The Financial Risks of Ecommerce and How to Avoid Them

by Rodney Laws

You can’t fully predict the future, but you can make sound investment decisions. Here are some of the top financial risks and how to avoid them.

©style-photography/iStock/Getty Images Plus

There’s no denying that ecommerce is a booming industry and has been for a long while. With opportunities for new and existing brands to find success online, there’s room for almost any product to do well if you forge the right relationship with your target audience.

Nevertheless, a big part of how well your ecommerce shop does relies on your finances and how well you manage the associated risks. Growing an ecommerce business needs money not only to buy stock, cover shipping and build a good shopping platform but also quickly adapt to the ever-changing market conditions. That’s a lot to contend with!

Being forward-thinking is a key skill that can help you avoid the financial risks of ecommerce. You can’t fully predict the future, but you can make sound investment decisions.

Here are some of the top financial risks and how to avoid them.

Investing in the wrong kind of product

Trends come and go so you have to be on the ball when investing in stock. It’s always best to conduct thorough market research before investing all of your funds into something you think could be lucrative. Poor inventory management is a common issue. Don’t get ahead of yourself especially if you’re just starting out as you could end up losing a lot of money.

Instead, pay attention to trends in your niche so you can make more informed purchasing decisions. The last thing you want is to have dead stock sitting in your inventory that no one is buying, so look at your bestsellers and consider your target market and the types of products they might be interested in.

Overlooking the importance of ecommerce hosting

Another way that ecommerce business owners can go wrong is by overlooking the importance of appropriate hosting solutions. If you’re serious about growing a professional ecommerce business then don’t choose the first hosting provider that you come across.

While it may work for you in the beginning, as you grow it could be a time consuming and costly expense to move everything over when you eventually need a more optimal solution. Providers such as Cloudways and Siteground offer ecommerce hosting that’s easy to manage, fast and scalable enough to keep up with a growing business so you’re using a cost-effective option.

Changing costs of cross-border trade

Chances are you want your ecommerce shop to grow on a global scale. But, there are additional considerations when it comes to international trade such as shipping costs, taking payments in multiple currencies and buying from foreign suppliers. For UK-based businesses, also look into the impact of Brexit on cross-border ecommerce between the UK and EU (Knight Frank has a good piece on this).

Failure to count these additional costs could result in a big financial loss. Establishing a more sophisticated approach to currency management in such ways can reduce risk and preserve margins. From payment fees to VAT and customs fees, make sure you understand your obligations as well as additional costs that your customers may be required to pay and you’ll be in a better position to forecast your expenses.

Understanding your ecommerce environment and how to best mitigate any situations that arise is beneficial when attempting to reduce risk. It is critical to invest in a good ecommerce website, stay current with your niche, and consider the costs of international trade whether you are a large corporation or a small startup.

Rodney Laws is Editor at Ecommerce Platforms.