How to Start an eCommerce Business: The Ultimate Guide
The eCommerce business model involves selling products or services online directly to customers or through digital marketplaces. From small businesses to Fortune 500 companies, eCommerce has been a major game-changer in how businesses operate today.
The goal is to reach as many customers as possible by providing them with a seamless, convenient shopping experience. This differs from traditional brick-and-mortar retail, where customers physically enter a store to purchase products.
Although you won’t go through the hassle of setting up a physical shop, running an online store requires planning and hard work, from setting up your business structure to understanding the nuances of online marketing and customer service.
This guide will help you understand what it takes to get started and how to succeed with an eCommerce business.
- Research eCommerce Models and Decide What to Sell
- Write a Business Plan
- Select Your Business Name and Logo
- Choose a Legal Structure and Obtain Business Permits and Licenses
- Choose an eCommerce Platform and Create Your Website
- Manage Your eCommerce Business Finances
- Market Your eCommerce Business
Step 1: Research eCommerce Models and Decide What to Sell
This is the hardest and the most essential step in starting an eCommerce business. You need to figure out what you will be selling and who your target customer is.
Therefore, researching different eCommerce models can provide valuable insights, such as what products are best suited for your business.
Choose an eCommerce Business Model
There are different types of eCommerce business models:
- Business to Business (B2B)
- Business to Customer (B2C)
- Customer to Customer (C2C)
- Consumer to Business (C2B)
Business to Customer (B2C)
This is the most common and straightforward model, where a business sells products or services directly to customers.
This is the model you will use if you offer unique products for sale rather than reselling other brands’ products.
Examples of B2C eCommerce companies include Amazon, Alibaba, and Shopify.
- Direct access to consumers
- Increased flexibility in pricing and product offerings
- Potential for higher margins
- Access to consumer data – B2C companies can collect valuable data on their customers, such as purchasing habits, preferences, and feedback, to inform future business decisions.
- Highly competitive market
- Difficulty in establishing brand identity – Difficult to stand out as consumers have many options.
- Dependence on consumer spending – This is influenced by economic conditions, disposable income, and changing consumer preferences.
- Higher marketing and customer acquisition costs
Business to Business (B2B)
In this model, businesses sell products or services to other businesses.
For example, a company like Dell provides spare laptop parts to repair shops. A B2B eCommerce platform can provide a convenient way for businesses to source products and services from each other.
This model can also be more complex than B2C eCommerce as it involves dealing with larger orders and more customization options. It is, however, more profitable as B2B businesses tend to have higher budgets and are more willing to spend more money on high-quality products and services.
Examples of B2B eCommerce companies include IBM and TradeGecko.
- Large market – B2B eCommerce targets other businesses, which usually have a larger customer base than individual consumers.
- Stable revenue
- High average order value – Transactions involve bulk orders and higher ticket items, leading to higher average order values.
- Long sales cycles – The B2B sales process can be lengthy and complex, requiring multiple decision-makers and approvals before a purchase is made.
- High competition – The highly competitive space requires businesses to differentiate themselves and maintain a competitive edge.
- Complex requirements
Customer to Customer (C2C)
As the name states, customer-to-customer involves customers selling goods or services directly to other customers. This model is commonly seen in online marketplaces such as eBay, where individuals can buy and sell goods to one another.
The C2C model eliminates the need for a middleman and offers customers a more personal shopping experience. However, the platform needs robust security measures to protect buyers and sellers.
Also, when starting a C2C eCommerce business, it’s important to consider the types of products or services you want to offer, as well as how you will handle payments, customer support, and other operational aspects of the business.
- Lower overhead costs as there is no need for a physical store, inventory, or middleman.
- Potential for higher profit margins as the seller can sell their goods directly to the buyer.
- Increased accessibility for customers.
- A wide range of goods and services are available, as the platform allows individuals to sell what they no longer need or use.
- Lack of standardization in product quality and customer service because there are multiple individual sellers.
- Difficult to establish trust and credibility – There is limited information available about individual sellers.
- Payment and delivery logistics can be complex – The buyer and seller need to arrange for payment and delivery.
- Increased risk of fraud and scams.
Consumer to Business (C2B)
This model is less common compared to B2C and B2B, but it can still be successful in certain niches.
Consumer to Business is where individual consumers offer goods or services to companies or individuals for a fee.
Examples of C2B include freelance work platforms, like Upwork and 99designs, where individuals offer their skills to businesses or individuals.
- Lower operational costs
- Access to unique offerings
- High level of trust and reputation
- Dependence on consumer participation
- Increased risk of fraud
Choose a Product Market
What do you want to sell? Will you sell physical products, digital goods, services, or a combination? These are key questions you must ask yourself when starting an eCommerce business. Making a mistake here can lead to costly regrets down the line.
You’ll want to ensure that there is a demand for the product or service you’re selling, that the market isn’t saturated yet, and that your products can stand out from the competition.
To choose a product market, you should:
- Identify a specific need or problem – Start by identifying a specific need or problem that a large group of people has. This can be a niche market or a more general market, but it should be something that people are actively searching for a solution to.
- Research the competition - Conduct market research to see what products or services are currently being offered to solve this need and who your competitors are. Evaluate what makes them successful and what opportunities for improvement exist.
- Look for gaps in the market - Based on your research, look for gaps in the market where there is a lack of products or services available to solve the pain point or the need.
- Consider your own skills and experience - Consider your own skills, experience, and passions to determine if you can fill the gap and create a product that meets the need better than what is currently available.
- Validate the market - Finally, validate the market by talking to potential customers, conducting surveys, or testing your product with a small group of people to see if there is a demand.
Evaluating Your Idea
Once you have identified a product market you would like to enter, the next step is evaluating your idea. This involves testing your concept’s viability and making sure it can be profitable.
Some key questions to ask yourself when evaluating your idea include:
- Is there a need for the product?
- What’s the size of the potential customer base?
- Are there any competitors already in this space?
- Is it possible to differentiate your product?
- What is the cost of production and delivery?
- Will customers be willing to pay for it?
- Are there any laws or regulations that need to be considered?
Answering these questions can help you determine if your idea is viable and if it is worth pursuing.
Step 2: Write a Business Plan
A business plan outlines your business’s goals, strategies, market analysis, and financial projections.
A well-written business plan can help secure investment, validate the viability of your business, and provide a clear roadmap for growth. It will also give potential investors and lenders an understanding of what you are trying to accomplish.
To write an effective business plan for an eCommerce business, you should:
Research Your Competition
What is your competition’s business model, pricing structure, marketing strategies, and customer base?
Knowing what your competitors are doing and how they succeed can help you create a competitive strategy for your business.
- Start by identifying your direct and indirect competitors, including online and brick-and-mortar businesses.
- Study their websites - Look at their websites and pay attention to their products, pricing, marketing strategies, and customer service.
- Check their online reviews - Read customer reviews and testimonials to understand the competition’s strengths and weaknesses. The reviews also give you an idea of the customer’s pain points.
- Track their social media presence - Follow your competitors to see how they interact with customers and stay up-to-date on their promotions and new product releases.
- Analyze their SEO – Use tools like Google’s Keyword Planner to see how well your competitors are ranking for relevant keywords, and check their backlinks to see where they’re getting their traffic from.
- Review their advertising strategies - Take note of the types of advertising your competitors use, such as search engine marketing, display advertising, and social media advertising.
Researching and analyzing your competition gives you valuable insights into the market. This helps you identify potential gaps in the market that your business can fill.
Choosing Your Sales Channels
A sales channel refers to the method or platform through which a business sells its products to customers.
Common eCommerce channels include:
- Online store - An online store allows you to create an individual website or use an existing eCommerce service such as Shopify or Wix.
- Marketplaces – Marketplaces like eBay, Amazon, and Etsy are a great way to reach a large audience and start generating sales quickly.
- Social media - You can use platforms such as Facebook, Instagram, and Pinterest to promote your products directly to customers.
- Mobile app - Developing a mobile app can give your customers an easy way to shop on the go and make purchases quickly.
Evaluate each channel to determine which one is best suited for your business and will generate the most sales for your eCommerce business.
Here are some factors to keep in mind when evaluating your options:
- Customer reach - Look at the audience of each channel and see which ones align with your target customers.
- Product compatibility - Consider the types of products each channel specializes in and how they match up with what you’re selling.
- Cost – Research the fees, commissions, and other costs associated with each channel.
- Ease of use - Go for channels with user-friendly interfaces, easy setup, and a good track record of helping businesses succeed.
Step 3: Select Your Business Name and Logo
Naming Your Business
Choosing the right name and logo is critical in establishing your brand identity.
Start by brainstorming ideas for your business name. Ask yourself questions like:
- What is the purpose of your business?
- What are some words that evoke that message?
- Who is your target audience? What words do they respond to?
- What makes your business unique?
Once you’ve narrowed down your list, ask family and friends for their opinion. They might offer a different perspective on your chosen names and logos.
With a list of potential names, research to see if they’re already taken or trademarked. Go to the U.S. Patent and Trademark Office’s website to check if the name is already registered.
You’ll also want to ensure the domain name is available so you can create a website easily. Use the NameCheap Domain Name checker tool to search for available domain names.
The final step is registering your business name with the U.S. Patent and Trademark Office. This will protect your business from any potential infringement or trademark violations.
Creating an eye-catching logo is an important part of establishing your brand.
For the logo, consider the following:
- Simple – A simple design is often the most effective and memorable.
- Relevant - The logo should reflect the essence of your brand.
- Versatile - The logo should look good in various contexts and on different mediums.
Start by sketching out ideas for the design, then use a graphic design program like Adobe Photoshop or Canva to create a digital version.
Pay attention to color theory and typography when creating your logo. Color can help evoke certain emotions, while typography can communicate your brand’s personality.
You can also use free logo makers like Shopify logo maker. These tools usually provide you with a range of templates, icons, and font options that you can use to create a logo that matches your brand identity. However, keep in mind that free logos may have limitations in terms of customization and usage rights.
Expert Tip: It’s a good idea to seek the advice of a professional branding or marketing specialist to help you choose a name and logo. This ensures you get a logo and a name that accurately represents your brand and appeals to your target market.
Step 4: Choose a Legal Structure and Obtain Business Permits and Licenses
Before you can legally operate your eCommerce business, you’ll need to decide on a legal structure and obtain the necessary permits and licenses.
The legal structure you choose affects your business’s liability, taxes, and management. And each structure offers unique benefits and drawbacks, such as personal liability protection, ease of management, and tax implications.
The most common legal structures for eCommerce businesses include sole proprietorship, partnership, limited liability company (LLC), and corporation.
- Sole proprietorship - The simplest and most common business structure. It allows you to operate without forming a separate legal entity. As the owner, you have full control over the company and are personally liable for its debts.
- Partnership – This involves two or more owners who share profits, losses, and control of the business.
- Corporation – A legal entity that gives its owners limited liability protection and can be taxed separately from its owners.
- LLC (Limited Liability Company) - LLC combines the characteristics of a corporation and sole proprietorship, giving its owners limited liability protection and pass-through taxation.
Get Your Business Licenses
Depending on the type of product or service you’re selling, there may be certain licenses and permits that you’ll need to obtain to legally operate your business. This helps you avoid potential fines and legal issues down the line.
For example, if you’re selling food or beverages online, you are required to obtain a food handler’s license. It’s important to research the specific requirements in your state and any other states you’ll be selling products in.
The type of licenses and permits required will vary based on your business location and the specific products or services you will offer.
Get Your Employer Identification Number (EIN)
An employer identification number (EIN) is a nine-digit number issued by the IRS to identify your business for tax and other purposes. It’s essentially the equivalent of a Social Security number for your business.
EIN is required for businesses that have employees, operate as a partnership, or are a corporation.
Applying for an EIN is free and takes just a few minutes. You can apply online on the IRS website or by fax, mail, or telephone.
The online process is the quickest and easiest method. You will need to provide information about your business structure, ownership, and purpose. After completing the application, you will receive your EIN immediately. Check The Balance guide on ways to apply for the EIN.
Apply for Business Licenses and Permits
The next step is to apply for the necessary business licenses and permits.
In most cases, you’ll need to register your business with the state or local government to operate legally. You may also need to register with the county or local municipality if you’re selling products within their jurisdiction.
You can find out which licenses and permits are required by contacting the business license department of your state or local government. They can provide you with the required documents, forms, and fees.
Applying for permits typically involves filling out an application, providing documentation and payment, and waiting for approval. The exact process will vary based on the jurisdiction where you operate.
It’s recommended to apply for licenses and permits well before starting your eCommerce business, as the approval process can take several weeks or even months.
Step 5: Choose an eCommerce Platform and Create Your Website
Now, it’s time to start building your online store. The first step is to choose a platform and then create your website.
The platform you choose should be able to meet the needs of your business. It should be easy to use, secure and reliable, and have the necessary features for managing orders, shipping, payment processing, and more.
Popular eCommerce platforms include:
Once you’ve chosen a platform, the next step is to create your website. You can do this using a website builder.
A website builder is a do-it-yourself solution for creating a professional-looking website.
Using a drag-and-drop interface, you can customize the look and feel of your website, add pages, content, images, and more. Most eCommerce platforms come with a website builder as part of the package.
When choosing a website builder for your eCommerce business, consider the following factors:
- Ease of use - Is the platform user-friendly? It also should not require extensive technical knowledge to set up.
- Customization options - Look for a builder that offers a wide range of customization options to suit the unique needs of your business.
- Payment options - The builder should support multiple payment options to provide a smooth and secure checkout experience for your customers.
- Mobile responsiveness - Most people do their shopping on mobile phones. Your website should therefore look good and function well on mobile devices.
- Customer support - Choose a platform with a robust customer support system to help you with any technical issues or questions.
Below is a comparison table of some popular website builders:
Hosting is the foundation of a website, where the website files and data are stored and made accessible to internet users.
The hosting option you choose will greatly impact your website performance, security, and overall success. There are various hosting options available, including shared hosting, VPS hosting, dedicated hosting, and cloud hosting.
For small eCommerce businesses, shared hosting may suffice, but for larger businesses with high traffic volume, a dedicated server or cloud hosting may be a better fit to handle the increased resource needs.
Let’s take a look at a comparison table of some of the best hosting providers for eCommerce businesses:
|Hosting Provider||Key Features||Pricing|
||Starts at $5.99 per month|
Set Up Your Store
Setting up an eCommerce store involves several steps, such as configuring payment methods, arranging shipping options, adding products, and customizing the website design and layout.
For example, setting up your online store on a website builder like Shopify or Wix is often a straightforward process. These platforms provide various tools and features to help you get started quickly.
However, if you opt for self-hosted eCommerce software like Magento or WooCommerce, setting up your online store may require a bit more technical know-how. This involves downloading and installing the software, configuring it to meet your needs, and customizing the look and feel of your store with a chosen theme.
To set up your store:
- Add products - Add product images and descriptions, create tags for categorization, set prices, and the shipping details.
- Organize your products - Here, you can create product collections like ”new arrivals,” “bestsellers,” or “clothes for women.”
- Configure payments - Set up your payment gateway and choose an appropriate processor.
- Add About us and Contact us information pages - This will help build customer trust.
- Add a menu and links to your store - You can add drop-down menus to organize your products and link them to other pages.
Step 6: Manage Your eCommerce Business Finances
To manage your eCommerce business finances effectively, you need to keep track of your income, expenses, taxes, and profits.
We can classify these into financial management, inventory management, and financial forecasting.
To achieve a return on your investment, it’s important to have a firm understanding of your finances. Whether you are a sole proprietor or running a large eCommerce business, this is essential for success.
Financial management involves keeping track of your accounts receivable and accounts payable, budgeting, and forecasting.
Use the following steps to effectively manage your finances:
- Keep track of all income and expenses - Use accounting software or spreadsheets to track all of your income and expenses. This will help you to see how your business is performing and where you can make cuts if necessary.
- Create a budget - Create a budget for your eCommerce business and stick to it. With a budget, you’ll stay on top of your finances and avoid overspending.
- Open a business bank account - Keep your personal and business finances separate by opening a business bank account.
- Manage cash flow - Cash flow is the lifeblood of your business. Keep an eye on your cash flow and ensure you have enough money to cover your expenses and pay your bills on time.
- Use invoicing and payment systems - Use invoicing and payment systems to manage payments from customers and keep track of your sales.
- Monitor sales tax - Keep track of sales tax regulations and ensure you’re collecting and remitting the correct amount of tax.
You need to accurately forecast inventory levels and plan for potential outages.
Inventory management involves tracking stock levels, managing supplier relationships, and setting up a reordering system.
Here are some key things to consider for inventory management:
- Determine the right stock levels - You want enough stock to meet customer demand but not so much that you’re overstocked and wasting resources.
- Use a reordering system - Automate the reordering process to ensure you never run out of stock.
- Monitor stock levels regularly - Regularly check your inventory levels to ensure that you’re keeping enough stock to meet customer demand.
- Consider using inventory management software - A software helps you automate many tasks, saving you time and reducing the risk of human error.
Business Planning Resource
You need to identify your goals, map out your strategies, and outline the steps you’ll take to achieve your business objectives. And having a well-crafted business plan comes in handy. It will help you stay focused, measure progress, and make informed decisions.
Use these tips to create a solid business plan:
- Define your business idea and goals - What do you want to achieve with your eCommerce business? What are your long-term and short-term objectives?
- Conduct market research - Who are your target customers? What are their needs and preferences? What are your competitors doing?
- Develop your marketing strategies - How will you reach your target customers and promote your products or services?
- Determine your budget and financial projections - How much money will you need to start and run your business? What are your revenue and expenses projections?
- Create an action plan - What steps will you take to achieve your goals? What are your milestones and deadlines?
Step 7: Market Your eCommerce Business
We can all agree that marketing directly affects the success of any business. Marketing is what brings your product or service to potential customers.
To succeed in eCommerce marketing, it’s important to determine your target audience, understand their needs and preferences, and create a marketing plan that effectively reaches and resonates with them.
Types of Marketing to Consider
There are several types of marketing that you can use to promote your eCommerce business.
- Content marketing - Do you have content that can offer value to potential customers? Content marketing involves creating and sharing valuable, relevant, and engaging content that attracts and retains customers and drives profitable customer action.
- Pay-Per-Click (PPC) advertising - You can decide to pay for advertisements on search engines and other websites. You only pay when someone clicks on your ad.
- Affiliate marketing - This involves partnering with other businesses to promote your products and earn a commission for every sale made through your affiliate link.
- Email marketing - You can reach out to your target audience by sending them emails about your products, promotions, and other relevant information.
Tips for Starting an eCommerce Business
As we said earlier, starting an eCommerce business is not a walk in the park. You need to be adequately prepared before taking that big leap.
The competition is stiff, and without the right strategies in place, you could be out of business before you even get off the ground.
Here are some unique and game-changing tips and best practices to keep in mind when starting an eCommerce business:
- Build a funnel to guide customers from initial contact with your website to final purchase - Create automated steps, or “nudges,” in the funnel, such as a discount offer for signing up for a newsletter and reminders for abandoned carts. With this, you can guide customers toward a purchase while improving their overall experience.
- Optimize your website - Don’t let your eCommerce venture suffer from a subpar website that’s difficult to navigate and turns shoppers away.
- Get social - Social media is your friend! Facebook, Instagram, and Twitter are just a few examples of platforms that you can use to reach new customers.
- Stay on top of data - Data is key. Analyze your website’s performance regularly, study your customer’s behavior, and track what’s working and not.
- Stay ahead of the curve - Be on the lookout for new trends and technologies in your industry. Keep up-to-date with the latest eCommerce news, and be prepared to adapt to changes in your market.
How Much Does It Cost to Start an eCommerce Business?
Starting an eCommerce business involves various costs, including setup costs, ongoing expenses, and potential hidden costs.
However, estimating the exact cost can be difficult, as the cost will vary based on the platform and tools you choose and your business needs and goals.
Sumo summarizes the cost of setting up an eCommerce business in this article.
Here is our general breakdown of the costs involved:
- Platform/Software - Prices range from free (such as Wix) to several hundred dollars per month (such as Shopify).
- Domain Name & Web Hosting - Expect to pay $15 to $20 per year for a domain name and $5 to $80 per month for web hosting. Some enterprise web hosting plans can go as high as $300 a month.
- Payment Processing - A payment gateway service will cost you approximately 2.9% + 30 cents per transaction.
- Marketing & Advertising - This can range from $0 to thousands of dollars, depending on your marketing strategy and budget.
- Product Photography & Video - If you need to hire a professional photographer or videographer, costs can range from a few hundred dollars to several thousand.
- Legal & Accounting - Legal and accounting services can range from a few hundred to several thousand dollars, depending on your needs and the services you choose.
- Inventory & Shipping Costs - The cost of your inventory and shipping will depend on the type and quantity of products you sell, as well as shipping costs, customs fees, and taxes. Let’s say $1000 for a start.
Is eCommerce Profitable
Launching an online store can be a lucrative venture, offering the potential for significant growth and high profits.
According to Statista, eCommerce sales are projected to surge to $7.4 Trillion by 2025.
However, like any business, there are also risks involved, and success is not guaranteed.
To determine if eCommerce will be profitable for you, it’s important to carefully consider the costs involved, your target market, and the competition.
With the right strategy, hard work, and a bit of luck, an eCommerce business can be a highly rewarding and profitable endeavor. The key is understanding the opportunities, challenges, and strategies specific to your eCommerce industry and making informed decisions based on your goals and resources.
Starting an eCommerce business is a worthwhile endeavor that can be both profitable and enjoyable. With the strategies highlighted in this article, you can build a successful online store that will continue to grow and thrive.
Also, don’t forget the tips and best practices discussed in this guide.
In addition, it’s important to understand the costs involved and do your research before making any business decisions. This will help ensure that your eCommerce venture is both successful and profitable.
Take your time, be prepared, and most importantly, believe in yourself and your business. With the right resources, dedication, and drive, you can build a profitable and successful eCommerce business.
Next Steps: What Now?
- Start by creating an eCommerce business plan. This will help you set goals, plan your budget, and make well-informed decisions that will support the growth of your online store.
- Next, choose your platform, domain name, and web hosting. Check HostAdvice to find the best web hosting platforms.
- Then set up payment processing and establish legal and accounting systems.
- Finally, create your online store, develop a marketing plan, and launch your business.