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How to Start an Ecommerce Business

Updated on January 19, 2022

How to Start an Ecommerce Business

How to Start an Ecommerce Business

We all make online purchases, and these days more than ever — that’s why ecommerce is big business, generating trillions of dollars in revenue each year. If you have an intriguing idea for a new product or service, one of the best ways to offer it to the world is via the internet.

Building a successful ecommerce business may seem overwhelming at first, and there’s little doubt that achieving your vision will require patience, determination, and hard work.

But the reality is that countless entrepreneurs have launched successful online businesses, and none of them did it by snapping their fingers. They did it step by step.

The key is to gain as much knowledge as possible before you start, helping you avoid the most common missteps and move through the process as smoothly as possible. You’ve come to the right place, as this article details each of the 13 steps you will take to develop and launch your online business.

Fast Facts

Investment range

$2,200 - $7,500

Time to build

0-3 Months

Industry trend

Growing

Revenue potential

$73,000 - $365,000 p.a.

Profit potential

$23,800 - $138,800 p.a.

Commitment

Flexible

Step 1: Decide if the Business Is Right for You

Pensive young Caucasian woman distracted form computer work read letter thinking pondering of problem. Thoughtful millennial female receive unpleasant news in document paperwork, make decision

Starting an ecommerce business requires a great deal of time and effort, not to mention financing. Before you dive in, you need to fully understand what is involved. Launching your own business represents a great risk, so educating yourself beforehand is a must.

Pros and Cons

Every business presents positives and negatives, which you should carefully weigh before making a decision. Here are some basic pros and cons of starting and running an ecommerce business.

Pros

  • The internet is accessible around the world; you’ll have a global market
  • Flexibility, comfort – launch your business in your pajamas, working from home
  • Low overhead means real profit potential
  • With no real-world store, expanding your services or product line is easy

Cons

  • Competition – ease of entry has created a crowded ecommerce marketplace
  • Costly marketing will be required at launch, curbing initial profits
  • Establishing a reputation and making real money will take time

Industry trends

Driven by pandemic-related lockdowns, worldwide ecommerce sales increased nearly 28% in 2020, reaching $4.28 trillion as more than 2 billion people made online purchases, according to German market research firm Statista.[1]https://www.statista.com/topics/871/online-shopping/#dossier-chapter1 Market analyst Insider Intelligence predicts US online sales will increase nearly 14 percent in 2021 to more than $908 billion, while Statista predicts the global market will expand 38%, to $5.4 trillion, by 2022.[2]https://www.insiderintelligence.com/insights/ecommerce-industry-statistics/

Setting aside the pandemic, ecommerce will continue to grow as more people around the world gain reliable internet access. Mobile commerce is growing as well, thanks to increased use of mobile devices, further expanding the ecommerce market.

How much does it cost to start an ecommerce business?

The start-up costs for an ecommerce business range from $2,200 to $7,500, according to Step By Step Research, with the website usually being the largest investment. You could reduce expenses significantly by starting your business on an online marketplace like Amazon and gaining some recognition before launching your own online shop.

Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$200 - $200$200
Business licenses and permits$200 - $300$250
Insurance$100-$500$300
Website setup with online purchasing capabilities$1,000 - $5,000$3,000
Initial Marketing Budget$200 - $500$350
Initial Inventory$500 - $1,000$750
Total$2,200 - $7,500$4,850

How much can you earn from an ecommerce business?

Your profit will vary depending on:

  • The number of customers and average purchase size
  • Expenses, particularly if you hire employees
  • Product types offered, and markup

The average gross profit margin for an ecommerce business is 40%, with the primary expenses being website hosting, insurance, and marketing.

When you launch, if you can sell $200 in products per day, revenue for the first year will be $73,000 and gross profit, as per the 40% average, will be $29,200. Assuming no employees, your monthly expenses may be around $450, leaving you with a net profit of $23,800.

As your brand gains recognition, you’ll generate more traffic and repeat customers, potentially leading to $1000 in daily sales. This would result in $365,000 in annual revenue, and $146,000 in gross profit. Putting monthly expenses at $600, your net profit would be $138,800. Not a bad year at all.

For a successful site, the profit potential is limitless!

What barriers to entry are there?

Ecommerce presents few barriers to entry. Your biggest challenges will be:

  • Standing out from the competition
  • Early marketing costs to gain recognition and build brand
  • Finding a product with high demand

Step 2: Hone Your Idea

Now that you know what is involved in starting an ecommerce business, it’s time to further develop your idea in preparation to enter a competitive marketplace.

Why? Identify an opportunity

Since you have no track record in ecommerce, you will need to differentiate your product in order to stand out from the competition. A good first step is to determine what advantages over similar products your product provides. Next, stress those advantages in your marketing. Perhaps your product is of higher quality, lower priced, or more powerful; whatever the case may be, your value proposition should reflect this.

You might start your initial marketing campaign by creating a page for your business on all the leading social media platforms, then sharing your newly launched website across those platforms — and asking your friends and family to share as well.

What? Determine your products or services

You probably have a product or product line in mind, but you should also consider what related products you might offer. When Amazon first launched it just sold books. Music and videos appeared four years later, and just about everything else has followed. Your ecommerce site may also be able to offer a collection of related products, which could significantly increase your average price per sale. Set aside some time to think about it and make a list of all the products even remotely related to your main product, then go through the list and determine which might be a good fit for your site.

How much should you charge for your products?

Prices are dependent on the type of product being sold and how it’s positioned. You might use a value-based strategy, in which your good has a lower price point than similar products. Or you might use a perceived value strategy and market your product as being worth more than similar products. To get started, research ecommerce firms with products similar to yours to see what prices they charge, and why.

Who? Identify your target market

Your target market will depend on your product. Once you have determined who is most likely to buy and rely on your product, you can target your marketing to that group.

For example, if your product is shoes targeting a younger audience, you can create content for your site targeted to those people. You can also advertise on social media sites that are more popular with younger people, like Instagram and TikTok, and frame your messaging for youth.

Where? Choose your business premises

In the early stages of business development, operating from home is often the wisest move, as it helps keep costs low and, hopefully, it’s a place where you feel comfortable. Once your business expands, you’ll likely hire workers and might then need an office. You can find commercial spaces to rent on Loopnet, Instant Offices, and Square Foot.

When choosing an office, use these three rules of thumb:

  • Central location, easily accessible via public transport
  • Flexible lease that can be extended as your business grows
  • Ready to go, with no major modifications, renovations, or repair work needed
Should You Start an Ecommerce Business

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that is short and easy to remember — think of Zoom, Google, Amazon, Uber — since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some suggestions for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for name suggestions
  • Placing the product name or related words in the business name boosts SEO
  • Use tools like the Step by Step business name generator

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names at a web cataloging site such as NameChk. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Step 4: Create a Business Plan

Every business needs a plan, a rough outline that helps guide the startup through the launch process while maintaining focus on key goals. A business plan is also crucial for helping potential partners and investors understand your company and vision before they invest:

  • Executive Summary: Brief overview of the entire business plan; should be written once the rest of the business plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe each of the company’s products and services in detail and divide into segments, or departments.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your products.
  • Sales and Marketing: Consider your products’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location and management, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including start-up costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — a prerequisite to paying taxes, raising capital, opening a business bank account, and other guideposts on the road to getting a business up and running.

Registration is also exciting because it makes the entire process feel official! Once it’s done, you officially have your own business.

Choose where to register your company

Business location is a key decision as it can impact taxes, legal requirements, and even revenue. Most people register in the state where they live, but if you are planning to grow your business, you might consider doing a bit of research, as some states offer significant advantages.

Choose your business structure

Businesses come in several varieties, each with its pros and cons. The legal structure you choose for your business shapes your taxes, personal liability, and business registration requirements, so it’s important to choose wisely.

Here are the four main options:

  • Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner: you get to keep all the profits, but you’re personally liable for all debts.
  • Partnership – Similar to a sole proprietorship, but for two or more people. Again, they keep the profits and are liable for losses.
  • Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.

We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.

Business structure comparison infographic

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online, by mail, or by fax: visit the IRS website to learn more.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate on a calendar year (January–December), or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine what taxes you’ll pay.

All tax information is available at the IRS website and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing funds to support your business through its launch process and beyond is the next key step, and it can be done in a variety of ways.

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of a property or other asset, and support from family and friends.

Step 8: Apply for Licenses/Permits

Starting a new business often requires obtaining several licenses and permits from local, state, and federal governments.

Federal licenses and permits associated with an ecommerce business include doing business as (DBA), trademarks, copyrights, patents, and other intellectual properties, as well as any industry-specific licenses and permits.

Your state may require additional permits for ecommerce businesses, such as a general business permit or business license. The license requirements and how to obtain them vary from state to state, so check your state government’s website or contact the appropriate person to inquire about licenses and permits that you need to run an ecommerce business. You could also use the SBA’s guide to identify the required licenses and permits for your industry and your state.

Your city, town, or county may also have additional requirements for an ecommerce business, such as signage and zoning permits. Speak to representatives of your local governments about licensing requirements.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

For peace of mind and to save time, we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state, and provide them to you to make sure you’re fully compliant.

Step 9: Open a Business Bank Account

Investing for education, piggy bank piggy bank placed on the textbook, the idea of ​​saving money for education.

Once you launch your website, you will need to have somewhere to keep the money you make, and that requires opening a business bank account.

Keeping your business finances separate from your personal bank account makes it easier to track your company’s performance and file taxes and a profit, so it’s worth doing even if you’re running your business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer business account options, just inquire at your preferred bank to learn about rates and features.

It’s a good idea to look at a few options, as banks vary quite a bit in what they offer, and you want the rates that are best for you and your business.

Once you choose your bank, you just need to bring your EIN (or Social Security Number if you decide on a sole proprietorship) and your articles of incorporation or other legal documentation that proves your business is registered.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked but is vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating effect on your life and business.

Here are some of the different types of insurance to consider:

  • General liability: This is the most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is the one. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken down due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, food truck, or storefront.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and perfecting some key elements of your business.

Develop your website

Website development is crucial because this is the place where you will sell your products, unless you choose to use an online marketplace like Amazon.

You can create your own website using services like WordPress or Squarespace. This route is very affordable, but figuring out how to build a website can be time consuming. If you lack tech-savvy, you can hire a web developer to create a custom website for your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, a number of excellent software programs and digital tools can help you with many business tasks. We have broken them down into different categories below.

Marketing

As a new business, it’s important to get the word out to ensure customers find you.

Social media is a particularly good way of promoting your business because you can create engaging posts that advertise your products.

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men over age 50 in the Cleveland area.
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: Search engine optimization (SEO) will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
  • If you are unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Step 12: Build Your Team

If you’re starting small, you may not need to hire any employees right off the bat. But hopefully your business will grow and you will at some point need employees to fill various jobs. Potential positions at an ecommerce firm include:

  • Office manager – sets appointments, orders supplies, maintains office
  • Packers – help you package and ship products
  • Customer service representative – responds to customer complaints
  • Marketing Assistant – social media marketing, SEO, content creation

Your business may in the future need to hire all of these positions, or just one or two of them, depending upon its size and needs. You might also hire multiple workers for a single role, or a single worker for multiple roles, again depending on your needs.

Free-of-charge methods to recruit employees include publishing a job post on social media platforms such as LinkedIn and Facebook groups, or using free classified sites like Jobs and AngelList. You might also use a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Finally, you could hire a recruitment agency to help you find talent.

Step 13: Start Making Money!

Focus on USPs

Unique selling propositions, or USPs, are the special characteristics of your product that set it apart from the competition. Customers are inundated with buying options and need to be able to quickly grasp what’s novel about your product and how it fulfills their wishes.

Do all you can to ensure your USPs stand out on your website and all in your marketing and promotional materials, stimulating buyer desire.

USP venn diagram

Kickstart Marketing

Your marketing will start on social media, which could be crucial to your success. Your first marketing goal should be to gain a sizable following on all the major platforms. Post often about your products, highlighting elements that are unique or particularly appealing. Make a video announcing your product, and maybe another to mark your first big day of sales.

Your website will also be a critical part of your marketing. Once it is up and running, make sure it is accurately linked to your social media accounts, and vice versa.

Niche Your Market

You may want to consider creating a niche market for yourself by specializing in a certain type of product, like 100-year-old books or top-shelf tracksuits. An intriguing niche market can often jumpstart word-of-mouth marketing and sales, and then you are on your way!

Build Affiliate Relationships

Affiliate marketing is advertising in which you compensate third-party publishers, who are your affiliates, in order to boost traffic to your website and theirs. Developing long-term relationships with your affiliates is often the best approach, to gain a better understanding and generate traffic on an ongoing basis.

Ecommerce Business FAQs

How do I start an ecommerce business from home?

All you need is a computer, shipping supplies, and a product to sell. You can conduct all your operations from home until you outgrow your space, or retire to your private island.

Is e-commerce profitable?

Ecommerce can be very profitable. In just the first few years, an ecommerce business can make $100,000 or more in profits.

Can I get into ecommerce even if I don’t have much money?

Start-up costs are relatively low, averaging around $5,000. You can save up money to launch your business by first selling via an online marketplace, like Amazon or Etsy.