E-commerce is the trend of the modern economy. Seeing a plethora of opportunities, a multitude of businesses are now specializing in online transactions. Just like any other business, establishing an E-commerce business comes with its risks. Some of these threats are serious enough to warrant strong countermeasures, while others are less significant.
Risks range from hacker attacks, data breaches, website downtime, price competition to compliance violations. To secure the future of your online business, you need to have a solid plan for evaluating and managing these challenges. Here’s what you need to know about assessing eCommerce risks.
Create a Risk Assessment Matrix
To avoid being caught on the wrong foot, every business needs to be risk savvy. You need to develop a risk management plan where you layout business goals, document your assets, define threats, assess risks, scrutinize risks, set risk tolerance levels, and find ways to counter the threats.
Risk assessment is part of the risk management process. It helps businesses to learn the magnitude of threats and shed light on them. Here, an organization checks for the risks that are more likely to occur and the effect they will have on the business, and then creates a rating. Risks that have a high probability of occurring and have a severe impact are rated highly. Low risks are events that are unlikely to occur, and if they do, the effect is minimal.
A risk matrix is a visual diagram of the risk analysis. It shows the threat as a graph, ranking the risks by their probability and significance. The severe risks are on one end, the moderate ones on the middle, and the low ones on the other end. Color codes are utilized in a risk matrix to increase visibility and help a business to track the threats and improve decision making.
How to Evaluate Your E-commerce Risks
A key to E-commerce success is to evaluate and understand the threats you are up against and how they will affect you. This process will act as a basis for your risk mitigation plan. Take your time to identify the risks that are most likely to impact your business and then think of ways that you will react to these situations. The main categories of risks are assumptive risks and operational risks. Assumptive risks are the assumptions you make when planning your venture, they include estimates of;
- Market demand
- Site traffic
- Conversion rate
- Average sales
- Order volume
- Costs of marketing
- Costs of Website maintenance
If you are new in the E-commerce sector, you need to test and validate your assumptions. You can do this by performing intense industry research, observing your competitors, surveying prospective customers, and interviewing E-commerce experts. This knowledge will help you to make informed predictions and avoid increasing your risk exposure. When evaluating risk, you will realize that not all of them can be controlled. Some uncontrollable risks are driven by;
- Market forces
- Economic conditions
- Competitor strategies
- Industry regulations
Instead of waiting for such scenarios to play out, you need to prepare a contingency plan to minimize the damage. For instance, if competitors slash their prices, you need to have a ready response plan that you can quickly deploy. You can either reduce your price, market your product as more superior or give incentives to your buyers.
5 Inevitable E-Commerce Risks You Should Watch Out For
- Online Insecurity. E-commerce businesses are in constant danger from hackers, credit card fraudsters, extortionists, phishing attackers, and other types of cybercriminals. You could also encounter system failures such as a server crash and errors on the payment site.
- Violating Intellectual property. Since there are many similar businesses to yours, you may unknowingly use a logo, motto, slogan, or product description that is related to another company. This can lead to lawsuits and penalties. Always perform a legal intellectual property audit and safeguard yours by registering it.
- Customer Disputes. From time to time, you should expect to encounter customer disputes. Some buyers will complain, return products, or ask for refunds. Some points of conflict include late delivery, wrong product delivery, failure of the product to meet expectations, and accidental double charge.
- Warehousing and Logistics. If your customers make large volume orders and you don’t have enough stock, you can end up losing money and having dissatisfied customers. Other challenges include misdelivery and late shipment. To avoid such risks, you should use an inventory management tool and work with an established drop shipping service.
- Taxation. E-commerce taxes are complex and confusing since they vary across different delivery locations. Failure to understand what is required can lead businesses to expose themselves to tax risks.
If you are an E-commerce company, you are bound to encounter some forms of risks. Some will require your utmost dedication to mitigate them, while others are nonconsequential. To guarantee the long term survival of your business, use a risk assessment matrix to quickly identify what could go wrong, and estimate the potential damage that could arise from the event occurrence. This way, your eCommerce business will be in a position to prioritize the most significant threats and mitigate them early.