Welcome to YourMarketingPodcast. This is Series One – How to Start a Successful eCommerce Business in Less than 30 Days. In this step-by-step guide, you will learn how to quickly launch an eCommerce store and start seeing those sales roll in! And here’s your host…Ishani DePillo.

I’m totally diggin’ the title of today’s podcast – “Taxes, Returns, Promotions, Oh My!” Because just like Dorothy and her crew, we were quite terrified of these scary monsters lurking in the forest. We knew they existed, we knew they would catch up to us soon, and we had little to no idea on how to combat the beast or more like, soothe the beast.  

So we’re going to cover what we learned, messily, haphazardly, so you can have a much smoother yellow brick road experience. But FULL DISCLOSURE: we are not accountants. It’s best to consult your accountant and ask for their professional advice and stick with that. And if you get good advice, don’t be selfish now, pass it on to us too!

Before we dive into taxes, I just wanted to quickly go over our last episode which covered all about Operations, like shipping, Customer Service, and more. Don’t overlook Operations because you want to be extremely prepared when orders start coming in.

Okay lions, I mean, taxes, let’s do this.

By the way, Sales tax has never had a more accurate depiction – big messy mane, sharp teeth to swallow you whole, and claws to take that money right out of your hands. Hm, I guess you can get a pretty good idea on how I feel about taxes. And I’ve got an inkling that you’re probably right there with me or will be after your first year in business.

Running an eCommerce store that sells tangible personal property means you have to collect Sales taxes. A tangible personal property is defined as any item that can be seen, weighed, measured, felt, or touched. Gift cards might be the only item that’s exempted from sales tax in your Store.

A sales tax is a tax paid to a governing body for the sales of certain goods and services, and it’s made up of your State tax + your local tax. So for instance, if you operate in Orange County, California, like we do, your sales tax is 7.25% (6% state tax + 1.25% local tax). This tax is collected from your buyers at the time of purchase and then you are liable to pass it over to the governing body during your tax schedule. Although the consumer carries the burden of paying the sales tax, you are liable for collecting and passing the sales taxes to the governing body.

For eCommerce, oy vey, it gets complicated. Not only does every State have different Sales Tax requirements and percentages collected, but you have to care if you have Nexus in these States. Nexus, you’re going to hate this word. Sales tax nexus is the relationship between you, the seller, and the state, that mandates that you have to register than collect and remit sales tax in that state. Usually this is because you have a physical presence in the state or you reach a certain sales threshold, like over $100k in annual sales. Let’s demonstrate this in an example:

You’re located in California and your home address is listed as the company’s address; it’s also where you house all your product. In this case, you have a Nexus in California and therefore have to pay California State Sales tax.

Now, let’s say you ship 50% of your goods to a friend on the East Coast in Maryland to send out items from her home to fulfill East Coast orders. Maryland will want a piece of that pie too, because you have a Nexus in that State. You just created a physical presence, or a fulfillment center, in the state and should therefore probably collect Sales taxes in case the State requests it. If you don’t collect sales tax from the consumer, you are still responsible to pay, so then you have to pay out of your bottom line.

Let’s add one more piece, just to make it even more messy – District taxes. A district tax can be anywhere between .10% to 1.00% per district, and are voter-approved general or special taxes imposed by a city, county, transit district, etc. Now District taxes are a funny thing, because it’s just not very clear. We lean on the side of being cautious and therefore collect district taxes in California, since Roam Often was established here. Talk to your accountant about District taxes to get the best advice.

The eCommerce world is constantly changing. For example, it used to be that you only had to collect taxes from buyers in the state where the business had a physical presence. This is known as a “sales tax nexus.” But that is no longer the case. The case of South Dakota v Wayfair is one example of how the eCommerce world is changing. The states are going after companies for sales tax, regardless of whether the business has a physical address in that state. South Dakota came after Wayfair demanding sales taxes, since they believed the number of sales shipped from Wayfair into their state exceeded the threshold that they established in 2016. In 2018, the Supreme Court ruled in favor of South Dakota and Wayfair had to pay. And because of that ruling, 31 different states have passed tax laws requiring taxation of Internet purchases. If you ship more than 200 shipments into the state or exceed $100K in revenue you will have to pay taxes for that particular state. This varies by State, so ask your accountant and stay up-to-date with tax regulations. 

The easiest way to collect and pay sales tax that we’ve found is the app TaxJar on Shopify. If you aren’t using Shopify, there are probably other apps similar to TaxJar to make sure you are collecting the appropriate sales taxes. TaxJar automates your sales tax calculations, reporting, and filings in minutes. Plus, TaxJar’s sales tax experts track every change to sales tax laws and monitor potential changes for the eCommerce industry. It’s super easy to install, just download the app and follow the steps to complete it. It does come with a monthly cost, but, in our opinion, it’s worth the cost to save the headaches.

The only thing we’ve noticed is that district taxes for California are not included in TaxJar, so we’ve actually uploaded this information into their systems to calculate. It seems pretty accurate, but we just did this. So only time will tell if it works out well.

Pay attention to your tax schedule. We pay taxes on a quarterly basis. You’d pay your State’s Department of Tax and Fee Administration. It’s the same place you went to obtain your Seller’s Permit, so you should already have an account; if not, register! 

Okay, taxes covered. Let’s head into the next belly of the beast – Returns. It’s going to happen. You are going to get returns; hopefully, you have way more happy customers than returns. But you will get some. In fact, eCommerce stores experience an average return rate of 20% and this can be even higher if you’re talking about apparel and shoes that don’t have a one-size-fits-all product. This is just the nature of the eCommerce business because people cannot physically try on or feel the product until it arrives on their doorstep.

Now that being said, there are some ways to really cut down your return rate, such as:

1. Display the product as accurately as possible in your photos and videos. Don’t touch up your product photos too much to the point where it doesn’t look anything like what the actual product looks like. People want to feel like they are getting the exact thing that they purchased on your website. Nobody wants to feel scammed! Make sure your visuals reflect that, otherwise you will see a higher return rate.
2. Allow past customers to post photos with their reviews and encourage them to do so, like with a promotion or contest. There’s nothing better than user generated photos of your products to give it authenticity and show other prospective customers how it will look once it arrives.
3. Give a longer time frame for returns like 60 to 90 days. Okay, this one might sound crazy. But a longer return timeframes can ACTUALLY lessen your returns because people are not in a rush to return and will take their time in deciding on whether to return or not. And that can be a good thing. Because people change their minds all the time. 

Anyhow those are some ways to lessen your returns but there are also some good practices when it comes to return policies in general to ensure you get customers to purchase your product in the first place. For instance:

• Make sure you have a clear return and exchange policy. It should be easily accessible on your website and outline all the details, like when a person needs to return their items by, in what condition does the item need to be in to qualify for the return, and what the customer can expect like a full-refund, partial, or exchanges only and who will pay for the return shipping. Be very direct.
• If possible, make the process super simple for the user, like providing a return label.
• Communicate during the whole process, so set expectations on when they will receive their refund/exchange. And be responsive to emails so customers feel heard.

The best return policies involve offering a full-refund or exchange when a customer is 100% unsatisfied with the product. But you need to do what makes sense for you and your business. Like can you afford giving full refunds? Or pay for shipping? Or do you need to have an exchange only policy? Also, certain products like undergarments cannot be returned for sanitary reasons. So make sure you really hammer out all your details and that you let the customer know what they are getting into you. Because at the end of the day, returns aren’t fun for business owners, but coupled with a really bad review, it can be even worse.

Also, you have to realize that return policies can have a significant impact on your customer satisfaction. For instance, a 2019 survey from UPS found that 73% of shoppers said the overall returns experience impacted how likely they are to purchase from a given retailer again. If your returns policy is too strict, you might upset customers and earn a negative reputation. So tread lightly. 

Okay now that we’ve made you fearful, hopefully, not too much. Let’s go over the last beast in the room – Promotions. 

Everybody loves a good promotion – 30% off, free gift with purchase, buy 2 get 1 free. BUT, does it make sense for your brand? Too many promotions can dilute your brand and you’ll start to see customers wait for a promotion before placing their next order; they’re waiting for that promotion in their inbox before clicking buy. BUT, what are your competitors doing? If your competitor has the same product as you (for example when you are a reseller) and is running promotions constantly, you may need to get into that game too to make sure that they are not taking away your market share. 

But if you’re worried about cheapening your brand, maybe run a free gift with purchase instead. That’s what we did when we first started – we offered a free pair of earrings with every purchase and it worked well. We even got people contacting us to make sure we would be including the earrings with their order. They really wanted that free gift. 

Also, a pretty standard offering, is a discount off of your first purchase like 10% off. Or 10% off for signing up to receive your emails. You’ll want to capture their emails, so that you can send them future product releases and promotions. We will cover this in more detail during our Email episode in our next Series, so stay tuned.

And just some basic things to cover about promotions: make sure you setup the necessary codes and take into account:

• How long will you run the promotion? Pick a start and end date. If you run it within a short period of time, like 24 hours, you can push urgency like “hurry buy now, only 24 hours left in this deal.” But if you run it for a week, you could see sales come in all week long. We recommend testing all timeframes to see what works best for you.
• Which items will qualify for the discount? You could offer promotions only on certain items like your best-sellers, seasonal items, or items you want to clear out. Or you could run the promotion across all items. 
• And lastly, Pick a promotional code that is easy for your customer to remember like GIFT50, FREEGIFT, EARRINGS, etc. But make sure it doesn’t get abused. So put a cap on how many times a person can use that coupon code, or if they can combine it, etc. and you might even want to use individual codes per a customer.

Okay, so taxes, returns, and promotions, oh my! We did it! Now it’s time to bring up the “L word”. Launching! Yes, we’re ready, my friend. On our next podcast we’re going to cover all the steps necessary to launch your eCommerce store. It’s going to be a big, exciting day!

In the meantime and if you haven’t already, we urge you to sign up at yourmarketingpodcast.com/letsgo to receive email alerts with check-ins. It’s so easy to get distracted and derailed on this path. And we want to see you launch your eCommerce store and crush your goals! These email alerts will keep you on task and come with even more resources because we can’t cover everything on the podcast. Thank you for listening to yourmarketingpodcast. See you next week!