This article will be a tutorial about how I started one of my Australian ecommerce website while minimizing the upfront investment and risk, and what I would suggest for somebody starting an ecommerce website for the first time. My website is Heavenly Hammocks Brisbane - a place that sells hammocks and related accessories from Brisbane and delivers across Australia.
My planning process helped me to: select a good topic, reduce my import costs, project figures reasonable accurately, find the best marketing sources, and make a high converting website among other things.
There are quite a few steps involved, so I’ll break them up into sections as follows:
- Choosing a topic
- Researching competition and the market
- Finding suppliers
- Selecting products
- Budgeting and projecting figures
- Developing a website
Choosing a Topic
Not every topic will be a good fit for you. Every topic has its advantages and disadvantages. You might even select a bad one the first time around, but you can improve your odds through proper planning and research. You might consider coming up with 2 or more topic ideas and doing some research for all of them, then you can choose the one with the best prospects.
Take for example these potential issues you should consider when brainstorming ideas:
- Premium Products: If you sell a premium product like jewellery, people will expect a very high quality and you are bound to have some returns. How will you feel about managing complaints and returns? Will you be happy running this business?
- Large Products: Do you have storage space? Can you pack large products? Do you know how to deliver them and what will it cost (to various locations)?
- Small Products: Do Chinese businesses deliver this product to Australia with a low price and free shipping? You may have a hard time competing.
- Common Products: Are there a lot of competitors in Google? It could be a difficult market to enter.
- Uncommon Products: Are there many people searching for this product -- enough to make a good profit?
Now some potential topics with questions to consider:
Surf and Scuba Gear:
- Are there government regulations related to these products? This needs research.
- Is there serious seasonality? Probably Christmas and summer. You can check with Google Keyword Tool.
- Are there certain locations where customers are focused? Probably warm locations and places with sea-side tourism. You can check with Google Keyword Tool.
- What will delivery cost? Certain products may be heavy and expensive to deliver. Does the price cover this easily?
- Potential: Probably good. You can compare this topic’s search frequency to your other ideas with Google Keyword Tool.
- Competition: Google ‘Scuba Tank Brisbane’ for instance and look at the organic (free) listings. At what rank do the listing start becoming ‘junk’? Rank 5? Rank 25? It’s easy to beat the ‘junk’ competitors but harder to beat the established ones. ‘About 40,200 results’ is also a number to remember – lower means the less competition. Also look at the ads. If there are few ads, then it should be relatively cheap to advertise.
- Do customer want to touch the product before buying? Probably not. No problem for ecommerce.
- What styles are popular? This will vary between countries. Can you choose good ones?
- Seasonality? There may not be too much, but you can check.
- Size: They are big. Can you afford to deliver Australia-wide or only to one city? Do you have the capability to move them?
- Delivery Cost: It could be high. Which couriers accept such big products?
- Potential: You can check search volume for a quick estimate.
- Competition: As in the scuba topic, check ‘Mattresses Brisbane’ and we see ‘About 532,000 results’ and lots of ads. Can you compete with such stiff competition?
- Do customer want to touch the product before buying? Quite possibly. A showroom may be necessary. Consider your options.
Come up with some more ideas.
That’s a small summary of what you might consider when researching your ideas. Consider that a start to your topic selection, but don’t choose one just yet - we have more research to do. Let’s go into more detail.
Researching Competitors and the Market
While we’ve already thought about the pros and cons of a few ideas, they are only ideas. We need some real numbers as evidence to back up our final decision. I’ll use the scuba example some more.
Researching Market Potential
Using Google Keyword Planner (you’ll need a free Adwords account) we can check the search volume for ‘Scuba Tank Brisbane’, ‘Scuba Tank Australia’ and so on.
In the image below, you can see I searched for both. It turns out the search volume is miserably low. Hardly anybody is searching for scuba tanks in Australia – There are 70 people in Australia searching for ‘Scuba Tanks for Sale’ per month. I’d pass on this idea.
But wait, look below. Google has given some similar suggestions and there are 1900 people searching for ‘snorkeling gear’ and 880 for ‘spearfishing gear’. Combined, that is 2780 people per month. That is decent. Note the Suggested Bid, the rough cost of advertising for these keywords. ‘Snorkeling gear’ is not too expensive, while ‘spear fishing gear’ is moderately expensive and ‘scuba tank testing’ is very expensive at $4 per click!
This tool will give you a good idea of search volume per month. Compare your other topic ideas to get a better comparison.
We want to know if searches and sales will be stable throughout the year or rise and fall. For ‘snorkeling gear’, I hovered over the trend chart icon to see the chart below. There are 880 searches in June and July and 3600 in December. That is significant seasonality. You’ll make the majority of your money around Christmas. That is assuming that your business is running smoothly and you can manage the order volume come Christmas time.
In the first image above, you’ll note that I targeted ‘Australia’. To check search volume by city, you could type ‘Snorkeling Gear Brisbane’, ‘Snorkeling Gear Sydney’ and so on and see the difference. This method works ok, but there’s a better way. Change your targeting to Brisbane instead of Australia then search for ‘Snorkeling Gear’. Repeat this for every major city and write down your results. You may find something like Brisbane+Sydney making up 60% of the total. If that is the case, you had better have a warehouse in either Brisbane or Sydney to reduce your average delivery cost.
As I mentioned before, you have to look in Google to see how strong your competitors are. The below image is for ‘Snorkeling Gear Brisbane’. You can see ‘About 21,800 results’ which is pretty low. There is only 1 ad at the top of the page, also low. There’s even a maps listing which is relatively easy to get into compared to regular search results. You would also take a look at the top 10 or 20 free results to see how professional they are.
Everything’s looking quite reasonable so far. The search volume is decent (but not high) and competition looks relatively low.
Let’s look at the competitors in more detail. The next technique is one of my favourites.
Flippa.com – Researching Competitors that Tried to Sell Their Business
We start by going to the ecommerce section of Flippa.com and only look at sites with revenue >$100. From here, you’re looking for sites that are related to yours. It doesn’t work well for snorkeling since it’s not a very common topic, so I’ll use a different topic – trampolines. There is only 1 ecommerce site about trampolines listed for sale, but that’s good enough.
If the listing has already finished, then you can look at their description and attached documents. This usually includes monthly revenue and profit breakdown, visitors, page views, traffic sources, and if you’re lucky there will be a whole lot more, like top keywords, top products, cost breakdowns, average revenue per sale and more. Pay particular attention to the attached documents.
If the auction is currently running, then you have the opportunity to ask any questions you like. If it’s not too intrusive, they are likely to be answered truthfully. You may consider purchasing the business, they are generally well priced but Flippa usually lists US businesses.
Note above the quality competitor giving lots of details about themselves. They say they have 2,414 visitors per month making them $6452 USD revenue. When I scroll further down the page, they say they make $2659 profit from that revenue, 70% of visitors come from Google free results, shipping costs $200 per sale, they process lots of sales over the phone and they sell around 100 units per year.
From this, we can calculate the following metrics:
- 79 average visitors per day.
- Conversion rate is 0.35%. (79 visitors * 365 days / 100 sales per year) That’s low.
- They make $2.67 average revenue per visitor, $1.10 profit per visitor. Their traffic is free, but it also means that advertising should be significantly less than their $1.10 profit margin per visitor (assuming the ad traffic is the same quality as their free traffic).
- The profit margin is 41% of revenue. You’ll want to verify if this is gross profit margin on sales or total profit after all expenses such as hosting.
- Average revenue per sale is $774. ($6452 revenue per month * 12 months / 100 sales per year) So profit is roughly $317 per sale.
- Inventory cost + shipping is therefore $457.
- Since shipping is $200, the inventory cost is roughly $257.
Now we know a lot about them. You know that your total import cost should be around $257 or less per unit to be competitive. You know that if you price similarly to them that a 0.35% conversion rate (at least) is achievable. I hope you can see the potential!
If you can’t find a Flippa listing to read, then you might have to research manually. That means visiting the competitor’s website, looking at their product line and prices and then checking how much you can import it for from China. This method gives far less detail but is better than nothing.
SEMRush Rankings Research
SEMRush lets you check the free and paid search engine rankings of your competitors. I looked up ScubaDiving.com.au and we can see their best keywords. Look at their ads on the right and you’ll see ‘kids snorkel set’ for example. Do you sell that? It’s cheap to advertise and has decent search volume. ‘Dive Shop’ also stands out as a keyword you might consider targeting.
I use Alibaba.com to browse suppliers. If I search for snorkel, I can see 27,000+ products. If you’re just starting out, you’ll need to find a supplier with a low MOQ (minimum order quantity). A lot of suppliers want to sell 500 units of a single snorkel design. That is too much when you’re starting out, so I would suggest emailing at least 10 suppliers that have MOQ of 100 or below. Ask them for a price list and catalogue, and whether they can do a mixed order for you with 20 different products with 20 units of each (or whatever seems reasonable to you).
Below you’ll see that this supplier says that their MOQ for that design is 500 pieces and the price may be between $2 and $5.50 USD (ex-China).
You should already know what you can sell it for, so now you can start considering if it will work. If the supplier comes back to you with a MOQ of 20 each for 20 designs as you requested and a price of $5 per unit, you can start calculating. The $5 USD quote is definitely not the final cost of getting it into Australia and to your warehouse. In my case, for a $5000 import (equivalent to 1000 snorkels), the USD to AUD exchange rate, shipping costs and import costs (government documentation, port fees, and customs clearance agent fee) increased that price by 67%. Lately the AUD:USD has worsened, so it may be 80% today. If the same ratio holds true for the snorkels import, the $5 USD quoted price would cost $9 AUD all in to get it to your location in Australia.
Note: When ordering 20 pieces, you’re likely buying from a distributor rather than a manufacturer. A manufacturer will want to sell 500+ but will give you a better price.
Are your prices still competitive after delivery, advertising, packaging, other costs and profit margin?
If everything still seems good to go, then you just need to avoid scammers… Alibaba has good sellers and bad ones. They don’t have a good review system to help to pick the good from the bad, but if a scammer got reported, they would likely be removed from the system. So how do you find the good ones?
In the image above, you can see ‘6 YR’ and ‘2 YR’ next to the company names. That is their time on Alibaba.com. The longer the better, since they haven’t been removed as a scammer. Other than that, you could try to convince them to use an escrow service such as AliEscrow. Many legitimate suppliers will not accept escrow though, so if they want to be paid by bank transfer (hopefully just a deposit), you’ll have to go with your intuition – do they act professionally? Is their branding professional? Do they accept everything that you requested and try to push you into paying them? (Doesn’t look good) Or, do they deny you some requests because they can’t do it? (Sounds like a legitimate business)
Do your best to minimize the risk.
If you decide to go with bank transfer, avoid the big banks! They will rip you off with their insane exchange rates and fees. OZForex is the best value method I have found (with $1000 AUD minimum). So your deposit and final payment will both have to be over $1000 to use OZForex.
If you’ve chosen 1 good supplier to work with, maybe they’ve given you a list of 50 products that they produce (or distribute). From here, you’ll need to select as many as you need to make your website look full and legitimate, limited by your budget.
In the previous section on competitor research, you should note which of your competitors’ products are popular. That is one way to choose. If you have experience as a snorkeler, you may intuitively know which products will be popular In Australia. That is another way to choose.
I have another more analytical technique that you can use -- using Ebay.
Ebay Product Research
I like to use Watch Count to find the most popular products in your topic on Ebay.com.au. In the image below, you’ll notice that when I search for ‘snorkel goggles’, the top selling products are blue goggles+snorkel sets. You should definitely have those. The top one has sold 200 units on Ebay but for only $16.50 (before delivery of $4). That product is from Hong Kong.
Now we see the ‘Small Product’ problem that I mentioned earlier arise. It’s small enough for Hong Kong to ship directly to Australian customers and undercut local sellers. But do not fear, not everybody is willing to buy from a Chinese/Hong Kong seller and not everybody will buy from Ebay. If you have your own website, you don’t have to compete on price with Ebay, but you do have to compete on price with your other competitors with websites.
This is still a handy tool for finding popular styles and products.
Budgeting and Projecting Figures
Budgeting Your Import
I will give you some of my actual figures for a 2 CBM import so you have make reasonable accurate estimates.
- $3389 USD paid to the supplier for 2 CBM of products, fumigation and shipping
- $3958 AUD (when the exchange rate was around $0.87 AUD:USD)
Following figures are all in AUD.
- $506 Port Charges
- $520 Duty+GST
- $25 Customs network charge
- $55 Delivery Order Fee
- $200 Customs Agent Fees
- $50 Quarantine Fees
- $25 Quarantine Barrier Charge
- $65 Quarantine Attendance
- $105 Cartage to Warehouse/House
So I paid $3,389 USD to the supplier, equal to $3,958 AUD. Then there were $1,551 AUD of additional fees in Australia.
So the fees were an additional 39% on top of what I paid the supplier in AUD.
A lot of those fees are flat fees, so if you buy a large amount form China, the 39% fees will decrease as a proportion of your total.
You already know what your competitors are selling their products for, so you can base your calculations on that.
- Product Name: Blue Snorkel Set
- Selling Price: $65
- Minus average costs per sale.
- - $14 Product Cost
- - $10 Adwords Advertising
- - $5 Employee
- - $3 Packaging
- - $15 Delivery
- - $1.80 Paypal Fee
- - $0.50 for covering 2% refund rate
- - 5% GST (9.09% of the revenue is GST, but we have GST credits from other expenses)
- = $12.45 Gross Profit Margin
- Don’t forget 30% corporate tax after taking into account your other fixed expenses.
You may be able to improve that profit figure if you can reduce advertising per sale below $10, or get delivery for less than $15 (I know Hong Kong can do it for less, but can Australia Post?! Absurd).
This should help you to understand where you stand economically for price and costs.
Budgeting Sales Volume
This one’s harder to do. Hopefully you found a competitor on Flippa to get a general idea of what sales volume to expect. Then you’ll know how much inventory is reasonable to order.
Developing a Website
Assuming you’re not a web developer, you’ll have to either pay a development company, or use an off the shelf solution such as Big Commerce. Big Commerce charges a fee every month, but then you don’t have to worry about high upfront development costs and the web panel makes it easy to manage your store. This helps to minimize your initial investment. You’ll be limited to their default themes though.
If your business starts to pick up pace, you might consider paying a Big Commerce developer to develop a custom theme meeting your specifications. This will cost you, but less than developing a full site.
Here’s a glimpse of their web panel.
You’ve already got a glimpse of your competitors’ marketing through your research on Flippa and elsewhere. So you know where you should start.
- SEO (Backlinks and PR)
- Google Adwords
- Social Media (free and paid)
- Anything else you can think of.
You’ll have to learn each of these separately, since each one is a deep topic.
Delivery costs can make or break a business. I’m speaking from experience. I have started an ecommerce business in the past where I underestimated delivery costs. My products were selling well, but because of the high delivery costs, my profit margin was tiny.
Through experience, I learned that Australia Post is by far the most famous, but that doesn’t mean that they are the best for everyproduct. Australia Post can be good for small products, especially if they fit in an envelope, but for larger and heavier products, a courier is often the better option.
But which courier? They all want you to have an account with them, have high volume, some couriers are better for different locations and their fees are unclear. So what do you do?
I use Temando.
Temando lets you compare the prices of various couriers for a specific delivery size, weight, location and date. It even lets you book the good price with each courier without having an account with them. It is great for me. If I didn’t use Temando, I would have to have accounts with several courier and probably wouldn’t even get such a good price.
If you use common sized boxes, you may be able to find a decent deal at a box company in your local city (but if you need abnormal sized boxes, forget it). Usually the local suppliers’ prices are nowhere near as good as China’s though. So that means when you’re importing form China, pay them extra to pre-package your products if possible.
It is important to have snug fitting boxes, since it will reduce your courier costs.
I hope you learned something. If you don’t learn it beforehand, you’re going to learn the hard way – through experience. Hopefully I’ve saved you some money and time in your journey to start an ecommerce website.