How To Start an eCommerce Business: Build an Online Store – A Complete Guide
The pandemic has changed consumer behavior in more ways than one – and one particular group of people who have benefitted are online retailers.
The Ernst & Young Future Consumer Index found that 60% of US customers are currently visiting brick-and-mortar stores lesser compared to before the pandemic, and 43% prefer to shop online more often for products they would have previously bought in physical stores.
But whilst this suggests a significant industry shift towards eCommerce and a wider customer base for online stores, it also means increased competition.
Thus, the key is to understand the nature of eCommerce businesses, how they work, and what setting up, launching, and running a thriving e-commerce business entails.
Let’s look at some e-commerce business models.
Most Common eCommerce Business Models
eCommerce allows businesses and consumers to buy or sell things online.
A key component of starting an eCommerce business or developing an eCommerce strategy is understanding what your eCommerce business model should be. And your business model will depend on your target audience.
There are six main eCommerce business models:
- Private Labelling
- Print on Demand
1. Business To Business (B2B)
The Wholesale eCommerce model is a Business to Business (B2B) model where goods are sold online in bulk to other businesses instead of individual customers at a discount. This model is a relatively new eCommerce model which is gradually getting a grip in the eCommerce space.
With an increasing number of eCommerce businesses now opting for a digital-first approach, they are turning towards the B2B model of eCommerce, which is flexible, allows for more customization, involves fast technology, and is highly scalable.
The B2B eCommerce business model can be further broken down into 2 categories:
While a Vertical approach focuses on a specific industry and entails industry experience and market depth, the Horizontal approach goods are sold to a wide range of industries and entail widespread market coverage and diversification.
Both these approaches have their own set of advantages and disadvantages and primarily depend on the nature of the products sold and the customers that they cater to.
2. Private Labelling
Private labeling is a business model wherein instead of selling a product under its brand name, a manufacturer labels and sells them under another company’s brand name.
Here independent online sellers identify a niche product and add their branding and logo to increase their perceived value.
These could be anything from creating their packaging, instructions, etc., on the label or making design modifications to the original product to address the customer’s needs better, or differentiating them from competitors.
Private Labelling is an interesting space to be between reselling and full-blown product development.
3. Business To Customer (B2C)
In a B2C business model, eCommerce stores sell products directly to the end customers against a profit margin.
It is by far the most popular form of eCommerce business model and we interact with these eCommerce businesses on a day-to-day basis when we shop for different products online.
The B2C model is further categorized into five different types
- Direct Selling – This is when customers buy products directly from online retail stores.
- Online Intermediaries – These are online businesses that bring sellers and consumers together and take a certain percentage/amount from each transaction made.
- Advertising Based – In this type of B2C business model, information is given for free, and revenue is earned from advertising on the site.
- Community Based – This model makes money from targeted Ads to a certain section of users based on location and demographics. Facebook is an example of Community based B2C model.
- Fee-Based – Companies operating under this model sell online content to consumers in exchange for a fee – like Netflix, Amazon, or subscription-based newspapers and magazines.
4. Direct To Customer (D2C)
Over the years, several consumer brands have built a strong, loyal following by selling products directly to consumers.
In the D2C eCommerce business model, there are no middlemen between the seller and the buyer.
Typically, in this model, D2C businesses ship their own products directly to the consumers and/or partner with retail outlets or pop-up shops to distribute them.
By eliminating middlemen from the model, D2C businesses aim to achieve reduced costs and provide a seamless customer experience to the end-users.
The D2C model gives manufacturers complete control of their customers’ experience right from the research phase to purchase.
5. Fulfillment By Amazon (FBA)
For businesses that want to build and grow their international eCommerce brand identity, FBA is a service provided by Amazon that provides packaging, storage, and shipping assistance to sellers.
Sellers can then relieve themselves of the burden of logistical issues, and it allows them more flexibility in selling their products.
FBA allows sellers to ship their merchandise to an Amazon fulfillment center, where products are stored in warehouses until they are sold. When an order is placed, Amazon prepare, packs, and ships the products to the buyer’s destination.
With FBA, sellers can benefit from Amazon’s brand and reputation, which help them gain trust and loyalty from their customers. Apart from this, the seller can also enjoy Amazon’s 24*7 customer care services.
6. Print On Demand (POD)
Print On Demand, also known as On-Demand Printing, is an eCommerce business industry where sellers can sell customized products that are printed after the order has been received.
With on-demand printing, the seller doesn’t hold any physical inventory. Instead, they sign up with a POD platform that takes care of the printing and fulfillment process for them.
It is a type of dropshipping practice where the seller doesn’t have to deal with inventory management or shipping.
Everything related to shipping and inventory is managed by a third party. The seller also doesn’t incur stock holding expenses as they are not charged unless someone places an order.
How To Start An eCommerce Business?
e-commerce has changed the entire face of online businesses and has taken them to a whole new dimension – more so in the last couple of years.
According to a report, global retail e-commerce sales reached approximately USD 4.9 trillion in 2021. This figure is estimated to grow by 50 percent over the next four years, taking the number to a staggering 7.4 trillion dollars by 2025.
While these numbers may be encouraging and can seem like an exciting avenue for a profitable business, running a successful eCommerce business and keeping it thriving amidst high competition can still be daunting to many.
It can be exceedingly difficult to know exactly where to begin, which eCommerce platform to choose, what marketing tactics to use and how to generate revenue that will be sustainable.
So if you want to start your own online store, what do you need to do?
This guide will give you a structured and honest approach to the steps you need to take to start an eCommerce business.
Step 1. eCommerce Niche And Product Research
You need to find a profitable niche that other e-commerce businesses have failed to capitalize on.
But this is easier said than done. Although there are plenty of opportunities out there, you need to know where to look and understand how to start an eCommerce business with the right products.
What is an eCommerce Niche?
A niche market is a specific segment within a market that hasn’t been tapped into or has very less competition but one with high demand. For instance, men’s shaving products are a fairly broad niche, and beard oils are a narrower niche.
If you can identify a niche and build your own eCommerce business around that, you will have a competitive edge over others in the industry.
Small business owners can find it relatively easy to succeed by starting with one or two highly sought-after products. They can always add variations later if they want.
How Can You Go About Finding Your Niche?
Let’s look at some strategies to research product ideas for a niche.
1. Look At Trends
The first place to look at trends is to see what people are searching for online. Google Trends, for instance, can provide some compelling data and product ideas.
2. Identify A Need Or A Pain Area
When looking to sell products in a niche market, it’s important to remember that the products address a need. For instance, you could look for products that are in demand but are not available locally, or the current alternatives are not good enough.
3. Find Your Passion
Once you identify a couple of niche products, take it one step further to understand your interest or passion in the product. It’s always ideal if you have a genuine interest in what you are selling because passion also brings an element of knowledge with it. And when you know your product, online selling becomes easier.
4. Other Things To Consider
It’s also worth thinking about products that you, your friends, or people in your network of coworkers or family would be interested in.
Social media channels like Pinterest, Etsy, Facebook, and even Instagram are some of the most popular platforms to sell your products, depending on where your target audience rests.
5. Research Competition
Research is a very important part of the success of your eCommerce online store. Once you have narrowed down your products, looking at competitors and what they are doing with similar products can be a good way to move forward with your products.
Source Your Products
Product sourcing is the process by which a business acquires the products to sell. This can include exploring manufacturers, artisans, wholesalers, drop shippers, and other different kinds of creators and businesses who produce goods.
Typically, this would also include things like Vendor Analysis, Price Comparison, Supply deal negotiations, etc.
Types Of Product Sourcing
Any or all of the following can be taken into account for a successful product sourcing:
- Online Marketplaces like eBay or Amazon
- DIY Products
- Trade Shows
- Local artisans and manufacturers
- Flea Markets
Some key factors you need to consider when sourcing products are:
- Material, Labour, and shipping cost of the product
- Time required to make the product
- Determining your own shipping cost while delivering the product
- Storage of inventory
Step 2. Align Your Product Idea With Your Target Audience
Now that you have your product, it’s time to think about your target market. Creating buyer personas will help you hone your marketing strategies to target the people who will buy from you.
Some key ways in which this can be done are as follows:
While Market Research can be a very wide term, a few key strategies can help you get there.
- Consumer Surveys – These are a set of questions to extract information from your prospective customers. One of the fastest ways is to go with an email list created from your social media business page and offer an incentive to people who take the survey. Paid social media Ads can also help you target a specific audience and drive organic traffic to your eCommerce site.
- Customer Interviews – Interviews with your survey participants are also a good way to know them and their preferences a little better. They are also a good way to ask follow-up questions to their responses. One-on-one interactions are more personal. So, it will ideally give you more options to work around the product you have chosen.
Create Buyer Personas
From the information you have collected from your market research, it’s now time to create your buyer persona.
Some useful data points can be:
- Age Range
- Family status
- Interests and preferences
- Spending Patterns
- Sex (male/female)
The list can be endless depending on your product.
Step 3. Write Up Your Ecommerce Business Plan
A Business Plan is like a roadmap to keep your business on track. It also helps you factor in contingencies and plan for them well ahead to prevent unpleasant surprises.
An eCommerce Business Plan with proper goals and milestones is a blueprint for your own eCommerce business. Besides, if you are planning to secure capital from external investors, they would always want to make sure you have a thorough one in place.
Typically, your Business Plan should have:
- What is your eCommerce business?
- What products/services you will be selling?
- How will your eCommerce business generate revenue?
- Where you are planning to source your products from?
- Your source of capital?
- Your Target Audience?
- Your geographic area/scope of operation?
- Your operational model?
All of these above will then need to be put in the following structured manner:
- Executive Summary
- Company Overview
- Market Analysis
- Products and Services on offer
- Marketing Plan
- Financial Plan
There are several online templates available for you to choose from.
Some key things to remember when you are drafting your Business Plan are:
- Your tone should be consistent throughout the document
- Keep your plan short and crisp – but cover all the above-mentioned essentials.
Step 4. Register Your Ecommerce Business
Before you start trading, you will also need to register your eCommerce store.
And the first step is to find a business name that resonates with your product offering.
You can either choose the same name for the website and your legal business name or have different names. But it’s important to ensure that they are consistent with each other and are relatable.
Once you have the name, it’s time to design a Logo for your business.
Before you register your eCommerce store, you also need to decide on the business structure – whether you want to sign up as a sole proprietorship, a partnership business, or an LLC.
eCommerce Business Structures
Sole Proprietorship is the simplest form of business structure ideal for those who aren’t ready to register as an LLC or are self-employed.
Although the setup of a Sole Proprietorship is simple, your assets aren’t protected under this particular business structure, which means if you go bust, you are responsible for all your debts, and you may end up losing all your assets.
When a sole proprietor enters into any contract, they are typically signed by the owner of the sole proprietorship in their name.
But on the other hand, taxation remains a simple matter since the sole proprietorship is indistinguishable from the owner. Any income from the sole proprietorship is simply taxed as earnings of the owner.
Limited Liability Company (LLC)
Quite contrary to the Sole Proprietorship, when you register your eCommerce business as an LLC, you limit your personal liability to yourself, thus separating your and your business assets.
LLCs enjoy certain benefits like Tax advantages, Limited Liability, less paperwork and fees, and greater flexibility in terms of profit sharing.
Another important feature of an LLC is the fact that the business is registered with the state makes it more credible to customers.
Just like LLC, a corporation is separate from its owners, which makes the latter free from personal liability, except for rare circumstances. A corporation assumes the entire risk instead of passing it on to the owners.
Corporations can also be easily transferred to new owners, unlike other business structures. Like business types, you file your corporation with your state, and almost all corporations are required to pay local and state taxes, which are separate from shareholders’ taxes.
Other Legal Formalities
Employer Identification Number (EIN)
Once you start an eCommerce business, you will need to apply for an EIN.
Although not all business structures mandate having an EIN, this nine-digit number helps you separate your personal and business finances. One can apply for an EIN from the IRS for free.
Step 5. Obtain The Relevant Business Permits And Licences
You will need to obtain certain business permits and licenses to operate your online business legally in your city or state.
Apart from sole proprietorships and partnerships, where you are not required to register your online business, you will be required to register your business with your state and receive a general operating license for all other types of businesses.
Depending on where your business is, you may also need to obtain a local operating license as well.
Depending on your area of operation, you may need any or all of the following:
- Professional and trade licenses for certain industries.
- Sales tax permits.
- Health, safety, and environmental permits.
- Signage permits.
- Building and construction permits.
Step 6. Create Your Online Store
Once you have successfully registered your online store, you will need to build your website and register your domain name.
Choosing the right eCommerce platform is critical and often very daunting, considering the number of options available. Some things that need to be evaluated carefully before selecting an eCommerce platform are-
- Loading speed
- Responsive website design
- User-friendly Themes
- Online Marketplace of Widgets and Extensions
- Compatibility with different payment gateways
- Compatibility with your chosen business structure
- Your own technical skills
- Full PCI compliance
- Basic eCommerce marketing features
- SEO-friendliness and more
Here are some reviews and comparisons to help you pick the right one.
Terms Of Service
- These include warranties, delivery terms of both goods and services, and return policies and protect eCommerce businesses from liabilities.
- They help in preventing most frivolous claims early on “summary judgment,” saving thousands of dollars in penalties.
- They protect your content from theft or unintended use.
- They protect the business owner’s intellectual property.
- The policy fosters transparency and trust between operators and users.
- It can help shield you from legal liability.
- It reassures customers that their private data will be protected.
- It helps business owners meet regulatory requirements.
- It helps businesses to use certain third-party apps and services like Google Analytics, Ad Sense, etc.
Step 7. Drive Traffic To Your Online Store
Once your online store is launched and all legal formalities are complete, it’s now time to drive traffic to your online store by attracting potential customers to your website.
There are two primary ways of doing this.
Organic Marketing Channels
Organic marketing channels don’t show results overnight, but they often generate a long-term return on investment. A few of the best marketing tactics include:
Search engine optimization (SEO): Search engine optimization means optimizing your website content as well as your marketing content to rank high in search engines such as Google. Generally, you do it by placing keywords in your eCommerce store website’s content.
Relevant keywords on the different pages of the website, product title, and descriptions, boost search engine rankings. When you rank high on Google, you will get tons of organic/free traffic to your website.
Content marketing: Blog posts, articles, content seeding, etc., are all different types of content marketing that help drive targeted traffic to your website.
Social media: Facebook, Instagram, Pinterest, and Twitter business pages push new website visits.
Link building (off-page SEO): High-quality relevant links play an important role in getting traffic to your website. Guest blogging and forming link partnerships with other websites in your niche are examples of different link-building strategies.
Email marketing: Email marketing has proved to be a very important marketing channel for eCommerce businesses. Abandoned cart emails, New Product launch emails, welcome emails, and email notifications of sales and discounts help retain customers and lure them back to your website.
Paid Marketing Channels
Contrary to organic marketing channels, paid marketing channels produce faster results and make creating a profitable online store comparatively easier. Undoubtedly, they’re a popular choice for new and large-budget eCommerce businesses.
Some of the paid marketing channels for eCommerce brands are:
Affiliate marketing: In this process, affiliates work with an eCommerce company’s affiliate program and earn affiliate commissions for any sales that they help generate through their affiliate links.
Influencer marketing: In influencer marketing, Social media influencers on platforms such as Instagram, Facebook, and TikTok promote products for a fee.
Pay per click (PPC) advertising: eCommerce business owners like you can run advertisements on search engines such as Google on a pay per click (PPC) model.
You can also run PPC advertisements on the Google Shopping engine. These ads are known as Google Shopping ads which fetch your product data from your eCommerce website and display them across different Google platforms.
Social media ads: Paid social media ads on platforms such as Facebook target prospective customers and retarget repeat customers. Businesses can also sell online directly on Facebook with product listings.
How To Start An Ecommerce Business – The Cost Factor
There is always a very important factor in starting an e-commerce business: cost.
Although you may be avoiding certain costs with an online store compared to a brick and mortar business like rent, property insurance, furniture, and fixtures, there are still some basic costs you will need to incur for your online store.
The good news is you will still be able to start an e-commerce business on a tight budget.
Let’s look at some of the related costs.
- Business licenses and permits
- eCommerce platform subscription and set up cost
- Domain Name and hosting costs
- Payment Gateway set up cost
- Inventory and Shipping costs
- Marketing costs
How To Start An E-commerce Business – Some Tips
- Start Simple
- Spread the word on your social media platforms and other networks like Quora, Reddit, etc.
- Invest in multichannel selling like Amazon, eBay, etc.
- Know your target audience well.
How To Start An Ecommerce Business – FAQs
1. How do I start a small eCommerce business?
The first step is to determine the business type — B2B or B2C, products or services. Next, set up a website. Ensure your website has relevant content, images, and products, and connect a payment gateway.
2. What kind of online business is most profitable?
eCommerce is the most profitable business online since its scalable and has limitless potential. You have the option to start a small niche online store and then make it global.
3. What can you sell online?
You can virtually sell any type of product online as long as there’s a demand for it. To determine demand, you will need to analyze the target market and profitability.
4. Can you start an online business with no money?
You can start your own eCommerce store without any capital investment. However, there will be a few startup costs, such as domain name (under $10), eCommerce platform costs (under $30/mo), and website content creation.
5. How do you find e-commerce business ideas?
The best eCommerce product ideas are often found within existing industries. You simply need to identify them. The strategies in this article will help you with places you can look for product ideas.
There are plenty of benefits to starting an e-commerce business. The low initial investment, the capability to start small, 24/7 operation, and access to customers all over the country (or the world) are all benefits that are not available in a traditional brick-and-mortar store.
However, in order to make your e-commerce business a success story, you will need to stay compliant with tax laws, obtain the necessary licenses and permits, invest in customer retention and engagement, and build a mobile-friendly website.
Once you do all of the above, you can have a thriving e-commerce business.
Let us know your thoughts.