| Benefits | Costs | |
| Firms | ✓ Enables the business to reach a global market. ✓ Businesses do not need to be physically close to their customers. ✓ They can benefit from ‘longer opening hours’ which may increase sales. ✓ A great reduction in costs. | ✓ The competition is more fierce. ✓ The speed of delivery becomes more important. |
| Consumers | ✓ They can easily access goods and services. | ✓ Choosing from the huge number of rival businesses can be very time-consuming and frustrating. ✓ Consumers need to have a credit/debit card to make payments. ✓ Some consumers find it frustrating to wait for delivery. |
Frequently Asked Questions: E-commerce Cost Benefits
What are the main cost benefits of e-commerce?
Moving to or including e-commerce can offer significant cost benefits compared to traditional brick-and-mortar retail. Key advantages include:
- Lower Overhead Costs: Reduced expenses related to physical store rent, utilities, and staffing compared to multiple physical locations.
- Wider Reach at Lower Cost: Ability to reach a global market without establishing physical presence in each location, reducing marketing and expansion costs per customer.
- Reduced Marketing Costs: Digital marketing (SEO, PPC, social media) can be more targeted and measurable than traditional advertising, potentially offering a better return on investment.
- Automated Processes: Inventory management, order processing, and customer service can be partially or fully automated, reducing labor costs.
- Inventory Efficiency: Potentially lower inventory holding costs by using models like dropshipping or just-in-time inventory.
What does a cost-benefit analysis of an e-commerce website involve?
A cost-benefit analysis (CBA) for an e-commerce website involves evaluating the total expected costs versus the total expected benefits over a specific period to determine if it's a worthwhile investment. It typically includes:
Identifying Costs:
- Initial Development/Setup: Platform costs (subscription or development), design, customization, initial content creation.
- Ongoing Operation & Maintenance: Hosting, security updates, software licenses, platform fees, technical support.
- Marketing & Advertising: SEO, PPC, social media ads, content marketing, email marketing tools.
- Transaction Costs: Payment gateway fees, fraud prevention.
- Labor Costs: Staff for website management, customer service, order fulfillment, digital marketing.
- Integration Costs: Connecting with inventory systems, CRM, shipping providers.
Identifying Benefits:
- Increased Sales Revenue: Access to a larger customer base (24/7 availability, global reach).
- Improved Customer Experience: Convenience, personalization leading to repeat business.
- Data Collection & Analysis: Insights into customer behavior to improve marketing and product offerings.
- Operational Efficiency: Streamlined order processing, reduced errors.
- Brand Building & Awareness: Online presence strengthens brand.
- Reduced Physical Costs: Compared to opening or maintaining brick-and-mortar stores.
The analysis then quantifies these costs and benefits (often assigning monetary values) and compares them, typically calculating metrics like Net Present Value (NPV) or Return on Investment (ROI) to inform decision-making.
