Benefits of Scaling Ecommerce using the API economy
Many ecommerce brands today are fighting two battles today. External – it is a battlefield where the unforgiving customer is the king, competitors are cutting no slack, the cost of acquisition is going through the roof, demand is waning and investors are up in arms.
Internally, increased complexity in strategy, processes, and technology are driving management crazy. These complexities are draining funds, ruining reputations and causing daily interdepartmental fights as to how to execute or fund these new ideas.
What might surprise new entrants is the inability of most ecommerce companies to make meaningful profits. External challenges drive prices to rock-bottom while internal challenges drive up costs leading to wafer thin margins in the best case and huge losses in the worst case. I was speaking to the CEO and founder of a fairly large and fast growing ecommerce company (who shall remain nameless). He told me that it costs him $2 for every $1 he earns from a first time customer. He only breaks even when that customer buys from him the third time or more. Imagine running a business where you are literally losing an amount equal to what the customer pays you the first time in acquisition costs. I did some research and found out that across categories and ecommerce businesses, the actual cost of $1 in new revenues ranges from $1.8 to $3.2. That is ecommerce for you! That is also why retention is so important.
We won’t try to solve all challenges associated with selling on ecommerce in one blog. I doubt anyone has a complete solution anyway to something that is evolving as fast as ecommerce. However, there is one part of this problem that is mission critical but often overlooked. Whenever we forecast or project future financials, we assume with more sales, we will see an increase in net profitability. The maths and the logic is sound. When more units are sold, the fixed cost gets distributed accordingly, bringing down the cost per unit.
Why does this sound logic fail when it comes to ecommerce?
It is because more revenues normally means more customer acquisition costs which keep increasing as competition intensifies, unless your revenues come mostly from repeat revenues. In most ecommerce businesses switching cost for customers is not high and repeat purchases are few and far between, resulting in low customer loyalty. However, it is more than just acquiring new customers. It is also about selling on more channels, handling more transactions, managing 10X inventory, shipping more orders, and handling the returns.
Why is this different from any other industry? The answer lies in the tech. At various levels of growth, the tech starts posing limitations that, if not handled correctly, can cause a decent small/mid-sized business to generate heavy drag as they start growing! Making full use of the API ecosystem is one great way to ensure that you can keep growing seamlessly.
Advantages of using APIs to Scale Ecommerce
We have all heard of APIs. To put it simply, it’s about letting two independent software or modules or services interact with each other. For example, Uber didn’t need to create their own mapping software for their app. They just “integrated” Google Maps and focussed on their core business- providing a seamless commuting experience. Understanding the API-led growth model is important for growing a tech-enabled ecommerce business. Here are some of the top advantages of using APIs to scale your e-commerce business:
Avoid creating new breaks in the system
During the early days, it makes sense to use tools that are easy to handle and affordable. Think of order management. Most ecommerce companies use ready-to-use modules within the Catalog Management System for order management during the early days. As business scales & the volume of orders surges, such simple solutions don’t work well anymore. That’s when the need arises to adopt a full-blown order management software (OMS).
Now, this change causes some new problems. The orders are coming in through the ecommerce store, but the OMS is now independent. You thus need manual effort to feed the order details to the new OMS. This leads to breaks in the process, resulting in delays, defects, and of course, additional overheads.
Using APIs, you can directly connect your store to your OMS. That way, the details are automatically fed without requiring manual intervention.
Pay as you grow
Sometimes, the cost of adopting new software and the effort required to set it up and learn can be inhibitory for a business. It can all be smoothened by adopting APIs. In the case of APIs, you pay as per usage. Also, you need not worry about learning a new UI.
Minimize fixed Tech Overheads
Back in the day, every successful ecommerce company had to double up as a tech company. They had to hire full-blown tech teams who could take care of the business needs. Each feature request by the business team required months of tech effort to go live. In an API-led growth model, you don’t need to worry too much about the technical heavy-lifting. You can just add the right tools to your existing system via APIs. For example, you don’t need to spend months of effort and close to a million dollars to set up a payment gateway. You could just integrate it with something like Stripe or Razorpay.
Using APIs, ecommerce companies can thus cut down on fixed tech overheads substantially.
Futureproof your systems
When it comes to technologies, there are things that you need today, and there will be things that you may need in the future. It’s important to futureproof your system. Think about selling on multiple marketplaces. You may want to expand to marketplaces one at a time. However, every time you need to add a new marketplace – you wouldn’t want to start from scratch. Instead, it makes sense to connect to a platform like Eunimart that allows you to integrate new marketplaces easily as & when you need it.
At Eunimart, we have been asking questions and framing problems on behalf of brands, retailers and supply chain companies. Our vision is to help companies generate more revenue with a futuristic approach and growth trajectory. We have built a full stack of AI tools to bolster revenue, supply chain and omnichannel distribution combined with an incredibly flexible and advanced open source platform equipped with multiple tools to empower the next generation of entrepreneurs who dare to dream, including those who are aiming at scaling up using the API economy.