How to Start an E-Commerce Business

An e-commerce business is a virtual storefront used to sell goods or services online. To start an e-commerce business, you’ll need to decide on a business model, pick a product or service, register your business and build a website. You may also need to write a business plan and arrange for financing (such as grants or small business loans), depending on what you’ll be selling and where.

Getting started and maintaining an e-commerce business is a massive undertaking. Fortunately, there are resources to help you get started in today’s information-rich digital age. This article will lay out step-by-step how to create an e-commerce business.

What is an e-commerce store?

E-commerce, also known as internet commerce or electronic commerce, is the process of buying and selling products or services online. Although e-commerce is often used to refer to physical product sales made online, the term also includes any commercial transaction that takes place on the internet. Not all businesses with an online presence or website have an e-commerce platform.

The past three years have seen pivotal growth in the global e-commerce market. Morgan Stanley reports that in 2019, e-commerce sales accounted for just 15% of total retail sales. That percentage grew to 21% in 2021, and by mid-2022, approximately 22% of all retail sales globally were made via e-commerce. Valued at $3.3 trillion in 2022, the global e-commerce market is expected to be worth $5.4 trillion by 2026.

Virtually any existing business today can benefit from an e-commerce storefront option. If you have ideas for a startup, you can launch a profitable business using just e-commerce without a brick-and-mortar retail location.

Starting your own e-commerce business

Starting an e-commerce business is similar to launching any type of business: it begins with research and a plan.

• Conduct market research: Once you have your business idea, conduct market research to become an expert in the space or industry you plan to enter. Check out similar businesses and competitors to plan for your own business.

• Write a business plan: A business plan serves as a roadmap for your business development. This document typically includes a company description, market analysis and financial projections, and it may be requested by lenders if you apply for a business loan.

• Identify how to fund your business: All businesses need to make money, but this can be difficult at the beginning and you may need cash to get off the ground. There are a few different ways to fund a startup — boot-strapping, asking for investments, securing venture capital or applying for small business grants or loans.

• Choose your business structure: You need to decide if your business will be a simple structure like a sole proprietorship, a partnership, a limited liability company (LLC), a corporation or a non-profit organization.

After these initial planning steps, you may need to address a few more logistical matters depending on the nature of your business. Find information on registering your business, getting federal and state tax IDs, applying for licenses and permits, opening a business bank account, getting insurance and building your brand in our guide to how to start a business.

Decide which business model will work for you

Deciding what type of business model makes the most sense for your new venture is key to its success on the web. Here are some commons business model classifications to choose from:

• Business-to-consumer (B2C): This is a standard model where businesses sell directly to consumers. Think clothing boutiques, grocery stores and other retailers.

• Business-to-business (B2B): B2B is a standard business model where one business sells to another. An example of the B2B model is when a software company sells its products or services to another business.

• Business-to-business-to-consumer (B2B2C): When a business sells its product to another company and that second business resells it to the consumer, it’s called a B2B2C model. For example, a manufacturer sells its product to a wholesale distributor, who then sells it to consumers.

• Business to government (B2G): An e-commerce model where a company sells its products to government entities or public administrations is called B2G.

• Consumer-to-business (C2B): C2B is a less commonly known business model where individuals sell goods and services to companies. The C2B e-commerce model gives consumers the power to name their prices or have businesses compete to meet their needs.

Now that you understand some common business models let’s dive into some business strategies that perform well in e-commerce.

Private labeling

With private labeling, a product is manufactured by a third-party manufacturer and sold under a retailer’s brand name. When you walk around a retail store like Target, you’ll find common brand names like Frito-Lay and Cape Cod, but also Archer Farms, Target’s private label brand. Private labeling is an option for e-commerce businesses and in-person businesses.

Retail arbitrage

Retail arbitrage is when you buy a product at a lower price and sell it at a higher price for profit. If you have a good eye for deals and resale values, you may be able to make money engaging in retail arbitrage. With this strategy, you can make money from home by purchasing goods at consignment or resale stores and reselling them at a markup on popular sites like Amazon, eBay, Mercari, Poshmark and Facebook Marketplace.

Dropshipping

If you like the idea of retail arbitrage but don’t want to shop around for one-off deals or handle inventory, consider dropshipping. Dropshipping still entails buying products for a low price and selling them for a higher one, but in this case, you partner with a warehousing company that ships directly to the buyer.

Print on demand

If you’re a creative entrepreneur, consider a print-on-demand e-commerce business. Print on demand is when you buy blank products like tee shirts, bags or baseball hats and sell them to consumers with your own designs. The perk of a print-on-demand business is that you don’t pay for the cost of the product until after it sells, eliminating the need to buy in bulk or hold onto excess inventory. Everything after the sale — from digital printing to shipping — is handled by your supplier.

Brainstorm product ideas and types

Just as there are many ways to go about opening an e-commerce store, you can choose from a wide range of products to sell. Some popular retail arbitrage and dropshipping products include apparel and footwear, beauty and personal care, kitchen and dining items, baby products and pet supplies. If you’re interested in creating a buy-low-sell-high e-commerce business, start with one of these popular categories.

Like a print-on-demand e-commerce business, you can create an online business by selling your creations. Platforms like Etsy are designed to allow entrepreneurs to sell their handmade or hand-designed creations online. Some popular options for this type of business include wedding favors, anything that can be made with a Cricut machine, Canva templates, printable stock photography and art prints.

Create a business plan

Now back to the logistics. As mentioned above, you should create a business plan before starting your e-commerce business. Business plans can help structure, manage and grow your enterprise. Here are the main components of a traditional business plan:

• Executive summary
• Company description
• Market analysis
• Organization management structure
• Service or product line
• Marketing and sales plan

Not only are business plans vital for starting your business, but they are often used to present to potential investors, partners and lenders. These are some of the most important things to include in a basic e-commerce business plan:

Products and pricing

Use your business plan to define your key products, how much they will cost to produce and anticipated margins. Your product lines can expand and evolve over time, but having a clear starting point is essential to your new business.

Target customers and marketing strategy

Equally as important as defining your product is defining your targeted customers. Who needs your product? What demographics are currently using or purchasing products like yours? How will you reach these potential customers? Answer these questions to develop a practical and realistic marketing plan.

Financial goals and startup costs

How much funding your business needs depends on your overall vision and your current financial situation. With all the expenses needed to start a new business and an e-commerce platform, you should not expect your business to be profitable in its first year. It usually takes three to four years for a new business to become profitable.

Register your business and obtain the necessary business documentation

Even if your e-commerce business isn’t tied to a geographic location, you likely still need to register and buy a business license. Visit the Small Business Administration (SBA) to find out if you need to register your business or learn what state office to use for registering. Depending on the industry, your business may need to purchase licenses or permits in addition to registration costs.

Obtain business funding

When starting any kind of business, it’s important to consider where you’ll obtain business funding. That said, how much it costs to launch an e-commerce business varies depending on your industry, scale and goals. Common costs for an e-commerce startup include:

• E-commerce software
• Domain name
• E-commerce website hosting
• Payment processing costs
• SSL certificate
• Add-ons and extensions
• Marketing and advertising
• Additional personnel (if needed)

Once you have an idea of your startup costs, familiarize yourself with the different ways to obtain funds for your new e-commerce business:

Self-funding

Also known as bootstrapping, self-funding involves saving enough money to start your business on your own. The main benefit of this is that you’re not beholden to business partners or investors.

Reaching out to investors

If you don’t have the income to start your businesses alone, you can turn to family and friends for financial loans or gifts. Alternatively, consider seeking venture capital from investors. Angel investors are wealthy individuals who often invest in small businesses, asking for a percentage of the company stake in return.

Small business grants or loans

Just as with education, free financial assistance is available for small business owners. While grants don’t require repayment and may have less rigorous credit score requirements than business loans, they’re often competitive and may come with lengthy applications. To find grants you may be eligible for, focus on non-profit organizations that align with your business and search for government small business grants at Grants.gov.

If you can’t get free financial assistance, you can always apply for a small business loan. Most credit unions and online banks have lending programs for small businesses, and the SBA loan program partners with lenders to provide federally backed loans with competitive terms and interest rates.

Test product quality from suppliers and bulk order the winners

Once you have funding to order products, research suppliers and other vendors. There are many options to choose from, but make sure your supplier can consistently provide a product that meets your quality standards. Likewise, choose a supplier that can scale with you as demand for your new business increases or decreases due to market conditions or other factors.

Choose an e-commerce platform and build your website

Once you have a product in hand from a reliable supplier, select your e-commerce platform. There are many e-commerce or point-of-sale (POS) platforms to choose from. Some popular options include Revel, Square, Shopify, eHopper and Clover.

Building a website is about creating an easy-to-navigate place for your customers and potential customers to interact with you and buy your product. You want this website to represent your brand and help you stand out from the competitors.

WordPress, Squarespace and Wix are popular website platforms offering simple DIY options. If you’re building an e-commerce platform for your website, consider working with a web developer or designer to help develop your website.

Launch your website and start selling

The initial heavy lifting is complete: you’re ready to start making sales. Decide on a soft launch date when your website goes live without much promotion. This can help you ensure the site can withstand some web traffic and run smoothly. Then, pick a hard launch date and start promoting your website and product to the masses. Social media and Google pay-per-click advertising are good ways to start promoting your new e-commerce venture.

Your guide to starting a brand new online business

Here’s a summary checklist for starting a brand-new e-commerce business:

• Decide what business idea you want to launch
• Conduct market research
• Create a business plan
• Set financial goals and create a plan to cover startup costs
• Obtain the necessary registrations and licenses
• Find a reliable supplier for your product
• Select an e-commerce platform for selling
• Create a website and start selling
• Market, promote and nurture your new e-commerce business