E-commerce and QuickBooks: Part 1

This mini-series is taken, in part, from the QB Talks Webinar Insightful Accountant  offered on April 11, 2018. The Webinar and mini-series evolved together and in some sense each is based on the other.  To some extent the mini-series goes more in-depth into some topics than the webinar, but in other cases the webinar provides a great degree of coverage. 

Because the Webinar, and even the PowerPoint (slide) PDF are available within the Insightful Accountant archives, it should be theoretically possible for a person with sufficient interest to return repeatedly to all three sources as an overall guide to the subject content.

The days of brick and mortar stores are fading into the dusk of an E-commerce world, this series (and the related Webinar) are intended to provide a basic exploration of the Niche-market that is E-commerce and QuickBooks.  This mini-series will be covering the topics of E-commerce Marketplaces, Platforms and Shopping Carts, Cart-specific Integrators for QuickBooks Desktop, Cart-specific Integrators for QuickBooks Online, and Generalized E-commerce Integration/Fulfillment Platforms. In addition, the mini-series will provide additional content as it relates to the role of ProAdvisors in managing E-commerce integration, and potentially turn that specialization into a thriving technology practice.

E-commerce

It's appropriate and necessary to insure that we all have a basic understanding of some key definitions associated with E-commerce.  The first of these is the term 'E-commerce' itself.  E-commerce can be defined as the buying or selling of products or services on-line via the Internet. 

The illustration above shows just a dozen of the 100's of E-commerce players that include shopping-carts, marketplaces, and merchant services.

E-commerce marketplace (or online marketplace) is an E-commerce site offering the products or services of multiple third-parties, typically a retailer or even the creator of a product. All of the transactions, despite the item being sold/purchased are processed by the marketplace operator.

E-commerce shopping carts are software that is typically embedded into a website (web-store) that is running on a web server, the software allows visitors to the website to select items or services for purchase and then process (or pay for) their orders via an attached 'merchant service provider.'

Merchant Services (or merchant service provider) refers to a category of financial services intended for use by businesses, most specifically the processing of payment methods like credit or debit cards, electronic funds transfer (and others) through secure channels.

Many of these companies providing E-commerce marketplaces also offer E-commerce shopping carts (outside their marketplace), in some cases the companies began as shopping-cart developers that grew into E-commerce marketplace offerings. For example, BigCommerce and Magento both operate marketplaces, but they also sell or SAAS (software as a service) their shopping cart software for embedding into a individualized website.

Whether using an E-commerce marketplace, or a E-commerce shopping cart embedded into your own website, E-commerce has changed the way almost everything is sold today.  E-commerce makes it possible for almost everyone, everywhere to buy anything and to have those products or services rendered almost immediately. 

Rumor has it that Amazon is experimenting with teleportation of purchased merchandise so that it just 'appears' on your doorstep seconds after your purchase is authorized by merchant services.  Well, perhaps that is a little 'science-fiction' added on my part, but I think you get the idea.

E-commerce not only opens up what were otherwise inaccessible markets, but it has spawned an entirely new business model.  No longer does a retailer need to have a physical store, that means no rent or utilities to pay.  And because there is no limit to the number or types of items that can be sold online, your E-commerce business can offer almost any combination of products or services. 

As part of this explosion third-party logistics providers have come into existence to provide support for retailers without stores (and storage).  Logistics providers can manage your supply chain handling your inbound inventory and warehousing it until they are ready to be used for order fulfillment. 

These logistic providers can also perform your order fulfillment insuring that the right products/services reach the correct customer in a timely manner. Since many online shoppers purchase several small items, not necessarily of even the same type, you might be prone to have individual products drop-shipped by different suppliers; but third-party logistic providers who warehouse and fulfill your orders may even offer consolidation services in which they package small products into larger shipments so as to save freight costs.

E-commerce Marketplaces

The illustration below contains a dozen of the most popular E-commerce marketplace platforms.  Remember, these marketplaces provide a place where 3rd parties can offer their products or services for sale, but the sale transactions are processed by and through the marketplace operator.  The marketplace operator then 'settles' with each 3rd party based upon the agreed terms of the marketplace.

This is really nothing new, it is a principal almost as old as 'sales' itself, it's just that it has taken a new form with the advent of E-commerce. You see, marketplaces like these are akin to the way that consignment sales were conducted by brick-n-mortar merchants in the past.  Let's say you handmade quilts, and you ask the local nick-knack store to sell each of your handmade quilts on consignment.  When someone wanted to purchase a quilt, the did so from the store owner. The store owner then 'settled with you' for the agreed value, with the store retaining a percentage of the sale for having sold the quilt on your behalf.

So why might you choose to use an E-commerce marketplace like Amazon or Ebay rather than have your own unique website with shopping cart hosted?  The answer is really threefold. 

First, E-commerce marketplaces like Amazon and Ebay gain increased exposure for your products and services. It is as if you are opening your business doors with customers waiting outside to come in and buy.  E-shoppers are already exploring such marketplaces for any number of things, and now your products and services are among those things they can easily find. 

Second, E-commerce marketplaces essentially mean that you are letting someone deal with the hassle of maintaining a website, and shopping cart. You certainly have some work to do to get your products and services listed and displayed properly, but you won't be getting a call at 3am when the server has gone down and your customer in China is wanting to buy product 'XYZ' but can't access your website.

Third, many people prefer and trust E-commerce marketplaces.  Let's face it, early on there were not so reputable individuals who created fake on-line stores that promised you a 'real Rolex' for $29.95, you paid your money and got nothing.  Other cyber criminals set-up fake E-commerce sites to capture your credit card data which they in turn sell on the 'black web'.  If your customer doesn't know you they probably will have second thoughts about making a purchase directly from your own web-store, especially if they can get it from an E-bay seller for essentially the same price.

If those are the three pluses of using an E-commerce marketplace, you certainly should be aware that there is a downside as well.  The first negative are the 'fees', because most marketplace fees are deducted as a percentage of each sale, and those fee percentages can vary by marketplace, product category, and selling price. If you are selling at extremely low margins to begin with, the cost of paying marketplace fees can turn profits into losses no matter how many extra sales you generate.

The second negative is the issue of 'who is looking out for whom'.  E-commerce marketplaces are set-up to sell as much as they can of everything in order to collect their respective percentages of each sale.  You may find that you are the first person selling the newest 'better mousetrap' made in South Korea on the marketplace hosting your merchandise.  Next thing you know 500 other sellers are all selling the same thing, and 100 of them are actually undercutting your sale price by 5-cents. Who do you think the marketplace customers are going to buy from?  Do you think the marketplace cares that they let 500 other sellers all sell the same thing as you started with? And, if the marketplace sees that the mouse-trap is so great in terms of sales, they may very well decide they will purchase 5-million of them, and start selling them on their own marketplace at 20-cents less than everyone else. 

Third, unless you have automated exchange of orders between the marketplace and your inventory and fulfillment operations, as well as your general ledger, chances are your inventory is going to be 'off' from both a quantity and value standpoint.  You show you should have 200 of Better-mousetrap in stock, and your marketplace is showing that your inventory is zero, who do you think is going to figure out the reason why you have different numbers?

So let's spend a few moments looking at some of these E-commerce marketplaces.

Back in 1994 when it started Amazon was an online bookseller, now it has grown not only into one of the largest marketplaces, if not the largest, but also one of the largest logistics companies.  Because Amazon is a retailer itself, it has the tools built into it's system to offer you as a seller what is essentially a seamless shopping experience in which buyers don't know if they are buying a product from Amazon or from you.  You can use Amazon as your marketplace only, or as your marketplace with logistics support including fulfillment and shipping.  In many cases Amazon fees can be 15% or higher as a percentage of your selling price.

eBay is a massive marketplace for the sales of items at both auction to the highest bidder, and at fixed prices.  When it first started every item sold was sold at auction either with or without a reserve (minimum) selling price.  Not long thereafter they began allowing sellers to offer a 'buy it now' price in which a buyer could simply purchase the product without waiting for the auction to end.  Today, the vast majority of sales occur as a result of the fixed 'listed' price.   Ebay also started out selling mostly 'used' items, but today 80% or more of the items listed at any one point in time are 'new'.  Marketplace fees will vary significantly depending on item type and sale price, they also vary with the type of placement. Some placements go for an 'insertion fee' only, while may high price items will have percentages of sale that approximate what Amazon charges.

Some marketplaces specialize in certain types of merchandise.  For example, let's say you wanted to sell some art work, then you might want to use Redbubble since that is what their site specializes in. 

Etsy has long been the most popular marketplace for small designers, crafters and Do-it-yourselfers, but it has become so popular, and flooded by so many sellers of these 'do-dads' (as I call them) that may sellers are now looking for alternative marketplaces with the same look, feel and reputation as Etsy.

Tictail is a fairly restrictive marketplace despite its growing revenues; it caters to fashion and home décor sellers and buyers. Storeenvy is a website that focuses on unique independent brands.  You have to jump through hoops to sell on Storeenvy, because they have very high ‘merchandise quality standards’ but once you are ‘in’ you are in.

E-commerce Shopping Carts

There are more than 200 E-commerce shopping carts on the market, so the 21 shown below represent some of the most popular.  Again, some of these are carts made available by companies that are also E-commerce marketplace platforms. 

An E-commerce shopping cart is software that is typically embedded into a website (web-store) that is running on a web server, the software allows visitors to the website to select items or services for purchase and then process (or pay for) their orders via an attached 'merchant service provider.'  Some sellers host their own websites and shopping carts, and some have them hosted by an internet hosting company. 

In the past I have been asked by some of my QuickBooks clients which 'shopping cart' they should acquire to turn their website into a web-store.  I almost always give them the same answer based upon two, and only two, factors.

First, I tell them they should use the cart or carts typically used by their own Website designer.  You see, if a Website Designer already has a thorough familiarity and experience with one (or just a few different) shopping carts it will typically be more economical in the long run to use the shopping carts that the designer works with on a regular basis, even if that cart costs more than some other carts the developer has no experience with.

Second, I tell them to use a cart that already has the specific unique features they may require.  While many carts may provide the source code (or have an open source code) to developers to allow for customizations outside the normal feature set, if you can find a cart that already provides the specific feature(s) you need, you are generally better off because you may pay slightly more for the cart, but you wont be shelling out ‘big bucks’ to your developer to custom-program a feature you need.

Of course before you ever buy a shopping cart you need to decide if a shopping cart is the way to go, as opposed to selling from an E-commerce marketplace.  Since we have already looked at the pluses and minuses of marketplaces, let's look at some of the reasons why a E-commerce shopping cart is the way to go.

First, you own it...well that may not be true you can acquire the rights to use some shopping carts under a SAAS (software-as-a-service) arrangement, but even then the actual design is yours.  And with that design comes 'brand recognition'.  Let me give you an example of what I am talking about.

Let's say for example that you wanted to operate a theme park (let's call it dinosaurville) in the middle of nowhere so you went out bought the land and built it, hung a sign on it, and people started showing up.  Then 5 other theme parks decided to build parks around you, each with a different theme (wildwestville, blackplagueville, maroonedplanetville, etc.). Now the county where all the parks are located decides that they are no longer going to permit you to advertise using your own theme park name, but you must advertise as 'Murphy County Attractions'.  You suddenly have lost your brand and with it the ability to attract those seeking a dinosaur adventure.  

The exact same thing happens when 4 different 'fried chicken' take-out places set-up stores on all 4 corners of the same intersection.  No matter what your sign reads, everyone it town says, "let's head down to chicken central and get in line at the place that has the fewest cars lined up." After all, 'take out fried chicken' is just that...'take out.'

Well, a marketplace may bring in more total customers by having a bigger market share then you will ever get on your own, but you loose your identify, your brand, and your ability to attract your own unique customers.  In simple, you loose the personalized experience you would otherwise like to offer your own customers.

Along with the loss of your unique identify, you and your brand actually get lost in the marketplace shuffle...someone just thinks they are buying XYZ from you when in reality the XYZ they have selected is being sold by your competition next door.  But with your own website and shopping cart your customers know from whom they are buying, that way when they get ready to buy their next XYZ they come right back to you for their purchase.

Shopping cart software allows you to turn your website into your own E-commerce sales channel even it it is hosted by someone like Volusion or one of the other cart providers who offer hosting on a SAAS basis.  That way, when the 3am call comes from oversees wanting to buy your XYZ, you don't need to call out your IT guy and the two of you run down to the server, simply contact your hosting rep and let them get the problem resolved while all the time maintaining your unique identify and brand awareness.

E-commerce marketplace or E-commerce shopping carts, they all have their advantages and disadvantages.  As a ProAdvisor supporting E-commerce clients you should be ready to assess each of these advantages and disadvantage with your clients to help guide them in making the most advantageous choices.

Be on the lookout for Part 2 of this miniseries when we will look at some cart or marketplace specific integrators.