What to Do Before You Quit Your Day Job
Do not assume that every prominent online store owner considers his or her store to be a primary source of income. Many successful online store owners still rely on day jobs or family members for supplemental income.
Before foregoing extra support to become entirely reliant on an online store for income, it is important to:
- Have a fully functional online store
- Have a sufficiently positive reputation (i.e. no bad reviews that might hamper your ability to sell products in the future)
- Have a clear understanding of how many products must be sold for you to be able to support yourself entirely from store income
- Be sure that the products you sell, as well as the manner in which you sell them, are compliant with federal, state, and platform-specific (should you be selling through a site like eBay, Amazon, Zazzle, or Etsy) rules, laws, and regulations
- Be sure that your income stream is constant enough (or that you have enough money saved for off seasons) to ensure that you do not, at any point, run out of money and have to dip into serious savings
- Run financial projections and make informed estimates of how much you will be earning in the months to come
Ideally, you will also not quit your day job until you are earning at least a living wage from your store.
Warning: Your Store Might Not Have What it Takes
When running due diligence, you might find that your store simply does not have the capacity to support you.
If you sell low-margin products that take a lot of time to produce, you may not be able to sell a sufficient number of products to support yourself- even if those products are in high demand. If you can make a decent income from your store, but are obligated to care for demanding kids or an ailing family member, you may not have the time to run it at full capacity.
Should you come to realize your store, as it presently functions, will not be able to support you, do no despair. You may need to reconfigure your product offering, target market, prices, branding, or management processes, but it is most definitely possible to make a full time living from an online store's profits.
Potential Career Paths for Online Merchants
Most online merchants can be organized into one of the following groups:
- Brick-and-mortar store owner with a supplementary online store: Sellers who got started with physical shops but also maintain online sales properties
- Platform-specific seller: Sellers who sell exclusively through Amazon, eBay, Etsy, Storenvy, etc.
- Multi-platform seller: Merchants who sell products through multiple platforms at once
- Independent sellers: Merchants who utilize ecommerce tools to sell products through independently-owned domains
- Celebrity sellers: Online store owners whose primary focus is something else, but who leverage their fame or special standing to make a supplementary income through product sales
- Artists: Artists who, while also working as applied artists or navigating the traditional art world through dealers, also sell original artwork and prints through online storefronts (for more guidance on this approach, check out our Online Arts and Design course)
- Business Professionals: Professionals, consultants, or business owners who, in addition to maintaining full time jobs, doing freelance work, or running businesses, sell things like books and online training courses through their websites or other venues (for more guidance on this approach, check out our Online Business course)
Income Levels to Expect as an Online Merchant
The United States Bureau of Labor Statistics does not track the income of online store owners as a united segment of workers. The median wages for somewhat-relevant professional groups on which they do report are below:
- Door-To-Door Sales Workers, News and Street Vendors, and Related Workers: $21,470
- Miscellaneous Store Retailers: $19,140-$37,680
- Sales and Related Workers, All Other: $25,800
Reported job titles related to Door-To-Door Sales Workers, News and Street Vendors, and Related Workers include Demonstrator, Independent Sales Representative, Independent Beauty Consultant, Independent Distributor, Independent Jeweler, Sales Representative, and Street Vendor. Certainly some of the professionals going by those titles sell goods online.
The Miscellaneous Store Retailer category addresses industries ranging from used merchandise stores to florists, office supply stores, stationery shops, and gift stores. These industries include professions like cashiers, retail store managers, and floral designers, which are not remotely similar to online store owners. Most people with jobs within the Sales and Related Workers, All Other category work for general merchandise stores, department stores, grocery stores, material and supplies dealers, etc., so the median income for that group as well is not a good reflection of what online merchants (as defined by this course) earn.
Suffice it to say that there is more readily-available data for those employed by stores than there is for those who own and run stores of their own.
Generally speaking, earnings from online stores are low. Many use online stores as a source of supplementary income, and do not treat them as full time jobs. Many who do treat their stores as full time jobs still don't enjoy enough profits to live comfortably (by mainstream American standards), though there are certainly online store owners out there who make upwards of $70,000 annually (and more).
Whether you can enjoy a higher-than-average income level as an online merchant is contingent on:
- Your ability to scale up your business (difficult to do if everything you produce is handmade)
- Your ability to sell products with high profit margins (easier to do if you have a strong brand or sell a rare, but highly-demanded product)
- Your ability to progress to new levels of business (e.g. to transition from selling directly to customers through a third party site to providing wholesale products to major retailers)
If you are unable to manage these things, it is not likely that you will earn much above the $25,000 mark.
Primary Sources of Income for Online Merchants
Obviously, income for online merchants comes mostly through product sales, but before designing an online store, it is worthwhile considering just how many types of products one might sell:
- Handmade goods
- Vintage or used goods
- Products created on demand (e.g. those created by RedBubble, Zazzle, and Society6)
- Complete products (e.g. electronics, apparel, kitchen gadgets) sourced from other locations
- Complete products designed by you, but produced by a vendor on your behalf (e.g. perfume you collaboratively developed with a perfume lab)
- Downloads (e.g. ebooks, music, video, software)
- Online courses
As an online merchant, you do not have to relegate yourself to one type of product. Let us say you get your start selling handmade stationery through Etsy, and that people come to love your products thanks to your unique lettering and witty designs. You may therefore choose to begin selling some designs through print-on-demand sites- first just placing your designs on the stationery products they offer, but then incorporating your designs into other products, such as phone cases, hoodies, throw pillows, and stretched canvases.
Should your brand really gain traction, you may consider working with a vendor to mass-produce stationery sets that you then supply to major retailers. Perhaps you ultimately decide to open retail shops of your own. After becoming a famous designer and entrepreneur, you may someday write a book about your success, which you sell both as an ebook and through old-fashioned book stores. You might even develop an online design course that teaches eager designers how to develop exquisite designs of their own.
In short, don't pigeonhole yourself into one product category or type. The sky's the limit!
Establishing Financial Security as an Online Merchant
There are only so many ways to establish financial stability. It all comes down to increasing your income level over time, diversifying your income, and building up savings.
You can increase your income over time by developing and improving high-margin products that give you a better bang for your buck, as well as by finding ways to bring your business to scale. You can only earn so much by running a business entirely independently and making/shipping everything yourself.
You can diversify your income by relying on multiple product lines and selling through multiple channels. You will be in a far more stable position if you sell your products through Etsy, Storenvy, Amazon, and RedBubble, plus also have contracts with one or two major retail chains, than if you just sell products through Etsy.
It is not enough to just earn enough through your online store to support yourself. You must think ahead to a time in which you can no longer make a living through your store (due to its failure, an unforeseen complication, or the desire to retire) and save money accordingly. In addition to establishing an emergency fund for dips in sales or health emergencies, make a point of establishing and contributing as much as possible to a retirement fund.
Administrative Tips for Online Merchants
The six administrative realms of greatest importance to online merchants are:
- Brand management
- Customer satisfaction
- Order fulfillment
- Inventory management
- Financial accounting
Managing Your Online Store's Brand
It should go without saying that your store should have a strong, clear, and cohesive brand that has been carefully constructed and thought through. As we mentioned in a previous lesson, it is important to keep tabs on this brand (i.e. to know what people are saying about it online and via social media).
This can be done with the help of:
- Google Alerts
- Searches for your store's and products' names on social media sites
- Searches for your store's URL to see when it is shared on social media sites
- Occasional digital identity audits (both for your online store and your personal brand)
Use whatever tools and methods you like; the important thing is that you create a plan for monitoring your store's brand and stick with it.
Managing Customer Satisfaction
Many businesses employ special software solutions, complete with unique communication channels, ratings systems, and advanced analytic tools, just to manage customer service. While you do not need to shove out a big chunk of change for one such service, it is important that you establish a system, if however rudimentary, for monitoring and handling customer inquires, complaints, and requests. This system might be comprised of a spreadsheet keeping track of names, dates, and request summaries. It might involve checking your messages on Etsy and @mentions on Twitter five times a day on weekdays. It might involve careful monitoring of your customer reviews. Whatever you do, make sure that you have clear and consistent policies and contingency plans.
Your contingency plans should tell you what to do in the event that:
- Someone wants to return a product
- Someone makes a special request
- Someone wants a special discount
- Someone wants to use a shipping method that you do not publicly offer
- Someone leaves a negative review on a product or on your online store
- Someone threatens to leave a negative review
Your customer service policies should be prominently displayed on your online store. Should customers be dissatisfied with your answer to a particular query, at least you can point them to your clearly-disclosed policies and make it clear that you are simply following standard operating procedure.
Managing Order Fulfillment
Thankfully, order fulfillment is something online merchants do not have to worry about all that much. Most online sales platforms and ecommerce solutions offer excellent interfaces that make it easy to sort through, track, and update orders (and some platforms even handle sourcing, packaging, and shipping for you!).
Should you still handle sourcing, packaging, and shipping independently, establish a flow that enables you to manage it efficiently. Set aside sufficient time each day to package and ship products to customers. Make the experience pleasant by listening to podcasts or watching TV while fulfilling orders. Getting products to customers might be a chore, but that doesn't mean it can't be fun- and even somewhat relaxing. All you have to do is design the process in a manner that makes you less prone to error and more likely to enjoy yourself.
Not every online merchant will have to worry much about inventory; those who do simply need to establish clear points at which goods need to be replenished. Should you like the idea of establishing a mathematical equation to determine when you need to order more inventory, swing by Wikipedia for a brief introduction to reorder points, check out this more detailed guide, and play around with this reorder point calculator.
If you love playing with numbers, power to you! Have a ball with building your own complex financial accounting system with esoteric equations, warning bells, checks, and balances. If you don't enjoy working with numbers so much, get support from easy-to-use accounting software (Quicken is particularly popular) or get help from an accountant.
Do not neglect your accounting duties, no matter how much you might hate working with numbers. If you aren't mindful of your profit margins and other key financial metrics, you cannot be sure that you are managing your store in an efficient and effective manner.
Finally, be prepared to accept payment online through a variety of channels, especially if you occasionally sell products directly to clients (rather than through a structured online store). For an introduction to major online payment tools, review our guide to accepting payments online.
Preparing For and Filing Taxes
Those working with an accountant or accounting software like Quicken will have a relatively easy time filing taxes. If you prefer to do everything by hand, you may need to do a bit more "translation."
Regardless if your approach, it is important that you:
- Keep records of all business-related expenses (that is, ordinary and necessary expenses related to your business)
- Keep records of all sales profits
- Be sure to charge sales tax when selling to customers in person or selling to customers online who are based in your state (and keep an eye on changes in sales tax regulations should you someday be required to charge sales tax regardless of a customer's location)
Hold on to records for at least six years. Keep them organized and clearly labeled. Store them in a safe, easily-accessible location. Keep a record of expenses and profits in your accounting programs or personal spreadsheets so that you do not have to rifle through piles of paper come tax season.
Whether you have an accountant file taxes for you or not, familiarize yourself with Schedule C (or Schedule C EZ, if your expenses in a year were under $5,000) and Schedule SE. Schedule C is for reporting your profits and losses; Schedule SE is for calculating what you owe in self-employment tax.
The more you understand these forms and what they are meant to track, the better equipped you will be to make it easy to fill them out every year. To gain an even better understanding of the manner in which you will need to file taxes as a self-employed store owner, visit the Internal Revenue Service's Self-Employed Individuals Tax Center.
If the tax jargon these forms and guides introduce to you is too much to bear and you cannot afford an accountant, do not despair: just use a service like TurboTax that walks you through the process using friendly English and simple yes or no questions.
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