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Brick-and-mortar Versus E-commerce

By Susan Edevane

3 min read

Online businesses continue to pop up every day. With online sales expected to reach $45 billion in Australia this year, and over US$1 trillion worldwide, it appears to be a lucrative opportunity.

An e-commerce site seems like an easy thing to start: you have an idea for something you could sell, then you buy a domain and get online. But is it really any cheaper or easier than going the traditional brick-and-mortar route?

The reality is that few businesses are either/or these days. Most traditional, physical stores need to have a website as part of their marketing, and once you have one it makes sense to sell through it. Similarly, many online-only businesses end up having a physical presence such as a market stall so prospective customers can see and feel products.

But if you plan to stick to just one channel, what are the key differences?

E-commerce Site

With an e-commerce business you don’t need to rent a physical shop or showroom, and you may be able to store stock at home.

You will need a professional website – including domain name and hosting – that is also mobile optimised. If you’re not a web designer, you’ll need to pay someone who is. Under Australian law, e-commerce sites need to comply with data security and privacy regulations. The Australian Government has useful information about setting up a business website with e-commerce capabilities. Then you’ll need to find a payments partner (such as PayPal, Braintree or Stripe) and arrange logistics, for example via Australia Post.

Ongoing costs may include product photography, web marketing and regular advertising – many online stores still use offline ads to help generate business.

One way to make the whole process easier is through buying a hosted e-commerce package. It can bundle all the features you need, from hosting and store design to inventory and shopping carts. These packages may also offer SEO and online marketing options.

Another way to set up an e-commerce store more quickly and cheaply is to sell via third-party marketplaces, such as eBay and Etsy. While they’ll take a cut of your profits, there are no hefty set-up costs and the payments side is taken care of.

A home office and spacious garage will obviously save you the cost of a commercial office and warehouse. If you can’t work from home, it may be cheaper to work out of a business centre or serviced office rather than rent your own premises.

Brick-and-mortar Business

With a traditional store you obviously need some ‘bricks’ – a physical outlet you’ll need to rent or buy. You’ll also need to think carefully about the location you should be in for the customers you wish to target. Depending on the products you sell, you may need a large shopfront to display them. For more information about leasing or buying a business premises head to business.gov.au.

You’ll also need to have the right licences and permits before you open up – these vary by state. Other initial and ongoing costs may include insurance, such as general business, liability and workers’ compensation if you plan to hire staff.

You’ll have to pay for a fit-out – if you have decent DIY skills, you may be able to do some of it yourself, but it will need to meet safety standards. This includes computers and internet, electrical wiring, air conditioning and lighting.

As a physical store you’ll need a cash register, and nearly all businesses require card-processing equipment (EFTPOS and credit cards). These charge transaction fees, so you’ll need to factor that into your pricing.

Finally, just as with an e-commerce store, you’ll need to market and advertise your business. This usually involves a social media presence and online marketing strategy, even if you’re a physical store.

Labour will be one of your biggest costs. If you can manage most of the day-to-day tasks yourself, you’ll save money.

Starting Out on the Right Foot

Whichever route you choose, it’s vital to keep detailed financial records of all your set-up costs and any partnerships or contracts you sign. Most costs – and these may include utilities if you’re running an e-commerce site from a home office – will be tax deductible, so hang on to all your receipts.

It’s also a good idea to invest in an accounting platform from the outset, as migrating from spreadsheets or a paper ledger later on once your business gets busy can turn into a nightmare. Having organised and efficient accounts from day one is a huge advantage. Consider QuickBooks Online and try it out for free.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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