Why are most E-commerce sites in India not in profits?Nirdesh Singh
E-commerce is the very tempting word itself. Most of IT graduates are dreaming about an e-commerce startup after completing their college and make a ton of money in short time But they certainly not know about the dark side of this industry. Most of e-commerce or I should say almost all e-commerce sites are running their business in Loss. Really? Well, its dark side of this blue moon in India. People only reads the news where these market giants having a ton of money as funding like in 2016 snap deal got funding of 21 million dollars from Luxembourg but see snapdeal now, They are almost run out of money in first FQ 2017. I am not against of any company but I am not a fan of how they run business and burn money for the name of branding. Again this is not only for snapdeal but all big giants since they all are in the same boat and they all ride that boat in the same manner.
How they burn money.
Burn money? Well, this actually means burn money. Did you see how many TV commercials and full page newspaper ads coming daily? Especially in last 3 years. These giants and their investors are ready to burn money on branding at any cost and its little demand of today’s consumer market. Until your ads coming on TV or Newspaper, people remember you and the day you disappear from media people will forget your name completely. I am sure you guys hardly remember lots of other e-commerce brands other than Flipkart, Amazon, myntra, Jabong, snapdeal etc. since our eyes catch their logos and ads everywhere around us. But did you know how much cost for a prime time slot tv commercial in the middle of a cricket match on a national TV? It can go up to INR 2.5 million for only 10 sec. slot. Wow!!! Just 1 ad we see for 10 sec and they burn INR 2.5 million in between. Now you can do the math how many ads appears during a complete cricket match. Guess what? A front full page advertise in all news pepper for pan India is a lot more than 10 sec TV ads and we see their ads once in a week.
Selling with little profit margin
Is this for real? Yeah, they sell products on no profit margin even some time in the loss. They take a very little percentage from sellers like 5-10% and few other fees but when it come to buyer discount they pay money on their own pocket. For example, if a product is of INR 100 by seller and amazon want to give a discount of 30% then amazon will get INR 70 but seller will get his full INR 100 since it was his price for sale. Means Amazon bare this 30% on their own head. Btw did you ever see any product on any e-commerce without any discount? No correct? Now you can see how much discounted money in total they too bare by own daily, well it's in millions daily. Also if you think cash on delivery is very convenient and attractive for the buyer, well it's true for buyer perspective but it’s a big headache for companies. A small package for cash on delivery cost around INR 300-500 across India for only Tier 1 cities. So if they got a sale for a product of INR 1500 with a discount of 30% then first they have to pay the discount amount which is INR 450 to the seller, then they have to invest INR 300 to COD and what they earn with this deal? 5-10% only as commission.
Few are still in profits
Few e-commerce websites are still in profits. Yes, its true but there is only a few that you can count on your finger. Most important thing about them that they didn’t raise any funding from the market. You may think how the are in profits even they don’t have to fund. Well, they run the business like any other shop owner down the street. They buy at less price and sell at higher price, See how simple is that. They don’t overthink about market and branding, they just try to keep it very simple business.
How to make profit in e-Commerce
As I am also running an e-commerce business in Fashion industry that is Fashionbuzzer.com so I think I am able to give you guys few basic tips and rules which have to be followed by startup business.
1. Never think about funding – Yeah it's very tempting when we heard companies getting millions of dollars funding but as I mentioned earlier this is something you should avoid at least early stage of your business or until you make a profitable business by your own. Once you know all odds and even about your business in 2-3 years and started to make a decent profit then you can show this progress to an investor and ask only what you need to make it grow wisely.
2. Understand your Customer – You have to understand your customers and regularly keep eyes on their reviews as well market reviews. Always remember the customer is everything for your business so if they don’t satisfy then you are digging a grave for your business.
3. Don’t hire extra employees – One of the biggest reason of failing companies to make the profit is hiring staffs that they don’t actually need. They come in number game or rather I say ego game that we have 2k employees or we have 35k employees. Always hire in a tight limit and make happy your staff with good salaries then you will see your productivity increase without giving any extra pressure. Always remember hiring is easy but when you fire someone that is more complicated, not technical but emotionally it's very complicated. Employees might be purchased a car, home or something else on loan just basis their salary and suddenly overnight if you fire then what will happen to them? That’s a serious question which bigger company never think about it for a second. Snapdeal cut their 600 employees and fire them in Feb -2017 which is something same what I mentioned above. Think twice about your employees too since they are dependent on you only while they are in your company so always hire in limiting what your business can bare.
4. Cost effective office location – Don’t go to rent or buy an office in the costly area. In last few years startup companies are racing with each other for their ego which also gives a wrong message to upcoming companies. It's in fashion to have an office in the most costly location in the city so they can flaunt. Like Flipkart rent an office in Bangalore which cost them INR 300 cr yearly and that’s a crazy amount, same for many startup offices in Pawai which is so called “silicon valley of Mumbai” and every new startup of Mumbai having a dream to get an office in pawai some day. Why? Why you want to burn your money for office location where you can get a much better office in a quarter of the price in other good location. We running a business for making damn profits not showing up our office location to flaunt people.
5. Invest in Organic SEO – Well this is something off in this article but when it come to profitable online business then SEO is most important factor. Generally, startups don’t want to invest in this since it’s a slow process and results are coming after few months but trust me its worth of your every single penny. As mentioned earlier if you invest in TV ads, Paper ads or even PPC where you will grow and get sales but not profits, once you stopped these activities then sales dropped like anything but in SEO you will get customers daily without having invest that much money even if you stop to invest in SEO at certain time then also customers will come since you are on the first page in targeted keyword always. So every online startup business should invest in this online activities to secure their future.
So these are some points I bring you in your attention and I hope people will learn something from my experience so they can avoid mistakes. Remember, it's very brave decision to start an own company to leave a comfortable job so it should be well-researched step not emotional decision. I hope my experience & views will help you to make your decision correct and go on a successful path of entrepreneurship.