Article: "How exactly does Ecommerce work"?

by Lisa Schmeckpeper

"How exactly does Ecommerce work"?

This has to be the mostfrequently asked question I receive
from newbie clients. They know people are buying online and
they know they have to accept credit cards if they want to
stand a chance in all the netbased competition, but beyond
that realization, most are clueless as to how it all works.

I can't blame them, really. It's a confusing online world
out there and a lot of people who are trying to tell them
how it works are really just trying to sell them their own
solution. It's kinda hard to trust the validity of what they
say when profit is a huge motivating force behind their
persuasive suggestions.

And to be sure, there is profit in this Ecommerce game
Money is to be made at many steps along the Ecommerce path.
With that in mind, let's take a walk along the path to
Ecommerce, and take a look at the signsor componentsthat
are necessary to take part in the Ecommerce excitement and
potential profits.

1. The Merchant Account:

This really is your first step towards Ecommerce, unless
you have chosen to go through a payment facility and are
willing to give up a rather large portion of your sales in
fees. The upfront costs of a merchant account can be hefty
for a small business, but the longterm savings can be

This is especially true if you are selling big ticket items.
For instance, on the sale of a 300 product/service through
a payment facility you could pay between 2045 dollars or
more in fees. With your own merchant account it will
probably cost you about 9. With the typical fees and
equipment for a merchant account startup costing about
1,500, you can recoup that cost rather quickly.

A merchant account comes with a merchant identification
number. That is about all it gets you. In order to process
transactions you need either a terminal (the little box that
you swipe your credit card through at retail outlets) or
software that runs on your PC and will dial up the merchant
via your modem, and then process the transaction and deposit
the money into your bank account.

2. The Shopping Cart:

If you are selling just one or two items on your site you
won't have much need for a shopping cart. A site with a
variety of products should use the shopping cart system
because it's the easiest way for your customers to shop. The
easier it is to shop, the more they will spend, which is
exactly the psychology supermarkets use, and exactly how
shoppers are similar whether in a supermarket or scanning
through your website. And the nice thing about electronic
shopping carts is that the wheels never go square, and you
don't have to send a clerk out after the store closes to
round up all the carts that have been left scattered around
the neighborhood. So shopping carts are good. But how will
they work with your merchant account and the allimportant
ordering process?

If the orders placed on your site are to be processed with
the customer's credit card as a sale through your PC or
swipe erminal, then there doesn't have to be any
compatibility between your cart and your merchant account.
The two will work completely independently, each doing their
part of the job.

If, on the other hand, you would like all of your incoming
orders to be automatically processed for you as the customer
hits the submit button, you will need what is called "real
time processing."

3. RealTime Processing Almost every website company I
talk to would like to have their orders processed for them
(the vision of the owner of a website company turning on the
PC and then stretching out in a hammock, watching the orders
get processed on the screen, comes to mind). However, most
web company people, upon learning the cost involved, take my
advice to wait until they have a steady flow of orders
coming in before they use realtime processing. If you're on
a tight budget the extra fees involved in realtime
processing might be better used to aggressively advertise
and drive customer traffic to your site. Processing a few
orders per day doesn't take very long and until you find it
to be more timeconsuming to process the orders yourself
than you like, you are probably better off processing such
orders manually.

If you are starting with a healthy budget and an aggressive
promotion plan you will probably be better off implementing
realtime processing right from the start. Changing
orderprocessing methods can sometimes result in system
hiccups and you don't want anything to slow down your
momentum once you've started. You'll also save money, not
having to set up your ordering system twice.

4. Web Hosting The web host who is hosting your site can
sometimes make a difference in how compatible your entire
site and ordering system are with each other. I say
"sometimes" because for those of us not using realtime
processing, it doesn't matter who your host is or where your
merchant account is located. They are independent of each
other. Orders arrive and you process them. No interaction
between the two is needed.

Problems can arise when you bring a shopping cart AND
realtime processing into the picture. A shopping cart alone
won't cause problems but the cart you choose to use must be
compatible with your web host. Some carts are designed to
run on certain types of servers, so when choosing one be
cautious to make absolutely sure you can use it with your
current host. Otherwise you had better be prepared to find a
new one.

If you want a shopping cart AND realtime processing the
three (cart, processing, and host) must work together well.
Your shopping cart must be compatible with your host and the
cart must be compatible with your payment processor. With
all the different shopping carts, hosts and payment
facilities out there, putting together the right team can be
a real challenge. This is especially true for the newbie who
doesn't understand how it all works and how it all has to
work together, or understands imperfectly but thinks he or
she has it all under control when the decisions are finally

One Stop Shops

The easiest way to find a compatible solution is to choose a
provider who offers all you need under one roof. This is
what I have done by partnering with Virtualis Systems. I am
able to offer a great hosting solution along with a
compatible shopping cart that works with almost any real
time processor. I have even taken this a step further by
partnering with a rocksolid merchant account provider,
ECommerce Exchange. Now I don't want to force MY "solution
of choice" on you in this article so I have set up an
autoresponder with details on the Ecommerce solution I
recommend to all my clients. Please email our autoresponder
at for details.

Your Website Designer:

Asking your website designer to recommend a compatible
solution is also a good idea. Most likely, he or she has
successfully set up shopping carts and payment systems that
have worked together for other clients and with that
experience can confidently recommend one that will be right
for your specific needs. There is also the added benefit
that your designer is comfortable and familiar with the cart
and payment processing configuration. This will result in
less time spent setting up your site, thus saving you money
in design costs.

Who to Choose?

Choosing the right person for this task is perhaps the most
important decision you can make (in Ecommerce, that is.
Choosing a dentist, a pet, and which TV show to watch also
rank high in importance). Nobody is an expert in all areas
of Ecommerce because there are so many variables, depending
on which configurations of hosts, carts, and merchants you
choose. Find someone with whom you can talk to and who will
listen to YOUR needs with understanding. A web designer who
has created sites selling one product through mail order is
NOT the best person to go to for Ecommerce advice. Just like
a web designer trying to create a site that will sell and
not just look good, with no marketing experience, a designer
who doesn't know Ecommerce is going to be hardpressed to
juggle all the components that must fit together seamlessly
and attractively to construct a truly effective Ecommerce

The Most Common Mistakes?

I've had clients come to me who have been provided a
shopping cart by their web host but who then have purchased
another cart, not realizing they already have one. They've
set themselves up with real time processing and then
purchased a terminal even though they will never swipe one
card. They've had SSL enabled on their web host server even
though it's provided at their payment gateway. I have been
on the sympathetic end of many, many more sad tales from
earnest folks who have told me their own personal accounts
of throwing hardearned money away on these kinds of

Why? Cutting through all the technical jargon, it's all
because they simply didn't understand how each component
can, should, and must work in conjunction with one another.

Ecommerce can appear simple (well, almost) once you
understand how all the components work together. A merchant
account allows you to accept credit cards, your web host
shows your website to the world, your shopping cart helps
your customers order easily and realtime processing
processes the orders in realtime and approved transactions
are credited to your merchant account. All are independent
components but they all function together to make Ecommerce
work. Find a designer or webmaster who can bring all these
elements together on your site & watch Ecommerce work for

About the Author

Lisa Schmeckpeper of LRS Marketing
and published in their free newsletter, Website Success
Monthly. To receive a free copy of this informative ezine
just send email to
or visit their website at
Copyright 2000 LRS Marketing.

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