Key Differences between Online and Offline Selling.
Being in a digital era, the impact of online shopping and eCommerce on sellers and shoppers cannot be overruled. When people make up their minds to go for shopping, the very first thing that comes to mind is whether to go online store or offline retailer. With this dilemma, the real flame war occurs between online shopping vs offline shopping. Not only shoppers but also sellers come across through this confusion whether to have an online store or to own an offline retail store. Considering the size of business, the set budget, expected profit margin and ROI, the seller should choose between online and offline selling.
Let’s look out the difference, profit and loss between online and offline Selling:
Initial Setup: When you make up your mind to sell your products, initially you need a space for your store. While talking about the offline physical store it requires a lot of tantrums to open a shop. You need a space, furniture, manpower for maintenance, salesman and still the list is long with more requisite time. In general, to open a traditional offline store in major cities, you at least need a 1000 square feet space that requires a huge amount either to buy or to have on rent or lease. But when you sell online, you just need to sign up on any marketplace by paying some amount. Surely the process differs from global like .com, .uk to domestic like .in online marketplace yet quite hassle-free than the offline store processing. For instance, if you want to sell on amazon.com, you just need to register on its portal with your national id, bank statement of 3 months, and of course credit card for payment. Hurray!! That's all... Within the short time, you would be the owner of the Amazon store.
Thus online store’s launching is easier and more profitable than offline retail stores.
Investment: Needless to say, before earning a profit from the market you first need to invest in it. For offline selling, a storefront of about 1000 square feet costs around $4166 per month at the rate of $50-75 per square foot per year. With this, the store renovation with all necessary equipment and furniture with all fittings and connections may cost around $10,000 initially. While for online store, you need a website whose complete development cost is around $6,000. This cost covers all shopping cart functionality for selling on social media and promotion, reviews and ratings management, track and analyse the visitors, buyers and sales. Clearly, with the online store, you can save $4,000 on the startup cost.
Next, you need to stockpile the products and items for your online and offline store. It requires handsome costing depending on the quantities of products. Also, the warehouse is required to store all these stuff. The warehouse arrangement too would need money investment as well as the time investment. Again, space costing for warehouse @ $50-75 per square foot needs to be spent as per the requirement. But when you sell online on Amazon marketplace, you have the option to store your products in Amazon's warehouse as per FBA service (about $0.04 per square foot) which is quite lower than offline store space cost.
Thus investment in an online store is lower than offline store and hence profit margin would be higher in online selling.
Post-startup investment, there are few factors that need to be discussed:
Expenses: Both the online retailers and offline retail stores have expenses though they differ. The physical/offline stores crave for more maintenance than online stores. The offline selling urges for space- if the seller does not own the space for the shop then he needs to pay rent for it (which might be huge), electricity bill, maintenance bill. We cannot count these expenses in the e-commerce industry. Being an online seller you need a maintenance cost as the web hosting for online store which is around $30 per month and to aid this, you need to pay a small fee as you are the member of the world’s largest online marketplace.
Offline selling is more expensive than online selling . The chances of higher profit are more in online selling when the above-mentioned expenses are considered.
Manpower and cost: When people go for offline shopping, the sellers need salesmen to represent and sell the items available on the shop and those the customers are requiring and looking for. With this requisite of manpower, the offline seller suffers through the extra expense to pay them for their services. You need a staff to work from 9:00 am to 7:00 pm, 24X7. The minimum remuneration in major cities is $10.25-12 per hour. Just calculate the monthly salary of one employee @ $12 per hour. It is about $6720. This amount might be huge if the store is large and requires more workers. Surely it may take the offline sellers into huge expenditure. While on an online store, the buyers themselves search, look, and find the items through different webstores. Thus online sellers save manpower and relevant cost. But you need a marketing and technical support team as a store administrator. The technical team takes care of the content, imaging solutions and technical features of website. The marketing team is also required for managing digital marketing. This marketing and technical support team can cost $25,000/month.
Manpower costing is higher in offline selling which might suck a huge profit margin of your business.
Power to attract Customers: No doubt, every market is full of customers up to their extent but for flourishing the business, sellers always try to attract more customers to their stores. At this point, offline sellers are likely to have more customers than online stores. Although online shoppers are increasing yet the physical shop lovers are active in the market. There are people who still believe in the real experience of touching, observing and in fact to have a trial which has not been possible in online shopping. But the other fact is that the online shopping gives gamut of options and choices even for small items, thus online sellers too have a magnet to hook up customers to their stores.
Both online and offline selling is likely to have equal chances to attract more customers. This only depends on the choice of buyers that where they get hypnotized.
In the offline shopping, when customers face any problem in any purchased item they can immediately gush to the shop from where they had purchased and can sort out the issue, and that too without any formalities, unlike online stores. However, online sellers claim for hassle-free returns and refunds when any customer has not been satisfied with the purchase. But the reality is that online returns and refunds are quite complicated and it might require a long time in processing and refund. When buyer asks for a return, the picking up of the item sometimes take a week. Apart from this, a person needs to be present at home or the place from where the pickup is supposed only to return the item. Then when it successfully reaches the warehouse, then only the refund process gets initiated. Ultimately it takes one more week to receive the payment by buyers. Hashh.. Quite time taking process. For an online Amazon seller, returns and refunds are chargeable. The return fee is equivalent to the fulfillment fees for an individual unit. This applies to all returns in the categories of Apparel, Watches, Jewelry, Shoes, Handbags, Sunglasses and Luggage except when Amazon takes responsibility in accordance with the FBA lost and damaged inventory reimbursement policy (sign-in is mandatory) for the return.
No doubt the complications in online returns and refunds may result in lesser customers than offline selling. Also, sellers suffer through loss during returns and refunds in online store.
The need of Internet Access: The one major factor that can drive off online sales is the need of internet. Many rural areas are yet deprived of internet facilities and lack of knowledge of internet access. This can severely affect e-commerce industry. But when talking about offline shops, every customer can reach it. Thus here offline selling can attract more customers and can drive more sales which ultimately lead to maximum profit.
A Major factor in boosting profit margin of offline selling.
Commision/referral charge on product sell: The offline sellers solely bear the profit or loss in a real shop. Whatever the offline sellers sell, the entire profit or loss is acclaimed by sellers themselves. While selling on online marketplaces like Amazon, the sellers need to pay some percent of selling price as a referral charge (starting from 3%) to Amazon as they are utilizing the store space of Amazon as a part of Marketplace Fee (Shipping Fee + Closing Fee + Selling Commission). Thus when the selling price is higher, sellers would have to pay a large amount to Amazon. Along with this, service tax is also payable. Post this charges, the remaining profit is actually the seller’s profit margin. The online marketplace does not bother about the loss or lesser sell, it just focuses on its commission.
Thus this commission policy can affect the smaller online seller more than the physical offline seller.
Thus if you have made up your mind to start your store but have been in confusion of whether to sell online or offline, keep above factors in mind and then decide. But one thing to focus is that internet access and digitization keeps on growing, and thus online selling trend is flourishing more. About 51% of buyers prefer online shopping and thus online selling is gaining more popularity. Also, the online market has attracted about 96% Americans in 2017 with 80% solely in last month.
Square and Mercury Analytics conducted a 2017 point-of-sale solutions survey of 1,164 U.S. business owners: The survey results obtained are as follows:
1. 56% businessmen own physical store
2. 21% have a pop-up store, or pop-up at events
3. 34% sellers sell on their own website through website building platform
4. Social media contributes about 40% sell in which 25% sell is through Facebook only
Amazon contributes about 16% sell
5. Marketplaces like Amazon, eBay, Etsy, etc. as a whole contribute 22% sell.
Having said this, depending on the size of your business and the amount you are investing, set the budget, calculate the profit margin of both selling options and work with proper strategy.