3 Challenges Faced by Ecommerce Businesses

By June 27, 2019 July 5th, 2019 Small Business, Uncategorized

The challenges faced by ecommerce businesses are nothing to laugh at. When we think of challenges, we often think of some of the hardest things we’ve overcome. These challenges help us to become who we are today. We don’t ask for them. However, challenges are a necessary part of life. They create opportunities for growth and development. Challenges stretch us to become more than we could be on our own. Consequently, everything worth doing presents challenges. The key is being aware of them and facing them head on.

Running a business can be tough. It’s like hiking a difficult mountain. It might help to talk to people you know who have already climbed that mountain. You might do some of your own research as well. Like knowing how long it will take. How much water you should bring. What equipment you might need. You probably want to plan it for a day when there will be good weather. If it’s a hard climb, you might not want to just wing it. You also probably shouldn’t just wing the ecommerce thing either. It takes preparation; whether you want to climb a mountain or whether you want to run a successful business. The first step is knowing what you’ll face on the way to the top.

Challenges Faced by Ecommerce Businesses

The ecommerce market is booming. According to Statista, in 2017 retail ecommerce sales reached 2.3 trillion in U.S. dollars. Projected sales in the ecommerce market will amount to about 4.88 trillion U.S. dollars in 2021. It’s a good place to be. Especially with all of the available channels and opportunities there are for ecommerce sellers. Although many companies are seeing success. They often have to overcome specific challenges faced by ecommerce businesses.  We will focus on three challenges in particular; Inventory management issues, reaching your target audience, and accurately tracking margins.

1. Inventory Management

Ecommerce businesses have inventory-based businesses. Inventory makes up a large portion of their financial statements. If your inventory numbers are off then it can create all kinds of problems. Investors, potential buyers, banks, or anyone else may rely on those statements. And they won’t get an accurate picture of your company’s true financial health if they are incorrect. So basically, if you mess up your inventory it can cost you…alot.

Correct Channel Quantity

This is one of the first areas ecommerce businesses feel the pain of inventory management. Or in other words, having the correct inventory quantity reflected on their channels. This is especially true when companies sell on multiple channels. If all channels sell from the same warehouse, then how do they update Shopify quantities when Amazon sells them out of a sku? This can become a huge problem on big sales days like Black Friday. When product is moving so fast you can have huge oversells if quantity is not updating rapidly. Doing this manually is totally unscaleable. One of the solutions is to have your inventory tool act as an inventory master. One that communicates and continually updates all channels. Many of our clients will send their product to FBA warehouses for Amazon sales. And then manage their Shopify channel out of their warehouse to avoid these kinds of problems.

Inventory Tracking

Accurate inventory tracking is another issue. Do you use manual tracking or inventory tracking software? Either way, it’s important your method allows for scale. It’s also important to correctly value your inventory using landed cost of goods sold. Tracking the amount of inventory and value of your Inventory correctly can save you a lot of headaches. Click here for more information on top-rated inventory management software.

Internal Controls

Having good internal controls is another problem ecommerce companies face. You can improve your internal controls by reconciling your inventory. You can also Identify the reasons for any gaps. And then bridge those gaps. For more information on how to improve inventory management click here.

2. Reach Your Target Audience

It’s important to reach the audience you actually want to reach. First you need to determine who you target audience actually is. Then, you need to get to know them. One way is to look for patterns in lifestyle and behavior of your target audience. This helps you fulfill a need that that particular group might have.  Once you have a broad idea of who they are it’s time to get down to the details. You can do this through software, survey’s, customer feedback, etc. Know which customers are your biggest supporters to find referrals. Referrals are another great way to make sure you are expanding within your target audience.

Another tip is to be aware of what your competitors are doing. If you know what products and services they offer. Then it’s easier to figure out what you need to do to stay competitive and visible. The most important thing to remember is that reaching your target audience is a continuous process. You need to keep figuring out whether or not what you are doing is actually working. And keep looking for ways to improve your reach.

3. Track Accurate Margins

Ecommerce businesses face a few different challenges regarding accurate margins. They need to keep track of sales and expenses in an effective way. It’s a good idea to buy a good program that can help you stay organized from the beginning. That way when your company grows it won’t be as much of a headache trying to keep accurately tracking those numbers. QuickBooks Online is a great option for ecommerce businesses to do just that.

Gross Sales

Understating or overstating gross sales can affect how profitable your company looks. It’s important to make sure you are tracking it correctly. Inaccurately recording sales is one of the biggest issues we see with ecommerce businesses. This is because these transactions don’t run through a company’s bank account. Their “net deposits” hit their bank account. Net deposits include gross sales as well as other costs (found on their sales channels). The mistake that companies make is recording net deposit numbers as their sales numbers. In reality, net deposits are quite a bit lower than what their actually sales numbers should be. Having lower sales numbers throws off their margins and affects decision-making.

COGS

Another important number to make sure you track is Cost of Goods Sold (COGS). This number also directly affects your Margins. It is the largest expense ecommerce businesses have. One of the biggest problems we see is making sure to record COGS when you sell inventory. Not when you purchase it. To read more about that and view examples click here.

Decision-making

Having accurate margins helps you gain important insights into your company and make key decisions. It also signals to outside investors, potential buyers, and lenders what the value of your company is. As you can see, it is so important for ecommerce businesses to get their margins right.

Make Preparation a Priority

Ecommerce businesses have a lot of opportunities in today’s market. They also face challenges specific to their business models. Be aware of what potential challenges lie in wait. This makes it easier to be prepared for them. Take the time to properly manage your inventory.  Make sure you are showing the correct amount of inventory in your channels. Get to know your target audience and how to reach them. Understand the importance of correctly tracking your company margins. Check to make sure you are using gross sales instead of net deposits. These are some of the ways to become more prepared as a company. The more prepared you are the easier it is to scale. The challenges faced by ecommerce businesses can help them to become more competitive in the long run.

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