Functions of e-Commerce

In this short article, we’ll cover some of the additional functions of e-commerce which are needed to sell online beyond having a website. This includes the link to digital marketing, your financial reporting set-up the key steps you need to have in your supply chain.

Functions of e-Commerce

Once you have set up your online shop, you then need to consider how the shop will operate day to day. This requires a number of functions of e-commerce to be connected so that online selling operates as a single system. 

These e-commerce systems can be divided into three core functional expertise areas – marketing, finance and supply chain

It’s a vital for e-commerce success  to understand how these functions of e-commerce work. These are important whether you have your own online store or are selling through online retailers

Rope - system

Digital marketing 

Your online store could look great and have a stock of attractive and profitable products. But if no-one visits your store, you make no sales. 

If you have done the market research and understand your target audience, you will have a good idea of their media habits. You understand what types of message will catch their eye. Digital marketing makes sense for e-commerce, since the shopper can click on a piece of online marketing to go right to your store. 

We’d recommend the key digital media channels you should start with are search, social media and display advertising. 

 

digital marketing

Search

Search is a great tool for e-commerce as you can use Keyword Analysis with Google Ads to identify potential ‘needs’. Building up your organic search SEO score on site, supported with some paid search can be a great way to bring a lot of shoppers to your store.

Social

Social is another great channel for e-commerce. Given its highly visual nature, it gives you the opportunity to showcase your products. You can carry out specific media targeting since Facebook / Instagram offers a lot of options in this area.

Display ads

Display ads have their place in the digital marketing mix but depend heavily on finding the right audience. For smaller businesses, we’ve definitely seen search and social as offering better value per dollar spent. Display tends to be the realm of bigger businesses who need more scale in their media reach.

You should also be considering the sales messages in your digital campaigns. Will you have the same offer day in day out or will you do special timed offers? ‘Buy this weekend and get 20% off” for example. What about considering seasonal offers when there is a lot of existing online shopping e.g. at Christmas, Easter, Black Friday, Singles Day ? What are the key times for your target audience?

We have a whole separation section on digital marketing if you want to read more.

Finance

It is a great start if you’ve managed to build an online store and attract shoppers in to start buying. But are you really clear on the financial set-up of your online business?

The bigger the business, the more likely you will need access to someone with financial expertise. But even if you are just starting, you do need to understand the basics of income and costs for your store.

This forms the basis of your Profit and Loss (P & L) which is a vital business measurement tool.

Coins spilling out of a jar to symbolise marketing and e-commerce costs

Income

Starting at the top of the P&L, your income is generated by the volume of units multiplied by the selling price per unit plus any additional price that the shopper pays e.g. to cover delivery.

Costs

From that income though, there are a lot of costs that have to be paid.

Firstly, it’s likely you’ll be using a payment gateway who will take 1% to 3% to process the transaction securely. Then you have to make sure you cover the cost of the item itself (the ‘cost of goods’). Then there are any shipping and handling costs. This can include for example the packaging cost of the box that the item is shipped in. All these costs add up to your operational cost of doing business and are seen as variable costs. They vary in direct relation to the sale.

However, that’s not all. There area also fixed costs to consider.  What about the cost of advertising that you’ve spent to get consumers to visit the store in the first place. Then there are also the other fixed’ costs to consider. Do you have to pay warehousing costs to store your items? What is the cost of items that are returned and how are you paying for them? What about if a stolen credit card is used and you have to return the cost of the goods? How much does it cost to host your e-commerce website? 

Profit

As long as your income covers your costs, then it’s all good. This especially works if you have a product that is highly desirable for online selling. A good e-commerce store owner will always have a good grasp on the finances to ensure the business runs profitably.

Supply chain

The final e-commerce system to consider is the supply chain model.

Unless you are drop shipping or doing print on demand, you will need to understand how to set up your own supply chain for your store.

This area can broadly be split into 3 areas. Storage, delivery and product specific challenges.

Storage

There are many questions related to the storage of e-Commerce products. 

If you manufacture products or source products from a third party to sell on your online store, where will these products physically be stored? Do you have your own warehouse or do you need to use someone else’s? What are the  costs associated with this storage?

How will you manage the inventory so you know when to produce more? Or to not run out of stock. Or be left with too much stock.

You will need to use data from your sales so you can forecast trends to manage stock. And you will need to understand how your products will be stored while they are waiting to be sold. 

D2C warehouse

Delivery to consumer

There are also a lot of questions to be answered when you set this part of the e-commerce system up.

  1. If your products are stored in a warehouse, is that warehouse conveniently located so that the product can be shipped quickly to the buyer?
  2. If you hold stock overseas, international shipping times can vary wildly, how will your customers respond to long delivery times?
  3. Are you able to offer express delivery options or just standard shipping rates?
  4. Does the delivery company offer a tracking service so the consumer knows when their product will be delivered?
  5. If something goes wrong with the delivery, what is their support model to track lost packages?
  6. Have you considered the options if a consumer is not at home to receive the package?
  7. Have you asked them for ‘permission to leave’ the package or an alternative address to deliver if they are not at home?

Product specific challenges

Depending on the nature of the goods you are shipping, you also need to consider if there are any additional challenges. If you are shipping food products for example, does the product have a shelf life? If so, how do you check that no expired shelf life products get shipped? Could the product be affected by extremes in temperature if you live in a very hot or very cold country?

Is the product you are selling of particularly high value and if so, what measures can you put in place to prevent theft?

While there are many easy ways to get started in setting up your own online store, growing your business brings in complexity.

Outsourcing these e-commerce systems removes a lot of that complexity. But it also comes with a knock-on effect on profitability. Finding the right balance is an on-going challenge when selling online.

Functions of e-Commerce summary 

There are three key functions of e-Commerce – marketing, finance and supply chain – which still outside the set-up of the e-commerce website itself. 

It’s a vital for e-commerce success  to understand how these functions of e-commerce work. 

Three-brains and e-Commerce

We have worked on many e-Commerce projects and have good experience across strategy, working with retailers and building D2C stores. We know how to connect these expertise areas back into driving your brand marketing and growing your sales. 

If you want to know more about how we can support your e-Commerce to grow your business  through our coaching and consulting services, click the button below to send us a message.

We can coach you to reach the top of your competitive game.

Latest e-Commerce blog posts