Top 6 Reasons Nigerian E-Commerce Businesses Are Losing Money
E-commerce in Nigeria partially took off in 2012, but didn’t really start generating a real buzz till 2013. From 2012 till 2016 there’s been at least 500 e-commerce businesses launched across Nigeria, with a few now established as popular household names. From the view of the customer and the general public, it seems e-commerce in Nigeria is the next big thing to get into. People have arguments on a daily basis on the estimated monthly revenues & profits that companies like Jumia & Konga generate. With little to no real information, they come up with El Dorado numbers and conclude all e-commerce companies are cashing out big time. Little do they know that the direct opposite is the case, and that there are several factors still hindering the development of e-commerce in Nigeria.
The peak of the Nigerian e-commerce industry is still many years ahead. With problematic factors ranging from consumer trusts, to high product prices, delivery fees, and more, most e-commerce companies in Nigeria remain unprofitable. Then the key questions arise; why are Nigerian e-commerce businesses not profitable? What factors affect the purchase of goods on Nigerian e-commerce websites? And how can one start an e-commerce business in Nigeria and become profitable?
While various factors are ruining e-commerce businesses profitability in Nigeria, there are ways to start up an online business and become profitable from day one, even at very minute numbers. But this factor is largely dependent on selling on an online market place. This article will enlighten you on the real problems Nigerian e-commerce businesses are facing.
6 Reasons Nigerian E-Commerce Businesses Are Unprofitable:
1). High Product Prices:
The cost of goods purchased, followed by the cost of importation, always spikes the final retail prices of consumer goods. Since e-commerce businesses cannot afford to buy 1000 pieces of one color of one style each of an item, the prices of the items online cannot in any way compete with the prices of the items in the markets. The current inflation ($1 = ₦360) being experienced in Nigeria just made issues worse. The product pricing is now more terrible than ever, and thousands of consumers are running from online stores to the physical wholesale markets to shop. In light of all these, what can Nigerian e-commerce businesses do to try to control the price of their goods? An obvious answer that many have dreaded for many years comes to light. Manufacture in Aba!
Aba is Nigeria’s largest and possibly only manufacturing hub, yet many businesses fail to patronize the excellent skills that many manufacturers there possess. If your business is focused on fashion, you’d get any quality you’re looking for and at the right price! Simply show the manufacturers there a sample item, e.g a dress, pick out the materials they’d use to manufacture the item, and watch your product pricing adjust. The beauty of this manufacturing hub is you could manufacture say, 30 styles within a 100 piece production job.
Manufacture good quality items locally to save your e-commerce business.
2). High Costs Of Logistics & Warehousing:
Transportation of goods within Nigeria still remains a major issue. Delivery companies charge exorbitant fees to help get your items across to anyone in any part of the country. While e-commerce specific logistics companies have sprung up with lower prices, consumers still find it difficult to pay even the tiniest of delivery fees. The major problem now doesn’t just lie with the consumers inability to pay, but also the consumers location and his/her availability. Some consumers live in areas without street names and numbers, and so, whenever the logistic companies try to deliver items to them, they lose a lot of money from fuel and bike maintenance, trying to locate them. These unhealthy operations affects the profitability of even the logistics companies, and as such, most of the time after an attempted delivery to a customer is unsuccessful, they return the items back to the e-commerce company. Then both the e-commerce company and the logistics company lose out on the transaction.
Improved logistics would greatly accelerate the growth of e-commerce in Nigeria.
3). Lack Of Trust:
Millions of Nigerian don’t want to use their debit cards online because of the popular notion of online fraud and terrible product qualities. A bad experience from one online store affects the consumer’s orientation of all other online stores and as such, motivates them to not want to pay until they see the items. This becomes a problem for e-commerce businesses trying to deliver to consumers in difficult parts of the country. A major problem with the pay on delivery model in Nigeria is that some customers don’t really want to buy, but want to know if the item would have been delivered to them. Some even go as far as ordering for six items and picking only one because after all, they want to be able to compare. These things done are without the consent of the e-commerce company. With several factors greatly affecting the lack of trust on the consumer end for local e-commerce businesses, almost all online stores continue to record negative cash flow numbers.
A wide spread of trust in Nigeria would instantly make many e-commerce businesses profitable.
4). Irrelevant Advertising & Marketing Channels:
Many small e-commerce businesses always make the mistake of putting up ads of their online stores on bill boards, the radio, and many other physical channels that run into millions of Naira (Mostly thousands of dollars) wasted. The aggressive advertisement campaigns carried out by e-commerce giants as Jumia and Konga, deceives a lot of new e-commerce businesses just springing up. Many of them correct their mistakes after they’ve run out of money, and as such, mostly go out of business. Bill boards and radio promotions are not bad advertisement channels, but are terrible for businesses with little working capital.
Another mistake most new e-commerce businesses in Nigeria do is to setup Facebook ads and target every part of the country with all interests selected. These mistakes dry up the startup’s funds very quickly and pushes them out of business as fast as they get in.
Let’s use a scenario for how a proper small e-commerce business should start and run based on ads. If the company for instance sells fashion items, the ideal way to approach Facebook ads would be to target users majorly located in Lagos, Abuja, & Port Harcourt. These three regions have the highest customer conversion rates in Nigeria. The next thing would be to target only people that indicated an interest in fashion. The last metric would be to select only those between the ages of 24 to 45. This increases your chances of only hitting the working class, since 90% of e-commerce purchases in Nigeria are done by the working class. Here’s an article that shows how much it really costs to start up an e-commerce business in Nigeria.
Setting up your ad campaign this way would ensure you hit only those that have the highest chances of buying your items. This not only puts your money to good use, but the moment people see or hear of your e-commerce business, they can easily just click the ad, and be on your website immediately. There are also other methods to generate sales leads without spending on marketing, but with this information, you can achieve more with your online store marketing.
5). Investing In Unimportant Softwares & Services:
This point triggers the highest surprise. Why spend on what you don’t need?! For instance, most e-commerce businesses in Nigeria, aware of the fact that they are not yet profitable, still pay for premium services online. E.g paying for a premium version of Hootsuite instead of using the free package, paying about $300 a month for a VPS hosting when they could start from a $6.99 a month shared hosting, and much more. Expenses can totally ruin a business, exclusive of the standard negative factors affecting the business’s growth in it’s sector.
Cut off all paid subscriptions, then sit back, and start to only pick out those services that would mean the end of your business if you don’t subscribe to them. When a business is not profitable or is experiencing a terrible cash flow index, the managers don’t have the right to pay for easy services, when they can do those things at the cost of nothing, which would subsequently reduce their expenses.
6). Increasing Competition:
With many naive e-commerce businesses springing up in Nigeria everyday, the little revenues some already existing e-commerce businesses were generating are slowly reducing. Competition at this stage of the Nigerian e-commerce wave is not too healthy for the sector. But what the heck? You must compete so that customers can experience the best services possible. May the best man win!
How else do you think Nigerian e-commerce businesses are losing money? Please leave your comments below.
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