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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on November 18, 2021
Investment range
$2,200 - $7,500
Revenue potential
$73,000 - $365,000 p.a.
Time to build
0-3 Months
Profit potential
$23,800 - $138,800 p.a.
Industry trend
Growing
Commitment
Flexible
Important reminders for launching your ecommerce business:
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.
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.
Ecommerce sales in the US have been increasing since the late 1990s, when the Dot Com boom brought the value past $1 billion, according to market information researcher IBISWorld.
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.
Trends in the ecommerce industry include:
The industry faces some challenges like:
Ecommerce specialists are tasked to increase a company’s conversion rate and sales.
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 Costs | Ballpark Range | Average |
|---|---|---|
| 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 |
Your profit will vary depending on:
The average gross profit margin for an online retail 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 $1,000 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!
Ecommerce presents few barriers to entry. Your biggest challenges will be:
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.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Here are the factors to consider when doing the research and deciding on the products that you want to sell:
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.
Once you’ve pinpointed the products you want to sell, the next vital step is to figure out how you’ll acquire them.
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.
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.
When launching an e-commerce business, the virtual nature of your store means that your physical premises take on a different role. Rather than customer-facing retail space, you’re looking at storage, office space, or even just a good setup at home.
Drawing from extensive experience in e-commerce startups, here’s how to make the best choice for your business’s unique needs.
Leveraging a fulfillment center is ideal for e-commerce sellers aiming to outsource inventory storage and order fulfillment. By entering a contract with a reliable third-party logistics company, you can ensure efficient product handling and timely deliveries, freeing up resources to focus on growing your business and enhancing customer experience.
Here are some suggestions for brainstorming your business name:
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.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Establishing your online presence through an ecommerce store is the most important aspect for your store’s success. Follow these essential steps to create a robust and user-friendly shopping platform:
Secure a short, memorable domain name that reflects your brand. Typically, businesses opt for a ‘.com’ extension, as it’s widely recognized. Check the availability of desired domain names using our Domain Name Search tool below.
Choose a platform that suits your budget and customization needs. Popular options include Shopify, Magento, and WooCommerce. Evaluate their features and scalability to find your best fit.
Most of these ecommerce solutions offer seamless integration with WordPress through plugins, ensuring that even those with minimal technical expertise can set them up and start selling quickly.
If your e-commerce platform or website builder does not include a hosting service as part of its plan, you will need to select a reliable e-commerce web host. Your hosting provider will store your website’s files and ensure it’s accessible online. Some of the best hosting services for an ecommerce store are Shopify Hosting, Hostinger, and SiteGround.
Select a responsive theme that aligns with your brand. Most ecommerce platforms offer a variety of free and paid options. Tailor your chosen theme to match your brand’s identity, adjusting colors, fonts, and layouts as needed.
If you’re creating a custom online store (without using a website builder or an ecommerce platform), we strongly recommend consulting with experienced developers to ensure a smooth and successful setup. You can hire a developer from platforms like Upwork or Toptal to assist with complex customizations. Check their portfolios and reviews to ensure a good fit.
Start populating your store with your products, ensuring each listing is comprehensive and well-organized. Break down your inventory into logical categories or collections, making it easy for customers to find what they are looking for. High-quality images are crucial; they should accurately represent the product and be uniform across your store.
In your product descriptions, be clear and concise but also include all necessary information a customer might need to make a purchase decision. Remember to optimize your product pages for search engines by using relevant keywords, which can help in increasing your store’s visibility on search engine results pages.
Integrate secure payment gateways, and consider offering a variety of payment methods to accommodate customer preferences. Some popular payment gateways include Amazon pay, Skrill, Stripe, PayPal, and 2Checkout.
Define your shipping strategy and integrate with major carriers for automated rate calculations. Offer multiple shipping options and communicate shipping policies clearly.
Ecommerce automation refers to the use of software tools and systems to streamline and optimize various business processes and workflows within an online store, ultimately reducing manual effort and increasing efficiency. This can encompass areas such as inventory management, order processing, customer service, and marketing.
To achieve ecommerce automation, you can integrate tools and platforms specifically designed for this purpose, such as:
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.
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to ecommerce.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Businesses come in several varieties, each with its pros and cons. The legal structure you choose for your ecommerce business shapes your taxes, personal liability, and business registration requirements, so it’s important to choose wisely.
Here are the four main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
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.
The IRS website also offers a tax-payers checklist, 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.
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 and SBA loans are probably the best options, other than friends and family, for funding an ecommerce business. You might also try crowdfunding if you have an innovative concept.
Starting an ecommerce business requires obtaining several licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but 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 ensure you’re fully compliant.
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.
Before you start making money, you’ll need a place to keep it, and that requires opening a 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.
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:
As opening day nears, prepare for launch by reviewing and perfecting some key elements of your business.
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.
Ensure that product descriptions are detailed, accurate, and compelling.
Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now” or “Shop”. This can sharply increase purchases.
If you have a physical location, optimizing for local SEO and setting up a Google Business profile and Yelp can help attract local customers.
Use tools like Google PageSpeed Insights to check your site’s speed. Consider compressing images, using a content delivery network (CDN), and optimizing your code.
A significant portion of online shopping occurs on mobile devices. Ensure that your website is mobile-responsive, offering a seamless experience to users on all devices.
Social proof is powerful in influencing buying decisions. Incorporate a product review section on your site, allowing customers to leave feedback and share their experiences.
A well-structured, intuitive navigation system can enhance user experience. Categorize products logically, implement a search function, and regularly review and adjust based on user behavior and feedback.
Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your ecommerce business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Do all you can to ensure your USPs stand out on your website and in all your marketing and promotional materials, stimulating buyer desire.
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running an ecommerce business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in ecommerce for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in ecommerce. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
If you’re starting small from a home office, you may not need to hire any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for an ecommerce business include:
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.
Ecommerce is a massive market that is predicted to grow much faster. You can still get in on the action by starting your ecommerce business now. But first, you might want to consider creating a niche market by specializing in a certain type of product, like 100-year-old books or top-shelf tracksuits. An intriguing niche market can often jumpstart an efficient marketing and sales campaign.
It’s important to keep yourself updated with the latest trends, such as curated shopping and social commerce. Now that you know how to start an ecommerce business, you should be on your way to success!
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.
Ecommerce can be very profitable. In just the first few years, an ecommerce business can make $100,000 or more in profits.
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.
The success of an ecommerce business depends on various factors, and there isn’t a single type that can be considered the most successful. Different ecommerce models, such as business-to-consumer (B2C), business-to-business (B2B), dropshipping, subscription-based, or marketplace platforms, each have their own advantages and potential for success.
Generally, niche products or unique items that cater to a specific target market tend to have higher profit margins. Additionally, products with high demand, limited competition, or those that solve a specific problem for customers often have good profit potential.
Starting an ecommerce business can be challenging, but it’s also an opportunity for growth and success. The difficulty can depend on factors such as your level of experience, market competition, sourcing reliable suppliers, establishing a strong online presence, and managing logistics and customer service effectively.
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