Business Opportunity Cost

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It’s a term that refers to the traditional physical retail store, where we find it on the street-side, that offers products and services face to face to its customers. This article compares between brick and mortar and online stores.

Before starting any business, it’s good to know your opportunity cost, which is a term that I personally like.

What Is An Opportunity Cost?

It’s the loss of other alternatives when one alternative is chosen.

Yes, you may be asking: Why is it a loss?

In microeconomic theory, the opportunity cost, or alternative cost, of making a particular choice is the value of the most valuable choice out of those that were not taken.

Thinking about forgone opportunities, the choices we didn’t make, can lead to regret. When it comes to business, we should be having a plan, and stick to it!

Marrying this person means not marrying that one. Choosing this college means you can’t go to that one.

It’s a little bit different in business, but the same concept should be considered. For example, if you want to run a business and you are perplexed in choosing between a physical retail store and an online storefront, you need to know your costs, upfront expenses and the potential of earnings in each business model.

According to our previous theory, if you choose to run a physical store, you will be losing the rewarding opportunity that an online store can bring, and the opposite is right.

What Is A Brick And Mortar Store?

It’s a term that refers to the traditional physical retail store, where we find it on the street-side.

What Is A Brick And Mortar Store?

Now, I’m going to walk you through the pros and cons of each online and offline business models and the differences between them.

By the time you finish reading this article, you would be able to know the potential of your opportunity cost and set up a plan for your upcoming business.

There are a lot of platforms that are offering their services as solutions, to help you start selling online with ease. The best platform nowadays is Shopify.

With all that the digital world is offering today, do you still need to build a store offline?

via GIPHY

Before we get into that, I want to tell you why you should consider starting an online business in 2020.

Have You Heard Of The Retail Apocalypse?

Thousands of retails in 2019 have shut down. According to Business Insider, statistics show that numbers are rising year after year.

What Is A Brick And Mortar Store?

You may be asking yourself why is this happening.

To be honest, I’m a Dropshipper, and I’ve fairly been in this industry for a long time and I know that it’s killing the retail store industry.

In this smartphone era, we have endless opportunities at our fingertips, because traditional retail is dying.

This is even getting worse day by day and Netflix can be a great example, they make billions a year as a streaming platform, which caused the end of the journey for a lot of video stores.

Can You Still Make Money With A Brick And Mortar Store?

Sure you can! However, if you don’t sell online as well your chances of failure are high.

In my opinion, to sum up, this situation, it’s going to be like video stores all over again. If retail stores are not willing to also sell online and build an online eCommerce store then they are going to find it hard to stay in business.

There Are Some Things You Need To Know Before Considering To Run A Business With A Physical Store Or An Online Store.

Expenses

Both of them have expenses for sure, but by identifying these expenses you’d be able to decide which one has the fewer overheads.

Physical store expenses

  • Running costs and utility bills such as electricity, water, and gas.
  • You need a property, it can be leasing or rental (Plus Tax)
  • Working hands (Customer service staff, marketing team, cashier, facilities team, depends on what the business is.
  • Salaries for employees.
  • Marketing expenses.
  • Hardware, software, decorations, lights, shelves, and furniture.
  • Some other needs for the office or the store, papers, bags, some machines, etc…

Online store expenses

  • Domain name.
  • Web hosting service.
  • Shipping and packaging expenses (If you are shipping a branded boxes for example).
  • Salaries for virtual assistants or employees if there are any.

It’s obvious that it’s more costly to operate a brick and mortar store than to run an online store.

Many experts say that 90% of physical businesses will fail in the first five years, so you have to carefully consider your decision before putting up one.

Store location

When you consider launching a physical store, the first thing you need is land, a place to actually have a store. This place can be rented or leased.

On the other hand, an online store you only need a domain which you can get for as little as $3.

In online business, the whole world is your marketplace. However, in a physical store, you can only operate in a specific location unless you have other branches in other locations.

Since your whole world is your marketplace in the online store, the sky is the limit. In the physical one, you might have a lot of limitations, which means that you can’t operate in some places unless you get a permit or build a new store.

Customer Service

Physical interactions play a lucrative role in the physical store business because this is an opportunity for your staff to make the customers feel special.  You can physically hear and solve their inquiries, and provide a better customer experience.

In an online store, it doesn’t matter how hard you try to respond quickly to your customers or how good your customer support team is, nothing beats the personal touch, and the customers should surf your store on their own.

In online business, you should be having the needed pages and polices that answer most of the customer’s questions, and if they need help they will head over to the live support.

When you run an online store, there is no presence for physical interactions, so description and images should deliver a clear idea about the problem that the product solves.

In the digital world, it’s hard to physically touch the product, that’s why you need to deliver a product with quality at the same level as the customer’s expectation.

Transactions

Online transactions are pretty much limited to people who have credit or debit cards or those who have an e-wallet like PayPal or Skrill.

In the physical world, online wallets as a mode of payment are rarely offered, and most people prefer using cash or credit cards.

You would also need to contact your bank and get a merchant account created if you run a physical store. Online that’s not really the same. You could sign up for someone like Stripe and be up and running within minutes.

Marketing

Marketing plays a crucial role in business.

For brick-and-mortar stores, marketing is not an easy task. You need to create a good impression to convince a customer to get your address, travel to your store and try out your products.

In the digital world, it’s frankly easier to attract visitors. Your products are accessible with just one click.

From the customer’s perspective, when visiting a physical store, even if they have not bought anything from the store, they would be losing time, effort and money traveling to your store’s address.

On the other hand, it’s easier for someone to visit your site because there is no loss involved.

A good point to mention is the cost of converting visitors into actual buyers.

In physical store business, if someone has visited your store and wasn’t convinced in your products, probably you won’t see him again, you lost him.

That’s not the case with an online business. That’s the power of digital marketing, you can walk people into a funnel, build trust with them, provide value, and then offer a special deal.

Here comes the power of re-targeting. If someone clicks your ad and didn’t end up buying, that’s fine, you can retarget them on different social media platforms. Well, that’s not possible in the offline business model.

Least but last, emotions play a huge role in the customer’s buying decision. Through creative images and ads, you can incentivize their emotions and let them act right away.

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Pros And Cons Of Brick And Mortar Store

A brick and mortar store is a serious business, and you will be feeling like a real businessman, that’s why it gives you a sense of accomplishment.

It requires a lot of capital, and a lot of planning, that’s why you won’t feel like an amateur who’s trying what works and what’s not.

Like everything else, it has its advantages and disadvantages, here you go.

Pros

  • Physical Goods

With a physical business, people can get the chance to touch or even try the product, which can give a clear idea about the perceived value that the customer will be getting.

Online, this is not possible. Although the pictures look great sometimes, the customers are disappointed once they receive the product, because it doesn’t seem to be what it was in the photo.

  • Trust

From a consumer’s perspective, a physical store is more trustworthy than an online one, because you have a physical presence.

People know that you are a real business, know where to find you, and also know that you are not a scammer who will run away with their money.

For people, a physical store is more trustworthy than an online store, because you’ve spent a lot of money just to put up your business, which means that you won’t compromise product quality.

  • Low level of errors

When people buy a product from a brick and mortar store, they won’t return it unless if it is low-quality and got damaged within the warranty period.

The reason behind that is, that customers can try the product, touch it, feel the text and get a demonstration.

Also, when shipping globally, sometimes the shipping companies may ship the wrong item, which is a time consuming and costly problem.

This is not likely to happen with a physical store for sure, because the customer can check the content of the package before leaving the store.

  • Sociability

Humans are social creatures, so people would rather go to a physical store to experience social events than browsing for things to buy online.

Shopping online is a lonely experience, customers should walk all the way alone, browse and surf your store all alone, without anyone taking their hands and talk with them about your products and brand.

  • Customer relationship and connections

In the physical world, you can talk to the customers, meet them face to face, know their names, listen to them and know their problems.

There are no relations online, which is too bad. When browsing an online shopping store, you can’t experience talking to the staff or making jokes with them, in a brick and mortar store this is surely possible.

Even when selling online, you need to create a relationship between you and your costumers, but it is way easier in the physical world.

  • No returns, no shipping fees

Well, it does happen, but not as it does in an online store, because if customers got the change to touch the item, feel the quality, get a demonstration and even try it, why would they return it?

There won’t be any misleading aspects, when they take that action and buy it, they are totally aware of the problem that the product solves, and it fulfills their needs optimally.

  • Services are instant

When shopping from a brick and mortar store, your inquiries are fulfilled immediately. You don’t need to head over a live chat or a phone, so there’s no long wait time for the service.

For sure, in a physical store, you have employees who will answer your questions, help you, provide suggestions and also you can build a great relationship with them.

Most importantly to the majority of people, there’s no wait to receive the product, because there’s no shipping required in brick and mortar store.

  • Security from online thieves

Online stores and payment processors can get hacked sometimes, so if you are unlucky enough, you will lose your money without being paid by the payment processing company.

Still, if you are considering to open an online store, it’s better to stick to trusted platforms like Shopify

👉Check out this article to know why Shopify is used for dropshipping. (Open in a new tab)

Cons

  • Big capital involved

A brick and mortar store is a very serious business, and it requires a lot of capital.

You need to have a physical place, this can be built if you already have the land space, or if not you can rent a place that is already built.

In both cases, you need to pay for instruction and turn that place into something that fits your business.

With that being said, your store needs to be filled with products, so in addition to the construction cost, you need to buy an inventory that you won’t sell, and if you have enough space for that, you may even have to rent a warehouse.

Don’t consider starting a brick and mortar store unless you have tens of thousands of dollars.

  • High overhead

Monthly expenses like gas, water, electricity, and heating can be touch and painful.

Remember the rent or the leasing cost, and even if you own that place, you still have monthly salaries for the employees, and what you already know, in a physical store you need more employees to be able to service more customers, which means more expenses.

  • Tiring to manage

When running a brick and mortar store, you need to sacrifice, always be there and participate in everything, which will eat up your time.

You need to be there to ensure that the quality is never compromised because it’s your responsibility.

You can get away from this in one only condition if you hire a trustworthy experienced manager, who can operate the business while you are away.

  • Risky at some point

A brick and mortar store is not an easy business model, it requires a great commitment, time and effort. It also requires huge capital, so you are basically buying an inventory that you won’t immediately sell. So if you are not able to sell this inventory it will be a loss, which leads to an apocalypse.

Beginners with no experience mostly fail in this business model, but if someone could make it through, this could be a great achievement.

Unlike the online business which has low risk, low capital and easier to learn, as you don’t need to learn everything or master it before starting, you can get into it and learn as you go along.

  • Limited to one location

In online business, the whole world is your marketplace. However, in a physical store, you can only operate in a specific location unless you have other branches in other locations.

Since your whole world is your marketplace in the online store, the sky is the limit. In the physical one, you might have a lot of limitations, which means that you can’t operate in some places unless you get a permit or build a new store.

  • Huge inventory

As I’ve mentioned earlier, with a brick and mortar store, you need to fill your store with products to make it look inviting and complete.

So, you will be paying for an inventory that won’t sell, (at least immediately).

In some cases, if you don’t have enough space, you need to rent a warehouse, which will raise up your monthly expenses.

Really, again… With all that the digital world is offering today, do you still need to build a store offline?

👉Check this article out to learn more about Dropshipping business model, and get educated on how to sell any product to anyone in the world without even owning that product.

The dropshipping business model has made suppliers and entrepreneurs tons of money because you don’t need to buy any inventory in advance, no huge capital required, and no specific location.

The world is your marketplace, and you will definitely sell more and freely. Thanks to platforms like Shopify.

Is Brick-And-Mortar The Right Business For You?

This is not an easy question to answer, only you who can answer such a question. What I can do is to set some guidelines to help you decide if a brick and mortar the right business model for you to manage.

It’s a great choice if:

  • Most importantly, you have a huge capital to invest in.
  • You know how to lead and manage people and processes.
  • You have a physical product with proven results that solves a specific problem for a group of people.
  • You are willing to lose money on inventory that you won’t sell right away.
  • You have the managerial experience in the business.

It’s not for you if:

  • No huge capital.
  • You don’t own a product, or not sure what to sell.
  • You’ve never been an employee and know nothing about the industry.
  • You are afraid of losing money on products that don’t sell.
  • Managing people is not your thing.

Summing up

A physical store is truly a big accomplishment, but it needs a lot of capital, requires hard work, staff, decoration, operating activities, and most importantly a lot of time. Time is money, my friend.

Unlike the online store, instead of renting or leasing land, you can replace it with a domain and host. Starting a dropshipping business is incredibly simple.

Think carefully before you build a physical store. If you can, rent a small place and see how the market would react.

Thanks to platforms like Shopify, you only need a couple of days to set up a store then you can start selling to customers all over the world.

Shopify is the biggest e-commerce platform in the world, so when it comes to dropshipping, they are the leaders in this industry.

One of the main reasons I recommend Shopify is that they are supportive of dropshipping, they provide a variety of integrations to make the process easier and smoother.

It’s very easy to set up a store through a drag and drop builder, you don’t need to do any coding, they do the hard work for you, you simply edit the storefront, adding products, editing the navigations, buttons, pages and you are good to go.

In addition, Shopify has the capabilities to handle your sales, marketing, and payments. As I’ve said, think before you act, plan very well, even if it takes years and always know your opportunity cost.

If you want to start your business, what would you go for, traditional or online business? Share your thoughts in the comments and let’s start a conversation 😀

“Take The Risk Or Lose The Chance.”

Because you, our readers are precious to us, we’ve come up with this amazing course, that can teach how to launch your own Shopify store without paying big bucks to some guru! Do not forget to grab your seat, It’s FOR FREE!

Dropeshipping Guide

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Cheers,
Odeh Ahwal

So behind every great blog is usually someone who runs it all. That would be me, Odeh Ahwal and my partner Peter Gitau. When I first tried to start an online business, I've struggled and got lost in Youtube videos. I've lost tons of money trying to figure it out. In the end, I've stumbled across dropshipping & affiliate marketing, and I've had huge success with these two business models. In EcomDimes, we are on a simple mission: Help as many entrepreneurs as possible, share my experience and just introduce you to new business opportunities and different ways to make money online!

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