Ecommerce businesses are businesses that transmit funds, services, and goods over the internet. They vary in scope and size, from retail giants like Amazon to craft sites like Etsy.
Online shopping has been one of the many areas that enjoyed extensive growth for the past five years. Therefore, depending on what your goals are, it makes sense to start your own e-commerce business.
Without the need for you to establish a brick-and-mortar location, this type of business offers greater opportunity, affordability, and flexibility for many entrepreneurs.
Much like starting any kind of business, learning the ins and outs of launching an e-commerce business won’t always be easy. But, thanks to the continued advancement of technology, setting up, launching, and maintaining websites where creators, designers, and entrepreneurs of all sorts can start selling their wares is more attainable today than it ever has been.
Below is a discussion of the things to consider when starting your first e-commerce business.
1. E-commerce Business Model
A critical step in starting an e-commerce business is research. Don’t operate with limited knowledge. Always remember that growing an online business is a form of investment. Treat it like one.
Ecommerce is one broad industry, and there isn’t a business structure that works for all. Physical products, digital product sales, software, service-based businesses are only the tip of the iceberg. Before you decide what you’re going to sell online, you need first to understand the different e-commerce business models available.
Smartebusiness has a popular podcast called the Hammersley Brothers Ecommerce Podcast and have written the best selling ecommerce book 'Ultimate Guide To Ecommerce Growth' and both of these are a great way to explore the water before diving in and spending money on your first ecommerce store.
If you like to have a warehouse full of goodies, then you have to invest more upfront and work with a warehousing or wholesaling model. If you have a brilliant business idea for a favorite product you want to sell under your brand, check out white labeling and manufacturing.
There are subscriptions, too, where you have to carefully curate a single product or a set of products to be delivered to your customers at regular intervals. And then, of course, you have the single product category. In this model, you’ll have control over the branding and content marketing on a focused product. You’ll supplement it with affiliate marketing, which means you’ll drive sales by monetizing traffic.
Many people make the mistake of filling their e-commerce sites with dozens of categories, hundreds of products, and no real focus. Unless your budget is massive, you simply can’t be the next Amazon or Best Buy. That’s why if you want to run a profitable store, you have to niche down.
Choosing a niche is the most important step you have to take in opening your e-commerce business. You can start by identifying successful companies that are already working in this space. Make sure that your chosen area is competitive. The lack of competition isn’t a good thing here as it usually indicates the absence of a market.
However, you have to avoid picking an overly crowded niche, too, especially those that are already dominated by major brands. Drill down further on your goals if you’re still having trouble with niching down - the more specific you are with the area you want to focus on, the less competition you’re likely to face.
3. Ideal Customers
Now that you’ve already identified the model and niche for your business, it’s easy to get tempted to start looking for products to sell. Don’t do it. Before thinking about products, think about personas first. How can you expect people to buy the product you’re offering if you don’t have an idea who you’re selling to?
You have to provide answers to questions like - who are you as an online seller? Does your store represent something? If it does, what is it? Who are the ideal customers of your online business? You also have to stick out to a consistent brand image.
For example, a company focusing on natural skincare products for women that starts selling products for men wouldn’t last very long. After identifying your brand image and your ideal customers, it’s time to start coming up with product ideas.
4. Product To Sell
The next step to building your e-commerce business is knowing what products you want to offer directly to consumers. Finding a product to sell is often the most challenging part of your journey to becoming a successful online business owner.
Once you already have a product idea, how would you know that it will sell? The best thing to do is to start with one product and focus on it. You’ll invest less when beginning that way, and if you decide to offer more, test the waters with affiliate marketing.
In the example of a company that sells natural skincare products for women, find popular natural skincare products for women on Amazon and try creating content to send significant traffic to those affiliate products.
Observe it for a while, and if something catches fire, that’s the time you can consider starting your own brand of that same product. Affiliate marketing is an excellent way to validate your idea if you’re not 100% sure that the product you have in mind is going to work.
After landing on a product idea, the next step is to find out where and how you can obtain your products. Please take note that you have to evaluate the product carefully before investing in it.
You want to test the product thoroughly and get a feel for it yourself so you’ll have the chance to identify any potential problems and have customer service scripts prepared to answer common questions.
5. Business Name
Once you have already solidified your plan for your online business, choosing a name is your next step. Like any other business, choose one that’s unique but also a name that clearly indicates the image of your business - what it does or represents.
Also make sure to consult with the authorities to ensure that the name you chose isn’t something that’s already claimed and used by another company.
After finding out that your chosen name is indeed unique to your business, don’t invest too much time on your website quite yet. It would be best first to check to see if the potential domain name of your business is available.
Consider a different name for your business if the domain name is already in use. You can also try restructuring it like “yourbusinessname.co” instead of the traditional “yourbusinessname.com”
6. Business Legal Structure
Now that you already have a name for your business, your focus should shift to choosing your business’s legal structure this time. Please take note that whatever business entity type you’re going to select, it will have significant financial and legal implications for the operation of your e-commerce business.
Generally, you’ll choose a corporation, LLC, a general partnership, or a sole proprietorship. Each of these business entity types has benefits and drawbacks, so consulting with an attorney for legal advice is a good idea.
If you choose to create a general partnership or sole proprietorship, you won’t have to register in the area or state where you’re going to operate.
Instead, your e-commerce business will be legally associated under your name. That means if you want to continue operating under the name you’ve chosen for your business, you have to file a “doing business as” or DBA application with your local government.
7. Employer Identification Number
After settling the legal structure of your business, apply for an employer identification number or EIN for your e-commerce business. It’s essential to note that not all business entity types must have an EIN.
However, it can still be useful, especially if you want to separate personal and business finances, which is the ideal thing to do. You can apply for an employer identification number usually for free - either by phone, fax, mail, or online.
8. Business Permits And Licenses
Once you already have an EIN, the next step is to obtain the necessary licenses and permits for your business to operate legally in your city or state. This may not apply if you’ve established your online business as a general partnership or sole proprietorship, as previously mentioned.
But, you’ll really need to register your e-commerce business with the state where you’re going to operate to receive a general operating license for other business entity types. A local operating license may also be needed depending on the location of your business.
9. Ecommerce Website
At this post, you should have already completed all the paperwork required to legally start your online business. Now, instead of looking for a location where you can set up your physical store, you have to start creating a website to serve as your online store.
The website will be the face of your online business, much like a storefront for a brick-and-mortar one. Your potential customers will use it to browse products or services that they can purchase from you. It’s the first thing they’ll see about your business, so you want to make a good impression through it.
Choosing a platform for your website and actually creating it is one of the most crucial parts of launching your ecommerce business.
The Bottom Line
Learning how to start your own e-commerce business isn’t always easy. However, if you take it one step at a time by looking at each of the different considerations above, you’ll make the entire process more manageable, and you can have an online store that’s up and running fairly quickly.
Sam Makad is a business consultant. He helps small & medium enterprises to grow their businesses and overall ROI. You can follow Sam on Twitter, Facebook, and Linkedin.