BUSINESS DEVELOPMENT: HOW TO START-UP AN e-COMMERCE FIRM IN NIGERIA
Developed by Jawolusi Oluwaseun Solomon ( @jawolusy )
The Table of Contents
- Feasibility Studies
- The Technical Scope of the proposed eCommerce Business
- Things to do
- Necessary assets for effective running of the business
- Types of products and target audience
- Advertisement and publicity strategies
- Possible challenges
- Projected total expenses (fixed costs analysis)
- Projected running costs (variable costs analysis)
- Projected profits and the Break-even analysis
- Inferences, conclusions & assumptions (BEP Breakdowns)
Commercial activities and trading is one of the oldest types of business since the Stone Age where trade by barter systems was used. Many of the business icons being referred to as economic giants of the world today are actively involved in commerce through one way of the other. In this era, the internet is the new marketplace that can be keyed into for different transactional engagements – most especially for an electronic commerce systems.
2. FEASIBILITY STUDIES
Electronic commerce system became popular in Nigeria within this present decade, though other parts of the world have been reportedly maximizing the internet for transactional and business purposes before this period. However, the likes of Jumia and Konga were the trailblazers in the Nigeria e-Commerce market, while the likes of JiJi.ng, car24 and others recently got into the business scene. Studies also show that the e-Commerce industry is not yet saturated and any investor going into the business can be assured of high turnover because of several reasons; number one is the population resources of Nigeria as the Giant of Africa – as we all know, everything sells in Nigeria. The second point is that a new eCommerce business can always survive in the industry so far it can invent a unique competitive advantage above the existing businesses.
3. THE TECHNICAL SCOPE OF THE PROPOSED ELECTRONIC COMMERCE BUSINESS.
A user-friendly website shall be developed in order to serve as a virtual office for
- customers to make pre-orders of products that are not in the warehouses,
- customers to make instant orders of products that are readily available in the warehouses,
- customers to track their products from one locations to another,
- customers to make an online payments via a well-secured channel,
- customers to have portal accounts,
- admin to have a portal to monitor the various daily transactions,
- other services being offered by the firm.
Subsequently, depending on the financial strength of the investor, cross-platform mobile apps could also be developed to complement the web-driven eCommerce application while also enhancing its wider outreach and accessibilities. However, having a mere ecommerce website for a start is not a bad idea, such a firm can always upgrade to mobile apps services as time goes by.
The proposed eCommerce firm can have two offices (or warehouses) for a start; one in Abuja to cater for customers’ orders being made from the Northern part of the country and the other office in Lagos to handle the orders being made in the Southern part of the country.
4. THINGS TO DO:
5. NECESSARY ASSETS FOR EFFECTIVE RUNNING OF THE BUSINESS
6. TYPES OF PRODUCTS AND TARGET AUDIENCE:
For a start, I would recommend that the sales of certain competitive products should be focused on at the beginning of this eCommerce business; other products could be added later (either on a wholesale scale or on a retail scale).
- Ladies Sport wears: waist trainer for ladies
- Electronics: Jam Box
- Digital Gadgets: Smart Wrist watch
- Smartphone: becoming the partner dealer of a new Smartphone brand in Nigeria. Such phones could be ordered in wholesales from the U.S. or from China.
- Solar-powered gadgets and rechargeable electronic gadgets: Such imported products would always sell in the Urban and Rural parts of Nigeria because of the recurring issues of unstable electricity as usual.
- Special Digital Security Gadgets: IP CCTV Camera, Hidden CCTV Camera and other types of Spy CCTV Gadgets. (Note: even when these products are readily available in the warehouse, SOME of them would not be displayed on the company’s eCommerce website for security reasons).
Target Audience: this is a popular demand for Nigerian ladies that are always in the endless quest for flat tummy.
Target Audience: many Nigerian youths are always opting to possess a Jam Box for several reasons – despite its portability, it is loud with a touch of deep bass and most are rechargeable.
Target Audience: Both the young and old Nigerians are currently crazy about getting a smart wrist watch for so many reasons like its portability, duly accorded with its ability to perform all the features of a smart phone.
TARGET AUDIENCE: Nigerians would like to have a new brand of phone with amazing features like ‘long-lasting’ battery, HD Camera and other amazing features.
TARGET AUDIENCE: Every Nigerian will like to buy such a new product that can readily supplement for the challenges of poor electricity in their immediate environs. It is now left for you to select the best types of solar-powered gadgets/rechargeable electronic products to deal with for a start.
TARGET AUDIENCE: Well-established public and private organizations, residential areas, estates and other institutions are always in constant need of CCTV security systems, the unique features of an IP camera always make it a hot-cake in the venture – as earlier noted, it is more expensive than the conventional ones.
7. ADVERTISEMENT AND PUBLICITY STRATEGIES
- Creating a localized Facebook advertisement: this method is a proven viable method to reach out to a particular target audience.
- Subscribing for a sponsored ads on twitter, Facebook, Instagram, Nairaland forum and Google ads sense
- Consulting and/or partnering with a social media influencer: some celebrities and public figures already have millions and thousands of followers on prominent social networks, such known personalities can easily make the products and service being offered by the new e-Commerce company known to their followers by posting such on their walls and also sharing such online.
- Advertising on public outlets by using outdoor banners and other advertorial signage (this might be expensive for a start-up business)
8. POSSIBLE CHALLENGES:
- The clearing and forwarding of some imported products might face some delay, most especially when such are shipped into Nigeria
- Security challenges: some areas are quite prone to insecurities issues in Nigeria, therefore, the delivery and dispatch of ordered products might be face certain complications or more cost might be incurred in order to secure the delivery process (by hiring some security personnel).
- Publicity and advertisement: creating a general awareness of the existence of a new type of competitive business will be a demanding process
- Inventing a competitive edge required to race with the existing ecommerce businesses (Konga, Jumia, Jiji.ng & etc) is also a tasking process
9. PROJECTED TOTAL EXPENSES (FIXED COSTS ANALYSIS)
|s/n||Items||Estimated costs||Nature of payment|
|1||Company registration with the CAC (Limited Liability Company with N1,000,000 shares||80,000-100,000 (Depending on the choice and standard of the corporate Lawyer)||One-time
(Annual returns by the registering Lawyer)
|Abuja suburb, e.g, Kubwa, Lugbe, Karu etc,
The rent for a standard office space in a plaza is N400,000-600,000
|Abuja city centre, e.g, Jabi, Wuse 2, Wuse Zones, Areas etc, the rent for a standard office space in a plaza is N700,000-1,000,000|
|3||A power generator||N100,000-150,000||One-time|
|4||A motorcycle for dispatch and delivery services within Abuja.
Note: as the company expands, there would be a need to purchase a delivery van in order to effectively handle larger orders by customers within and outside Abuja
|5||Inverter and UPS systems||N150,000-200,000||One-time|
|7||3 computer systems (One for the Secretary, One for the ICT/Order manager, One for the Manager)||N70,000-80,000 each x 3 =
|8||1 Central AC||N70,000-90,000||One-time|
|9||3 Standing fans||N5000-N7000 each x 3 = N15,000-21,000||One-time|
|10||Furniture (Purchasing 3 sets of tables and chairs and the sofa at the reception, painting the office, purchasing window blinds, partitioning the office space into 4, electrical works and other miscellaneous costs)||N500,000-600,000||One-time|
|11||Internet Connection (The location of the business office will determine the choice of network)||N15,000-20,000 to purchase the internet device, while N20,000-25,000 is need for the monthly internet subscription||One-time for purchasing the device while the subscription is recurring|
|12||A network printer (All the computer systems in the office will be connected to it)||N50,000-70,000||One-time|
|13||Building the eCommerce website||Domain name registration and website hosting (accorded with an https secure features) with a multinational hosting company is 40,000-60,000||One-time payment is needed for the development of the eCommerce website while the N40,000-60,000 is a recurring charges for the annual domain/hosting account renewal.
|Developing a user-friendly eCommerce website will cost N250,000-N300,000. Customers can easily track their orders on the platform while also having other great features|
|There are different types of payment gateways: some platforms like GTPay, Interswitch and others have a one-time payment features with zero commissions on every transaction on the eCommerce website while some payment gateways are freely installed on the eCommerce website but they will be charging a percentage commission for every transaction, for instance, 1-2% for transactions less than N5000 or 2-3 % on transactions more than N5000 and the likes|
|14||Awareness, publicity and advertisement||For a start, N50,000-N70,000 can be expended in creating a localized facebook campaign, choosing Nigeria as the target audience. This step will not only advertise the company, but it would also give more likes to the official facebook page of the organization thereby creating more credibility for the brand||Recurring|
|15||Installing a CCTV camera in the office for security purpose and to also ensure proper administration of the firm||N100,000-N150,000 for purchasing and installation of the CCTV Security Systems.
Note: An IP CCTV security system is quite expensive than the conventional ones, a separate quotation shall be made for it in a situation whereby the business owner requires the installation of IP CCTV Systems.
|Estimated Totals||2,580,000-3,796,000||Estimated costs for fixed assets|
Conclusion: the projected total expenses needed to start-up such an eCommerce company in Nigeria is between the range of N2,580,000 to N3,796,000.
10. PROJECTED RUNNING COSTS (VARIABLE COSTS ANALYSIS)
|S/N||Items||Estimated Cost||Nature of payment|
|1||Staffing: At least, 5 Staff are needed to start-up such an eCommerce firm in Abuja:
1. The dispatch rider:
– To deliver ordered goods/products to customers’ doorsteps
2. The security personnel:
– To ensure the physical security of the office premises, staff, and the goods in the warehouse.
3. The Secretary:
– To attend to customers
– Acting as a well-seasoned account of the firm to monitor and internally audit inventories
– To properly keep records of business transactions
– To ensure the smooth running of the offices such as cleaning the office and other related administrative tasks
– To handle the 24/7 customer care services via phone calls and instant chats on the company’s website
4. The ICT/Order Manager:
– To handle orders and pre-orders by customers
– To manage the company’s eCommerce website
– To ensure the security of the eCommerce platform
– To monitor and oversee the activities of office CCTV system for security purpose
5. The Manager:
– To handle the administration of the offices, drafting proposals, attending meetings, strategizing on business expansion, innovating methods to reach out to larger audience, to ensure that there is no downtime of services and to ensure customers’ satisfactions
|Projected Salary for the work force (FOR A START!)
1. The Dispatch rider
N35,000-40,000 (Semi-skilled cadre of Labour)
2. The Security Personel
N35,000-40,000 (Semi-skilled cadre of Labour)
3. The Secretary
N40,000-45,000 (Skilled cadre of Labour)
4. The ICT/Order Manager
N60,000-70,000 (Highly-skilled cadre of Labour)
5. The Manager
N60,000-70,000 (Highly-skilled cadre of Labour)
|2||Fueling of power generator in case of power outage||N10,000-15,000 monthly||Recurring
|3||Internet Subscriptions||N20,000-25,000||Recurring (monthly)|
|4||Stationeries and other office equipments, e.g. Printing papers, refilling of printer’s inks/toners and others||N4,000-5,000||Recurring (Monthly)|
|5||Communications: Recharging the office telephone line, to track orders, communicate with customers and to handle other customer care services||N4,000-5,000 to purchase recharge cards||Recurring (Monthly)|
|6||Feeding funds for Staff lunch: in order to ensure a high standard of living for the staff and to also get the best of their respective services, there is a need to scheme a daily lunch for them||N350-500 per staff x 5 = N1750 – 2500 daily,
For the 20 working days in a month,
(N1750 – 2500) x 20 = N35,000 – N50,000.
Note: the organization can strategize on how to deduct such feeding funds from their salaries if such a need arises to cut costs.
|7||Maintenance costs: fueling of the company’s motorcycle and other miscellaneous running costs, most especially for repairs and maintenance of electrical appliances, CCTV systems, Computer systems and others.||N10,000-20,000||Recurring (Monthly)|
|Estimated Totals||N313,000-385,000||Variable costs on a monthly basis|
CONCLUSION: The projected running costs (Variable costs) of the eCommerce business on a monthly basis is between the range of N313,000 to 385,000.
Technically, irrespective of the monthly turnover, the company must make a profit greater than N385,000 in order to have a gain, while also striving to attain the break-even point. After the break-even point has been attained, the residual income will become the return on investment of the organization.
Note; the projected average total monthly running cost is (N313,000+385,000)/2 = N349,000
Note: the total capital needed to start up this company = (The projected total expenses i.e. the estimated fixed costs) + (the projected running cost i.e. the estimated variable costs)
Total Investment capital = (N2,580,000 ranging to N3,796,000) + (N313,000 ranging to 385,000)
TIC = lower value + upper value of the estimated fixed and variable costs
Lower value = N2,580,000 + N313,000 = 2,893,000
Upper Value = N3,796,000 + 385,000 = 4,181,000
Estimated total investment capital = 2,893,000 – 4,181,000. This is the range of start-up funds needed to kick start this business.
The average total investment capital is the (lower value + upper value)/2
i.e. (2,893,000 + 4,181,000)/2 = N3,537,000
Precisely, the average total investment capital needed to effectively kick start this business is N3,537,000. This value shall be denoted as TIC for the computation of the break-even analysis of this business and for the return on investment analysis.
11. PROJECTED PROFITS AND THE BREAK-EVEN ANALYSIS:
The break-even analysis and the return on investment analysis will be used to compute the projected profit of the business.
In a simple term, this break-even analysis allows us to determine the total income to be generated from the eCommerce business either on a monthly or annual basis in order to recover the average total investment cost (N3,537,000) that will be invested in the business.
In a more technical term, the break-even analysis will be used to forecast the point at which the total revenue generated from the business equals the total costs associated with generating such.
Note: Turnover is the financial value of all the sales made by the company before removing profit.
Note, the profit generated by the firm is directly proportional to the amount of imported goods and products, and also the amount of sales made on a monthly basis.
For a practical example, if products are purchased in the U.S. or China for N5,000,000 (including the transportation costs, clearing and forwarding and other logistics costs) and afterwards imported into Nigeria (in the company’s warehouse).
If such products are totally sold in Nigeria for N8,500,000 (turnover) for a period of 6 months, it means that the total profit made by the firm within 6 months is N3,500,000.
Kindly recall that the projected average total monthly running cost of the firm is (N313,000+385,000)/2 = N349,000.
Therefore, in 6 months, the company will incur N349,000 x 6 = N209,400.
The projected total profit of the company within 6 months is therefore =
Total profit made by the company in 6 months – the projected average total monthly running cost
Therefore, the projected total profit of the company in 6 months = N3,500,000 – N209,400 = N1,406,000
This projected total profit (N1,406,000) of the company will be used to calculate the break-even point of the company, which is the point at which all the average total investment cost (N3,537,000) will be recovered. Technically, this also means that the company must generate at least an estimated monthly profit of N234,333 after removing all the company’s running costs.
Note: after the company has attained the break-even point, the passive income will then become the profit of the firm.
The break-even point = (average total investment cost / total projected monthly profit) in months
The break-even point = (N3,537,000 / N234,333) months
The break-even point = 15months.
12. Inferences, conclusions and assumptions (bep breakdowns)
If the company invests N3,537,000 to start up the eCommerce business, For the company to attain break-even point within 15 months (i.e. recover back the TIC N3,537,000).
It means that at least a total value of goods and products worth N5,000,000 must be imported within 6 months, they must all be sold within 6 months at the rate of N8,500,000 (this is the turnover).
Therefore the monthly target sales for the first 6 months is N8,500,000/6 = N1,416,666
Therefore, the company will be able to make a projected total profit of N3,500,000 within 6 months.
If the average total monthly running cost of the firm is N349,000, then in 6 months, N349,000 x 6 = 2,094,000.
Therefore, the projected gain of the firm within 6 months = total profit generated – total running cost
Projected gain of the firm in 6 months = (N3,500,000 – 2,094,000) = N1,406,000
Therefore, the projected gain of the firm in 6 months = N1,406,000/6 = N234,333.
Therefore, the monthly residual income of the company is N234,333.
Kindly have a look at the illustration below:
In conclusion, the projected monthly gain of the company is N234,333. After 15 months of this business, this value will turn the monthly passive income (or residual income) of the firm provided that all the afore-listed assumptions are implemented.
For more business development strategies, contact Jawolusi Oluwaseun Solomon by sending a DM via @jawolusy