In 2019, ecommerce had a 14.1% share in the global retail marketplace; by 2023, Statista projects that 22% of all retail transactions will take place online.
In hard money terms, sales in the U.S. could total more than $475 billion by 2024 — and that’s just B2C.
At the same time, legacy brands with physical stores like Lord & Taylor and Century 21 are filing for bankruptcy.
Is This Guide for You?
If you want to learn how to start an ecommerce business, or you already have one and want to up your game, you’re in the right place. We’ll talk about how to set up an ecommerce business, from pinpointing an idea to finding a manufacturer to growing your customer base. Throughout, we won’t just talk theory—you’ll get concrete tips on what to do to make it happen.
The time to move your business online was yesterday.
You’ll find this guide useful if…
You are starting an ecommerce business from scratch
You already have an ecommerce company, but sales just aren’t where you need them to be
You own your own ecommerce store but are having trouble scaling it up to size
1. Finding Ecommerce Products
If you’re totally new to the world of ecommerce, you might be wondering just what exactly you should be selling. In fact, getting stuck on this is a big reason why people never take the plunge in starting their own ecommerce businesses.
In actuality, you have to be strategic in identifying a set of products or a single item that’s trendy, or not so easy to find in stores or on popular ecommerce websites like Amazon.
That’s why going the generic route and opting to sell books or jewelry will likely lead to a dead end. There are already lots of major players out there meeting those demands.
Instead, you’ll want to go with more specific items that appeal to a particular audience. We suggest starting by making a list of potential products you might like to sell in your store. Think about things that you, your friends, coworkers, or family would be interested in. Also explore social selling siteslike Pinterest, Etsy, or even Instagram for more input on what to sell.
There really is inspiration everywhere once you start looking, and you can always verify whether your product ideas are any good by searching for them on Google Trends.
For more on what to sell, check out the following resources:
Have a brainstorming session
You may have been told in the past to just sit down and have a good ol’ brainstorming session, and ideas will come to you. But this advice is trash. It’s trash, not because it’s wrong, but because it doesn’t tell you exactly what to do and why you are doing it.
The key is to flip your thinking: The question isn’t, “What can I sell to make money?” The question is, “What do other people need that they will pay money for?” Switch from me, me, me to them, them, them. That’s how you’ll win.
(Bonus: You also don’t need to sit down while brainstorming. Pace the room, lie in the park, go for a jog, whatever gets your creative juices going.)
To assist your brainstorming, there are tools out there that specialize in product research. Take for example Jungle Scout. They offer a Web App and Chrome Extension to help you sort through potential products to sell on Amazon.com. The Jungle Scout tools report the kind of data that helps you discover products with high demand that you might not otherwise find. Data such as monthly sales estimates, competitor reviews, sales rank, and even an opportunity score that weighs demand and the competition.
There are several different ways to filter all of the data, but there are several pieces of criteria they recommend to use as a rule of thumb during your research:
- Social listening. Hang out on parts of social media where others in your industry post or where your target customers spend time, and see what they say. Browsing trending hashtags or using social listening tools to gather data over time can also provide valuable insights.
- Following search trends.Google Trends is a great place to see what trending products people are searching for. It can also tell you the keywords used most commonly in search, and what problems people are commonly trying to solve.
- Browsing e-commerce websites and aggregator sites.Pages like Trend Hunter or assorted subreddits for your niche can clue you into developing trends before they get big.
As you brainstorm, try to keep in mind that you’re brainstorming specifically for ecommerce, not a brick-and-mortar store. The best ecommerce ideas check off three major boxes. We call this the golden trifecta:
- Trending – You ideally want an idea that’s en vogue. Everyone can go to their local store to grab the same old, same old. What are you doing differently to capitalize on recent trends?
- Light – We’re not talking color or aura. We’re very literally talking about weight: You want a product that isn’t heavy. Why? Unlike a physical store, you have to ship your products, and shipping for heavy items can be astronomical. Keeping your product light keeps your costs low.
- Cost efficient with high value – This is simple. In a perfect world, you would sell a product that costs nothing to make yet sold for millions of dollars each. We don’t live in this magic world, though, so the goal is to get as close to that ideal as possible. Try to brainstorm products that have low production costs but high perceived value (so people look at your products and say, “Oh wow that’s impressive and I want it now!”).
2. Researching Other Online Businesses
Research is integral to the success of your ecommerce store. Once you have chosen your products, look at competitors and what they are doing. Here are a few things to pay attention to when doing a competitor analysis:
- What is their business model?
- Are they selling multiple items or just one product?
- What social media channels do they utilize?
- Who is their target market?
- How do they push sales? (e.g. paid social, PPC, SEO, email, etc.)
Competitor analysis can lead you to identify better products to sell and give you a great understanding of how to launch an online business.
Executing a competitive analysis requires some planning, research and honest introspection. Take it step by step, and you may be surprised what you discover about the business environment in your neck of the woods.
Identify your competitors
On the surface, this seems like an easy step. A quick Google search reveals who else is selling similar items. But understanding competition requires a bit of thinking and nuance. First, you must understand the different varieties of competition you face.
Direct competitors are those rival businesses who sell goods and services identical or nearly identical to your own. If you sell funny t-shirts, you are in direct competition with other websites selling funny t-shirts as well as brick and mortar stores also selling funny t-shirts.
Indirect competitors sell good and services that are not the same as yours, but which satisfy the same customer need. For instance, a restaurant that sells pizza is in direct competition with another pizza parlor down the block, but it is indirectly competing with hamburger stands and catering companies. Potential customers want food, and they can satisfy that need in a variety of ways.
Finding your competition begins with research. Use keywords that describe your company in a Google search. Be thorough and search every term and combination of terms you can think of, taking care to include terms that cover your indirect competitors as well.
Identify the top search results for businesses in your product or service area. Determine how your offerings compare to theirs and what differences stand out. Dig deeper into your biggest competition by investigating:
- Annual reports
- Government reports and certifications
If possible, contact their current and former employees. They provide invaluable insight into how a competitor’s business strategies, best practices and potential pitfalls.
SWOT the competition
Once you’ve identified your main competitors, analyze their capabilities and the health of their businesses. A long-standing economic tool known as SWOT analysis focuses on four sectors to determine a company’s viability: strengths, weaknesses, opportunities and threats. For each competitor, use a whiteboard, draw a large box and separate it into four equal parts. The top two quarters contain strengths and weaknesses, the bottom two contain opportunities and threats.
Strengths and weaknesses refer to real assets and tangible factors that affect a business. List the company’s available resources and possible liabilities, such as:
- Funding, income and investments
- Location, equipment and facilities
- Employees, customer base and other human resources
- Trademarks, patents and copyrights
- Processes, employee programs and software systems
- Fixed and variable costs
Opportunities and threats refer to external factors that can positively or negatively impact a business, such as:
- New products entering the marketplace
- A shift in technology or customer needs
- Economic trends
- Demographic changes
- Changes in government regulation
- Changes in supplier and partner relationships
This analysis provides a sharp picture of your competitors’ health and where they may be vulnerable. Once you’ve performed a SWOT analysis for them, perform the same analysis for your own business.
Create product profiles
Now that you know your competitors’ strength and weaknesses, assess their products or services in much the same way. If your products are similar, how are theirs better than yours? How are they worse? If your products are identical, what service do they provide to add value for customers?
This is the most important step in competitive analysis. By understanding what your competitors sell, you identify gaps in the market. Adapt your products or services to fill the gaps and create new customers.
Be systematic and begin by analyzing yourself.
1. Perform an honest assessment of your own products and services by rating several relevant metrics on a ten-point scale:
- Customer service
- Location or market visibility
- Business reputation
2. Perform the same ratings for your top competitors’ products or services.
3. Examine where your product is strong in comparison to your competition and what your competition does better than you.
4. Use this information to change your product, offer new products or re-focus your promotional strategy to fill gaps in the market.
This process works on any scale and for many other aspects of business.
9It is particularly valuable to create profiles for marketing and promotional strategies. Discover where your competition is not advertising and expand your marketing into those areas. Find new target demographics. Perhaps there are untapped populations who will form a solid customer base for your business. Reach out to them and let them know how your product or service will benefit them.
Competitive analysis never ends. The marketplace continuously evolves. Businesses without a clear picture of the landscape fail to adapt. Use the tools outlined above at regular intervals to avoid surprises and keep a step ahead.
4. Create your business structure and register your company.
To get started in earnest, you need to pick a business structure and register your business. If you’re a freelancer trading under your own name, you can sign up as a sole proprietor; otherwise, you’ll most likely register your ecommerce company as a partnership, an LLC, or an S corporation.
This type of business structure is ideal for self-employed people who don’t want to (or aren’t ready to) register as an LLC. It’s a straightforward process in most parts of the country. In many states, you don’t have to register your freelance business unless you operate under a pseudonym. Five states — Oregon, Alaska, Montana, Delaware, and New Hampshire — don’t have statewide sales taxes. In most other states, you pay sales and use taxes quarterly.
The setup might be simple, but there are a couple of major drawbacks to sole trader status. Firstly, if your company goes bust, your personal assets aren’t protected under the terms of a sole proprietorship. Secondly, you’ll be subject to self-employment tax, which increases as your earnings go up. The way out of both issues? Pick a different business structure.
Limited Liability Company (LLC)
When you register an LLC, you limit your personal liability by separating your own assets and your business’s assets. To get going, appoint a registered agent — the person who’ll represent the LLC — and file articles of organization with your home state. You’ll need to pay a fee, but it won’t come to more than a few hundred dollars.
As the owner (also known as a member) of an LLC, you can manage your own company or hire staff to do the work for you. You’ll need to get an Employer Identification Number(an EID, also known as a Federal Tax Identification Number, or FTIN) from the IRS before hiring employees.
You don’t have to file a tax return specifically for your LLC; instead, its profits travel through the company to you, and you pay self-employment taxes on all of your profits.
If your company hits the big-time and you begin to earn a lot, you can elect to pay taxes as an S corporation instead. At that stage, you can allocate yourself a “reasonable” salary and avoid any taxes on profits over that amount.
Limited Liability Partnership (LLP)
You can create an LLP just as easily as an LLC, but there are a few differences between the two business models. An LLC can have one or more members; an LLP has to have at least two members. Unlike LLCs, LLPs have to define at least one partner member who will take legal responsibility for the partnership’s actions. Silent partners and investors in an LLP are not personally liable if the company goes bust, gets into business debt, or gets sued.
Small business owners usually register as LLCs; professional partnerships — law firms and accounting firms, for example — go for LLP status. In many states, LLCs and LLPs both have to produce annual reports. Like LLCs, LLPs function as pass-through organizations for tax purposes.
You don’t have to bring in millions of dollars a year to incorporate your company. With that said, nearly all very large publicly traded businesses are corporations. Two corporate structures exist:
The C Corporation
All businesses that incorporate are automatically C corporations unless they apply for S corporation status with the IRS. Like LLCs, C corp owners have limited liability, so they’re not held responsible for business losses. If you need to raise significant capital, you can take your business public and sell corporate stocks and bonds to investors. On the flip side, you’re taxed twice: once on your own salary and again on company profits.
The S Corporation
To create an S corp, you first need to form a C corp and then apply to the IRS for S corp taxation status. Like LLCs, many S corporations act as pass-through organizations.
Owners pay themselves salaries and pay income taxes on those earnings, but then don’t have to pay taxes on their remaining profits. S corporations can’t have more than 100 shareholders, so if you decide to go public later on, you’ll need to convert your S corp to a C corp.
You’ll almost certainly spend more on accounting services after you incorporate your company. Corporations have to issue regular financial statements and tax season is quite a bit more complex if you decide to register your business as a corporation, so you’ll almost certainly spend more on accounting services every year.
Obtain Appropriate Business Licenses
If you plan to do business as an LLC, an LLP, or a corporation — basically anything but a sole trader operating under your own name — you’ll probably need some type of business license. I
f you run a dropshipping business from home under an assumed name, you’ll have to get a DBA license and a sales tax license, for example. Business licensing and permitting requirements vary from state to state, so it’s important to check if you fall into any of the categories in your jurisdiction.
Branding Your Company
Visual branding is a complex topic worthy of its own 2,000-word article, but we’ll go over it in nutshell form here. To make your company memorable and create brand awareness, you need to come up with a logo and complementary branding colors that stay the same across all of your sales channels.
You can design a logo yourself, or you can use a freelance designer to get a professional result.
5. Set up your e-commerce store
Once you have chosen your products and done your competitor research, the next thing to do is build your store. Choosing e-commerce platform like like Shopify can make setting up your store easy. Shopify has lots of templates to start with and an easy to use online store builder that doesn’t need coding input.
When building up your ecommerce store, choose a theme that suits your target audience and prices that reflect the success you envision.Naming your ecommerce business something memorable will guarantee that people will remember your name. This also applies to your logo, which can be as colorful or creative as you want it to be.
When your website is ready to start taking orders, remember to try a test order yourself to make sure the process is smooth for the customer. Alleviate any additional steps needed to buy something online and only ask for information that is necessary for the check out process.
When setting up your website, you’ll want to include these essential pages:
An obvious link to your store is a must, even if you have products for sale on the home page. If you have a number of different product types, you can include a drop down menu for different categories.
Don’t forget to tell people the purpose of your site, and the story behind how you came to be.
Provide essential information on the logistics of shipping, and your return policy, in one easily accessible place so that customers don’t have to tear their hair out looking for it. Macy’s, for example, has a great returns page, as it gives visitors clear steps for how to return items. (Want tips on how to write a great returns policy? BigCommerce has you covered.)
Make sure the header of your site gives users a clear place to click for info on how to contact customer support.
As you run customer support, you’ll start getting a certain set of questions about your store over and over and over again. Instead of just emailing the same answer a billion times, you can compile all those answers on a “Frequently Asked Questions” page.
The next step is to set up the store itself. Don’t panic. While this could get technical really quickly, it doesn’t have to, because you can let someone else do the hard part for you. There are severalE-commerce platforms that allow you to set up a shop pretty much instantly, letting you focus on your product and brand.
3. Manufacturing, Packaging, and Shipp Your Ecommerce Product
One of the biggest pain points for people learning how to start an ecommerce business is the pure logistical challenge. You’re not a huge corporation, so how, exactly, can you manufacture a real, live, physical product?
Yeah, it can seem staggering. Lots of people just think, “Oh, that’s not realistic. I couldn’t do that.” And they turn away, pursuing some other business idea, or even worse, abandoning their entrepreneurial ambitions entirely.
That’s too bad, because the truth is that in today’s world, ordinary people really can hash out the logistics of manufacturing and shipping products.
What’s more: You’re reading this guide, and you’ve gotten this far. That alone means you have enough drive to push through and make this happen.
Manufacture Your Product
When people are first learning how to set up an ecommerce business, they have a ton of questions about manufacturing. That’s fair—it’s complicated. But here are the basics.
There’s no need to stress out about assembling parts or figuring out every technical detail on your own or turning your garage into a mini factory. Really, you don’t need to manufacture your product yourself at all.
Instead, you can contract with an experienced manufacturing company to get the job done. By working closely together and drawing on their expertise, you can keep upfront costs low when first starting out.
Who should you work with? There’s a lot to consider in that decision, but when you’re first developing your product, the first rule is to stick with someone local. By partnering with a nearby manufacturer, you can be more involved in the process and avoid the hassle of communicating with strangers halfway across the globe.
How much does it cost to start an ecommerce business? The majority of the costs will come from manufacturing your product. Global manufacturers can put out lots of product for cheap. But they generally demand a high minimum order, requiring that you purchase something like 1,000 units of your product right off the bat. For new ecommerce stores, unless you’re lounging in a hammock between two money trees, that cost can be prohibitive. Global manufacturers can be tough to work with when developing and prototyping a new product, mainly because of the logistics of being so far apart and dealing with a place you’re not familiar with.
So how do you find a local partner? When searching for a manufacturer for your early-stage ecommerce business, you should ask two big questions:
- Where are they located?
- Can they put out quality product?
Location is key, for the reasons mentioned above. Unless you already have connections, the best way to find a local manufacturer is simple: Just search for it online. Say you live in Boston and you’re starting an ecommerce business selling bracelets and other jewelry. Go to Google and type in “bracelet manufacturer boston” or “wholesale bottle manufacturer seattle.”
Yes, I basically just told you to Google it, but what can I say? That’s where you start.
Once you find several manufacturers you might want to work with, it’s time to research them.
What are their track records? Can you find other business owners complaining about them online? Who else do they manufacture for?
You should also reach out and chat. Ask them to explain their processes and pricing. Get them to give you an idea of the quality of the work they produce, not with empty promises, but with real, physical examples of things they’ve made. This is another reason starting off with a local manufacturer is the best move.
Later on, once you feel confident enough in your product to place much larger orders, you can always transfer production to a global manufacturer. The best bet for finding a global manufacturer who fits your needs is Alibaba, where you can create a free account and browse millions of merchants.
Even if you’re creating your product on your own, you still might need a supplier for raw materials. Some of these same tips can help you through that process.
Find a Global Manufacturer
Eventually, you may be ready to move from local to global manufacturing in order to get a higher volume of product at a more affordable rate. When you arrive at this stage, fire up Alibaba, the biggest online commerce company in the world.
Alibaba is a massive directory of manufacturers, suppliers, and other merchants. With millions of sellers on the site, it’s the perfect spot for finding manufacturers who can produce merchandise at scale.
Finding and sourcing global manufacturers is an extensive subject and needs more detail than what we can write here. Fortunately, we can offer some great resources to dive in a little deeper:
7. Drive traffic to your e-commerce store
Launching an ecommerce site is easy. The challenge comes when you need to drive traffic to it. We’ll cover both paid and free digital marketing tactics to boost your website traffic – and sales.
Organic Marketing Channels
Organic marketing channels take time to build traction, but they create the strongest long-term return on investment (ROI). A few of the best tactics include:
- Search engine optimization (SEO): Relevant keywords included in page text, product descriptions, and other website content boost search engine rankings.null
- Content marketing: This includes starting a blog on your site, optimizing blog posts, articles, to drive targeted traffic to your site.
- Social media pages: Active Facebook, Instagram, and Twitter pages encourage new website visits.
- Link building (off-page SEO): It is very hard to get Google traffic without a lot of high-quality, relevant links to your website. These link building strategies include guest blogging and forming link partnerships with other sites in your niche.
- Email marketing: Email is a huge marketing channel for ecommerce businesses. You should choose and email marketing service that lets you create email popups, send abandoned cart emails, create welcome email series (that include discounts), and send targeted, image-rich marketing emails for holiday promotions.
Paid Marketing Channels
Paid marketing channels produce quick results, so they’re a popular choice for start-ups as well as large-budget businesses. While they provide quick online marketing wins, they typically have a lower ROI than free tactics (excluding affiliate marketing, which has a strong ROI).null
Here are some of the top paid acquisition channels for ecommerce brands:
- Affiliate marketing: Bloggers and influencers with popular websites join your company’s affiliate program and are paid affiliate commissions for any sales they help generate via their affiliate links.
- Influencer marketing: Social media influencers on Instagram, Facebook, TikTok, and other platforms promote your products for a fee. (Here are my guides about how to make money on Instagram and TikTok.)
- Pay per click (PPC) advertising:You set up PPC ads with Google and pay each time someone clicks on your ads. This can also include Google Shopping ads, which sync to your product catalog and make your products available on the Google Shopping platform.
- Social media ads: Paid social media ads on Facebook can target new prospects and retarget previous website visitors. One of the best Facebook Ads strategies is to use their DPA ads. These ads appear to Facebook users who visited your product pages and highlight the exact same products they saw on your website. You can also sell directly on Facebook with product listings.
The most effective marketing strategies use a combination of different channels to capture consumers and generate conversions.null
If I were to start an ecommerce business from scratch today, I would first create a strong SEO strategy. This includes conducting keyword research around terms that have high search volume and could bring in your target audience.
For example, if you sell camping supplies, you could write a blog post on “The Top 10 Backpacking Tents” and link to your product pages within the content.
Next, you’d want to develop a strong link building strategy and partner with other blogs in your niche to get backlinks. This will increase your website’s Domain Authority (DA) and make it easier to rank all of your pages on search engines.null
Finally, I’d use paid advertising carefully, staring with retargeting ads on Facebook. Then I’d move to PPC ads on Google only if you can generate a strong ROI.