How SMEs Can Leverage eCommerce To Reduce Overhead And Increase Profitability
By Olukayode Kolawole
“I am now able to keep my overhead very low, and profit margin widened”
“Unable to get a job after my youth service, I started an electronics business 4 years ago. Today, the business has grown quadruple”
These are firsthand views of some business owners who have experienced the power of eCommerce to drive profitable demands for businesses today – either small, medium or large. These individuals are leveraging eCommerce to conquer new territories and acquire new customers that they likely might not have had access to, such that their businesses have become reinvigorated. In the last 6 years of eCommerce debut in Nigeria through Jumia and many others afterwards, many businesses have been created, and those existing prior have become bigger, better, and more profitable. Although, some big businesses are hesitating to embrace eCommerce because it conveniently breaks all the structures that these behemoths have perfected, and it touches every single part of the business, and being nimble is a huge benefit.
The framework for eCommerce operations is pretty simple, using Jumia as a case study: (1) seller shows interest in listing his products/wares on the platform. (2) eCommerce platform: verifies the authenticity of the products, and checks if the seller has all the legal prerequisites to sell, especially for products sold only if recommended by an expert. (3) Trains the seller on how to use the website and make revenue. It’s as simple as ABC. Little wonder, there is a remarkable influx in the number of businesses and entrepreneurs signing up daily to have their products listed on the eCommerce platform. Unknown to many, there is no fee – either hidden or expressly charged – required from any business owner who is looking to speed up the growth process of his business. Surprisingly, you can also sell anything, just anything – from products as small as a tissue paper to items as big as a refrigerator, or even perishable items, such as fresh tomatoes, onions, and so on. Pretty much, anything can be listed on the platform.
For many businesses, eCommerce has become the fastest route to reducing overhead, breaking even and becoming profitable. There are 4 major reasons to justify this claim.
Marketing Investment: All the funds required to promote a seller’s products are borne by the eCommerce platform. Such marketing costs include, but not limited to, online & offline advertising, CRM, PR, search engine optimization, and social media. Promotional and special campaigns are created periodically to drive sales; they also come at a cost. Marketing requires a huge investment, and many SMEs today do not have sufficient capital to combine marketing costs with overhead. As a result, the business either bites the dust, or the company goes out to secure a loan from a financial institution in order to survive. The latter usually ends up tragic.
Sellers are provided with a unique opportunity to participate in some of these special campaigns, at no cost to them. Most of these campaigns run for a period of 30, or 45 days at most. Some of the notable campaigns that rapidly come to mind include: Jumia Mobile Week (one full month dedicated to the sale of mobile phones at the best prices), Back to School (school essentials for students), Black Friday, Home Makeover, and many more. Campaigns as these provide the sellers a unique opportunity of making huge returns with less efforts and zero spending.
Limited Workforce: Selling on eCommerce platforms helps sellers to keep their workforce very lean, because only a few people will be needed to carry out the day-to-day running of the business. The largest chunk of the efforts required to drive the business to profitability rests squarely on the eCommerce platform. They ensure the seller’s products are: delivered to the customers on time and in good shape; packaged with the right material to protect the products during fulfilment. The overhead costs for hiring qualified individuals to implement these tasks are borne by the eCommerce platform.
Warehouse Storage: Rent is an important consideration for most brick and mortar businesses. Depending on the business model, most businesses need a space to warehouse their products, especially those who sell high value items. The cost of rent is huge in most urban areas and cities. For a business that’s struggling to find its footing, expending money on rent might be a bit burdensome on the business. Most eCommerce companies have large warehouses in almost all the major cities. For instance, Jumia has its largest warehouse in Lagos, providing shelter and insurance for its sellers’ products. There are other storage warehouses owned by the company in other cities like Port Harcourt, Abuja, etc. Sellers on the platform therefore might not need to incur cost to hire a storage warehouse. Their products are immediately shipped to any of the Jumia warehouse facilities, where they are guaranteed of safety and insurance cover. One obvious advantage that this provides, beyond saving the sellers’ some bucks, is that it aids faster shipping and saves time. Once an order is placed, Jumia for instance does not need to wait for the seller to ship the product to its warehouse; rather, the product is shipped directly and on time to the customer. Once the fulfilment cycle is completed, everyone is happy – the customer especially.
Digital Visibility: Most of the big eCommerce platforms have hundreds of millions of customers. There is no amount of capital an offline businesses can have that will expose them to millions of views in just a week. Businesses benefit incredibly from the cloud and exposure that these platforms offer, and at no cost to the sellers. Today, Jumia is regarded as the number 1 shopping destination in Nigeria, and Africa at large. The visibility it provides for sellers on its platform are the major prerequisite most businesses today need to grow and prosper. Millions of dollars are expended on driving traffic to the site – all to the benefit of the sellers.