How Does eCommerce Reduce Business Transaction Costs?

By William Pirraglia

1.   Online Credit Card Transactions Versus Retail Credit Card Transactions

o    Some might argue that "card present" retail transaction costs are lower than eCommerce credit card transaction costs. From one perspective, this is a true statement. An in-person retail transaction, with the customer presenting her credit card, is typically less expensive than amail order/telephone order (MOTO) or online card transaction. However, the marginally higher cost charged by the credit card processor is more than offset by the true cost of the transaction. The physical retail location needs personnel, lights, heat/air conditioning, telephones, computers, signage, rent/mortgage and security systems. The same eCommerce transaction requires a good web host, secure shopping cart software and little else. The reason the card processor charges a bit more for online transactions is because the major card companies (Visa, MasterCard and American Express) charge them more. They charge more simply because the "card is not present" so the risk of an unauthorized user or use is greater. But the business owner actually enjoys a lower total transaction cost for the reasons noted above.

No Need to Take Valuable Retail Space to Display Inventory

o    Compare the cost of maintaining a "virtual" store using eCommerce technology to the cost of one or more physical stores. Regardless of the number of transactions you have per day, with a physical location(s) you need personnel, space, displays, utilities, security, inventory and parking. Your virtual store needs only a winning website, security software, including a "shopping cart," a good web hosting company and the ability to ship your products efficiently. Whether you have 5 or 500 transactions per day, you will have a lower transaction cost with a virtual store than you could with physical locations.

Potential Inventory Cost Savings

o    Whether you sell autos or chewing gum, maintaining an inventory can be an "expensive" asset. You must purchase, receive, log in, unpack, display and sell your inventory fairly quickly to be profitable. Using eCommerce virtual stores, you may or may not choose to own, warehouse, and maintain a large inventory. You can make arrangements with other wholesalers or manufacturers to ship their inventories to your customers directly from their facilities. Therefore, while your per item inventory cost may be a bit higher than if you purchased in bulk, without the necessity to pay for, warehouse, display and maintain large inventories, much of which may or may not be sold (turned over) quickly, your transaction costs should be lower using eCommerce versus physical retail locations.


Source:http://www.ehow.com/how-does_5147203_ecommerce-reduce-business-transaction-costs.html#ixzz1IeUU3TRX