Powerful Lessons Learned in Starting an Online Store (Part 1)

For those of you who enjoyed last week’s post on Pros and Cons of Making Money With an Online Store, Blue Pelican Loans brings to you a very special post today.

Over the weekend I had a chance to interview Grayson Bell of Debt Roundup. Grayson started his own electronics online store (one of the most competitive niches out there) and turned it into a full-time job that supported his family. He answered some tough questions few people bother sharing their experiences about when trying to sell you the dream of running your own e-commerce store.

Debt Roundup

The interview is a bit lengthy so I split it up into two parts. The first part consists of 6 questions and covers these topics:

  1. What kind of income can you expect with an online store?
  2. Benefits of licensed vs. hosted e-commerce platforms.
  3. Types of e-commerce platforms.
  4. How much work online store entail.
  5. Inventory challenges.
  6. Drop shipping vs. shipping on your own.
  7. Drop shipping rip-offs to avoid.
  8. Challenges of dealing with fraud.
  9. Type of investment necessary to get things up and running.

It is worth every second of your time if you have thought of or planned selling products online. Grayson gives the kind of honest responses that will save you a lot of time and money! None of the links here contain any affiliate id’s. You’re getting real, unbiased in formation. If you want to start an online store, you don’t want to miss this information!

1. Tell me about your store a little bit. When did you start it? What kind of products were you selling and how long did you have the store running?

I started Overdrive Electronics (www.overdriveelectronics.com) in December of 2005.  It was started when I was a senior in college.  I went to college in a small town that only had one retailer for our electronics purchases.  I never found this retailer to have an adequate selection, so I decided to get into e-commerce and sell consumer electronics.  I was a business major with a concentration in marketing, and I knew technology quite well, so I figured I would do well.  My store was up and running from December of 2005 to December of 2009.

Electronics Overdrive

Please note that the website is still live.  I actually receive affiliate commissions from the links that are randomly on the site.  I don’t keep the site up anymore, but it is a nice little bit of extra income on the side.

2. Did you manage to make a full time wage with this venture?

It took 3 years before I made a full time wage with Overdrive Electronics.  I was selling over 1 million dollars’ worth of merchandise for the 3rd and 4th years of the website. Electronics has a very low profit margin due to the competition and the manufacturer restrictions.  I won’t discuss how much I brought home, but it was in the 5 figures.

3. Which e-commerce platform did you use and why?

This question is quite tricky because I went through many different platforms before I finally decided on one in the 3rd year.  I started out with AscenderCart which was a hosted shopping cart that you could plugin to your pages.  It was just like a PayPal buy now button.  They provided you with the html code to insert into your website.  Their software has changed quite a bit since I used it.

While licensed software is more expensive upfront, it gives you much more flexibility than a hosted solution will provide you.

When I first started, I didn’t have the knowledge of building websites.  I built each individual product page by hand.  It was time consuming, but I learned a lot.  It helped me learn html coding very quickly.

After Ascender cart, I looked around between hosted and licensed platforms.  There is a large debate between the two and I decided to go with a licensed platform from SumEffect Software called digiSHOP.  The main reason I went with a licensed platform was due to the ability to customize the website and shopping cart experience at any time.  With most hosted solutions, you can only edit and change certain parts of the website and its functions.  You can only add certain types of code and many other restrictions.  I felt like I wanted to be able to grow my store and not have to worry about upgrading my hosted store every time I hit their milestone.

digiSHOP E-commerce Software

While licensed software is more expensive upfront, it gives you much more flexibility than a hosted solution will provide you.  I purchased a license for SumEffect for $800 to be installed on my PHP and MySQL server.

After about a year and a half, I decided that I needed to change to a different licensed shopping cart.  While I was able to do a lot of things with SumEffect’s code, I found out that it was poorly coded.  There were many things that would case my site to slow down and not handle a lot of traffic.  It had outgrown its original purpose.

After some searching, I found the shopping cart that the website used for its last 2 years of existence and that was from Interspire, which now also runs BigCommerce.  It appears that you cannot even get their licensed version anymore, it is only hosted.

I would recommend that anyone interested in starting a store to do as much research as you can.

The Interspire shopping cart had better features, easier to code templates and much more order flexibility along with an easier to design website.  I liked all the features.  It cost me $1,200 to upgrade to this shopping cart.  I made that money back in less than two weeks after I launched the new site.

4. What was your experience with on / offline retail prior to getting into e-commerce for yourself?

My experience was pretty limited before starting my store.  I had worked in a retail store when I was a teenager and I took one e-commerce marketing class in college.  I jumped into it because I knew the trends of e-commerce were growing and wanted to try my hand at being a business owner.  This lack of knowledge hurt me in the beginning because I had no idea of all the ins and outs of e-commerce and marketing to prospective customers.  I would recommend that anyone interested in starting a store to do as much research as you can.

Marketing is very expensive and many forget about it or don’t realize it.

Check out books from the library, ask other e-commerce shop owners, and just take your time before jumping in.

5. What kind of investment do you need to start your own online store?

This topic can vary widely for many.  I have seen articles online where people were able to start their store for as low at $300.  I was not in that boat.  The biggest investment you will make is with your time.  I worked on my website day in and day out.  I worked after my full-time job and on the weekends.  I would work until 3 a.m., get up for work, come home, and get back to work until 3 a.m.  It was a viscous cycle.  After all was said and done, I ended up investing about $5000 in my store.  It cost me money for hosting my website, then I had to find a shopping cart platform.  After that, I needed to find inventory.  After inventory, I had to market my website.  I performed the SEO myself, which saved money, but it still costs money to put yourself where your competitors are.

Marketing is very expensive and many forget about it or don’t realize it.  If you want to sell your goods on eBay or Amazon, it costs money.  It is not free.

You should never have to pay a membership fee to get drop shipping inventory.

I paid a lot of money for great tools to help convert more customers. I upgraded my site search to a third party platform.  I added conversion tools and many other 3rd party tools to get my website to a point where it would compete with the larger electronics e-commerce stores.  I even invested in a third-part email marketing software.  All of these things cost money, and they are not cheap.

6. What were some of the challenges of starting an online store?

Where do I begin with this one.  The main challenge is sticking to your plan.  It is very discouraging to work very hard each day and not really see results.  With selling electronics, there was so much competition that it was hard to break through.  I had to differentiate myself by providing awesome customer service day and night.  This was the only thing that kept customers coming back.  It wasn’t the price or the selection, it was the service they received.  That was what I build my store reputation on.

Another challenge is finding inventory.  You have to decide if you want to dropship or take on inventory.  If you want to carry inventory, then your start-up costs will shoot through the roof.  It is not cheap to house inventory.  For this reason, I chose drop shipping.  There is one thing that I will warn you about drop shipping and it is important.

Fighting fraud is expensive and it will cost you, no matter how careful you are.

Most places you find around the internet that offer drop-shipping are not legitimate or trust-worthy.  It took me almost a full year to find the two distributors that would provide my drop shipping service.  I only found them through a lot of investigative work and many hours of research.  They were actually real wholesale distributors that provided product to some of the biggest electronics retailers in the US.  It was a big win to get on board with them.

You should never have to pay a membership fee to get drop shipping inventory. I repeat, never!  These sites actually use the same distributor as I had and just marked up the products and charged you a membership fee. It was a rip-off and a scam.  The reason why they are successful is that it is very difficult to find a legitimate drop ship company.  They are out there and you just have to find them.  Most just charge you a fee per shipment, so like $3 per shipment, so you just have to make sure to tack that on top of your price or include it in your profit margin calculation.

Drop shipping can be great and it worked wonders for me and my website, but it may not be for everyone.  Just make sure you get a legitimate company.  Look to wholesalers and see if they provide drop shipping service.  Most will not advertise it on their website, so you would need to get in touch with a sales rep.

Another challenge that many people won’t tell you about is dealing with fraud.  Fraud is a multi-billion dollar industry that will hit every e-commerce site out there.  No matter what you sell, fraudsters will try to use someone else’s credit card and identity on your site.  If you get big enough, they will even try to hack your site for credit card numbers.  It is a fact of doing business online.  You need to make sure you get some very specific protocols on place to deal with orders that look suspicious. You will see them quickly in the beginning of your store because fraudsters know that a new store doesn’t have these protocols in place and the owners are just excited about getting a sale and getting a customer.  Fighting fraud is expensive and it will cost you, no matter how careful you are.

Tune in Tomorrow for More Lessons and Tips

Tomorrow you will find Part 2 of the interview with Grayson, in which he discusses the following:

  • The most difficult part of running an e-commerce store.
  • Biggest mistakes made and the best lessons learned.
  • Three awesome tips on how to avoid making common mistakes when you want to start an online store.
  • Insights on whether starting your own store is right for you.
  • Bonus tips on how to save yourself a lot of time, money and frustration!
Stay Tuned
Do you have any questions or comments for Grayson? Leave them in the comments below and hopefully he’ll address them for you!

32 Comments

  1. Very interesting. I had no idea about all that goes into running an online store. The main thing I think that I would not like is the customer service aspect. I’ve worked in customer service in the past and it definitely is not for me. I can imagine that the marketing for this can be fierce, especially if you’re trying to differentiate yourself. When you’re doing online marketing it can be much different than more traditional marketing.
    John S @ Frugal Rules recently posted..Taking The Plunge is Not Just For Polar Bears – Part 1My Profile

    • Customer support was my biggest concern as well just thinking about the idea of doing it. He makes an interesting point that you have to go above and beyond if you want to stand out. Many times that means differentiating your business through impressive customer support.

    • I was pretty strong-headed with an “I got this” attitude before talking to Grayson. I’m glad he openly shared his experiences with us so that we have an honest look at what’s involved.

    • I had a great time learning new things that I would have had to spend months on researching for myself. Thanks so much for participating!

  2. This is a great post and I look forward to the rest of your series. The most valuable information to me was how most drop shippers are scams and how long it takes to build an online store in order to receive an income relative to your wage.
    Keep up the great posts Veronica.
    Goldeneer recently posted..Bucketlist And Frugal LifestyleMy Profile

    • Thanks! We have Grayson to thank for this insider info. Most people just plug away with affiliate links in chain emails designed to sell sell sell. Not this interview.

    • I told Grayson I almost got into electronics e-retail as well until I realized the giants would just crush me. Honestly, it’s surprising he did so well in this highly competitive niche! Well… come to think of it, not so surprising at all – seeing how much effort he put into it based on the questions.

  3. Pingback: Powerful Lessons Learned in Starting an Online Store (Part 2)

    • Edward, I believe hosted solution is provided by the company. For example, if you sign up with BigCommerce they host your store for you. The website runs on their servers so that you don’t have to take care of technical stuff. Sure, you’ll need to customize your website look and such, but everything is done on their servers through a CMS.

      Licensed, you have to purchase yourself and install yourself on your own servers. Maybe Grayson has a better answer.

      I know some people use WordPress as an eCommerce solution but it’s very limited in terms of what you can do and overall speed performance / customization.

    • Hello Edward,

      Licensed is you purchase the right to use the software and can customize it in any way you please. You have to host it on your server and you are responsible for all security, hosting issues, websites issues, and updates beyond any certain level. It provides you with the best customization, but you have to know what you are doing.

      Hosted is just as it sounds. It is usually the same software, but you don’t have to purchase hosting, worry about security, deal with updates or any major code roll-out changes. It provides the least in regards to code modifications, but is also more expensive over the long run.

      This is a decision that cannot be taken lightly and should be researched for quite some time before making a decision.

      WordPress is good for small things, but too cumbersome for lots of traffic and dealing with issues. Plugins are great, but when you are dealing with security protocols, it can kill you quickly.
      Grayson @ Debt Roundup recently posted..Merry Christmas and Happy Holiday To AllMy Profile

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