Practical Ecommerce

7 Key Ecommerce-Infrastructure Decisions

Every business requires an infrastructure to support its customers and operations. This includes facilities, equipment, and processes to support all the functional areas of your business. Choosing the correct infrastructure to match your business strategies enables your operations to run efficiently. Conversely, if an element of your infrastructure is out of sync with your strategies, you will likely feel the pain in every aspect of your business.

Here’s an example. If your value proposition is to provide the highest level of customer service for premium products, then your infrastructure should include processes to deliver quick and responsive service, including live chat, self-service tools, and quick turnaround on questions and orders. I addressed strategies for value propositions earlier, in “What’s the Value Proposition of Your Ecommerce Company?”

If your value proposition is to provide the lowest prices every day, then your infrastructure should be focused being the low cost provider. You can accomplish this in various ways, but you need to ensure that your cost of goods sold and overhead expenses — which include infrastructure costs — are as low as possible.

Typically, ecommerce businesses try to maintain a high degree of flexibility in their infrastructure to keep fixed costs low and to be able to react quickly to market changes or competitive pressures. A key infrastructure decision is whether to outsource or manage operations in house.

Most ecommerce businesses are small, with fewer than 25 employees. If you look at all the functional areas of the business that must be managed on a daily basis, it will be hard to find and afford an in house staff with all the skills required be successful. When deciding on your business infrastructure and operations, be sure to evaluate what your core strengths are. Know what you do well and know what you do not do well. They are equally important. Look to outsource part time activities or ones that require high levels of skill or specialization.

Here are seven important infrastructure decisions that ecommerce businesses face.

1. Marketing

Of all the infrastructure elements, marketing may be the most important. To succeed, your website must be found. Once visitors are on your site, you need to keep them there and compel them to buy from you. That’s the job of your marketing team. Whether it’s website design, social media, search marketing, merchandising, email, or other forms of advertising, it’s all about marketing.

To effectively manage marketing activities in-house is very challenging. Most small ecommerce businesses outsource some element of marketing.

2. Facilities

A key competitive advantage that ecommerce businesses have over brick-and-mortar stores is the investment in their physical offices and warehouses. In many cases, you can host your business out of a home office and your basement or garage. If you drop ship or outsource fulfillment, you may be able to do that for a long period of time. Even when you grow to have many employees, you can set up your offices in class B or C space, as you have no need for a fancy store in the right location.

A word of advice is to keep your options flexible. Try to find an office park that has a wide variety of spaces in different sizes. You may be able to start in a smaller space and move up to a larger one without penalty, as your needs change.

3. Customer Service

There are many choices today for delivering high-quality customer service. You can manage those activities in-house or outsource to a third party. Basic customer service for sales and post-sales activities can be handled using email, and by providing an 800 number for more extensive phone support. A customer-management system will make those activities easier, but for smaller companies it is not a requirement.

Live chat will impact your operations as someone needs to be available during specified hours of operation. Be sure to gauge the impact of that on your organization, if you decide to handle those activities in house.

4. Information Technology

Choosing the right ecommerce platform is one of the most important decisions you will make in your business. Do you want to build and host your own system, outsource the development and then manage the system going forward, or use a hosted, software-as-a-service platform that is more turnkey and externally managed?

If you build and host your own system, you may need more cash upfront and skilled administrators and developers on your staff. By using a SaaS platform, you will not need to host or manage the system in-house, but you may still need web developers on staff. Choosing to outsource the development and hosting will reduce your staffing costs, but you will incur higher costs for any future enhancements or changes to your websites.

There are pros and cons to any approach. Just be sure to think through the impacts on both your staffing and your cash flow and bottom line before you move forward.

5. Fulfillment

Another key decision is whether you will manage your own inventory or outsource those activities to a fulfillment house or through drop shipping arrangements with your suppliers.

Managing your own inventory will provide you with a high level of control, but you will tie up your cash in inventory, warehouse space, and your own fulfillment staff. In some industries — like the jewelry supply industry that my previous business was in — managing your own inventory was the most logical choice. We had no alternative for drop shipping, and most items were purchased in bulk and were very small. We did not trust preparation and fulfillment to an outside service.

Select the best fulfillment option to meet your needs. Be sure to understand the costs involved and analyze the other options before moving forward.

6. Finance and Administration

As with other business operations, you will need to decide if you want to manage your finance and administration activities in-house, outsource, or a hybrid of the two. If your ecommerce platform is tightly integrated to your accounting system, you may have very little need for an in-house bookkeeper. If you use separate systems for your website, order management and accounting, you may need more help for data entry and making sure that the information is properly managed

Many ecommerce companies use outside services for vendor payments, payroll, and other basic accounting activities. They decide to focus on the sales, marketing, and customer service. This allows them to maintain a focus on growing their businesses, instead of paying an internal accountant — or doing that work yourself as the business owner.

On the administration side, you need a leadership team and provide direction to them. Good communication is important, whether you have 3 or 100 employees. Whether you choose to be more authoritative or democratic in your management style is up to you. But choose a style and stay consistent. Be sure that everyone understands their roles, as well as the overall business strategies. You may need to adjust your approach as your business evolves.

7. Human Resources

Many small-business owners avoid the human resources function. Recruiting, setting up compensation, maintaining compliance and other HR activities are specialized and time consuming. You may choose to bring the resources in-house to manage those activities, but also evaluate outsourcing them. There are many individuals and agencies well equipped to take on your HR activities.

Conclusion

When planning any part of your company’s infrastructure, reflect on your target market and the value proposition you have defined. Make sure that each element of your infrastructure supports your value proposition. Be careful not to overcommit either your human resources or financial capital in one area. It is very easy to extend yourself financially on things like rent or hiring people, only to find out that other forces impact your growth or profits.

Tags:    

Dale Traxler
Dale Traxler
Bio  |  RSS Feed


Get the Practical Ecommerce RSS feed

Comments ( 3 )

  1. John Lindberg May 22, 2012 Reply

    I provide fulfillment services to the ecommerce industry and the only thing I can add to the discussion about DIY vs. outsourcing is the idea of reducing the many cost variables to one number upon which that part of the decision process can be made. The key figure is total fulfillment cost per order based on doing the work in-house vs hiring an outside service provider.

    This cost is the sum of the total DIY facility, labor, supplies and delivery charges divided by the number of orders compared to the total outsourced cost per order including all fees and charges. A lot will depend on the average shipping weight per parcel and delivery distance and outsourcing often favors heavier packages.

    In our business model–we ship about 15,000 orders a week–the average parcel weight for FedEx or UPS shipments is 12 pounds and the average delivery distance is zone 5. Most of our postal shipments are via USPS first class mail at an average of about 9 ounces although we do ship a lot of orders via USPS priority mail at 1 and 2 pounds per package.

    Another key factor in an outsourcing decision is the warehouse space needed to accommodate the pick-pack and overflow storage compared to the number of orders per year. Outsourcing tends to favor a fairly low storage cost per order compared to a DIY solution.

    For those interested in learning more about fulfillment outsourcing, I recommend the Mailing & Fulfillment Service Association website which is [http://www.mfsanet.org](http://www.mfsanet.org).

    John Lindberg – President
    EFULFILLMENT SERVICE INC

  2. Dale Traxler May 22, 2012 Reply

    Thanks for adding to the discussion John. Great points. Your post reminds us of how important the USPS is for smaller businesses. First class mail is sometimes the only economical way to ship smaller, lighter packages. We need them to stay afloat to keep e-commerce profitable whether you are outsourcing the service or a DIY solution.

    Dale

  3. Nate Shivar August 1, 2012 Reply

    Instructive overview Dale. I help online stores with Google AdWords and Analytics – and you are totally right to put marketing at #1.

    I see way too many online stores that get bogged down in the process of business – without having the customers to support it, and allocating time and focus to cutting costs rather than increasing sales.

    Nate Shivar – Lead Consultant
    ShivarWeb

Email Newsletter Signup

Sign up to receive EcommerceNotes,
our acclaimed email newsletter.

And receive a free copy of our ebook
50 Great Ecommerce Ideas