Launching an online store might be less complicated than opening a brick-and-mortar business. But every company has risks — even your e-commerce business.
You’ve likely thought of some risks already, such as order cancellations, shipping issues, or other customer service scenarios. But what if your products or services cause customers harm? For example, a customer might develop a rash from using your homemade soap.
Here are eight hidden e-commerce risks your business could experience and ways to manage those risks.
1. Your product causes injury
You’d never intentionally sell a product that would harm your customer. But people can have allergies or adverse reactions to many different ingredients or materials.
For example, let’s say you sell handmade jewelry. You have hundreds of happy customers, but one reaches out to you complaining that their ears became infected after using your earrings.
Tips and solutions
Having general liability insurance can protect your business from financial losses caused by a product you sell. But to avoid causing adverse effects in the first place, you might:
- Clearly list the ingredients and materials used to make your products
- Limit the use of fragrances
- Stay away from synthetic fabrics like polyester, rayon, and nylon
2. Your product is defective
Defects can happen at any stage in the manufacturing or distribution process. Even with quality control efforts, you might encounter:
- Defects in how the product was originally designed.
- Manufacturing defects causing damage to the customer.
- Marketing defects from the product being marketed incorrectly.
For example, suppose your jewelry manufacturer wasn’t making earrings out of surgical steel as they promised. Many women and men have metal allergies, and this defect could cause a significant adverse reaction for your customers.
Whether you’re selling earrings or another product, a defective item is a risk of online business that could impact your company’s bottom line — the average product liability claim is $7.6 million, according to the Insurance Information Institute.
Tips and solutions
E-commerce risk management is a serious concern for small businesses. Here’s how to protect your company:
- Conduct thorough and continued product testing
- Provide appropriate warnings on product labels
- Review suppliers and always have a legal contract with them
- Get a product liability insurance policy. It’s often part of general liability coverage, but you should check your policy to make sure.
3. Your design or marketing tactics are not unique
When identifying potential e-commerce risks, don’t overlook the possibility that your ideas may be too similar to another company’s copyrighted ideas.
Your company could be sued for trademark infringement if your design for a t-shirt, mug, logo or another item is too close to another company’s brand.
Marketing is another area of risk. For example, suppose your business used an image it doesn’t own the rights to on a social media site like Facebook or Twitter. You could face a lawsuit for copyright infringement if you use the photo without the expressed permission of the copyright owner.
Tips and solutions
Infringement is a serious e-commerce risk. Here are steps to avoid it:
- Do not copy another’s work, even items found on the internet
- If it’s not your original work, don’t use it, modify it, or promote your business with it
- Always get permission from the creator if you do want to use something and credit them if they grant permission
- Buy content — such as stock photos, videos, and music — for marketing efforts
- Negotiate enhanced warranty and indemnity clauses in your vendor contracts
4. You respond to a bad review angrily
You can’t please everyone all the time, but reacting to a negative review poorly could substantially damage your company’s reputation and your bottom line.
If you’re a third-party seller on Amazon or maintain any other online sales platform, plan to respond promptly and professionally to negative reviews.
Tips and solutions
The image of your e-commerce shop is critical. To maintain customer satisfaction and keep the business running smoothly:
- Respond promptly and professionally to negative reviews, attempting to reach a resolution
- Avoid responding in anger or defensiveness
- Take the conversation offline or to a private channel to resolve
- Find out what you can do to make amends and “make it right” — within reason
- Limit conflicts of interest
- Use negative feedback constructively to review processes and make improvements
5. Your shipment doesn’t make it to the customer on time
You or your warehouse supplier may occasionally ship the wrong items, misplace an order, or the order gets lost in transit. If your error causes your customer to lose money, your business could be held liable for the customer’s lost revenue.
If you work with a supplier or distribution partner, they likely have some coverage but will require you to as well.
Tips and solutions
You could be held professionally liable if a mistake you make impacts your customer’s bottom line. Avoid errors with these e-commerce risk management tips:
- Document everything with thorough recordkeeping
- Communicate clearly with your customers, especially about shipment timing
- Prepare for delays associated with holidays, bad weather, and high volume
- Depending on your business and what you’re shipping, you may look into getting inland marine or transit coverage
6. Your work location is damaged
Consider your physical location when you identify potential risks for businesses using e-commerce.
For example, if a storm damages the place where you run your online business, you may need to pause operations temporarily. Or, if you’re a photographer, a broken water pipe in your studio could destroy your supplies and prints.
Tips and solutions
The place where you run your business is a crucial part of e-commerce risk management. To protect yourself, you should:
- Ensure pipes are adequately insulated
- Inquire about sprinkler systems and security alarms
- Consider the age of the building and risks of older structures
- Consider protecting yourself with a Business Owners Policy (BOP), which combines general liability and property coverage in one simple package
7. Your project isn’t done by the promised deadline
Deadlines are important in business. If you can’t meet the target date for a client, you both could lose out on expected income.
For example, if you’re a web designer creating a site for a product launch, your customer counts on you to meet the agreed launch date.
If it takes longer than expected and the site is not completed until six weeks after the contract deadline, your customer can sue you for lost sales. And, you’ll likely lose out on future business.
Tips and solutions
You can prevent missed deadlines by:
- Clearly communicating target dates
- Having a contract with set project timelines
- Putting together a checklist to stay on track
- Building a cushion into the time estimate to give yourself wiggle room
8. Your employee is injured while working for you
Another e-commerce risk exists when you hire employees. Say you hire someone to help you keep up with Etsy shop orders, and they develop carpal tunnel syndrome. They could make a workers’ compensation injury claim.
Your general liability insurance can pay for customers’ medical expenses if you’re responsible for their injuries, but it won’t pay if a staff member gets hurt while working for you. That’s where safe work practices and workers’ compensation insurance comes in.
Tips and solutions
Create a safe and healthy work environment, starting with clear expectations:
- Be upfront about the physical requirements of the job
- Train employees on the right way to pull, lift, and carry objects
- Let employees know how to report injuries correctly
- Provide ergonomically-correct workstations and hazard-free work environments
How NEXT protects your online business
Understanding how to identify potential risks for e-commerce businesses is crucial to the health of your online store. Don’t let these hidden e-commerce risks sneak up on you.
With your shop’s reputation on the line, you want to have the proper protection in place. NEXT simplifies risk management with comprehensive and affordable ecommerce insurance.
With our online application, you can view coverage options, get a quote and purchase insurance in less than 10 minutes. As soon as you make your payment, your certificate of insurance will be available online.
If you have questions at any time, our licensed, U.S.-based insurance advisors are ready to help.
Start a free instant quote to get a customized insurance package for your online store.
