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.
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 September 13, 2023 Updated on January 30, 2024
$2,300 - $15,300
$75,000 - $500,000p.a.
Time to build
$45,000 - $125,000 p.a.
You may be asking yourself, what kind of online business can I start? The real question is what kind of online business can’t I start? Almost anything can be done online anymore, so the possibilities are endless. Ecommerce, online courses, tutoring, personal styling, bookkeeping – you name it, it can be done.
But before you get started, you’ll need some business know-how. Luckily, this step-by-step guide details all you need to know to be successful in online entrepreneurship.
Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.
Average level of education – The average ecommerce specialist has a bachelor’s degree.
Average age –The average ecommerce specialist in the US is 36.6 years old.
How much does it cost to start an online business?
It’s difficult to project the startup costs for an online business since there are so many business possibilities. If your business doesn’t involve inventory or digital product development, you just need a computer, website, and a marketing budget, for which you might need about $2,500.
If your business will involve inventory or digital product development, you might need $15,000 or more.
Setting up a business name and corporation
$100 - $500
Business licenses and permits
$100 - $300
$500 - $1,000
$1,000 - $2,000
Inventory or digital product development
$0 - $10,000
Sales and marketing budget
$500 - $1,000
$2,300 - $15,300
How much can you earn from an online business?
Income from online businesses can vary greatly, depending on the product or service. These calculations will assume that you’ll sell products for an average of $50 and have about a 60% profit margin when you’re working from home on your own.
In your first year or two, you could work from home and sell 1,500 items online in a year, bringing in $75,000 in revenue. This would mean $45,000 in profit, assuming that 60% margin.
As you gain traction, sales could climb to 10,000 items a year. At this stage, you might have an office and hire staff, reducing your margin to around 25%. With annual revenue of $500,000, you’d make a tidy profit of $125,000.
What barriers to entry are there?
There are a few barriers to entry for an online business. Your biggest challenges will be:
Breaking into a competitive market
Funding the startup costs
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Now that you know what’s involved in starting an online business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Navigating the digital business landscape often starts with personal introspection. Your unique skills, passions, and experiences are the first clues in uncovering potential market niches. Ask yourself: What am I passionate about? What skills or expertise do I possess? Have I had experience with e-commerce or perhaps worked in digital marketing consultancy?
The subsequent step involves identifying pain points in the market. Your aim is to find a gap that your business can address. As an illustration, there might be a demand for an online gardening course or an upcycled furniture e-commerce store that hasn’t been met.
You might consider targeting a niche, such as an online store that sells home improvement products.
Lastly, immerse yourself in current market trends, understanding consumer preferences, and staying updated with emerging technologies. Leveraging tools like Google Trends or industry reports can be invaluable in spotting up-and-coming niches. Take, for instance, the burgeoning field of artificial intelligence (AI); it’s a sector brimming with opportunities for an entrepreneur.
Here are five profitable opportunities for an online business:
Description: E-commerce involves selling physical or digital products online. Whether you’re creating your own products or sourcing them from suppliers, an e-commerce store allows you to reach a global market without the overhead of a physical storefront.
Potential: As consumers increasingly shift to online shopping, there’s enormous potential in e-commerce. Utilizing platforms like Shopify, WooCommerce, or BigCommerce can simplify the process. Dropshipping, where you don’t hold inventory but instead transfer customer orders directly to a manufacturer or wholesaler, is another popular e-commerce model.
Description: This involves promoting other people’s products or services and earning a commission for every sale made through your referral link.
Potential: By partnering with companies or platforms like Amazon Associates, CJ Affiliate, or Shareasale, you can tap into an existing product base. The key is to focus on niches or products you’re genuinely passionate about and create authentic content (blogs, reviews, videos) to promote them.
Subscription Boxes or Membership Sites
Description: Subscription businesses provide customers with regular shipments of products or access to exclusive content. This can range from curated boxes of gourmet foods to access to online courses or premium content in a specific niche.
Potential: The recurring revenue model makes subscription-based businesses appealing. It ensures a steady stream of income as long as you can retain subscribers. It works especially well when you offer unique, high-quality goods or content that caters to a dedicated audience.
Digital Courses and E-learning Platforms
Description: Share your expertise by creating online courses, tutorials, or workshops. These can be hosted on platforms like Teachable, Udemy, or your own website.
Potential: The e-learning industry is booming, as more people seek to learn new skills or hobbies online. If you’re an expert in a particular field, there’s likely an audience willing to pay for your knowledge.
Description: Develop a software solution that addresses a specific need or problem, and offer it on a subscription basis.
Potential: The demand for digital tools and solutions is ever-growing. Whether it’s a new project management tool, a unique design software, or a niche app, SaaS can lead to substantial recurring revenue. The key is to ensure that your software remains updated, user-friendly, and provides genuine value.
On the other hand, if you’re leaning towards a dropshipping business, the essential steps involve sourcing a reliable supplier and identifying a catalog of products you wish to offer. This could range from niche-specific items like eco-friendly household goods to broader categories like fashion apparel.
In both scenarios, a deep understanding of your audience’s demands, combined with thorough market research, can guide your selections, ensuring your offerings resonate with potential customers.
Who? Identify your target market
Determining the target market for an online business is tied to the nature and specifics of the enterprise itself. At the core is the product or service being offered. For example, the demographic interested in high-end luxury items will differ starkly from those looking for affordable DIY solutions.
Similarly, the price point of the offering, be it budget-friendly or premium, will directly influence the segment of the market you aim to engage. Also, the business’s niche and industry play a pivotal role; for example, vegan skincare brands will naturally gravitate towards ethically-conscious consumers.
Geographical considerations, even in online ventures, hold significant sway. Your target audience can vary based on whether you cater to local, regional, or global markets, as geographic reach factors in cultural nuances and regional preferences.
Moreover, the way a brand portrays itself – its branding and positioning – will attract corresponding sectors of the audience. A brand emphasizing eco-friendliness will resonate with a different crowd than one highlighting luxury.
How much should you charge for products or services?
Whatever you decide to sell should be priced based on market prices, but also on your costs to source the products or provide services.
Once you know your costs, use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Where? Choose your business premises
In the early stages, you may want to run your business from home (or in a coworking space) to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office.
If the online business involves creating physical products, a production facility or workshop might be necessary. For example, a business selling handcrafted jewelry or artisanal goods would need a production space.
E-commerce businesses that handle their own inventory will require storage space. This could range from a spare room for small businesses to large dedicated warehouses for bigger operations. On the other hand, dropshipping businesses would rely on third-party centers to store, pack, and ship products.
Content creators, vloggers, or online course creators might need a professional studio setup for recording high-quality videos or podcasts.
Online businesses that manage vast amounts of data, run complex computations, or operate large-scale websites might require dedicated servers housed in data centers.
Some online businesses, especially those in the retail sector, might have pop-up shops or permanent physical stores.
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’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas 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
Name should be relevant to your product or service offerings
Ask around — family, friends, colleagues, social media — for suggestions
Including keywords, such as your product or service name, boosts SEO
Name should allow for expansion
Avoid location-based names that might hinder future expansion
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 using our Domain Name Search tool. 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 and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation.
Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
Executive Summary: Provide a brief summary of your online business, highlighting its niche, target market, and unique selling proposition.
Business Overview: Describe the nature of your online business, emphasizing what products or services you’ll offer and your online presence.
Product and Services: Detail the range of products or services you plan to offer online, focusing on their appeal and value to customers.
Market Analysis: Analyze the demand for your offerings in the online market, considering factors like customer preferences, trends, and market size.
Competitive Analysis: Identify key competitors in the online space, emphasizing what sets your business apart in terms of pricing, quality, or customer experience.
Sales and Marketing: Explain your strategies for online sales and marketing, including website development, social media promotion, and digital advertising.
Management Team: Introduce the team members responsible for running the online business, highlighting their relevant experience in e-commerce or related fields.
Operations Plan: Outline the day-to-day operations of your online business, including website management, order processing, customer service, and fulfillment.
Financial Plan: Present financial projections, including startup costs, revenue forecasts, expenses, and profit margins for your online business.
Appendix: Include any additional information relevant to your online business, such as website mockups, digital marketing plans, and supplier agreements.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
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 online businesses.
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.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your online business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
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. Here’s how to form an LLC.
C Corp – 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. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose an 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.
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 or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in 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 which taxes you’ll pay.
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 financing is your next step and there are plenty of ways to raise capital:
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: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities.
Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best option, other than friends and family, for funding an online business. You might also try crowdfunding if you have an innovative concept. If you go into a high growth industry, you might even be able to attract angel investors or venture capitalists.
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.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your online business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
General liability: 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 it. 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 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, storefront, or office.
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 the above insurance types.
As opening day nears, prepare for launch by reviewing and improving some key elements of 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, many websites and digital tools are available to help simplify many business tasks.
If you’re 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.
Create a website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, 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 designer or developer to create a custom website for your business.
Your customers or clients are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.
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 “Order”. This can sharply increase purchases.
Here are some powerful digital marketing strategies for online businesses:
Social media is a great tool for 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 under age 50 in the Cleveland area.
Instagram: Same benefits as Facebook but with different target audiences. It’s a very good platform for creative businesses.
TikTok: This social media platform has over 1 billion monthly active users and it is used primarily by a younger demographic.
LinkedIn: the most effective place for B2B marketers.
Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal.
Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
Pay–per-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
Influencer marketing – Pay people with large social media followings to promote your product or service. You can find micro-influencers with smaller followings and lower rates.
Make a podcast – This allows you to make a personal connection with your customers
Offer a free download – Offer something of value to download from your website to capture emails.
Create infographics – Post infographics and include them in your content
Post a video – Post a video about your product or service. Use humor and maybe it will go viral!
Do a webinar – Share your expertise online with a video seminar
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand.
Traditional marketing is any form of marketing that uses offline media to reach an audience. Some options that might work for an online business include:
Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as buy one get one free.
Limited edition – Offer a one-time version of your product.
Seek out referrals – Offer incentives to generate customer referrals to new clients.
Press releases – Do press releases about new products, sales, etc.
Testimonials – Share customer testimonials about how your product or service helped them.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets 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 product or service 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.
For example, global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.”
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 online business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in online businesses 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 online businesses. 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.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a online business depend on the nature of your business.
At some point, you may need to hire for many positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Run an Online Business – Start Making Money!
The internet offers convenience and information, but it also offers a whole world of online business opportunities. And the great thing is that you’re not limited by geography when attracting customers. You just need to find your niche and get the word out.
Now that you understand what’s involved in the business, you’re ready to hit the ground running and become a successful online entrepreneur!
Online Business FAQs
Is an online business profitable?
Yes, an online business can be profitable, but success depends on various factors including the business model, market demand, competition, execution, and the value you offer to customers. Many online businesses have proven to be highly profitable due to the low overhead costs, global reach, and the ability to target specific niches.
What is the growth potential of an online business?
The growth potential of an online business can be substantial. With the right strategies, you can scale your business quickly due to the ability to reach a global audience and the potential for automation. Online businesses can experience exponential growth if they tap into a high-demand market, offer unique products or services, and effectively market their offerings.
What type of business is an online business?
E-commerce stores selling physical or digital products.
Online marketplaces connecting buyers and sellers.
Affiliate marketing websites promoting products from other companies.
Dropshipping businesses that don’t handle inventory directly.
Content-based websites (blogs, YouTube channels) monetized through ads, sponsorships, or affiliate marketing.
Online courses or membership sites offering educational content.
Software-as-a-Service (SaaS) platforms.
Consulting or coaching services delivered remotely.
Can you start an online business on the side?
Yes, many people start online businesses on the side while maintaining their regular jobs. This approach allows you to test your business idea, build your brand, and generate income before transitioning to full-time entrepreneurship. Starting on the side also reduces financial risk and gives you time to refine your business model and strategies.
How to Start an Online Business
Decide if the Business Is Right for You
Hone Your Idea
Brainstorm a Business Name
Create a Business Plan
Register Your Business
Register for Taxes
Fund your Business
Apply for Business Licenses and Permits
Open a Business Bank Account
Get Business Insurance
Prepare to Launch
Build Your Team
Run an Online Business - Start Making Money!
Online Business FAQs
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