Why ecommerce businesses in Uganda are losing money

The ecommerce evolution in Uganda started as early as 2006 but didn’t really create real buzz until around 2011. From 2006 to 2019, over 500 ecommerce businesses have been launched across Uganda, with a handful of them which have now become household names.

From the public view, Uganda is evolving digitally, and ecommerce is definitely the next big thing anyone could venture into right now. There have been heated arguments amongst Ugandans on how much revenue companies like Jumia generate. With little or no actual statistics, depending on the popularity of these companies, one can conclude that ecommerce companies in Uganda are cashing out some dime.

Despite the success of a few ecommerce companies, there are still several factors hindering the growth of the industry in Uganda. Truth be told, the peak of the ecommerce industry in Uganda is still years ahead. With problematic factors such as high product prices, customer trust, delivery fees etc ecommerce business in Uganda still remains unprofitable to many entrepreneurs.

This arises questions like; Why ecommerce businesses in Uganda are not profitable? What factors affect purchase of goods on Ugandan ecommerce websites? And how to start a profitable ecommerce business in Uganda?

While several factors are affecting the profitability of ecommerce businesses in Uganda, there are ways one can start up an online business in Uganda which can become profitable from day one, even at very minute numbers.

Read; 5 Big Mistakes New Ecommerce Businesses In Uganda Are Making

Why ecommerce businesses in Uganda are losing money

In the ever expanding cyber world, a thriving e-commerce business should constantly refine their business model, advertising strategies and software investments in order for them to stay profitable. Below are the 6 reasons Ugandan ecommerce businesses are facing which has resulted into massive losses.

1). High Product Prices

The high cost of importing products always spikes final prices of consumer goods. Since most Ugandan ecommerce startups cannot afford buying goods in bulk ie 1000 pieces of one color of one style each of an item, prices of online products cannot favorably compete with prices of goods sold in local markets which are usually available in different styles.

The current inflation ($1=UGX 3800) in Uganda has even made matters worse. This has made product pricing more terrible than ever before thus consumers prefer local retail shops to online ones.

2). High Costs Of Logistics and Warehousing

Transporting goods in Uganda still remain an issue. Delivery companies charge exorbitant fees in order to help deliver your products to your customers across the country. While local ecommerce specific logistic companies have sprung up with relatively lower fees, final consumers still find it too difficult to pay for even the lowest delivery fees.

The main problem here does not lie within the consumer’s fees, but also the consumer’s location and his/her availability. Many consumers live in areas without street names or numbers, and as such, logistic companies lose a lot of money in terms of fuel trying to locate buyers (consumers).

These unhealthy operations greatly affect the profitability of logistic companies and as such most times delivery becomes unsuccessful and the delivery company has to return the item (s) to the ecommerce company.

In this case, both the logistics company and ecommerce company lose out on the transaction.

Improving logistics would definitely accelerate the growth of ecommerce businesses in Uganda.

3). Lack Of Trust

Millions of Ugandans do not wish to use their debit/credit for online purchases because of fear of online fraud and possibilities of receiving poor quality products.

One bad experience from one online store essentially affects their orientation of other online shops, and as such, they get motivated not pay until they physically see the items.

This has become a big problem for ecommerce business owners trying to deliver to customers who are located in difficult parts of the country.

Many consumers prefer paying Cash On Delivery (COD). The biggest problem with COD mode of payment in Uganda is some consumers don’t really want to buy but they just want to know if the item would have been delivered to them.

Some can order multiple items when they actually just want one but because they want to be able to compare. Others go as far as intentionally rejecting items upon delivery or hide away from the delivery person.

With several other factors affecting the lack of trust on the customer end, almost all ecommerce businesses have continued to record negative cash flow numbers.

A widespread build of trust for online businesses in Uganda would make ecommerce ventures profitable.

4). Irrelevant Advertising & Marketing Channels

Many starting ecommerce businesses in Uganda always make mistake of advertising their online stores through traditional advertising channels like billboards, Newspapers, Radio stations and many other traditional channels that  run into wasted millions of shillings.

The heavy and aggressive advertising campaigns run by ecommerce giants like Killimall, Jiji, Kikuu, Kupatana and Jumia deceives a lot of starting ecommerce businesses which lands them into terrible business mistakes. Unfortunately many of them only try to correct these mistakes after they have run out of money and have already or almost gone out business.

I’m not saying radio and billboard promotions are bad advertising channels but they are terrible and not recommended for starting businesses with little or limited working capital.

The other mistake most starting ecommerce businesses in Uganda make is setting up Facebook ad campaigns targeting the whole of Uganda with all interests selected. These mistakes never bring in any sales and will push the startup out of business as soon as they get in.

Here is a scenario of how a small ecommerce business should start and run bases on advertisements: If your ecommerce company for instance deals in sell of fashion items, the best way to promote your store would be running facebook ad campaigns and target users located in major cities like Kampala, Jinja, Wakiso, Mbarara, Gulu, Entebbe and Mbale. These 7 cities are know to have the highest conversion rates in Uganda.

The next strategy would be targeting users that indicated an interest in fashion. The other metric would be selecting users that are aged between 24-45. This would increase your chances of only reaching the working class customers. Over 90% of online purchases are done by working class who dominate the above mentions cities.

5). Investing In Unimportant Softwares & Services

Many startup ecommerce businesses spend a lot of money on software which they don’t actually need. Why spend money on what you don’t need?

While very aware that they are not yet profitable, many local ecommerce businesses still pay for premium software solutions online. For example paying for example hosting website on a $200/m Virtual Private Server when they could start with shared hosting for just $4/m.

Expenses alone can totally ruin a business irrespective of standard negative factors affecting the growth of a business in its sector.

It is recommended that one cuts off all unnecessary paid subscriptions and only subscribe to those that mean end of your business if you don’t subscribe to them.

6). Increasing Competition

With the mashrooming ecommerce businesses in Uganda today, the little revenues that the already existing companies were getting are now reducing due to competition. Foreign owned companies with presence in Uganda have overshadowed local companies. At this stage where ecommerce is just evolving in Uganda, competition is not too healthy for the young sector. But your competitors don’t care about this anyway. You must get into the competition so consumers can experience the best services possible.

How else do you think Ugandan ecommerce businesses are losing money? Please let me know by leaving your comments below.