A few years ago, just before officially turning my freelance web design business into a full fledge agency with employees, Lidyr Creative Marketing Agency, I ran an ecommerce business, Chic Renegade. The business still exists but it’s kind of on the back burner because currently we are working on so many Lidyr Projects, both internal and external. And I think its more effective to focus on a few projects at a time. I’ll write about my take on focusing on a few projects rather than having your hands in a lot at a later date but back to this topic. The business did moderately well selling women’s sunglasses and accessories but that experience laid the foundation for so much of our (both mine and the entire Lidyr Team’s) expertise about ecommerce, especially ecommerce product pricing.
We meet with a lot of ecommerce clients and prospects and find that, just as we did in the early days of Chic Renegade, new entrepreneurs are so excited about starting their business, they forget to do the financials to see if their business model is actually viable. They think that because they are saving so much money by not opening a brick an mortar, that whatever product they sell plus their hard work and a website will equal success. But this couldn’t be further from the truth. If not priced properly, it doesn’t matter how much you sell, you can still fail. I know, that sounded harsh but its true.
I’m going to give you a disclaimer here: Some areas of this post require some basic math but if you are serious about your success, it is imperative that you fight through it and commit these concepts to memory.
First lets talk about easily overlooked costs of running an ecommerce business
Easily Overlooked Costs of Running an Ecommerce Business
Photoshoots – If you sell physical products such as clothes or beauty or grooming products and you want your online store to look professional, you have to consider the cost of product photoshoots. Here are a list of things you should price out for your product shots.
- backdrop or landscape (you may have to but backdrops and/or lighting or pay to rent a place with a nice landscape)
- Makeup Artist
- YOUR TIME! – photoshoots can take hours or days. you should factor this in when pricing your products on a per product basis
Photo editing – Once you take the pictures, they will HAVE to be edited and cropped. So you have to price out how much the photographer will charge you for that or price out how much your time is worth.
All of that was just for product shots. We haven’t even touched editorials pictures. Editorials are pictures that you use for marketing purposes, such as the slider on your home page, social media images, or print ads that you may run. They require all the work of the product shots but these pictures can be even costlier than the product shots to shoot and edit. You CAN opt not to have editorial pictures all together. You have 2 alternative options.
- Create a nice clean site with all product shots and give your site an edgy minimalist feel. But please be sure to follow suit with the rest of your branding. Commit to a minimalist brand presence.
- Use royalty-free stock images online. (When you’re on a shoe string budget this can be the best choice). The pictures are professional, already edited, and can make your site look amazing. Search shutterstock.com or istockphoto.com for royalty-free stock images. Simply type in your product category in the search field and enjoy. This works really well for fashion sites and beauty sites. You can find an attractive woman wearing a simple black dress that can possibly dub as something that you would sell on your site or an attractive man in a suit that appears to be modeling for your shaving kit. No one knows but, you, your web designer, and Shutterstock. We do it for clients all the time and you would never know. Sometimes the stock pictures are 10 times better than the janky photographer they hired for their editorials
Again, factor in your time for editorials as well.
Lets talk about quantity as a function of pricing.
Quantity as a function of pricing is the part that most new entrepreneurs overlook. And this is the most critical. You hear me? THE MOST CRITICAL, i tell ya!
If you are selling small or cheap items, how many would you need sell to make it worth your while to even take the picture?
Ok. Lets use a a real life example. Lets say you’re you’re opening an online store selling a variety of men’s grooming items (I’m using this example because a friend recently came to me about an opportunity to start a business selling men’s grooming items and I had to tell him no because of this math here).
Here are the facts
- You don’t have an audience yet (we have an email list of less than 10,000 active subscribers)
- You want to have a variety of items to sell. At least 30 items
- Your signature product costs $3 whole sale
- You can sell that item for $9 retail
- You have limited money because you have to budget for marketing and populating the store with a variety of products so you decide to buy 1 case to start – let’s say there are 20 in a case. So we buy 20 at $3. so 20x$3 equals $60 cost for that one product.
- If you sell each one at $9, then the total possible revenue you can possibly make on that one product is $180. Lets back out the cost of $60. So that brings us to $120 profit ($180-$60). Pretty good, right? Wrong!!!!
The profit is so far from being $120 its a shame. You have to factor in your photoshoots, makeup artist, photo editing, and time.
Photoshoots, Editing, Site Maintenance and Your Time.
On average the photographer may charge you $800 for 5-10 medium sized items according to the prices from a national survey about photographer pricing here. So thats $80 you are in the hole for the one product ($800 divided by 10 products) and she BETTER be editing the pics for you at that price. So now we are down to $40 profit. But wait what about actually adding them to the site? Depending on a number of factors we (web design company) charge $30-50 per product to load them on your site. So lets go in the middle there are go with $40 to load the one product. And now you’re down to $0 profit ($40-$40 equals zero). And you havent even factored in your time yet. and what about the makeup artist because you really do need that photoshoot finish? So you are really in the hole.
What’s worst is, this is the best case scenario with you selling ALL of your inventory, 100% sell-through. With no audience (less than 10k email list) you probably WILL NOT see a 100% sell-through. So you really are in the hole.
What You Can Do About It
- Build your audience before you launch
- Calculate how much you need to sell to make a profit. Back into it – Start with your end number in mind.
- Sell products that have higher price points. This doesn’t mean raising your prices on existing items because that won’t work with competitive products. It means go for products that can demand more in the marketplace.