E-commerce: How to Build a Direct-to-Customer Online Sales Channel

In today’s digital market, the success of your business hinges on more than the uniqueness or necessity of your product or service—it’s about strategically engaging with consumers, which means understanding how to build a multichannel sales strategy even through your online sales channels. 

As businesses evolve, so do the channels through which they connect with their audience. Below, we will delve into the intricacies of various sales channels including various online sales channels. We will explore their advantages and pitfalls and explain how to navigate the expanding landscape of e-commerce.

What Is A Sales Channel?

A business sells its products or services through a sales channel. Think of the sales channel as how the business engages potential, new, and existing customers. You might think there are only a few types of sales channels. After all, how complicated could it be to sell something?

Actually, there are multiple types of sales channels. The best sales channel for your business model will depend on your target market and the type of product you sell. Do you own a brick-and-mortar store or an online store?

Many businesses these days, particularly retail stores, have multiple sales channels. The diversity of this approach allows them to reach customers through in-person and online sales. Even if we just focus on eCommerce, we will see there are several potential online sales channels.

Traditional Marketplaces As A Sales Channel

When distinguishing “traditional” marketplaces, we are not referring to farmer’s markets and holiday fairs but rather online sales channels like Amazon, eBay, and Etsy. The customer journey within the context of these channels usually begins with a search engine. The customer will (most likely) search for the type of item they want rather than searching for particular brands.

As a result, your product and brand name will compete with dozens, hundreds, thousands, or even tens of thousands of other similar products. And with all due respect to those leveraging the power of geo-arbitrage, if you’re sourcing generic products made in China and rebranding them, you’ll have even more competition.

The Pitfalls Of Using Traditional Marketplaces

The most challenging part of this sales process is standing out from the pack. Often, there is little way to differentiate your brand on these platforms. In recent years, platforms like Amazon have attempted to address this issue by allowing brands to create “stores.”

However, to the average customer, your “store” still resides within the much more extensive, faceless (and perhaps soulless) purgatory created by Jeff Bezos. Amazon’s online sales channel sets the parameters of the UX (user experience), whether customers are shopping on a browser or in an app.

Another aspect of the limited control you have over brand presentation is reviews. On Amazon, anyone can come along and trash your product. On occasion, some even bad actors are set on destroying a brand. They may orchestrate mass efforts to leave behind scathing and one-star reviews, reducing your product’s visibility and driving away customers.

When you have your own online store, you can have more control over how reviews are displayed. This doesn’t mean you should hide all bad reviews, as customers appreciate transparency. 

But it does mean that if a disgruntled former employee or a customer angry about some moral issue underlying your product decides to launch a concentrated attack, you can filter these malicious and spurious reviews out so they don’t hinder your brand.

Fees And Connecting With Customers

Then, there are the interactions you’ll have with the marketplace itself. The most consistent interaction you’ll have is fees. Sale-related fees on Amazon range from 8% to 45%, with the average being 15% (you read that correctly). There are also account fees, which can cost up to $39 every month.

Other interactions may be equally punitive. If you violate any marketplace terms, your items could be “pulled.” On Amazon, for instance, if you ship items late too often, they may revoke the privilege of selling independently and force you to use one of their fulfillment programs (through Amazon FBA).

Forming ongoing customer relationships can also be difficult in a marketplace. The marketplace has a vested interest in getting customers to spend more. That may not fit in with getting customers to shop more with your particular brand. 

For example, suppose a different brand has a complementary product with better reviews. In that case, it may suggest pairing that product with your own instead of encouraging customers to shop with you.

To be fair, there are some benefits to using these channels, including convenience. Names like Amazon, Etsy, and eBay have already achieved consumer recognition. They have created a streamlined process for selling items. They handle all the time-consuming backend processes. And they may even have an in-house method of running ads.

Are There Benefits To Using A Marketplace As Your Online Sales Channel?

Overall, marketplace platforms are suitable online sales channels for sellers just starting and have an action plan to cut through the myriad competition (e.g., purchasing reviews, a technically forbidden but often used strategy). They are unsuitable for businesses with a higher sales volume or brands that want to shape and control the customer experience.

That said, you might be wondering why some brands like Disney and Lego sell on marketplaces. Those asking this question should remember that some brands, like Nike, have decided not to sell on marketplaces. Nike was facing competition from knock-offs of its products. Deciding not to sell on Amazon has given Nike and others more control over the authenticity of their products.

Brands that do sell on marketplace platforms usually do not use them as their primary channel. Their decision to sell on these platforms is almost like a type of “damage control” whereby they maintain visibility in front of customers who could start looking elsewhere.

The bottom line is that as your business grows, you should view marketplaces as a place to pick up potential customers and an opportunity to redirect them to your main online store. For instance, every item sold on Amazon could include an insert directing customers to make an account on your website.

Modern Marketplace Sales Channels: Social Media

In recent years, social media platforms have also become popular distribution channels. Instagram and Facebook started as places to post pictures of your food or write divisive comments on other people’s timelines. But now, they are also places to shop.

To clarify, this is a distinct sales process from social media advertising. Social media advertising often directs customers outside the application to a store or website. By contrast, platforms like Instagram have store features built in. Users can browse through images they like, find something, and make a purchase, all within the boundaries of the application.

One reason social media platforms work well is that shoppers already spend a lot of time there. The average American consumer has seven social media accounts (including Facebook, Instagram, YouTube, TikTok, Linkedin, Snapchat, X (Twitter), and Pinterest). With this many platforms, Americans spend at least 2.5 hours on social media per day.

Pitfalls Of Social Media As An eCommerce Sales Channel

However, there is more nuance to the data—as you might guess. Younger consumers spend more time consuming social media and on specific platforms like TikTok. If you haven’t explored TikTok yet, the basic premise of the platform is hurling streams of extremely short content (mostly averaging half a minute) at users.

As you can imagine, the bombardment of stimuli has its side effects. Consider that even a “modest” 2.5 hours of scrolling could yield 300 videos. A few paid ads—or organic content touting products—sprinkled here and there will quickly be forgotten. The “marketing rule” of seven has now become the rule of fourteen (that is, it takes a consumer seeing something 14 times before it can make an impression).

Some sociologists believe that people now have shorter attention spans than goldfish. And the place where those attention spans are most bombarded is the lion’s den of social media platforms. Retailers with small to midsize budgets investing in social media platforms as sales channels—or even just social marketing—may be throwing money down the drain.

The Power Of Influencer Marketing

Social media as an online sales channel does have its benefits. One is the still-relevant power of influencer marketing. Influencers are popular social media account holders. Usually, some specific niche is associated with their popularity, such as travel, pets, food, beauty, or knitting sweaters of famous locations and then standing in front of them for a photograph.

Market research has shown influencers to be an incredibly effective way of advertising. These findings are even more concentrated when it comes to micro-influencers. Micro-influencers have smaller followings whose constituents view them as voices of authority in specific spaces.

And that right there is the crux of the issue: voices of authority. Influencer marketing is a sort of amplified “social proof” or “word of mouth” strategy made possible by social media. Thanks to a well-timed Instagram live, millions of potential customers can find your brand simultaneously.

User Generated Organic Content

Another benefit of social media is its ability to facilitate organic, user-generated content or UGC. UGC happens when customers post pictures or videos of themselves and your product. A branded hashtag (e.g., a phrase unique to your business) can help categorize and group these pictures for easier browsing.

Branded hashtags also create a sense of community. Consumers today want to be part of a “family.” That is an Olive-Garden-type family, albeit without bottomless breadsticks. They can search the branded hashtag and see other people using the same product. And when they put the branded hashtag in their caption, they feel as if they are participating in something larger than themselves.

However, the benefits of social media (influencer marketing, branded hashtags) are still available to businesses even if their store is outside the platform. Make no mistake—stores should use influencer marketing and user-generated content. However, overall, social media is too distracting of a space to rely on as a primary storefront.

White Label Sales Channel

Another retail sales channel is white labeling, sometimes called a reseller sales channel. This essentially means creating a generic product that consumer-facing retailers will label as their own. The most common type of relationship in white labeling is probably wholesale, where you would sell your “white label” products to customer-facing retailers in bulk.

However, engaging in a drop-shipping relationship with the customer-facing retailer is also possible. In this model, the customer-facing retailer will take one-off orders, and as they come in, you will ship the products to their customer with that retailer’s label. Rather than being a pure B2B sales channel, you are engaged as a sort of hidden party.. in a B2C exchange.

Alternatively, you might be on the other side of the coin. That is to say, you might be the customer-facing retailer who obtains “white-label” products from suppliers. In this case, the pros and cons will depend on “where” your store is located: marketplace, social media, or your own eCommerce storefront.

Let’s focus on the supplier of white-label products. If you are the “supplier” providing “white label” products to retailers, you are two steps removed from “your” own customers.

Pitfalls Of White-Labeling

This has some pros and cons. For starters, you won’t have to worry about the usual overhead that permeates the retail world, like marketing. Or will you? You will still have to market your products to the retailers themselves. And with an influx of cheap generic products from China, you will face a lot of competition.

If starting and running a business is also part of a greater “artistic” or “holistic” sense of purpose, white-labeling also falls flat. One of the most significant parts of creating a brand is the “brand” itself, which is (in a sense) independent of the product. The brand is comprised of many things: your logo, your color palettes, your voice, your message, your style.

None of that is necessary when wholesaling essentially blank items for other retailers to appropriate and resell. You can’t put your branding on products because that’s what the retailers do. You are stuck in a position that is more of a wholesaling venture than a boutique, creative experience.

For some entrepreneurs, that’s fine. In fact, they like the idea of focusing on fulfillment and leaving the consumer-facing overhead to others. But for the vast majority of small business retailers whose creativity is wrapped up in their work, this just won’t do. 

Like marketplaces and social media, we’re back at a place where the call to open up a “main street” presence beckons us. That means your own direct-to-customer online sales channel.

Wholesale Sales Channels

But before we get there, we should discuss wholesale. This word came up just a few paragraphs ago when discussing white labeling. But white labeling (as mentioned) does not necessarily have to be a wholesale arrangement. Moreover, wholesaling is also not necessarily white-labeling at all.

That’s because many wholesalers sell their branded products to retailers. Think of a trip to your local Costco, Sam’s Club, or BJ’s. You can find most of the brands you like on the shelves. These brands have sold their products to Costco, which in turn sells them to consumers.

When Wholesaling Does Not Work

Many businesses in the consumer staples sector wholesale their products instead of selling them directly to customers. It’s just a more accessible and more efficient way to maximize their market penetration. It also ties into concerns about the industrialized nature of food production (for example) in America.

Coca-Cola is a perfect example. You can’t buy a regular old bottle of Coke on their website (or any of the other dozens of products they own). You can, however, purchase personalized bottles, clothing, and a bright red 28-can mini fridge with hugging polar bears. 

Coca-Cola wholesales its products through regional suppliers that, in turn, supply customer-facing retailers like Costco, grocery stores, convenience stores, and even vending machines.

Wholesaling works for larger businesses that can produce and move large amounts of inventory simultaneously. It does not work for smaller businesses that make or sell unique items or have lower working capital. These businesses must be able to sell their products directly to consumers, which once again means the direct-to-consumer storefront.

Should I Just Locate “My” Online Store On Amazon?

Now that we’ve reviewed the pros and cons of the sales as mentioned above channels, let’s turn to the meat and potatoes of this article, the direct-to-customer option: an online store. When you first start, you may think that marketplaces and social media are your best options.

You may want to use these channels to gain some exposure. However, they should probably not be the hub of your business for several reasons. Let’s focus first on marketplaces. As mentioned, one issue is competition.

Around 17% of Amazon sellers make $500 or less monthly sales. 10% are making up to $1000. 17% are making up to $5000. 12% are making up to $10,000. We don’t know what you aspire to regarding your sales channel (for instance, if this is a side passion or a full-time business), but in any case, only 6% of sellers make more than $100,000 per month.

Amazon sellers compete with thousands of other sellers selling the same item. If you are just starting, organically climbing the search engine results is next to impossible. That’s why an entire secondary industry of business coaches and consulting firms work with Amazon sellers.

And as mentioned, relying exclusively on Amazon can become like putting all your eggs into one basket. If Amazon shuts you down for whatever reason, you’re up the world’s second-longest river without a paddle. Just browse the r/Entrepreneur thread on Reddit to read some Amazon seller horror stories (and then hop on over to the r/paranormal thread to read about some creepy, possessed toys).

You probably should have multiple marketplace sales channels to maximize your consumer exposure. Just be advised that managing each one is time-consuming. Focus on the ones that matter (regarding potential exposure or your market niche).

When First Starting, Site Builders Are Helpful

But again, your main channel should be your online store. When starting, this online store could be time-consuming to design and build. Some business owners appreciate this part of the business since it channels their artistic bent. You don’t need to know any programming anymore because drag-and-drop platforms like Wix, Squarespace, and Shopify have fairly easy-to-customize options.

When you are first starting, these builders are good options. They allow you to create a customizable domain name and provide the security features you need (like an SSL certificate). They have dashboards that facilitate shipping, fulfillment, and inventory, and they have in-house payment gateways that allow you to collect credit card payments, Venmo, and PayPal.

Let’s stop and talk about this part for a moment. As your business grows, you will outgrow these website platforms, especially their payment gateways. Part of this is because of how the payment gateways work. Most large online payment portals have flat-rate pricing.

Why Site Builder Pricing Models Are Bad

Flat-rate pricing sounds very convenient, and it is for businesses that are just starting. Let’s look at the Shopify Basic Plan, which (to be fair) is not a bad solution for merchants selling a few items per day. The basic fees are 2.9% + $0.30 per transaction.

Let’s suppose you are selling customized sneakers (like Dominic “Shoe Surgeon” Ciambrone or Salvador “Kickstradomis” Amezcua, whose kicks grace the feet of NBA stars and celebrities). You’re charging $500 to redecorate a pair of Nikes, so what’s $15 plus three dimes?

But what if your sales volume is much higher? What if you’re not selling pieces of art but just plain old shoes? What if you’re selling 100 pairs per day? You could be shelling out $330. 

As you can see, with the percentage plus the flat rate charge, the fees become more problematic as your sales volume increases. And if your average sales ticket is lower than customized kicks, that $0.30 is even more problematic.

The fact is, most retailers working with a payment processor (other than Square, Stripe, or Shopify) would find 3% + $0.30 to be downright punitive. American Express has long been one of the most unpopular cards to accept because it typically hits that 3% range, while other cards (like Visa and Mastercard) average 2.24% or less.

Does it really matter, you might be wondering? As mentioned, if you’re selling 1-5 items per day, probably not. But if you’re selling more than that, it absolutely does. Set aside the three dimes and just look at the percentages. Apply 3% to a monthly revenue of $100,000: that’s $3,000, or $36,000 per year. Apply 2.24% to the same revenue: that’s $2,240, or $26,880 per year—$9,120 in savings.

Looking at it another way, a Shopify Basic plan will cost you 33% more. And we didn’t even factor in the flat fees accompanying the percentage. So now you are probably wondering: why are Shopify flat fees so much higher than the average card fees paid by merchants?

Not All Payments Cost The Same To Process

This discrepancy is because not all payments are the same. Visa, Mastercard, Discover, and American Express all charge different fees. Not only that, they have large, extensive fee schedules that apply very different fees to different types of merchants.

All merchants are assigned a merchant category code or MCC. This code reflects the nature of their primary business activities. The result is that there are thousands of different fee possibilities. A monolithic 3% fee for all businesses does not reflect what really goes on behind the scenes in the payment landscape.

There are even different card networks for debit cards. The fees for running transactions through these networks are usually lower than that of credit cards. Unfortunately, Shopify cannot facilitate and reflect all these nuances in their flat-rate pricing.

Payment Aggregators

Part of the reason is that payment providers like Shopify and Square are not really payment processors. They are actually called payment aggregators, which is subtly different. A payment aggregator bundles all their customers (merchants like you) into their own merchant ID instead of treating each merchant as a separate business partner.

From the perspective of the card networks and the banks (the customer’s bank and your bank), they are not really doing business with you. They are doing business with Shopify. And Shopify cannot afford to let anything go wrong. 

That means if you cause any problems (fraud that isn’t your fault, a disgruntled customer initiating a chargeback), it is much easier to get unceremoniously booted from Shopify or PayPal. If that happens, you won’t be able to collect payments.

These problems very interestingly mirror the conundrum of selling through marketplaces: punitive fees and iron-fisted, aloof “customer service.” Just as you can escape these issues by opening your own storefront, you can escape these (payment issues) by working with a more boutique payment processor.

Other Problems With Site Builders

It also bears mentioning that you will outgrow other aspects of the eCommerce platform as your business grows. There is a reason that Disney, Target, and Walmart do not use Shopify. Their business has outgrown such cookie-cutter offerings, and they need their own in-house solutions for online sales.

Part of it is on the backend. Shopify, Wix, and other drag-and-drop platforms provide rudimentary fulfillment dashboards. These solutions can help boutique businesses track their inventory and customer orders. However, things get more complex as sales volume increases. 

You need to keep track of the supply chain and all its components. There will be hundreds, if not thousands, of orders, returns, and exchanges. You will want all the customer activity to integrate with your accounting software. For all these reasons and more, SMBs (small and midsize businesses) will eventually migrate to a SaaS like those provided by Netsuite, Oracle, or Salesforce (the last one relating to service-based businesses).

Then there is the customer experience. Drag-n-drop builders offer more variety now than ever before. A small business can customize the look and feel of its website fairly well using Wix or Shopify. However, these solutions fall short of delivering maximum customizable experiences. 

It’s Time To Cook From Scratch

To really create a unique experience or customer journey, you’ll need to build a website from scratch. These websites can integrate several customer-facing features and backend tools to create an identifying brand voice you can’t access with cookie-cutter options.

These considerations point to the need for a business to eventually build its own website. If you’re not a computer programmer, that usually means hiring someone or a team to build, manage, and protect the website from ongoing threats. It is also possible to outsource your IT department to a third party.

As your business grows, you will need other departments like IT. You will need HR, marketing, sales, fulfillment, and other people to take on all the roles you once did, just like Jeff when he was sitting in his garage, dressed like an extra in Revenge of the Nerds. You cannot run all aspects of your business at once.

And that means delegating each part of your business to a specific party that can. Once upon a time, you could host your website on Shopify. As your business grows, you’ll need to build your own website. You’ll need to get your own inventory management software. And you’ll need to get your own payment processor if you want to pay reasonable fees.

D2C Online Sales Channel Wrap-Up

Before wrapping up, we should mention that certain kinds of businesses must find a payment processor right out of the gate. If you sell anything like vapes, CBD, cannabis, adult novelty items, supplements, or firearms, you’re considered “too hot to touch” for the likes of PayPal, Venmo, Shopify, and the other Squares.

Similarly, if you are selling services like credit repair or bail bonds, it’s the same story. These businesses are considered “high risk” and need high-risk payment processing. Incidentally, they (especially the products) are also typically direct-to-consumer businesses in terms of retail sales channels.

But even for “non-risky” normative businesses, a payment processor is an eventual must. Make sure a payment processor can help you take all kinds of payments. Interchange-plus pricing will keep the fees down. Also, ensure they can place the payment gateway on your website to streamline the checkout process.

Frequently Asked Questions About Online Sales Channels