How to Start an E-Commerce Business: A Comprehensive Guide

how-to-start-an-e-commerce-business

Starting a business with minimal overhead makes e-commerce attractive. E-commerce is the practice of buying and selling products electronically on the Internet. Understanding where to begin can be intimidating if you want to know how to start an e-commerce business. By taking small steps, you can go from zero to launch more confidently and then grow as you go.

How to Start an E-Commerce Business in 9 Steps

Many e-commerce brands are born from ideas, but it helps to know how to set up an e-commerce business in manageable steps once you’ve got that spark. 

1. Select a Product Niche and Source Products

If you have a product idea to sell online—such as sporting goods, apparel, cosmetics, or health and wellness products—that’s a great place to start, but you’ll soon see the vast selection of products in each classification. You’ll have a better chance of creating a unique online business that customers will seek out if you can find a relatively uncrowded product niche. 

A product niche is a more specific product type within a larger classification. For example, if you wanted to sell coffee, you could decide on high-grade, small-batch coffees from fair-trade suppliers.

Finding your niche is easier than you think. You can start by making a list of market segments that speak to your experience or where you have a personal affinity. Then you can narrow it down to specific products to consider within those segments. Google Trends is a service provided by Google which analyzes search traffic across the Internet. You can use it to find items that potential customers are searching for by looking at upward search trends for product keywords.

Once you’ve decided on a product niche and found products, start researching where to buy them, such as wholesale suppliers or consider manufacturing them yourself. Pay attention to the cost of manufacturing or the cost of sourcing. Then research the retail price of the products you’re interested in selling. 

The difference between the product cost and the retail price is your profit margin. The smaller the difference between the two, the more products you’ll need to sell to make a profit—after you consider other overhead costs like advertising, shipping, sales tax, physical location, and staff, to name a few.

2. Choose Your Business Name and Structure

Deciding which products to sell can help you create a business name and e-commerce business model for how you’d like to operate. You can choose to operate as a sole proprietor while learning how to start an e-commerce business and develop your growth plans. You can also select a corporate structure, such as a corporation, not-for-profit, non-profit, limited liability company, or partnership.

Once you’ve picked your business name, register the domain name so you can set up your website, which is a key step in how to start an e-commerce business. If your business name is already in use, consider naming the company after something unique or memorable that has a connection with the products you’ll be selling. Having a unique domain name will make it easier for customers to find, remember, share, and return to your website.

3. Get your EIN and Decide Where to Incorporate

Applying for your Employer Identification Number, or EIN, is one of the most crucial steps for how to start an e-commerce business. An EIN is also known as a Federal Tax ID Number, a unique nine-digit number assigned to business entities in the United States by the IRS. You use your Federal Tax ID to pay federal income taxes. A Federal Tax ID is requested by banks when opening a business bank account or applying for credit.

If you’re operating as a corporation, you can decide to incorporate outside the state where you reside. If you aren’t sure where to incorporate, it may be helpful to consult with an accountant or attorney who can review the benefits and liabilities of incorporating in various locations. Most states require you to pay income tax and sales tax that you collect from customers in your state and from other states.

4. Obtain Business Licenses and Other Documents

Depending on your business and the city or county you’re located in, you may need a state business license and a local business license. Suppose you’re selling retail products, and you want to secure wholesale pricing to improve your profits. In that case, you’ll also need a reseller license, and you can obtain one from the city or county where you’re doing business. 

5. Produce or Source Products 

The best products to sell online are inexpensive for you to produce or purchase, enabling you to maximize profit while keeping your retail price competitive. 

If you’re making your products, factor in the cost of materials and the time it takes you to complete pieces to help you project how many products you can create within a set amount of time. Ensure a reliable supply of raw materials to meet your ongoing production needs. In time, you may want to hire staff or outsource production to meet increased demand.

When sourcing products, finding a reliable supplier is essential for starting an e-commerce business. You may need to buy physical inventory from a distributor or wholesaler and store it in a warehouse or fulfillment center. In that case, you’ll need to evaluate the cost of goods, shipping to the warehouse from the supplier, storage, packing, and shipping to customers to determine the viability of purchasing from specific suppliers. 

Deciding to dropship can be the quickest way to start selling products because your supplier handles the manufacturing and shipping. When selecting a dropship supplier, cost considerations include product pricing, availability, and shipping or fulfillment fees; additionally, you’ll need to factor in subscription fees and purchase minimums. Having dropship products customized is a way to differentiate your offerings from your competitors who may be ordering from the same supplier. 

6. Manage Shipping Vendors and Costs

Shipping is what makes online shopping convenient for customers, and free shipping is one of the best ways to increase e-commerce sales. However, customers are more likely to abandon their shopping carts at checkout over high shipping costs. Selecting the fastest, most reliable, low-cost shipping service you can find is how to set up an e-commerce business to last. 

You can decide on flat rate shipping or charge carrier rates which can be displayed on your website shopping cart in real-time. Shipping methods can include same-day delivery or overnight, two and three-day ground shipping, and international shipping. 

7. Select an E-Commerce Platform

Using a hosted e-commerce platform is how to start an e-commerce business quickly. Choose an e-commerce platform that offers a complete system for managing products, orders, and customers, connecting with suppliers, warehouses, fulfillment, and shipping.

Some online selling platforms also include transaction processing with support for multiple payment methods. These features can be managed from an online account. There are website templates that can be custom branded and a content editor or website builder to customize the design and written content further.

Some e-commerce platforms also help to facilitate digital marketing with built-in email marketing software and the ability to post products to social media channels like Facebook and Instagram.  

Since people are 85% more likely to buy a product after viewing a video, many e-commerce platforms enable posting product videos on web pages. Other e-commerce platforms support multichannel live video selling to websites, mobile apps, and social media channels. 

8. Launch Your E-Commerce Site

After implementing some of these fundamental steps for setting up an e-commerce business, you can launch quickly after adding your products, pricing, product images, setting up shipping methods, and a payment system.  Add web content, including policies for handling refunds, returns, and privacy, and you’re well on your way. 

You may also know that search engine optimization is crucial to promoting your online business. Search engine optimization, or SEO, is how to start an e-commerce business that customers can find using search engines like Google. Search engines are automated to look for helpful content for people who use them to find specific information. The more informative your e-commerce website is about your business and the products you’re selling, the higher your website will rank in search engine results. 

Most consumers don’t click past the first page of search results, and many don’t read past the top five listings on the first page. The extra time you spend writing informative website content and unique, compelling product descriptions pay dividends in increased traffic and potential e-commerce sales.

9. Promote Your E-commerce Business

Publicizing your online business using several marketing channels is one piece of multichannel selling. Having a brand presence and selling items on multiple platforms is beneficial, considering that 73% of consumers visit stores in several ways when shopping. Here are a few ways to reach audiences for your business:

  • Encourage website visitors to join your email list. 
  • Advertise online or in broadcast media and print ads. 
  • Exhibit at trade shows, apparel markets, or other events. 
  • Use social media to meet and interact with people interested in the lifestyle, brand, or products you’re promoting. 
  • Start live selling to attract an audience for your brand and build a loyal following. 

How Much Does It Cost to Start an E-Commerce Business?

If you’re not planning to open a physical store, you’ll be saving some money on rent and other operating costs while learning how to start an e-commerce business. However, there are other costs to be aware of, such as:

Business Licenses, Incorporation Fees, and Permits

Depending on where you’re physically located, you may need to buy a business license from your city or county and maybe also from your state. Business license costs range from as little as $15 per year and typically need to be renewed annually. Depending upon your chosen business structure and the state where you decide to incorporate your business, you’ll also have to pay annual incorporation fees.

You may also need a permit to conduct business in specific industries or fields of work. The Small Business Administration provides a free online resource to find out where you may need to apply for a federal permit and recommends searching for permits you may need in the state where you’re physically located. A helpful resource to check for any state is to search for the Secretary of State’s website for permitting regulations.

Sales and Use Taxes

If your business is based in the United States and you’re selling products online, you’ll need to collect sales tax from customers in 45 states when they make purchases from your online store. Staying on top of your sales volume in each state and each state’s tax laws can be difficult. Knowing your tax nexus, which is the relationship between your business and the state where you’re doing business, is essential. 

The activities that can define your tax nexus in a state are:

  • Physical location
  • Location of hired workers and staff
  • Warehouse and inventory locations
  • Conducting sales (including e-commerce) and other business 
  • Corporate tax location

You’ll need to collect sales tax for your online sales. Figuring out how to set up an e-commerce business to collect the right amount of sales tax from each customer when your transactions are automated can be simplified by using sales tax automation software that integrates with your e-commerce store for as little as $19 per month. 

You may also need a sales tax permit or seller’s permit from the state or city where you’re doing business. A sales tax permit allows you to collect and remit sales tax. Sellers permits are usually required of businesses purchasing goods at wholesale cost without paying sales tax to later resell to retail customers, from whom sales tax must be collected.

Some locations require sales tax permits for events like flea markets and swap meets. You can search online to see what the local requirements are for where you’re located to see how to set up an e-commerce business with a tax permit so you won’t be charged fees and penalties later.

Use tax is collected when items are purchased from a state without paying sales tax. In that instance, use tax must be paid. Currently, 45 states charge use tax.

Keeping track of your accounting and taxes can be easier when you integrate your online store with a small business online accounting software system. This will also make managing your accounting and submitting your taxes easier at the end of the year. You can get started using online small business accounting software for as little as $9.95 per month for basic features and upgrade as your business grows.

Product, Inventory, and Shipping Costs

If you have physical inventory, you may need to store it in a warehouse or fulfillment center. Costs associated with using these services to receive, pick, pack and ship your items can range from $3 to $5 per item and up, depending upon your products and the labor associated with preparing them for shipping. Some fulfillment services charge a one-time setup fee to create your account. Others charge fees to receive, catalog, and store items shipped from a supplier. Kitting fees are charged when items must be assembled before shipping. 

When products are shipped to customers, shipping fees are charged. Shipping fees can vary depending upon whether the items are being sent overnight, flat-rate, by ground shipping, or internationally, and they can also differ by carrier. 

Payment Processing Costs

When considering how to set up a successful e-commerce business, shop around for payment processors. Since more customers will buy from your online store if you offer a variety of payment methods, you’ll need to be able to process transactions using several payment methods in addition to the transaction processing provider you select.  

Some payment providers charge a monthly fee ranging from $19.95 per month to use their payment processing services. Others like Google Pay, Apple Pay, PayPal, and Facebook Pay don’t charge monthly subscription fees.  

Most payment processors charge a transaction processing fee as a percentage of each sale ranging from 1.8% to 4% and up, depending upon the provider. Other factors, such as whether you have questionable credit or selling high-risk products, can drive the transaction fees even higher.

Domain Names, Website Hosting, and E-Commerce Software Expenses

Registering a domain name for your website is one of the first things you’ll probably do as you learn how to set up an e-commerce business. You can register a domain for as little as $2 the first year, but since annual domain registration needs to be renewed, it may be a better idea to register your web domain for a few years at a time. You can also buy website hosting to build a webstore that includes domain registration for as little as $9.95 per month, and some web hosting services also include email and web templates to get you started. 

If you’re looking for a complete e-commerce platform that has product and inventory management features, multichannel live selling, fulfillment, and shipping, you can try CommentSold for as little as $49 per month.

Advertising and Marketing Costs

When you’re starting out, using as many free services as possible to promote your online business may make the most sense. You can create social media accounts on Facebook and Instagram to reach audiences on each platform, then move on to TikTok, YouTube, Twitter, and others. 

As you expand your online footprint, you may want to invest in a social media planning app to help you keep track of where and when you want to post and track messages that you want to reply to so that you can engage audiences more easily.  

Another potentially free avenue to explore while you’re seeing how to start up an e-commerce business is to begin creating your email list. Some e-commerce platforms include an email list signup form or pop-up window that you can activate to encourage people to sign up. You can also ask your social media followers to sign up using a form that you can add to your Facebook Page.

Once you are ready to expand to paid advertising, you may wish to explore Facebook ads, which enable you to decide how many Facebook users you want to reach for a daily ad spend starting at $3 per day. You can also advertise on Google or Bing search ads for as little as $5 per day. You can and should utilize a tool like Google Analytics to measure your advertising ROI as well as track your social networking sites. It’s prudent to keep your ad spend small until you start seeing results that you can replicate on each paid ad service.

Tips for Starting an E-Commerce Business

When you’re deciding how to start an online business, getting caught up in all the details of obtaining products, launching your website, and developing your digital marketing strategy is easy. But it’s important to remember whom you’re selling to and why. Consider these customer-centric tips to reach your goals for success more quickly than you may imagine.

Put Customers First

All businesses need customers to stay in business. The most successful e-commerce business owners learn how to set up an e-commerce business for success by figuring out who their customers are and giving them what they want. Thinking about your customer base can influence every step in how to set up an e-commerce business. Some customers can be demanding, but as long as you remember these points, you’ll be well on your way to building a relatable brand that customers like:

  • Communicate with customers to engage them in conversations that help build relationships, trust, and social proof. Increasingly, that means being visible on social media channels like Facebook and Instagram or using live video selling to interact with them personally, demonstrate products, and answer their questions.
  • Be entertaining. Give your customer base a reason to open your emails, visit your website, read posts on your social media channels, and watch your live videos. Customers want to interact with brands, but you have to present content they want to see and engage them. Find things your customers are talking about and ask them questions to jog your creativity for content ideas and promotions.
  • Be honest. If you don’t like your own products, your customers wouldn’t either. Don’t be afraid to change up product suppliers, sizes, colors, selections, and styles until you find the products your customers start requesting.
  • Don’t ignore customer reviews. If a customer complains, don’t ignore them. Attempt to resolve their issue, and thank them for bringing it to your attention. Other customers will appreciate your straightforward customer service to correct a problem.
  • Have clear policies for handling returns and refunds. Customers return up to 40% of their online purchases. Some of these returns can be reduced by posting better product images and descriptions and using live selling to show all details about a product in real-time, but sometimes returns can’t be avoided.

Posting your return and refund policies in plain language on your website helps increase customer confidence in your business. Tell them what situations meet the conditions to receive refunds and how to initiate the return process. Communicate which items may be eligible for exchanges for store credit instead of a refund.

Be Where Your Customers Are 

You may need to search online for audiences to help you build your brand and create a following. Are your customers in specific Facebook groups, hanging out on Instagram, or tweeting? Start paying attention to where you see people who fit the profile of the customers you’d like to have. Join as many online groups as you can to see what your customers are discussing and join in with questions.

Once you have an idea of what’s essential to your customers, you can create website content, product descriptions, videos, and social media communications to solve product-related problems or answer needs they may have expressed. The more you answer customer requests with informative, engaging website copy, product descriptions, videos, and social media posts, your content will be presented closer to the top of your followers’ searches and Feeds. The better your content is, the closer you can get to the top of online searches. 

Having more helpful content that interests customers can make your website and social media channels worth returning to, sharing, and commenting on in social media, which can positively boost your online visibility. Better organic search visibility doesn’t cost you anything, but it pays off considerably since it attracts more qualified customers to your online store, which is key when it comes to how to increase e-commerce sales revenue. 

Incorporate Live Selling

Live selling is when business owners, their staff, influencers, or hosts show off products online to customers in shoppable videos that enable online purchases directly from the live video. Live selling is becoming increasingly popular to reach customers, with $17 billion in live commerce sales projected by the end of 2022.

Many online shoppers would rather watch videos than read product descriptions. Using live video is one answer to how to set up an e-commerce business to reach customers more effectively. You can quickly go live and make actual sales on Facebook, your e-commerce website, and your mobile app with CommentSold, a multichannel, live selling e-commerce platform.

The Takeaway

While learning how to start an e-commerce business, begin slowly and take your time. As you’re creating your online business, the most important thing to remember is to address each step individually to minimize mistakes that could be costly later. Going slowly and not rushing start-up or launch activities can also give you the time you need to address last-minute issues that may arise.

By developing a customer-centric approach to your online business and incorporating live selling, you can build a strong brand with a loyal following, increase average order values, and improve customer lifetime value.

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