What is an ecommerce business?
E-commerce is a broad term used to describe the transaction of business via the Internet. E-commerce can also refer to any website where you sell merchandise but lack a physical location for customers to visit in person (bricks-and-mortar store).
For years, the term commonly used for this type of online business has been an e-commerce storefront. (Offline, the retail industry uses this term to describe the outside of a building, which includes its signage, front door, and overall image.)
As online businesses, and e-commerce, have matured, the term storefront isn’t used as often. Instead, you may hear someone simply refer to a business as an e-commerce site (regardless of how it’s structured) or an online merchant.
Behind each of these unique and convenient eCommerce retailers are entrepreneurs that started out just like you — with a good idea for an online business and the motivation to turn it into a reality.
Since they don’t require a physical retail store, e-commerce businesses offer numerous advantages to their owners. So how can you start an e-commerce business? If you need any help, this guide is here for you.
The following steps will help you start an e-commerce business as quickly as possible.
How to start an e-commerce business?
The secret to e-commerce success is to create a business that will stand the test of time. Sure, some people take advantage of relatively short-lived trends and make a mint (from Pet Rocks to Neopets, for example).
The odds that you could create the same magnitude of buying hysteria with a product or service, however, are small.
Instead, hundreds of thousands of entrepreneurs are quietly and steadily making a respectable living by using the Internet, and their ideas will find a market for many years. They’re not making millions of dollars a month, but they’re paying their bills and making a profit.
E-commerce businesses differ significantly from brick-and-mortar businesses – but they also have many similarities. You’ll need to follow many of the same planning and legal steps as any other business (more or less), as we’ll discuss below. When the time comes to start your business, however, you’ll discover how different it can be.
Step 1: Pick a niche market
When you start an e-commerce business, the Internet offers plenty of untapped markets for you to explore. These markets are segments within existing industries that have a lot of potential because they haven’t yet become saturated by sellers. You can certainly find this potential in niche markets, which are smaller, more defined segments of an existing market.
When thinking about a niche market, imagine the market in terms of a pie. The whole pie represents an entire market — one that’s usually well-established. But cut out one piece of that pie, and that piece becomes a smaller market on its own. Instead of concentrating on selling the entire pie, you narrow your focus to that single slice.
The pet industry serves as a real-world example. More than 67 percent of U.S. homes own a pet — that’s more than 70 million homes with at least one pet. As you might imagine, that number adds up to a lot of potential when it comes to pet-related expenditures.
Pets do indeed represent a multibillion-dollar industry, with a record-breaking spend of more than $72.5 billion in 2018, according to the American Pet Products Association (APPA). That number was expected to top $75 billion in 2019! Of that amount, the largest subcategory is food, followed by vet care services.
The subcategory of pet services, which includes everything from dog walking and pet sitting to grooming and training, is one of the fastest-growing areas — it has seen year over year growth of more than 10 percent.
Another example of a niche market inside a larger industry is a product segment within the coffee industry, referred to as cold brew coffee. The slow brew process that it takes to create the liquid, caffeine-infused treat defines this ready-made beverage.
The overall retail coffee industry in the United States is approximately $48 billion, with specialty coffee comprising 60 percent of that market. Although the overall coffee market has remained relatively flat in the past few years, some breakout brews are seeing consistent growth.
Cold brew, originating in only the last decade, has quickly become a recognized contributor to the “specialty” category of coffees and is now recognized as an option by more than half of coffee drinkers.
It continues to expand, and small brands like Jubilee Cold Brew (www.jubilee-cold-brew.myshopify.com) are among those companies capitalizing on the niche trend by selling their ready-made beverages offline and online.
The company got into the market early, but is now competing with national brands, such as Starbucks and Dunkin’ Donuts, that are also trying to jump into the cold brew market. We point this out to demonstrate that a niche market can be the equivalent of liquid gold for an enterprising online entrepreneur, but it can quickly become part of a highly competitive market.
Step 2: Choose a business name and legal structure
Your next step is to choose a name for your e-commerce business once you’ve established the plan. It’s important for your business to have a unique name that explains what it does.
To avoid using a business name that is already trademarked, check with the U.S. Patent and Trademark Office and your state’s Secretary of State website.
Even if you don’t want to commit too much effort in a website right now, it’s worth checking to see whether your possible business domain name is accessible. Your chosen domain name may already be in use, but you might try altering it to something else, such as “goodbusinessname.co” instead of “goodbusinessname.com.”
The next step is to choose your business’ legal structure. Your choice of business entity type will have important legal and financial ramifications. The most common types of businesses are sole proprietorships, general partnerships, limited liability companies, and corporations.
It is ideal to form a LLC because the corporate structure is straightforward, the management style is flexible, you can make tax decisions, and your assets are protected.
For example, you should consider how much personal risk you are ready to accept by establishing an eCommerce firm, as well as whether you need partners or staff to get started. Choosing the right structure can make or break your business.
LLCs are popular because they offer tax benefits and convenience, as well as the ability to add additional members and benefit from their expertise.
In order to expand your business, you will also need to look into financing options. While family and friends can always help, some level of growth requires loans and outside funding, which are easier to obtain with an LLC.
Setting up and organizing your business may seem tedious and less appealing than generating revenue, but it’s often what gives you an overall advantage.
Step 3: Apply for an EIN
If you have employees or your business is a corporation or partnership, you need a federal tax ID. Officially known as an employer identification number (EIN), this 9-digit number is used to identify a company whenever its owner files certain forms and tax returns.
You can apply for a federal tax ID via the online EIN application at the Internal Revenue Service (IRS) website. It’s free to apply online and you get an EIN immediately — no waiting! Or if you prefer, you can download the required Form SS-4 and submit the application by fax or regular U.S. mail.
The EIN is requested on many different types of business documents, from bank accounts to loan applications. If you don’t have a federal tax ID number, you can use your Social Security number instead.
Step 4: Obtain business licenses
Regardless of where your business is located, you need a license to operate it. A business license is a piece of paper granting you the right to do business within a city, county, or state. Licenses are typically valid for a one- or two-year period and are nontransferable. (If you sell the business, the license is void.) You have to pay a fee when you apply for your license. The amount is often based on the type of business you operate and can range from $25 to several thousand dollars.
You (and not a city clerk) should specify which business category you fall under when you apply for your license, because a category specifically for an Internet-based, or e-commerce, business might not exist. Instead, you have to select a broad category based on the specific activity conducted through your site. Some categories can require steep licensing fees and might not, in fact, apply to you. Scour the entire list and the accompanying fees. Then choose the one most related to your business and with the lowest fee.
In addition to obtaining a city-issued license, you might be required to have a license for the county in which you’re operating your business. This license is similar to a city license but is often less restrictive and less expensive.
Be aware that some occupations (building contractors, realtors, and other professional service providers, for example) might further require that you obtain a state license. Although you probably don’t need a state license to operate your online business, you can double-check by visiting your state’s website.
Step 5: Select an e-commerce platform and create your website
Now that you’ve the paperwork done, you can legally start your e-commerce business. Most of our steps so far are therefore similar to those involved in starting a brick-and-mortar business. Instead of finding a location and setting up your store, you now start building your website.
When you operate online, you don’t have to rent space in a mall or open a real store, but you do have to set up a virtual space for your online business
For this reason, building your website is one of the most important tasks in building your e-commerce business. When developing an online storefront, keep these points in mind:
The first point you need to consider is the domain name. Ideally, your domain name should match the name of your business (at least approximately). You also need to decide on an e-commerce platform, which is perhaps the most important decision of all. An e-commerce platform like Shopify or Magento is the foundation on which your online store will be built and developed.
E-commerce platforms allow you to create and launch your online store, customize your design, add your domain (or purchase one), manage inventory, accept and ship orders, and receive payments.
To start your e-commerce business, you can consider one of the following popular solutions:
Launched in 2006, Shopify has proven itself to be a solid contender in the world of e-commerce solution providers. Shopify offers three primary pricing plans ranging from $29 to $299 per month. Each plan supports an unlimited number of products and provides 24/7 live support and mobile commerce functionality.
If you use the Shopify payment gateway, there are no transaction fees on any of the three plans. Another interesting feature is Shopify POS, an Apple iPad point-of-sale system for your retail location. The list of features is too long to include here, but rest assured that plenty of impressive functionality and lots of marketing tools are included.
The exception to this rule is a starter plan (called Shopify Lite) that costs $9 per month and enables you to sell on Facebook only. Shopify offers a free, two-week trial with no credit card required.
To sign up for the trial or explore all the options offered by this e-commerce solution, visit www.shopify.com.
BigCommerce is an industry leader, with a reputation for being a simple, powerful solution with an impressive list of features for the money. Its list of customers include many mega brand e-commerce retailers. It has recently added the BigCommerce Essentials brand to focus on small business solutions.
Plans range from $29.95 to $249.95 per month and all plans include an unlimited number of products, unlimited storage and bandwidth, no transaction fees, no limit on the number of staff (or user) accounts, and 24/7 “live agent” technical support.
The list of features that apply across plans is impressive, including social media tools, real-time shipping quotes, built-in blog and SEO, lots of payment options (including some international), and coupon and discount functions.
The advanced plans include cart abandonment features, and provide a higher level of security features.
Given the competitive pricing with so much advanced functionality across plans, it is clear that BigCommerce wants to be a market leader of e-commerce solutions for all sizes of online businesses. See the full list of features and pricing at www.bigcommerce.com.
WordPress e-commerce plug-in
If you use WordPress, the free blog software, for your site, you may also choose to use a plug-in for your e-commerce solution, such as WooCommerce, WP e-Commerce, and MarketPress. Did we mention these are often free (or super cheap)?
The downside of using a WordPress plug-in is that it may have fewer features and payment gateway options than the non-free solutions and may require more work on your part for setup or customization (with limited, if any, technical support available).
The best way to explore your options for a plug-in solution is to do a search for ecommerce in the WordPress Plugin Directory at http://wordpress.org/extend/plugins.
You might not know it from its name, but Online Store is a complete e-commerce solution from GoDaddy. This all-in-one solution is $25 per month (billed annually), including hosting and no caps on bandwidth, and it supports an unlimited number of products and includes 24/7 technical support. Mobile-optimized storefronts are included, too.
The Online Store is a good deal for the price, but it doesn’t have as many features as other solutions. Get the full scoop by visiting www.godaddy.com/websites/online-store.
This e-commerce solution offers four pricing plans, ranging from $26 per month for unlimited products and storage to $269 per month for unlimited products and storage, plus access to priority support and consultation services.
All prices include hosting, mobile responsive templates, and no transaction fees. All plans also include mobile commerce and social media tools. As for support, the two lower plan tiers offer only online support.
You can check out this solution and the range of specific features offered across price plans at www.volusion.com.
Step 6: Source or develop products
Once you’ve chosen your e-commerce platform and launched your website, you’re almost done. In order to sell your products, you’ll need to source them. When you conducted your research in step one, you should have already thought about how you would go about this process.
When you’re deciding which products to offer for sale online, ask yourself these questions:
- Will shipping the product be difficult? Large, bulky products can add to your shipping woes.
- Will larger products, which are expensive to ship, deter customers from making a purchase online?
- Are you selling perishable food products? If so, do they meet federal food handling, storage, and shipping guidelines?
- Is the product fragile, and does it require special handling?
- How much product does a supplier require you to buy at one time to receive the best price?
- Where will you keep the inventory? Do you have suitable storage facilities, or do you have to pay for (rent) additional space?
- If you have to store the inventory, is it important to you that smaller products, flat products, and information products take up less room?
- If you’re making custom products by hand, how long do you spend fulfilling an order? Can you keep up with demand?
- Are you familiar with the product?
Two other popular websites can provide a glimpse of the types of products that are selling well. Etsy, an online marketplace for handmade and vintage items and craft supplies, and eBay, the online auction site, attract lots of buyers for a variety of products. Both sites are good sources for helping you decide what types of products should be in your inventory.
A third-party site called Craftcount uses an application programming interface (API) from Etsy to track top Etsy sellers daily, and top products by category and country. Stores with more than 1,000 sales are tracked, and the information is updated every 24 hours.
If you think information about handmade items couldn’t possibly help drive your own inventory decisions, consider this: Large retailers have started turning to Etsy to look for popular products to stock in their own stores. Big-box retailers often work directly with top-selling Etsy store owners to reproduce their handmade bestsellers. If you happen to sell similar types of goods — from apparel to home goods — this type of report could prove to be a good source for beefing up your store inventory.
To research a much wider variety of products, you can turn to eBay. To access the sales data, however, you need to invest in a tool called Terapeak. This tool provides a detailed view into the most popular products selling on eBay over a given period of time as well as which listings are resulting in sales. The tool provides data from the past three years of purchases. You can also access pricing recommendations and search for keyword recommendations (based on what words buyers are using to search for products).
Although Terapeak is designed for current eBay sellers, it is also a source of insightful data for building a sought-after inventory of products for your online store. Terapeak pricing plans start at approximately $20 per month, but you can access a free trial, which may be enough to give you helpful information.
Starting in 2019, Terapeak is a free tool included with some eBay store subscriptions! As a bonus, once you identify top-selling products, Terapeak helps you source the same or similar products on Alibaba, which is a company that connects you with products and suppliers. Terapeak is a one-stop resource for research and products!
Step 7: Pricing your products
After you decide which products or services you’re most interested in selling, it’s time to price your merchandise. Having delved into the results of your research, you probably have a good idea of which items have the best chance of selling.
However, no matter how trendy or in demand your products are, setting the wrong prices might leave you with unsold inventory.
When you’re tagging your merchandise, the following factors are the most probable price influencers, or factors that affect your sticker price:
- Demand: Whether customers are seeking out your product because it either meets a need or is thought to be a desirable or trendy item.
- Competition: Not only who, but also how many, competitors you have, and what prices they have established for the same or similar products you’re selling.
- Market position: How you want your business to be perceived by customers in the marketplace. For example, an upscale store with high-end products might influence pricing strategies in one direction while a larger, warehouse-type of image might warrant a more competitive pricing strategy.
- Cost: How much you pay (your expense) to create or purchase the product before reselling it to your customer.
- Profitability: How much money you want to make each time an item is sold, after you’ve considered all expenses or costs associated with selling the item.
Product pricing is one of the most critical business decisions you make. Researching all the advice and pricing models offered in textbooks or by economists, however, can leave your head spinning. Keep it simple.
The basic number for you to grasp is the product’s cost, which incorporates every expense associated with your item, including the wholesale price you paid (the raw costs of materials to make the product); overhead costs ranging from utilities to Internet service fees; commissions; and packaging and shipping costs to deliver the product to your customer.
Remember Costs or expenses that don’t fluctuate are fixed costs and are often considered overhead (such as rent). Expenses that might change periodically are variable expenses. The price of your product should cover all variable expenses and help contribute toward your fixed costs.
After you understand the cost of what you’re selling, you can begin making pricing decisions. Use one of the following common pricing strategies:
- Cost-plus: This method requires you to total the costs of your expenses associated with the product and then add an amount you want to make as profit. The resulting dollar amount represents the pricing floor, or the lowest price you should charge.
- Value-based: With this strategy, you’re setting a price that reflects the highest amount you believe your customers are willing to pay for the product. Unlike the cost-plus method, this one considers market conditions, such as demand, competition, and the perceived benefits (or value) of your product’s features.
For example, if your cost for selling a coffee mug is $4.50, should you turn around and try to sell it for that same price? No, you have to make a respectable profit. That amount depends on how much you want — within reason, of course. If you decide that you have to clear $5.50 on every mug, for example, your price is set at $10.00 per item (cost-plus pricing).
By using value-based pricing, you might be able to set a higher price based on consideration of other factors. For example, how much are customers willing to pay for a coffee mug? In other words, what cost does the market bear? Perhaps, in the case of an Elvis mug, its perceived value is much greater than the perceived value of other styles of mugs. You might be able to sell each mug for $15.00 or more.
Of course, even if your customers are willing to pay that much, they might find a better deal elsewhere. Your next consideration is to find out how much your competitors are charging for the same or similar products. If $9.99 is the top price on other sites, it might be unreasonable for you to expect to set a much higher price.
Now that you have the basic information needed to determine a baseline price for your product or service, you have to consider one more factor: your inventory.
Step 8: Building your inventory
Choosing the best products and prices for your online business is certainly an important factor in starting your new business. You have to consider another issue too: Exactly how much inventory you should keep on hand, or how many different products you should have available for sale. The answer depends on not only the type of products you’re selling but also the type of business strategy you want to execute.
Savvy online shoppers are accustomed to an endless array of choices because they can easily jump from one website to another. These customers are quick to make a decision about whether your site’s inventory meets their expectations.
To keep the attention of most online shoppers, have a clear strategy for the type and amount of product you choose to offer.
Specializing in a field usually leads to the best inventory strategy. And doing so provides the most likely chance for success when you’re building your online business.
You might decide to deal exclusively in English teapots or maintenance supply parts for the army. Artists and craftspeople are usually in this category, too. They typically work in only one medium, such as black-and-white photography or high-grade wood carvings. If specializing sounds like your cup of tea, consider the following advice when building your inventory:
- Offer a select number of products. Focus on the quality or uniqueness of the products rather than on mass quantity. You can afford to keep relatively low levels of inventory, as long as you’re always searching for new items to replenish your stock.
- Position yourself as an expert. Because you deal in a narrow type of product, visitors are more likely to seek you out for your expertise. You can keep inventory levels low and charge a finder’s fee or consulting fee to help customers locate similar products on request.
Keep inventories low and establish an active network with others for quickly locating similar products. Being able to direct customers to other resources, or locate special pieces in a timely manner, provides a valuable service that can also keep customers returning to your website.
If you’re an artist selling handmade goods or crafts, you can test market conditions by first selling on Etsy. With this strategy, you don’t have to invest in your own full-scale e-commerce website with lots of inventory. Or you can maintain an Etsy shop in addition to your full website, and test new inventory on Etsy.
Step 8: Figure out the logistics of shipping
How do you set up the entire flow of your business? Start by thinking about the operations and daily tasks that make your business work. Then lay out everything and decide how the business can best operate. To help you plan all these tasks, ask yourself these questions:
- Does my online business operate from my home or a dedicated office space?
- Should I buy products for resale or have someone else ship the goods?
- Does a physical store or presence have to work with my online business?
- How many employees need access to the merchandise and system?
Track the flow of one of your items for sale from beginning to end:
- Receive the product from your supplier.
- Prepare the product for sale.
- Store the product while it’s up for sale.
- Pack the product after it’s sold.
- Ship the product after it’s packaged.
Think about when and where these events take place, so you can plan the logistics of your business. Logistics simply refers to how you manage the operations of your business. You might need to dedicate a room in your house, or you might need to coordinate products and shipments through a warehouse that has different vendors and manufacturers.
The key is to set up a model that fits your business. You have no reason to buy an expensive software inventory program if you sell 10 or 20 items per month. Likewise, don’t expect to run a multimillion-dollar venture with a pencil and pad of paper.
Choose a system that lets you know at any given time where your inventory is in the process, whether it’s receiving, photographing, listing, packing, or shipping.
Many business owners choose to outsource their fulfillment operations to someone else so that they can focus on the most important element: their businesses. After all, just because you’re good at selling widgets doesn’t mean that you’re good at packing and shipping them.
Contrary to popular belief, you don’t need to have a Fortune 500 corporation to outsource fulfillment. Small businesses around the world outsource this process. This action not only reduces the amount of space you require but also frees you and your employees to work on other aspects of your business.
Enter the fulfillment house, a business whose sole job is to handle the packing and shipping of other people’s goods. By grouping multiple clients’ shipping operations, a fulfillment house can employ fewer people to handle the volume of goods than individual companies who hire their own staffs. These fulfillment companies create state-of-the-art, computerized inventory-management systems and train their employees to be efficient in this process.
Step 9: Market your e-commerce business
Now that you have an online business, you’ll need a cohesive digital marketing strategy to find and win over prospective customers. What is digital marketing? It’s really no different from traditional marketing — except that all the channels you use are, well, digital! Instead of a printed newsletter that you mail to prospects, you have blog articles and e-newsletters that you send out in an email. Instead of placing an ad in a magazine, you create online ads that are distributed through Google Ads or other online ad networks.
The strategy part of digital marketing is simply putting all the individual components together into a cohesive plan and then monitoring and measuring the results. As part of your long-term digital marketing strategy, you’ll develop short-term online marketing campaigns with specific goals in mind. For example, one goal may be to increase sales of a new product line you’re offering. Once you create an offer to entice prospects, you’ll use content and promotional offers (coupons, for instance) to advertise through multiple digital channels.
To determine whether the campaign is a success, and whether you need to tweak your overall strategy, you track the campaign metrics (how many people saw your offer online, how many visitors flowed through to a specific page on your website, and how many people took advantage of the offer and actually became leads, or customers). Then you do it all over again with a new campaign — according to your strategy! Here are the basic channels and components that go into a digital marketing strategy:
- Website: Okay, this one may seem obvious because you have an online business, but all your website properties (main site, micro-sites, landing pages, e-commerce store, and blogs) should all be considered under this category. You want to think about the role each site plays (along with specific, individual pages) in your digital strategy and online marketing campaigns. Each page of your site has a specific purpose, and you should identify the goals and conversion points for each page.
- SEO: Search engine optimization encompasses all the activities you do to promote organic traffic. Sometimes referred to as natural search, it’s basically the “free” traffic you get as a result of showing up in search engine results on Google, Yahoo!, and other search engine sites. There are certain actions, or optimization efforts, you can take to improve your rankings.
- SEM: Search engine marketing includes all your paid activities. SEM includes PPC (pay-per-click) ads, display, and retargeting ads. This term also encompasses any paid ads you run in social media.
- Social Media: Facebook, Twitter, LinkedIn, Snapchat, Instagram … one or all of these social media platforms is likely to have a role in your digital marketing. You use these channels to share content, find and interact with potential buyers, and identify industry influencers.
- Marketing automation: This is a fancy term for your email marketing solution. It’s the system that lets you create and send email communications to your visitors and customers. You can also build landing pages and track important metrics tied to your email campaigns. There are easy solutions designed specifically for small businesses, like MailChimp, HubSpot, and Pardot. Or, for more complex needs, you might consider Marketo or Eloqua.
- Video: Once thought to be a piece of your content strategy that was nice to have, video has become an integral part of a smart digital strategy. One reason is because customers like a quick way to consume content, especially on social media platforms. Another reason is because YouTube has become the second-largest search engine behind Google! Yes, that means that your prospective customers are going to YouTube and searching for information, just as they do on Google. Having video that can be found in YouTube, and then drive traffic to your site, is now a must.
- Content: What’s the common denominator across all digital marketing tactics and campaigns? Content, of course! Just about every piece of written content and visual media gets grouped into the category of content — from website copy and white papers to videos and graphics. In digital marketing, content is what helps drive traffic and convinces visitors to buy your products and services.
The initial investment in starting an e-commerce business is much lower than a brick-and-mortar business — you can start big or small, and you can sell online 24 hours a day, 7 days a week to customers from all over the country (or the world, if you’re willing to ship that far). Starting an e-commerce business is also much simpler and cheaper if expansion is necessary – which makes it all the more appealing to aspiring entrepreneurs.
If you want your business to become an internet success story, you must take important steps and make investments.
It’s important to maintain compliance with tax laws, get permits, invest in customer retention and communication, and don’t forget to build a mobile-friendly platform for your e-commerce website. King says 60% of her sales come from mobile devices.