Business Featured

E-Commerce Profit Margin | What You Need to Know

By Shreya Durgan

In the E-Commerce business, there is no set profit margin. It all depends on the types of products you sell on your platform.

But that doesn't mean e-commerce is not a profitable industry.

More and more people are using the internet to buy everything these days. Not having to go out to buy anything is among the top reasons for preferring e-commerce business over others.

There is no minimum or maximum limit on how much money you can make through an ecommerce business.

While some are making billions of dollars, others are just earning a few.

Minimum Investment Required to Start an Ecommerce Business

Starting an ecommerce business in India is not as expensive as you might think.

It all depends on the type of products you want to sell and how much capital you are willing to invest.

The minimum investment to start an ecommerce business in India can range from Rs. 10 lacs to Rs. 1 crore, depending on the kind of business you are starting and its scale.

You will require this investment for the following:

Website Building and Hosting
Platform Payments
Company Registration Online
Licenses and Permits
Utility Bills
Logistics
Inventory and Equipment
Storage
Marketing and Advertising
Subscription Service
Transaction Cost
Business Insurance
Taxes
Cybersecurity
Unusual Return and Refunds

Now, if you are worried about where you can get the investment from, then you can consider the following options:

Business Bank Loan
Private Equity Loan
Venture Capital
Angel Investors
Partnership Investment
Borrowing from Friends or Family
Private Loans
Government Funding (Startup India)

To get the investment, you must have a good business plan along with a compelling pitch.

Expected Gross Profit in E-Commerce Business

The average gross profit in most ecommerce businesses is 20% - 50%.

However, this varies on the basis of your product category and scale of operations.

People in India usually prefer to buy products at lower costs. This is why ecommerce business tends to have a lower profit margin and higher sales volume.

Gross profit is an important metric for most businesses, as it is basically an indicator of how much money a company has left over to pay for operating expenses, such as salaries, rent, advertising and marketing campaigns.

Factors That Determine E-commerce Business Profit

Although many factors determine the profitability of the e-commerce business four main factors include product selection, market competition, price elasticity and customer satisfaction.

Product Selection

It is important for an e-commerce company to select a product that has a high demand and low supply as this would increase the profit margin.

Market Competition

The market competition is determined by how much the same or similar products are in demand in the market.

For example, if a competitor is selling similar products with lower prices than your company, you will have to lower your prices too to compete with them.

Price Elasticity

Price elasticity refers to how much consumers are willing to buy products when they are offered at different prices.

If you offer competitively priced products, then it will be difficult for your customers to switch from buying from you to buying from another competitor because of the low pricing difference between your two companies.

Customer Satisfaction

It is important to find out whether your customers are satisfied with your products and services.

If they are not, you should consider re-designing the product or analysing and implementing customer satisfaction strategies.

It will ensure that you can retain your customers and that they will continue to buy from you in line with the demand for your products.

Ways to Improve the Profit Margin of your E-Commerce Business

In the ecommerce industry, a lot of business owners are struggling to increase their profit.

There are many ways to increase your profit in an ecommerce business.

Thus, it is important for you to know what works and what doesn't.

Here are the top 3 ways to increase your profit in an ecommerce business:

Increase your product range: if you have a wider range of products, you can increase the chances of people finding what they need and buying it. It is because people have more options to choose from and a wider selection increases the chances of someone finding what they need.
Increase your product quality: if you want to sell your products at a higher price, you should make sure that they are high quality. You can achieve this by using materials such as wood or metal for instance - these materials make for better-looking products and also last longer.
Increase customer satisfaction: one way to increase customer satisfaction is through good reviews - this makes for happy customers who would be more likely to buy from you again in the future.
Reduce overhead costs: Marketing, salaries, operations, logistics and other general expenses are considered overhead costs. Having high overhead costs reduces your profit levels. Thus, you need to make sure that your profits are enough to cover these costs and after paying for them, you still have some money left.

Factors Influencing Average Sales in Ecommerce Business

The expected average sales in an e-commerce business depend on many factors, such as:

Pricing
Product Quality
Shipping Time and Cost
Reviews from Influencers
Return Policy
Rewards, Offers and Discounts
Website Navigation and Checkout
Word of Mouth
Multiple Payment Methods
Customer Service
Marketing and Branding

Also, the average sales in ecommerce businesses vary widely depending on the industry.

In some industries, the average sales are as low as Rs. 10 Lacs per year, while in other industries, it is as high as Rs. 100 Crores per year.