Return on investment is one of the primary metrics that investors look at while making an investment decision. For retail investors however, that may alone not be enough. It is also important to look at the work that goes into achieving the ROI in question. For example, investing in stocks incurs lower fees and commissions when compared to mutual funds. However, unlike stocks, mutual funds do not require constant tracking and are thus a better avenue for passive investors.
While there are a lot of traditional avenues for passive investing (like real estate), the modern day investor has a number of new opportunities to passively grow their wealth. A growing number of such investors are looking at buying online businesses .These are websites that bring in a few hundreds of dollars each month and require minimal intervention in terms of work required.
But is buying an online store a good investment decision? To answer that question, we will first have to look at the investor profile and their industry know-how. Online stores can indeed bring in a recurring income in exchange for minimal work, but that does not always equate to no work. ECommerce stores have a lot of ongoing work that needs to be taken care of such as order processing, supplier negotiation, customer care, and order fulfillment. A large business like Amazon has tens of thousands of employees in the supply chain taking care of these processes. In a way, such an investment could be a double-edged sword – they cease to be passive when your store actually grows and becomes popular.
One of the best ways to work around the tricky nature of owning eCommerce stores as an investment option is to dropship. Dropshipping is a form of third party logistics where a customer order is fulfilled directly from the supplier’s destination. In other words, as an eCommerce store owner, you are only responsible for marketing your business and passing on orders to the supplier who then handles everything from order processing, fulfilment, and even customer service. With dropshipping, your eCommerce store can continue to be passive even when the business grows. There are a number of third party plugins that can help you find dropshippers to partner with.
Buying Existing Stores
Growing an eCommerce store from scratch can be brutally painful and is not particularly recommended for passive investors. While eCommerce can be a great business opportunity, it may not be a good investment decision for those who do not have the time to invest in growing a business. This challenge may be overcome by investing or buying stores that are already doing well in terms of revenue. Shopify, one of the leading eCommerce platforms in the world, has its own marketplace called Exchange where investors could look at successful online stores that are for sale and invest in them. You may also make use of the dropshipping plugins discussed above to integrate with your store in order to make your wealth generation truly passive.
eCommerce Management Agencies
There are a number of third party agencies that specialize in eCommerce management. These agencies can take care of everything from SKU management to order processing, fulfillment and customer service. In a way, these agencies replace traditional workers in your order supply chain process. Depending on the size of your eCommerce store, these third party eCommerce management agencies can charge anywhere between a few hundred dollars to several thousand dollars each month. But because of the scale of their operations, the cost to operate your store via these agencies can work out to be cheaper than hiring your own in-house team.
So to answer the question – is online commerce a good investment opportunity? It definitely is. However, as it is with any other forms of investment, the risks need to be appropriately assessed in order to make sure that the money you invest is multiplied steadily over time.