Things you need to know before starting E-Commerce business

This blog is about the important things you need to know before starting the E-Commerce business.These points are based on my learning’s during my couple of years in Entrepreneurship.

1. Logistics: The most important aspect of E-Commerce business.The problem with logistics is two-fold. First is the cost associated with the delivery which will be quite high for new players as it decreases only with volume. Second is the quality/timelines of delivery. You can go for the Tier-2 and Tier-3 Logistics/Courier companies to save costs, but the timeliness, safety,tracking and quality of delivery will not be predictable. Logistics remains the most challenging aspect even for the biggest e-commerce players in India. Do a reality check for finding the delivery costs based on the size/weight of your product, but don’t forget to assume that cost will decrease in future if you get more business.

2. E-Commerce Website Development:  Some of the aspects which will impact your decision on website development is Number of products you have, frequency of product updates, Expected Traffic,payment methods and marketing campaigns you want to have. You can make the E-Commerce website yourself but the challenge comes when you have to integrate it with the Payment Gateway for accepting credit/Debit Card payments which has a very strict requirement for Security measures. Apart from this usability of site ,product recommendation engine ,reliability are other important points for which you need to have good team for website development.

3. Payment Gateway Integration and Costs: In order to accept credit/debit card and net banking payments you need to register and integrate your site with a payment gateway provider like ccavenue, payu,EBSetc in India. This comes with an initial setup fees and every transaction which is done through it will attract a transaction fees which varies typically from 2.5% to 5% of the transaction value and the payment amount is not credited immediately (e.g. T+2 days). Check that the payment gateway you choose support the leading banks.

4. Cash On Delivery (COD):  Majority of orders today are completed using this method only( ~ 40-60%) . This incurs an additional cost of 1-3% of the product value apart from the normal courier changes and this service is provided by select Logistics provider in limited areas only.The flip side is that the payment will reach you after 1-2 weeks and in case user opts for return then it incurs additional cost.

5. Return Policy: You need to define product return policy carefully and need to assume cost overheads because of this. Some of the points which this policy must contain are replacement guarantee, Damaged product handling, Refund of payment in cash or coupons and cost of sending the product back to company which in most cases is borne by the customer.

Here are the Regulatory Points specific to India for starting E-Commerce Business. Please refer respective government websites for latest and detailed information

  1. Registration of Business Entity :  You need to define a business entity under which you will run your business like Sole Proprietorship, Partnership, Limited Liability Partnership, Private Limited or Public Limited Company etc. Each has its own registration process and time for completion. If you look forward for getting funding from Angel Investors or banks  then going for a Private Limited company will be a good option. For Private Limited Option, you first need to apply for Director Identification number (DIN), do the name availability check and provide the required registration fees. Check the for the same.
  2. PAN Number & Current Account:Once registered you need to get the PAN number for the business Entity and need to apply for a Current Account with a bank.You need to use this for business transactions and it will be required at many places.
  3. Sales Tax Registration, TIN  Number: Sales Tax Rules and Regulations are different for each state of India and you have to refer the respective websites for details.In some cases you are allowed to do a business of certain value or duration without Sales Tax registration or TIN number. You need to obtain the TIN number from the Sales Tax department and then have to file the Sales Tax return on a monthly/quarterly basis.Sales tax rates are also different for different states and also do remember for making deliveries to certain states like Maharashtra you need to provide certain forms without which you can’t make delivery and even logistics vendor would not accept it.Make sure that you understand the concept of Tax invoice and Retail invoice before starting the business. Retail invoice is the end point of the transaction.e.g. If you purchase a product for reselling it then you need to get a Tax Invoice from the seller in order to resell it and you will issue retail invoice to the End Customer. You might need to provide a non-residential address from where you want to run your business and any additional places where you want to have warehouse to the Sales Tax department.

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3 thoughts on “Things you need to know before starting E-Commerce business

  1. arshad Reply

    is it necessary to take TIN number at just starting time of e-commerece business?
    or is there any profit limit after which we will have to take TIN number?

    • aslam Post authorReply

      TIN is mandatory if you want to do any inter-state transaction. E-commerce transactions are mostly inter-state.

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