more sales.
What do you take into account in an e-commerce business plan?
The costs of an e-commerce business plan
Start-up costs
These are one-off costs that you will have to incur when setting up a webshop:
- The construction of your webshop;
- A warehouse;
- Accounting software;
- Stock management (software);
- Designing a logo and corporate identity (or translating this into an online story);
- Advice from an accountant or lawyer.
Variable and fixed costs
1. Variable costs depend on the activity of your shop. The higher the production or turnover, the higher these costs will be. Think for example of the shipping costs that depend on your (monthly) orders, or advertising costs.
2. Fixed costs are costs that are independent of your production or turnover. The rent of a storage space, hosting …
Specific webshop costs
- Costs per click / impression
Nowadays, it is important to complement SEO with SEA – Search Engine Advertising. You want to claim your spot at the top of the search results, both with your brand name and with your product or service. In most sectors, online advertising has become necessary, both via Google Ads and via social media advertising. Google works with a cost-per-click system, Facebook, Instagram and LinkedIn with a cost-per-impression system. Affiliate marketing websites (such as Amazon Associates) work with a cost-per-sale system, or according to cost-per-click. This means that your budget is never the same, but depends on the success of your campaigns.
- Shipping costs
Every physical product that you deliver must be shipped. And that, of course, costs money. Most logistics companies charge between € 3.5 and € 6.7 for shipments under 30 kg. The price also depends on the region to which you send your parcels. To get a concrete idea of these costs, it is best to contact a shipping company such as Bpost, TNT, DPD … to ask for a price quote.
- Packaging costs
A much forgotten cost: the packaging! Unboxing is not to be underestimated these days. Otherwise, there would not be so many videos of it on social media. Cardboard? Plastic? Chic packaging? An extra in the box? Your brand name on the box? You need to take all these things into account in your budgeting (and margins).
- Online payment costs
Receiving money also costs money. Yes, really: you as the recipient have to pay for each online payment. We advise you to contact companies such as Ingenico. This way, you will get a complete and concrete picture aimed at your webshop. And remember: the price per transaction is negotiable. Keep in mind that not every country has the same payment habits and your costs may differ if you sell outside Belgium.
Performance parameters for a webshop
Visitors per day
To estimate sales, you need to estimate how many visitors you will have per day. The visitors can come to you via traditional SEO (or even better: thanks to your unique content about your products or services), via SEA (Google Ads, Affiliate marketing), via your social media (paid or not) or via active PR on news sites and blogs. E-mail marketing and other offline actions usually complete the picture of the number of people that eventually surf to your webshop.
Conversion
The conversion of your webshop refers to the number of visitors who actually become customers. The average conversion on a webshop depends mainly on what you sell. If you are in a niche market, you can expect high conversions. If you are in a very competitive market, it will be slightly lower. In general, you can expect a conversion between 0.5% and 3%. The average is 1.5%.
Average order amount
This means how many euros an average order on your webshop amounts to. It is difficult to give an exact figure. It mainly depends on your assortment and best-selling products. In the Netherlands, the average amount per order is around 70 euros.
To estimate this for your own business, we advise you to use the Pareto rule: look at the 20% of products that make up 80% of your turnover and take the average of these. And of course adjust that once your business has started.
Profit margins
The gross profit margin shows the percentage that remains of the turnover after you have paid the costs of sale. The operating profit margin shows the percentage that remains of the turnover after all costs have been paid (excluding taxes, interest charges and dividends (i.e. preference shares)). This percentage shows the ‘pure profit’ recorded on turnover.
The net profit margin refers to the percentage of sales that remains after all expenses, including taxes, interest charges and dividends have been paid. This percentage reflects the maximum amount of sales left for the ordinary shareholder, assuming there is no profit reserve.
Note: a good net profit margin depends very much on the sector. A small net profit margin with a large turnover or a large net profit margin with a relatively small turnover can therefore result in the same amount.
It is good to overestimate your own costs and underestimate your sales in the beginning. Also try to build in a correlation between your sales and purchases: more sales also leads to more costs.
Good luck!
Hopefully we have helped you with all your questions about an e-commerce business plan. Be sure to read our post about the cost of a webshop. Are you looking for a partner? Then make sure to contact us without any obligations!
