Written by Giles Bennett
This post is the second (and last) post in a series which started here and which arose from a coffee and a chat with the fine folk at The Yorkshire Pantry about what they learned in taking their business from being bricks-and-mortar to being online only.
Your overheads will go down, but so will your turnover!
At the end of the very first day of being online only I looked at the day's takings and compared them to the same day of the previous month. Then I reached for the wine. After a couple of glasses, though, I realised that the old adage of 'turnover's vanity, profit is sanity' is very true - how much we were taking in at the top of our P&L would matter much less than how much we would be making in profit at the end of the month.
Two and a half years down the line, our turnover has returned to around the same level as when we finished in the shop, but the business makes three times more profit than those days. Whilst the initial days and weeks may be a bit tight, as I said in the last post, in many ways it's a new business so you've got to give it time to bed down.
You'll probably have a lot more competitors
Whilst this may vary depending on what you're selling and where you're selling it, in a traditional shop environment your competitors will be much more local, and will be facing the same overheads that you are, but will be fewer in number. People will therefore be less price sensitive.
Online, of course, it's the work of a moment or two to compare prices across dozens of stores, so customers will quickly discern if a product's price point is pitched correctly or not. So as well as trying to keep the prices of your products down as far as possible, you have to also compete as much as possible on shipping charges, whilst offering great customer service, fantastic dispatch times, and differentiating your offer from those of your competitors wherever you can.
..so look for savings everywhere...
Going hand in hand with the increase in the number of companies you're competing against is the inevitable need to become more competitive. Whist you will be able to work on much tighter margins than a traditional bricks and mortar store, because your overheads will be lower, to maintain profitability you'll also have to be much better at identifying opportunities to save money.
Some of those opportunities are more obvious than others - in the earlier post we talked about the huge savings in rent obtained by moving online only, something which went hand in hand with savings in rates where, thanks to the Small Business Rate Relief scheme, our rates went from £8,500/year in York to £0/year in Selby - even when the SBRR finishes, which it inevitably will do one day, our rates in our present location will still be a fraction of what they were.
Looking deeper, though, you can find more unusual ways to save money. Our current location came with fibre-broadband included, so there was no need to get a separate phone line. With a Skype phone and a Skype number, we get a landline number that rings in the office, but also on any computer logged into the Skype account, so we can deal with incoming queries from anywhere in the world. At £3.00 / month, it's massively cheaper than a BT landline - even before call savings are taken into account - and as a result our phone bill has gone from £350/year to £50/year.
...but beware of false economies!
Saving money's great for the bottom line, but there are a host of false economies out there, so make sure you consider carefully where you're going to save money, and where you're going to spend it.
As an example, budget couriers have driven down the cost of deliveries in recent years. The cost, though, comes in longer delivery times (leading to customer dis-satisfaction and a disinclination to shop with you again) and more breakages (leading to the direct cost of re-shipping the order), so think very carefully before offering economy couriers as an option.
Likewise, using cheap boxes to ship deliveries in may save a few pounds initially, but if they don't protect the items then you're just going to have to ship them again if, or more likely when, things get broken.
Remember also that your website (unless you branch into multi-channel retail) is your single point of sale - don't skimp on investing in it to keep it up to date, promoted, secure, available and fast. If your website's not available, or not working properly, then it's not doing anything except losing you sales.
Make the most of it!
Because it's an online business, you've got a lot of flexibility. As we've got a young family, not being tied to shop opening hours has greatly improved our quality of life - since the customer doesn't really care if an order is packed at 11.00 in the morning, 3.00 in the afternoon or 9.00 at night, as long as it's packed and dispatched promptly, then it's easy enough to fit the processing of orders around school, holiday and other commitments. Having a physical store is a lot like having a pet - it does tend to tie you down considerably - and staff illness or absence had meant that weekends would frequently be spoiled by one of us having to go in at short notice to help staff the store. And, of course, your online store is selling 24 / 7 whether you're in the office, in the shower or in the pool!
Although it didn't feel it at the time, the landlord forcing our hand on our property in York is potentially one of the best things that could have happened to us, and I certainly have no regrets whatsoever about our move from bricks to clicks.
Whilst I don't think that we could have started the business from scratch online only and expected the same level of success that we're now enjoying, I think the fact that we had a two and a half year period as a bricks and mortar store first taught us a lot, built up a customer base, and gave us a solid launchpad from which to then segue into a purely-online venture.
And the key question - would I ever go back to having a bricks and mortar store? Never say never, but on balance, no, probably not.