Home-based e-business - an option for the self-employed?

3.2.2. Online Shop

The most important decision is in selecting the product for sale. Products that sell well on the Internet are usually either rare, or at a marked discount to street prices. They should be easily recognizable to the customer so that he will know what he is buying without seeing and handling the items, unlike jewelry and clothes. The items should preferably be small and light in weight so that they can be posted easily. The price of the product should preferably be between US$20 to US$250, because if the price is too low, then it would not be worth the effort as substantial time is required in processing the order. Conversely, if the price is too high, the risk to the retailer is increased. Moreover, many prospective customers are unwilling to spend large amounts of money online because of fears over credit card fraud.

The advantages of running an online shop is that it markedly diminishes the need to keep a large inventory of products. Provided that reliable suppliers can be found, it is possible to operate the business on a just-in-time inventory basis so that goods are only ordered from the supplier when there are actual orders from customers. However, more often than not, suppliers do require their customers to keep substantial stock and thus a fair amount of risk. There is also a certain amount of risk from orders lost through the post. In the author's experience, the rate is well less than 0.5% for orders sent by registered mail but substantially more for those that are not. Orders sent by courier reach their destinations much faster and are less likely to be lost, but are much more expensive in terms of shipping costs. There is substantial risk arising from credit card fraud. In general, web sites that sell items with a broad appeal that can be easily resold e.g. cellular phone and flash memory are much more susceptible to credit card fraud. Whereas those that sell products to professionals are much less susceptible. However with practice, it is quite easy to detect the majority of fraudulent transactions.

Drop-shipping

Another possibility is to use drop-shippers i.e. order from wholesale companies who will drop-ship to your customers. The advantage of this approach would be that there is no stock to carry and thus no financial risk of unsold inventory. However, the suppliers normally charge a high price for drop-shipping and thus the profit margins would be lower. Moreover, unless the drop-shipper agrees to use the merchant's own company logo, there is a chance that they may steal the customer. Many users have also complained of a high entry fee charged by drop-shippers and have even been scammed in the process.