Published on December 28, 2013 How to turn a hobby into an online shop
at 12:57 pm in Tutorials 0 Comments
Last updated on October 30, 2018
There are many successful and well-known businesses that started life as an extension of someone’s garage project or hobby. Having an interest in what you are doing and knowledge of the market, can give you the passion and drive to succeed but how do you go about turning your hobby into an online business?
What will it take? What are the potential advantages and disadvantages? How do you go about choosing the right shopping cart to make it a success?
Selling it online
Selling your products online gives you a distinct cost advantage over setting up an offline store. Websites cost less to get established than the bond and rent on a commercial property, and web design costs are considerably less than signage, security, parking, rates, electricity and offline advertising to get you started. If you are a home business, then selling online is a great low-cost way to test different markets and promotional methods for your products as you have to commit less than an offline business.
One of the biggest misconceptions that people have starting up an online business is that getting started selling online is free. You still need to have a professional website design, you will still need stock and you will still need to promote your business or nobody will find you. You will also need quality time to do your background research and planning – and with the items that you are selling already being a hobby for you, then that means you have the passion and drive to take it further.
Is your hobby a business?
What distinguishes a hobby from a business? The answer is that it is more than just how much you are selling. If you are selling items with the intention of making a profit and going about selling your items in a business-like way, then you are already in the eyes of the ATO running a business and need to be registered as such. The ATO provides some questions that can ask yourself to help you determine if your hobby has reached the status of a business:
- Do you intend to make a profit?
- Did you spend money on advertising, sales, a website/online presence (this includes selling on eBay), flyers, email marketing, mail drops etc?
- Will you make repeat sales, or sales of the same item to different people?
- Your behaviour – do you manage your online selling as if you were running a business?
- Are you selling the same things and/or competing against other physical or online shops selling similar items?
No one factor is considered on its own but if you find that you can answer yes to many of the above factors then your activities may already be considered a business in the eyes of the ATO. So the next question to ask is whether your business is a sustainable long term venture?
Can your hobby succeed as a business?
An important question that those looking to start a business need to consider is whether your hobby is appropriate to be a business – before you grow too big. A successful business needs to be scalable – if you can sell a few items in your street and to local businesses but can’t keep reselling those items, and can’t sell them to others, then the market may be too limited for your business idea to be a profitable, sustainable online business.
The size of the potential market and longevity of the product is the main determining factor here – are there enough potential customers and new products to make a business that can grow?
The best way to work this out is to do a quick business plan. That doesn’t mean a full-on write up like you would expect if you were doing a pitch for money at a bank, or trying to gain third-party investors. But at a minimum you should document to yourself in bullet points on your computer, or on paper things like the following:
- What products will you be selling?
- Who will you be selling to? Who is your ideal customer?
- Who do they buy these products from now? How many competitors are there in the market?
- What motivates your customers to buy from you? Why should they buy from you and not your competitors?
- Where will you source your products from? Will you drop ship them from a supplier or hold them in stock? How fast do these items sell?
- What will be your source of competitive advantage with regards to your competitors: will you be faster to market with new products? will you provide better service? will you provide a wider range of harder to find styles? will you compete on price (be ready for intense competition if you do this and make sure your have the cost structure to compete in a price war if necessary)? etc.
- How would competitors respond to you were you to be successful?
- What are other potential products that customers could spend their money on instead of your products?
- How will you communicate to customers that they should buy from you? What proof will you give them?
- How will you gain search engine positions for your online store? You will need to build quality links from other websites and businesses so you will need relationships with other businesses or a valid public relations strategy
- What are realistic sales figures for your first year?
- Why should your potential customers TRUST you (trust is very important in online shopping)?
- What economic changes, government regulations, social factors or technology changes could influence what you sell and how successful that you could be? How would you respond to potential changes?
You need to answer the above questions with concrete answers, and not just general statements or you haven’t done the exercise correctly and could be leaving yourself open. That’s where people like banking business advisors and your local chamber of commerce people can come in handy to help you think through the answers to some of these things and what you can do about them.
Do your planning
You may be thinking that the best thing to do is just start selling your products to see if they sell. But this is a dangerous approach and not recommended at all. As soon as you start selling items for a profit in Australia you are required by law to have an Australian Business Number (ABN) – although you won’t start paying tax until your profits or turnover reaches a particular level. So you WILL need an ABN. You don’t need to have a GST number by law unless your turnover is over the ATO’s threshold for paying GST, but if you are selling business-to-business (B2B) you will probably find that not having one will stop you from getting customers. This is because other business customers may expect to receive a Tax Invoice when purchasing from you and may be deterred from purchasing from you if you are not registered for GST – they might perceive it that you’re not serious about growing your business, or just too small to be a stable, reliable supplier.
You should also think about your business structure. You might think that it’s not important to decide on your business structure if you’re just testing a hobby idea, but it could hurt you later if you don’t do adequate business planning up front. You won’t know if an idea can be successful or not if you don’t test it in real conditions, and you can’t protect yourself against competition if you don’t cover off the basics to begin with – what will your business name be, what will your domain name be, does anyone else have any trademarks on your business name or domain name that could allow them to take it off you later, do you need to apply for any trademarks or patents to protect your idea from being copied?
Advisors who can help
Some places you can look for good advice about your business structure can be:
- Your solicitor or accountant. Accountants and lawyers have a wealth of knowledge about doing business in Australia and will ultimately be preparing your Business Activity Statements (BAS) for the ATO, so can tell you about the ins and outs of different structures for your particular business and industry. If you don’t have an accountant, you will need one and it’s strongly recommended that you choose someone that you trust.
- Your bank. Banks have small business advisers who are in your local area and are specialists in both the general business conditions in the market right now, and the nationwide market. They have access to other specialists and will often know who you can go to in your own city or town.
- Look in your yellow pages for business mentors, or approach your local Lions club or Chamber of Commerce. There are often a range of people who can point you in the right direction for planning a new business and give you the benefit of their own experience in running successful businesses.
- The Australian federal government also has an Advisor Finder on their website at https://www.business.gov.au/advisory-services which you can use.
There are pros and cons of every business structure. For example, a sole trader is easy and flexible to set up and has reduced legal and accounting reporting requirements compared to a company. A company has set up fees and additional reporting requirements, but can have tax advantages in some circumstances and has the benefit of being a separate legal entity (protecting your own personal assets in the event that there was ever a liability claim against your company). Even going from a hobby to a business you should think about what is best for your specific circumstances. In the end, the old adage is very true: failing to plan is planning to fail.
Be prepared to work hard. Be prepared for competition.
Taking a hobby to a business still requires a large amount of time and effort if you are to make it successful. Even with the best business tools at your disposal and a real advantage in the market, sales will not slide through the door. Competitors do not sit still and will see your site growing through the ranks, bigger competitors might try to offer similar products to your same customers, or copy your idea and scale it larger than you could imagine. You need to plan what you will do in each of these contingencies so that when competition happens, and it will, you are prepared. Not all competitors play fairly so being prepared to deal with unscrupulous operators who will sit just in the grey area of legal will really help your business grow. In fact, if you want to be truly successful this is usually an unavoidable part of doing business.
Choosing the shopping cart to help
Once you’ve done the basics you can think about your shopping cart website. A shopping cart website is a type of website with software behind it that allows you to display your products in a catalogue with prices, let visitors add products to a virtual shopping cart and then check out with them – simulating the experience in a regular “bricks and mortar” store.
When choosing a shopping cart application for your new business you should consider the following:
- Hosted solution or self build? A site that you build yourself using open source application can be cheap to get set up, but it can take a long time especially if you are not experienced with computers. Even for those with experience, do you have the time to get everything set up for Australian business conditions? Cover off all of the latest security requirements for keeping your website safe, and meeting the mandatory PCI DSS security requirements set out by Visa, MasterCard and the credit card industry. A hosted solution on the other hand gives you a working framework that you can add your products to, write your policies, set up your payments and shipping and get going much faster. Security is taken care of for you behind the scenes and if there’s any problems or bugs, they will fix them for you or provide workarounds until a fix can be found. Commercial hosted solutions like Ozcart Shopping Carts can get your hobby business going faster even though you have to spend a bit up front. One of the big benefits of Ozcart is that it can save you time in design as well as initial set up, as your site comes in your business colours, with your logo and graphics for you already done. You just pay for them month to month and don’t have to maintain a server as well as running your business. Your website provider becomes like your built in security guard, building manager and cleaner.
- What shipping methods will you use? Getting shipping right is very important in online shopping, and the smaller your items the more important it can be. When choosing a postage provider you need to think about where your main customers will be and how big and heavy your items are. If the items are small and your customers are in diverse locations, then Australia Post may work best. For heavier items, courier companies might be more suitable. If you are using courier companies, Ozcart has real time calculators for Smart Send, eGo, and Trans Direct who can look up courier costs and offer you the best option from couriers like Toll and TNT. Shop around for the best deal for you. You can also set up manual tables of rates in the admin area of your store to cover courier options that do not have a built-in automatic calculator.
- What payment methods will you use? Many shopping carts only support a limited number of Australian specific payment methods out of the box which limits your options. Ozcart supports components like ANZ eGate, Commonwealth CommWeb, e-Path, iPayBy, and NAB Transact without you having to do any extra work. You just turn them on and save the details that the bank gives you.
- Stock Decisions How you manage your stock needs to be reflected by your shopping cart. For example, if you are drop shipping your products can you
- Promotions As your business grows you’ll want to have a range of promotional tools at your fingertips, so make sure you choose a cart that has advanced features built in so that you can grow. Like the ability to run 2 for 1 specials, offer coupon codes, have a gift registry and wish list built in, or offer free shipping on a per product or per cart basis. Don’t sell yourself short on promotional tools. Having Facebook like buttons in your pages and the ability for customers to log in with their Facebook accounts can also give you an edge over carts that do not have social integration.
- Analysis You’ll want to know how well you’re doing so you need a shopping cart that can plug in to powerful analysis tools like Google Analytics, Google Search Console and Bing Webmaster Tools.
These are just some of the considerations – there are many. The above considerations are not meant to make starting an online business seem daunting, but to give you a map of how to go about starting a business with a view to succeeding against established competitors in the industry. Your attitude to business will play a huge part over and above everything discussed here: you will need passion, determination and drive to motivate yourself to grow a new online business. Many people may tell you that you will fail, don’t let them get to you. If you do the basics in planning, have a great idea and plan for contingencies there is no reason that you can’t grow your online business and flourish even against well established competition.
For more information about getting the right shopping cart website to turn your hobby into a business, take the Ozcart shopping cart feature tour and find out just how affordable setting up an online shop can be.