NextBigWhat published an article about a year back, outlining the costs of setting up an eCommerce business in India.
The market has evolved a lot since then. Marketplaces such as Shopo and Craftsvilla have gained traction. There is significant competition to MartJack in the form of Zepo, Shopnix etc. Several payment gateways such as PayU, PayTM and CitrusPay have really taken off. Payment solutions provider CCAvenue has introduced a small-business friendly starter plan. Logistics providers are improving.
Here is a look at what it is like to setup an ecommerce business in India now.
The ‘business plan’ below is based on real-life experience from expanding an eCommerce operation from Shopo to Shopo + Zepo.
At the outset, let me clarify a few points:
» This article is not a commentary on either Shopo or Zepo or any of their competitors. [We have been pretty happy with both, if that helps]
» A storefront set up at a marketplace doesn’t necessarily have to be ‘Basic’
» A store set up with a SaaS provider doesn’t necessarily have to be ‘Small’
» The model outlined below would work best for products that are fairly unique or not widely available. E.g. designer apparel or handicrafts.
Most importantly, this is just a superficial model that considers only the ‘e’ part of eCommerce. The ‘Commerce’ part is the row highlighted in red. This is domain specific. Success or failure will depend on how well you manage your sourcing, operations and marketing so that it costs you less than Rs 500 per order while creating value worth more than Rs. 1000 per order for your customers. (The numbers are just examples).
Basic |
Small |
Medium |
|
Scale |
1 person operation out of home. Either as a hobby or as a side business |
1 -2 person operation. Likely as a primary source of income |
Serious business |
Indicative Turnover |
< 1 Lakh /month |
1 – 10 Lakhs / month |
10 – 100 Lakhs per month |
Ave no. orders per month (@ ave size of Rs 1000) |
50 |
500 |
5,000 |
Typical IT infrastructure |
Online marketplace – E.g. Shopo, Craftsvilla |
SaaS – E.g. Zepo, Martjack |
Self-hosted on AWS, Rackspace etc. Software could be Magento or a similar product |
Legal status and formalities |
Proprietorship: PAN card, VAT / CST No. |
Proprietorship: PAN card, VAT / CST No. |
Pvt. Ltd. / LLC: VAT/CST, Accounts, Audits, Payroll |
Payment Gateway |
Not needed |
Economy / Basic Plans – PayU, PayTM |
Premium Plans – PayU, PayTM, CCAvenue, EBS |
Shipping / Logistics |
Retail rates |
Small business account with negotiated rates |
Discounted rates |
Employee count (excluding founders) |
0 |
< 5 (mostly temp / ad hoc skills) |
5 – 10 (including professional skills – tech, marketing, accounting etc.) |
Setup costs |
|||
Legal formalities |
10,000 |
10,000 |
100,000 |
IT infrastructure |
0 |
0 – 25,000 |
100,000 – 200,000 |
Office space (Assuming Hyderabad) |
0 |
15,000 – 30,000 |
30,000 – 60,000 |
Payment gateway |
0 |
0 – 6,000 |
20,000 – 40,000 |
Operating capital – (3 month fixed operating costs + 15 days variable operating costs) |
Rs 20 – 25K |
Rs. 3 – 4 Lakhs |
Rs 34 – 38 Lakhs |
Total initial investment |
Rs. 30 – 35K |
Rs. 3.25 – 5 Lakhs |
Rs. 36 – 42 Lakhs |
Ongoing fixed costs (monthly) |
|||
Employee salaries |
0 |
20,000 |
500,000 |
IT infrastructure |
0 |
1000 – 10,000 |
5,000 – 10,000 |
Office rental |
0 |
5,000 – 10,000 |
10,000 – 20,000 |
Utilities (Power, Internet, Maintenance) |
0 |
2,000 – 5,000 |
4,000 – 10,000 |
Payment gateway |
0 |
0 – 200 |
200 – 1000 |
Total ongoing fixed costs |
0 |
28,000 – 45,000 |
520,000 – 550,000 |
Ongoing variable costs |
|||
Sourcing / manufacturing |
500 |
500 |
500 |
Shipping |
100 – 150 per order |
60 – 100 per order |
30 – 60 per order |
Photography |
0 – 100 per product 0 – 20 per order |
200 – 500 per product 40 – 100 per order |
200 – 500 per product 40 – 100 per order |
Marketing |
0 (Assuming the marketplace handles this) |
250 per order |
125 per order |
Transaction costs |
150 – 200 |
50 – 70 per order |
20 – 40 per order |
Total cost per order |
750 – 950 |
900 – 1050 |
750 – 850 |
|
|||
Gross margin / order |
150 – 250 |
-50 – 100 |
150 – 250 |
Operating margin / order |
150 – 250 |
-100 – 50 |
50 – 150 |
Total profit |
7,500 – 12,500 |
-50,000 – 25,000 |
250,000 – 750,000 |
|
|||
Summary |
» Zero fixed costs means risk of losing money is low. » Margin is not highly dependent on order size (within certain limits) » Hard to scale since you will not be spending money on SEO / marketing (if you plan to, you are better off building your own website) |
» Average order size of less than Rs 1000 will most likely mean losses for new sites where proportion of paid traffic is high. » This can be overcome if the sourcing costs are low (E.g. if you are selling your own paintings) or markup is high (E.g. designer wear) » Marketing cost will come down after 3-4 months as you build a base of loyal customers |
» You are in business if you have reached this scale. » Fixed costs are mostly salaries. Need to plan your hiring well. |
15 comments
hii anoop
can u provide ur contact details to me.
i want to start a e commerce business coming soon.
u can contact me like a phone r mail
viswanadh 9962346662 devops.vissu9@gmail.com
regards,
viswanadh
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To checkout the details visit: http://freestore.orchidcart.com
Hi, Why payment gateway is not needed for small business.
Why is payment gateway not needed for smaller businesses?
How else can one accept money from customers?
Hi Hribabu,
Thank you for sharing such an informative and awesome article.
I was looking these information and luckily I found your blog and this wonderful article
I am going to setup an eCommerce store on my blog and this article has helped me a lot.
Thanks again for sharing such a valuable information. keep up the good work
Thanks,
Vikash Sharma
Great Sir !! like your information please give your opinion and data on Indian market on Online Business.
Hey..I am planning to start my own business in clothing line at delhi and jaipur ..need help to understand all the terms related..and need partners to invest and grow with me to start a successful business.
Hi Anoop
Please get in touch with us, we are looking to build a medium size e-commerce company , please share the rate list, also we would like to meet you.
i can help you out regrading the same . m a developer and handling projects from year. contact me for more details and a website for reasonable price:)
i can help you out reagrding the same . m a developer and handling projects from year. contact me for more details and a website for reasonable price:)
Sorry the business type mentiond in my previous comment is medium. It is not medium but small.
It is a very good information. I have plans to open an ecoomerce business of medium size at the moment (based out of bangalore). I would like to know a complete one stop shop for website set-up, payment gateway set up, infrastructure setup etc.
I Want to start my own business online , please guide me. & need investor for that.
Regards,
Amit Agrawal
I need your help to start on line business
Thanks and hare krishna.
It is a very good information and useful for startups. We would like to know more relating to Legal process organisations. It would be more appreciable keeping in view the `make in India` policy of GOI.
Comments are closed.