Choose Variable Cost instead of Fixed Cost

If you have the choice, always go for variable cost over fixed cost. There are many opinions on this one but I strongly believe choosing variable cost has many advantages. You can read more about variable cost and fixed cost here.

There are many eCommerce systems out there with different ways of charging you their fees. Some lean towards fixed cost (a high monthly fee but low transaction fee) and others lean towards variable cost (a high transaction fee but low monthly fee). So which one should you choose? Always go for those that lean towards variable costs. At least at the early stages of your business.

Here’s why:

You can price it into your product. The biggest benefit of choosing variable cost is all the fees can be added into your products. In effect, it is your customers who will be paying for the fees, not you.

You don’t have a monthly headache (stress). We all hate our monthly bills. So why add one more to your headaches? With a high monthly fee, you are stressed to sell as much as you can just to meet the monthly fee. After a while, you’ll notice you no longer focus on your business, but just to sell just to make ends meet while sacrificing your long term goals of your business.

It doesn’t matter if you sell a lot or little. As long as you add the variable cost into your products, you no longer worry if you sell a lot or little that month. Each sale pays for itself and you can focus on your business such as marketing, product improvement, expansion to different countries.

Only pay when you are profitable. And pay little when you are not. Nothing is fairer than that. When choosing a business partner (in this case, the eCommerce system). You want one that only charges you when you are profitable and not the one that charges you regardless how successful your business is.

As mentioned earlier, there are many opinions on this matter and I would like to hear them from you. Please pour your thoughts to the comments below.

What type of products can be sold online

The answer is plenty. In fact, there are products sold online that you may think it doesn’t even make sense to do so.

Granted, there will be products that doesn’t make sense to sell online. Stuff like hot soup for example, where it must be kept warm all time time until it arrives at your customer’s house.

Wild ideas aside, here are the list of items you can sell online just like that *snap fingers*

 

Apparels, costumes, cloth based products

This is a given. It is light, easily folded into small package and easily sold online. Just drop them into a hard envelope and off you go. In fact, you can even use the plastic, water-proof envelope that are given away free by courier companies.

 

Books, Magazines, Newspapers

Another very logical product to are easily sold online. Newspaper and other paper based products has been delivered to your door steps long before internet was born. Flat, small and light, these are the formula of a good product to sell online.

 

Products Refills

There are products that you would prefer not to go to the shop to get. After all, you are getting the same item over and over again. Some examples are shampoos, detergents, water filters, printer inks and vitamin pills.

That’s not all. Consider some service-based item. Like cosmetics, nail polishes, disposable contact lenses and even teeth whitener’s gel. These are the products you go into the service center, get a professional opinion on what to use and you just continue to buy it month after month online.

As a service center, you could offer to sell these online to save your customers’ travel time and you spending manpower entertaining them. Just get them to buy online, and you send the products over. You could spend the time getting new customers instead.

 

Wholesale

You may not be selling to consumers but to another businesses instead. Again, selling your products online makes sense. Other businesses logs onto your website, choose what they want, pick minimum order quantity (MOQ), make the payment and you just send a truck over with your products.

 

Private products

For the lack of better word, these are the products you would be ‘shameful’ to buy in public. For more conservative nations, lingerie, sexy costumes, porn and sex toys fit into this category.

There are always demand for products like these, the problem is, some conservative nations disallows shops to sell these item publicly. So where can your customer get them? Online! Just be sure to pack them in an unmarked package

 

Services

If you are a spa owner, restaurant owner, photographer, designer, hotel owner or software developer, you would assume the best way for you to sell to your customers are walk in customers. You would think the Internet is your marketing channel, nothing more. It just simply doesn’t make sense to sell your services online.

But with the recent rise of group buying companies, we see a very successful and profitable way to sell these services online. By simply using a voucher. Your customers choose the services they want, make the purchase, gets a voucher, print them and bring them to your shop to redeem for the service.  Best part? You get your money upfront regardless they turn up or not.

 

More and more

As our technology improves and our delivery services gets more and more affordable and convenient, we will see more creative companies selling their products and services online. Everyone is very much aware that the online commerce is going to boom in the coming years, so why not join in the fun and expose your products to all your potential online customers?

Examples of Variable Cost and Fixed cost

First, let’s take a look at what is a Variable Cost and what is a Fixed cost. Based on Wikipedia:

• Variable Cost: Are expenses that change in proportion to the activity of a business. Or in simpler terms, the cost that goes up when your sales goes up.
• Fixed Cost: Are business expenses that are not dependent on the level of goods or services produced by the business. Or in simpler terms, those monthly fees you have to pay for your online shop.

These two are the only cost you need to worry about for your entire online shop. All costs will just fall into these 2 categories. To make it perfectly clear, here are some of the examples.

Variable Costs:

• Product costs
• Delivery costs
• Packaging costs
• Any raw material costs
• Transaction fees

Fixed Costs:

• Staff salary
• Yearly e-commerce subscription fees
• Yearly payment gateway fees (if any)
• Rental costs
• Accountancy costs

While it feels different, many of these costs and fees are the same for a normal shop and an online shop. So what we know of the ‘offline’ shop can be applied to the online shop too.

So if you are given the choice, which cost would you prefer? Variable or Fixed?

Free Delivery (No Shipping Fees) Always Win

Simplicity is king. Whenever you are faced with a choice, always choose the simpler option. This is especially true when it comes to consumers.

Adding a shipping fee to your online shop is not simple. Your customers are forced to worry about the additional unknown cost. Each time they look at the price of your product, the back of their head is asking ‘but you haven’t calculate in the shipping cost yet. It’s not as cheap as it seems’.

That’s no good. Some of your customers may just abandon their shopping cart and forget about it.

The best solution is, as the title suggested, give free delivery. Tell your customers upfront and on the main page: ‘There are no additional cost, no shipping fee, no hidden charges’. Now, what prices your customers see are what they will get. Tension and stress dissolved and they can just go about their shopping without worry.

That only translates to more sales for you. How simpler can it get?

Components of an E-commence

For those of you who thinks online commerce is a difficult business to get into, do not worry. Like all businesses, it is can be broken down into smaller and simpler components. Once you list down the components, you’ll soon realise that it is not as complex as it seems.

Let’s get to it!

1. The Products/Services. Goes without saying, without products or services, there will be nothing to sell and therefore, no reason for an online commerce.
2. The Engine. The core of the business. An online platform where the products are displayed, manages and maintained.
3. The Payment Gateway. The engine where money are transacted from the Buyer to the Seller.
4. The Shipping. Products has to be shipped to your customer’s hands. This component is not required if you are offering a service where your customer has to come to your shop to receive it.
5. Customer Satisfaction. Closing the commerce loop. Tracking your customer’s level of satisfaction for all your products/services gives you an idea what to improve.

And that’s it. Just 5 components to get your e-commerce up and running. What do you think? It really isn’t that difficult right?

In the coming weeks, we’ll delve deeper into each of these components. Stay tuned!

Price Anchor

Besides setting your price at a very attractive price point, there is one more trick many large retail stores use. It’s called Price Anchorage.

Ever heard of a conversation such as this: “Normally our standard price is $300, but today we have a special promotion price of $199”. Wow! What a good price don’t you think?!

Actually, no. We would feel the price is attractive because we just anchored what we thought was the original price at $300. We got anchored by the price.

Now, it doesn’t matter if the original price is truly $300 or not, what matters is you felt the price is cheaper. And that’s what we can implement on our online store too.

Always anchor your price when situation permits. Always put a higher price, let your customer see it, and then show them the lower price. For example:

Normal Price: $300
Current Price: $199!!

Effective, don’t you think?

Lower Your Price the Smart Way

It is common knowledge that the more you lower your price, the higher the purchase rate will be. But the million dollar question is, how to lower your price?

Lowering prices is a good way of ensuring online sales, but the secret is to lower the price to a point where you get the maximum impact.

Consider this: $10.60 and $10.50. Would the 10 cents entice you to buy? How about $50.10 and $50.00? Does it make a difference?

Now, let’s take a look at this. $20.00 and $19.99 Notice how much more effective it is. Just by lowering a single cent you affect the buying decision by so much more. In fact, lowering 1 cent to any other price point will never achieve such an impact.

That, dear reader, is the most impactful way to lower your price. Just take your price you prefer to sell your product at and lower it by 1 cent. Ensure that the front number is changed because of it. Numbers such as $59.99, $15.99, $9.99 or even $0.99.

Minimal reduction in price, maximum impact.