E-commerce in Nigeria partially took off in 2012 but didn’t really start generating a real buzz till 2013. From 2012 till 2019 there’s been at least over 1,000 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 venture 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 1,000 pieces of one colour of one style each of an item, the prices of the items online cannot compete with the prices of the items in the public markets.
The current inflation ($1 = ₦360) being experienced in Nigeria has also made issues worse. Product pricing is now more terrible than ever, and thousands of consumers are moving away 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 growing 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, handbag, shoe, etc, 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.
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 smallest of delivery fees.
The major problem doesn’t just lie with the consumers’ inability to pay, but also the consumers’ location and their availability.
Some consumers live in areas without street names and numbers, and so, whenever 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 affect the profitability of the logistics companies, and as such, most times 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.
See Also: 7 Ways To Immediately Increase Revenue In Your Business
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 most 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 six items and picking only one because they really only 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 widespread build 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 billboards, radio stations, and many other physical channels that run into wasted millions of Naira (Mostly thousands of dollars).
The aggressive advertisement campaigns carried out by e-commerce giants like 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, have already or almost gone out of business. Billboards 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 set up 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 reaching 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.
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 its 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 by themselves at the cost of nothing, which would subsequently reduce their expenses.
See Also: 5 Important Things To Know Before Starting A Business In Nigeria
6). Increasing Competition:
With many naive e-commerce businesses springing up in Nigeria every day, 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 let me know by leaving your comments below.
Image Source: blog.kissmetrics.com
Intelligent write-up. Did learn from it.
Thanks Oby. Glad you found it informative
Nice works Stan. Thanks for the insightful articles.
Thank you for the commendation Emmanuel.
Nice article and am glad to have read it. I have just started an e-commerce business and I think I have a competitive advantage since I buy directly from outside the country. My cost is low. I also have a different approach that gives customers a very unique experience. So the ones I have converted don’t want to go any else since they get mostly crappy service from other e-commerce platforms. Having said this, I have already realized that I won’t be profitable in the first year. I have had to make very drastic cuts like even cancelling Internet subscription. But I think if we focus on service the user experience will bridge the trust divide.
Thank you for sharing your e-commerce experience so far Bernard.
Came across this while looking to find something to help my hailing business. Highly educative and I just birth another business idea while reading up. I hope am able to go through with this new idea. Thanks for this.
I’m glad you found this article useful.
I also do wish you the best in your new venture.
Have a wonderful time!
nice. love the post, very informative
Even till 2019 this post is still evergreen.
Thank you for reading.
Asked Google “Why E-commerce Fail in Nigeria” and You Answered Perfectly.
Thanks for this wonderful insight.
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