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Much like starting any business, learning how to start an e-commerce business isn't always easy — but setting up, launching and maintaining sites where entrepreneurs, designers, and creators of all sorts can sell their wares is more attainable now than ever.
Ecommerce businesses — which are businesses that transmit goods, services, and funds over the internet — vary in size and scope, from retail behemoths like Amazon to Etsy craft sites. Online shopping is just one of many areas that have seen extensive growth over the past five years. According to a report from the U.S. Census Bureau, in the third quarter of 2019 alone, U.S. e-commerce sales amounted to approximately $154.5 billion, accounting for 11.2% of all retail sales in the nation.
Depending on your goals, it might make sense to start an e-commerce business. After all, without the need for a brick-and-mortar location, e-commerce businesses offer greater flexibility, affordability, and opportunity for many entrepreneurs. So how exactly do you start an online business? This guide is here to help.
We'll break down how to start an e-commerce business in seven simple steps — so that you have all the information you need to get your online business up and running in no time.
How to start an e-commerce business
Although there are notable differences in starting an e-commerce business compared with starting a brick-and-mortar business — there are also a number of similarities. As we'll discuss below, many of the planning and legal steps you'll need to take will follow the same process (more or less) than any other business. However, once it's time to start your operation, you'll see how different starting an e-commerce business can be.
Step 1: Research the e-commerce space and find your niche
The first step in learning how to start an e-commerce business is performing the necessary research. Just as if you were starting a restaurant and looking into different locations, food options, and themes, you'll want to investigate the e-commerce area you're interested in and make some decisions with regard to your specific business.
For example, you'll want to consider what exactly your e-commerce business is going to offer. Will you be selling products or services? If you're selling products, are they physical or digital? Where will you source your products? Along these lines, you'll also want to think about the type of business model you want to employ — will you offer single products, packages, subscriptions, or something else?
Additionally, you'll want to think on a broader scale during this process as well: How will you get your products or services to your customers? What will your startup costs look like? Are there legal or other regulations on your product or service that you need to keep in mind?
These lines of questioning, among others, will be integral to the beginning of your business and will help you start to create and write your business plan. This process will give you a better sense of your specific goals and how you're going to reach them. Particularly in the e-commerce space, an important part of this step is finding your niche.
Although the growth of the e-commerce industry is a great benefit for those looking to learn how to start an e-commerce business, it also means more competition. You'll want to perform competitor research and find a space where you think you can establish your brand and find success in selling products and services.
Step 2: Select your business name and choose a legal structure
Once you've solidified the plan for your e-commerce business, the next step is to choose a name. Like any other business, you'll want to choose a name that's unique, but also that clearly indicates what your business is or does. You'll likely want to consult your local secretary of state's website, as well as the U.S. Patent and Trademark Office to ensure that you're not choosing a business name that's already claimed by another company.
Although you won't want to invest too much time on a website quite yet, it will be worthwhile to check to see if your potential business domain name is available. If your domain name is currently being used, you may consider a different business name, or a different structure, such as "yourbusinessname.co" instead of "yourbusinessname.com."
Next, choose your business's legal structure. The business entity type you pick will have important legal and financial implications for your e-commerce operation. Generally, you'll choose to create a sole proprietorship, general partnership, LLC, or corporation. There are benefits and drawbacks to each of these entity types, so you may decide to consult an attorney or another legal professional for advice on the best option for your business.
If you choose to start a sole proprietorship or general partnership, you won't actually have to register in the state where you're operating. Instead, your business will be associated legally under your individual name, meaning if you want to operate under the name you've chosen, you'll need to need to file a DBA or "doing business as" application with your local government.
Step 3: Apply for an EIN
Next, you'll want to apply for an EIN, or employer identification number, for your e-commerce business. Although not all business entity types are required to have an EIN, this nine-digit number can be useful to help you separate your personal and business finances. Plus, you can apply for an EIN from the IRS, for free — either online, by mail, fax, or phone. Since you're learning how to start an e-commerce business, you'll very likely want to apply for this business tax ID online, and once you do, you'll receive your number instantly.
Step 4: Obtain business permits and licenses
After you've applied for your EIN, you'll now want to obtain any business licenses or permits needed to operate legally within your city and state. As we mentioned above, if you've established your e-commerce business as a sole proprietorship or general partnership, you don't actually need to register your business with the state — unless you're filing a DBA to legally operate under a specific business name. For the other business entity types, however, you will need to register your business with your state and receive a general operating license. Depending on where your business is located, you may also need to acquire a local operating license as well.
Generally, because most e-commerce businesses are home-based, they do not require as many business licenses and permits as brick-and-mortar stores. However, you'll want to determine what the specific requirements are in your area — you can usually find this information online via your state or local government website. For example, most locations require that home-based business owners receive a home occupation permit to legally operate. This type of permit simply shows that by operating your business out of your home, you aren't adding traffic, noise, or problematic conditions to your location.
Some other types of business licenses and permits that you may need include:
Professional and trade licenses for certain industries.
Sales tax permits.
Health, safety, and environmental permits.
Building and construction permits.
Step 5: Choose an e-commerce platform and create your website
At this point, you've completed the paperwork required to register and legally start your e-commerce business. In this way, the majority of our steps thus far have mirrored the process of starting a brick-and-mortar business. Now, however, instead of searching for a location and preparing to set up up your physical store, you'll start creating your website and online store.
Like a physical storefront, this website will be the face of your business — it's what your customers will see first and what they'll use to browse and purchases your products or services. With this in mind, creating your website will be one of the most important parts of starting your e-commerce business. You'll want to consider a few different points as you develop your online storefront:
First, you'll want to think about your domain name, as we mentioned above. You'll want your domain name to (at least closely) match your business name. Along these lines, and perhaps your most significant decision will be choosing an e-commerce platform. Whether an all-in-one software, like Shopify, or an open-source platform, like Magento, your e-commerce platform will be the base you use to build and develop your online store.
Most e-commerce platforms not only allow you to create and launch your online store, but also customize your design, add your domain (or purchase one), manage inventory, take and ship orders, receive payment, and more.
Although there are hundreds of these platforms available on the market, you might consider any of the following popular solutions for starting your e-commerce business:
Perhaps the most well-known and popular e-commerce software out there, Shopify offers an all-inclusive, user-friendly solution with a variety of add-ons. You can purchase a Shopify subscription in one of four plans, starting with Shopify Lite at $9 per month (this plan doesn't include a full online store).
If you already have started a WordPress site, or are familiar with the platform, you can download WooCommerce to start selling on your WordPress site. This plug-in is open-source, free to download and includes the full range of e-commerce features. Compared with Shopify, however, WooCommerce is best-suited for business owners who have some technical knowledge to take advantage of its open-source nature.
Most often thought of as website builder, Squarespace also offers e-commerce capabilities and is known for its modern templates. You can choose from two eCommerce-specific plans from Squarespace — Basic at $26 per month or Advanced at $40 per month.
Like Shopify, Squarespace is user-friendly and can accommodate business owners of all technical skill levels. However, as a website builder first, Squarespace may not offer as many features, tools, or add-ons as some other alternatives.
Finally, if you want to be able to customize every aspect of your online store, you might choose to use the open-source version of Magento. With this e-commerce platform, you can manipulate every element and customize your site — but you also must have the technical skill (or pay for it) to do so.
Although it's safe to say this platform isn't typically suited for e-commerce beginners, if do have the technical skill needed, or the budget to pay to work with a developer, you'll find that Magento likely offers the most of any open-source solution on the market — plus, it's free to download.
As you can see, there is a lot involved with this step and a variety of important considerations to take when choosing the right platform for your e-commerce business. You'll want to think about cost, features, usability, and more — ultimately, as the backbone of your e-commerce business you'll need a functional system that allows you to get up and running and manage your operations on a day-to-day basis.
Once you've decided which solution is right for you, the next thing you'll need to do is actually work on customizing and launching your site. You'll want to think about how you want your online store organized, what you want the design to look like, what colors you want to use, etc. Depending on your platform and budget, you may decide to create and launch your website yourself, or you might invest in a professional designer or developer for assistance.
Step 6: Source or develop (and list) products
After you've chosen your e-commerce platform and started your website, you've almost reached the end of the process. At this point, you'll need to actually source the products you're going to sell. You should have already thought about how you're going to go about this process when you performed your research in step one. You may make your own products, source them from distributors, or — if you're selling your own services, like as a consultant, for example, you may simply have to describe and list these services on your business website.
If you're selling products, as you might imagine, this step will be more complex, as you'll need to consider the inventory you want to start out, as well as what these startup costs will look like. You'll also want to make sure that you take the time to list your inventory on your online store — thinking about the customer experience, SEO, and the way the process will work from when a customer purchases a product to when they actually receive that product.
Step 7: Market your e-commerce business
There you have it — you've learned how to start an e-commerce business. Now that you have your products or services prepared and listed on your online store, your website is up and running, you're ready to start serving customers. In order to do this, of course, you'll need to properly market your e-commerce business.
There are a variety of marketing strategies you might decide to utilize — Google ads, social media ads, word of mouth, and more. At the most basic level, you'll want to optimize your business website for SEO and take advantage of any online marketing tools that are included within your e-commerce platform.
As your e-commerce business is up and running and you start to receive orders, you'll want to keep track of which marketing tactics are working and which aren't — especially if you're investing money in them. As time progresses, you'll be able to adjust and change your marketing strategy to find what works best for your business.
How much does it cost to start an e-commerce business?
So, now that we've gone through each of our steps involved in how to start an e-commerce business, you may still be curious about one important factor: cost. As you might imagine, by starting an online business, you'll be saving on a variety of costs that are associated with brick-and-mortar stores — rent, property insurance, furniture, and more.
However, although it's perhaps easier to fund an e-commerce business on a tight budget, there are still a number of different costs that will be required to get started. As is the case with any business, it's difficult to determine exactly how much it will cost to start your e-commerce business. Your startup costs will largely depend on the type of e-commerce business you're starting, the software or platform you choose, how you're sourcing your products, among other factors.
With this in mind, you'll likely want to think about your budget carefully as you start out and keep track of all of your expenses along the way. Specifically, you'll want to consider the following costs:
Business licenses and permits: Depending on your entity type, location, and what you're selling, you can face a range of costs for licensing and permits — some states charge low fees, anywhere from $10 to $50, where others can charge a few hundred dollars for incorporating.
Ecommerce software: Although it may be free to download an open-source platform, there will be other costs associated with this type of solution (developer fees, hosting, add-ons, etc). For an all-inclusive platform, on the other hand, you'll be able to find some of the most basic options at low prices ($16 per month for Square Online Store, for example). More advanced and expansive solutions will require greater costs, with Shopify Advanced capping at $300 per month.
Domain name and hosting: Some e-commerce solutions will include a domain name or hosting within the cost of the platform and some will allow you to purchase your domain name through them. If you need to purchase your own domain name and hosting, however, you can expect to pay anywhere from $1 per year for the domain to around $15 per year and an average of $30 per month for hosting.
Payment processing: To accept payments online, you'll need to work with a payment processor like Square or Stripe. Once again, some e-commerce software solutions will include their own payment processing with the platform, whereas others will allow you to integrate with your preferred system. Generally, you'll pay around 2.9% plus $0.30 per transaction that is made at your store.
Inventory and shipping: Depending on what you're selling, your inventory and shipping costs can range drastically. However, of all the costs we've discussed thus far, your initial investment for inventory will likely be your greatest. You'll want to purchase inventory carefully, especially when you're first starting out — you don't want to spend too much money on products you won't be able to sell. Your shipping costs, of course, will depend on your sales, the shipping services you use, the size of the products you're sending, and the shipping speed options you offer to customers.
Marketing and advertising: As a general rule of thumb, it's safe to budget about 6% or 7% of your gross revenue for marketing and advertising. As you're starting out, this can be difficult to estimate, so you'll certainly want to take advantage of any free marketing and advertising options you have available. Then, once you have a better idea of what works well for your e-commerce business, you can start exploring paid options for promoting your store.
You might also incur additional costs for things like equipment, employees, consultants, and more.
Ultimately, as Roxanne King, owner of The Holistic Mama e-commerce site, tells us, although it may be tempting to choose cheaper options for e-commerce builders and other tools, some additional fees are unavoidable and some are worth investing in. As an example, King uses additional apps with her Shopify store, like an auto-ship feature and up-sell pop-ups that cost an extra $50 per month, which she feels are worth the investment.
Tips for starting an e-commerce business
As with launching any new business, starting an e-commerce business can, at times, feel overwhelming and stressful. As part of the online selling community, you'll have access to a variety of entrepreneurs and business owners who will very likely be willing to offer their tips and best practices to help you as you start out. When we talked to Roxanne King, owner of The Holistic Mama, we had her share three of her tips for success:
1. Start simple
Back in 2011, King — already a prolific healthy living blogger — began creating and refining her own natural skincare products at home in the wake of a pregnancy and years of issues with preservative-laden commercial products. It wasn’t until a couple of years later that she made the transition from giving out her homemade cleansers as gifts to selling them in farmer’s markets and online — this was her beginning to starting an e-commerce business.
“I would hardly call it a marketplace in the beginning. It was a page on my blog that I named ‘Store’ and I sold only one product for a few months,” King said. “There was a button for people to pay with PayPal only, which I got using PayPal’s site and copy-pasted onto my WordPress blog.”
Although she credits her small start as part of the reason for her future success — she was able to refine the process of selling and shipping before moving on to larger-scale selling — and eventually, she needed a more usable and secure platform — she now uses Shopify.
2. Share your business across multiple channels
King credits “accidentally” having a blog two years before opening her store with helping jumpstart her business, and recommends others do the same.
“I had so many followers already that when I offered a product for the first time, customers already trusted me,” she said.
In this way, sharing your business, or brand, across social media channels like Facebook, Instagram, Twitter, and Snapchat can be particularly useful when you're just starting your e-commerce operation. These kinds of early marketing are free and can be used to drop hints and build excitement about upcoming launches or product reveals.
3. Invest in multichannel selling
King’s Holistic Mama products are now carried at Whole Foods as well as on her expanded store site. She also carries some of her products on Amazon as a third-party seller. Small-business owners who have their own site but also sell on Amazon — often seen as a competitor — are simply covering every corner of the market.
“Amazon is a very small percentage of my sales, but it's important to be there because some people only shop on Amazon,” King said.
Plus, there are other benefits to selling through a larger outlet like Amazon, including the ability to test whether your product will be as popular as you predict, lower shipping rates if you frequently use Fulfillment by Amazon, and a built-in trust factor that often facilitates purchasing by customers on the Amazon marketplace. Some consumers are still wary of online shopping, but trust that an Amazon-vetted seller will fulfill their order in a timely manner.
Although maintaining your own store and vision is paramount to starting an e-commerce business, you also shouldn't rule out using larger platforms to help elevate your sales and brand name.
The bottom line
There are plenty of advantages to starting an e-commerce business instead of a brick-and-mortar one — the initial investment is much lower, you can begin big or small, and your online store can operate 24 hours a day, seven days a week, for customers all over the country (or the world, if you’re willing to ship that far). It’s also much easier and less costly to expand operations if need be — all making starting an e-commerce business all the more worthwhile for aspiring entrepreneurs.
There are, however, important steps to take and investments to make if you want your business to emerge as an internet success story. You should treat your e-commerce website like any other business — stay compliant with tax laws, obtain the necessary permits, invest in customer retention and communication, and don’t forget about building a mobile-friendly platform: King says 60% of her sales come through mobile devices.
Ultimately, King gives future e-commerce business owners this final word of advice:
"With e-commerce, you really need to build up trust, because people aren't seeing you in person ... so they could be skeptical. The good thing is, with blogs and social media, it's easier than ever to build that trust. Give them an inside look at your life and your business, and they'll want to support you.”
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.