It’s a Great Time to Start an Ecommerce Business:  Here’s How

December 13, 2019
Posted in: Uncategorized

Table of Contents

 

         According to the Census Bureau of the U.S. Department of Commerce, the estimate of U.S. retail ecommerce sales for the third quarter of 2019, adjusted for seasonal variation, was $154.5 billion, an increase of approximately five percent (5%) from the second quarter of 2019. As more and more U.S. consumers choose to shop from the comfort of their own homes, this number is expected to continually rise. For the aspiring entrepreneur, there’s no better time than now to start an ecommerce business. 

 

woman with credit card

 

What is an Ecommerce Business?

 
Ecommerce businesses transmit products, services, and funds over the internet. This business type includes everything from quaint Etsy shops to behemoth retailers like Amazon. With so many options for offering wares online, the goal of setting up an ecommerce business is more attainable now than it has ever been. If the product or service that you’re planning to offer is conducive to selling online, starting the ecommerce side of your business before you consider operating in a brick-and-mortar environment makes sense. You’ll enjoy lower overhead costs by conducting business online.

However, with a web-based business, entrepreneurs are faced with the extra challenge of building trust because potential customers aren’t able to see them or their products in person. Like starting a business that operates outside of cyberspace, starting an ecommerce business requires hard work and proper planning. And, just like starting a business in a physical location, you’ll need to ensure that you’re operating your ecommerce business legally by complying with all necessary government agencies.
 

Operating Your Ecommerce Business Legally

 
Online businesses aren’t exempt from compliance with government agencies. To ensure that your ecommerce business is compliant with these agencies, you need to:

 

Protecting Your Ecommerce Business

 
Although the following steps aren’t necessarily required by government agencies, they’re still recommended. They’ll protect your business from catastrophic events and claims:

  • Obtain adequate insurance to protect your ecommerce business from the risks that most business owners face. 
  • Protect your business from lawsuits that may be filed by customers, employees, or other businesses. 

 

Business Plan for Your Ecommerce Business

 
Just like a business plan for a brick-and-mortar store, an ecommerce business plan is a roadmap for launching and managing your online store. It contains some of the same elements in a traditional business plan but mostly focuses on operating in the online space.  

 

cellphone

 

Key Components of an Ecommerce Business Plan

 
When formulating your ecommerce business plan, there are questions you need to answer to help you build a solid foundation for your ecommerce business. The answers to these questions are the key components of your plan.
 

What Type of Ecommerce Business is Right for You?

 
All ecommerce businesses sell products and services, but before launching your business, you need to have a clear understanding of the business model your venture will fall under. This is essential because the purchasing dynamics of the ecommerce models below are different. Selling directly to a consumer will be vastly different from selling to public administration. 
 
There are six different ecommerce business models:

     

  1. Business-to-Consumer (B2C) — Perhaps the most common form of ecommerce, B2C ecommerce deals with online sales relationships between businesses and consumers.
  2. Business-to-Business (B2B) — B2B ecommerce refers to online sales relationships between two companies — typically between a wholesaler and a retailer.
  3. Consumer-to-Consumer (C2C) — This ecommerce model encompasses online transactions that take place between consumers. An example of this model is a transaction conducted on a social media platform such as the Facebook marketplace. 
  4. Consumer-to-Business (C2B) — C2B ecommerce transactions occur when a consumer makes services or products available for businesses to purchase. An example of this model is a graphic designer creating a logo for a business client. 
  5. Business-to-Administration (B2A) — This ecommerce model refers to transactions between businesses and public administration. Many services are generally provided in areas such as social security, employment, and legal documents. 
  6. Consumer-to-Administration (C2A) — C2A ecommerce refers to online transactions between individuals and public administration. An example of this model is the filing of tax returns. 

 
Deciding what to sell will also be a key factor in defining your business model. When most people think of ecommerce, they think of an online store that stores, sells, and ships products directly to customers. However, there are many ways to build a profitable ecommerce business, some of which don’t involve storing and shipping products. Some don’t even require you to pay for the product upfront.
 

Here are some of the things you can sell online, along with the associated costs:
 

  • Products that you buy wholesale – Costs: Wholesale product and shipping
  • Products that you make yourself – Costs: Materials and production
  • Products sold via drop-ship arrangements – Costs: No upfront product costs. Products are paid for as orders are placed.
  • Digital products (ebooks, online courses) – No costs if you produce the content yourself. Otherwise, you’ll need to hire staff or a freelance writer.
  • Custom-printed products sold via on-demand printers — No upfront product costs. Products are paid for as orders are placed.

Once you’ve decided on a product type for your ecommerce business, here are the next steps:

  1. If you won’t make products yourself, you’ll need to locate wholesale, drop-ship, or print-on-demand suppliers
  2. If you’ll offer digital products, find appropriate software for producing and distributing digital files.
  3. Create a budget that covers initial and ongoing manufacturing, wholesale, and other procurement costs. 

 

How Will You Deliver Products to Your Customers?

 
When operating an ecommerce business, the type of products you offer will often determine how they’re delivered to your customers. Physical products can be stocked and shipped from your own warehouse or an external fulfillment service can handle this for you.  Fulfillment By Amazon (FBA) is a service that provides storage, packaging, and shipping assistance, taking the burden off of the seller. 

You could also have suppliers drop-ship products to customers. In this arrangement, the customer places an order with you and you, in turn, order the product(s) from your supplier. The supplier then ships the product(s) directly to your customer. This improves cash flow and reduces your level of risk in the transaction.

If you plan to sell digital products, you need to determine how you’ll deliver downloads or provide access to customers.  
 
Here are some of the ways you can deliver products to your customers, along with the associated costs:
 

      • Physical products that you ship yourself – Costs: Facility for storing inventory, shipping management system, packing materials, labor, shipping costs
      • Physical products shipped by a fulfillment service – Costs: Inventory storage, packing, labor, shipping costs
      • Products shipped via drop-ship suppliers – Costs: No storage costs. Shipping and any drop-ship fees are billed on a per-order basis. 
      • Digital products (ebooks, online courses) – Costs: File storage and distribution 
      • Custom-printed products sold via on-demand printers — Costs: No storage costs. Shipping and fulfillment costs are billed on a per-order basis. 

 

Depending on whether you’ll sell physical or digital products, consider the following aspects of delivering products to your customers:
 

  1. How will you handle inventory storage and fulfilling/shipping orders? Create a budget that covers these costs.
  2. If you’ll sell digital products, ensure that digital files can be stored and delivered/downloaded securely via your ecommerce platform.
  3. For drop-ship and print-on-demand products, ask each supplier about fulfillment and shipping costs.

 

 

How Will You Sell Your Products Online?

 
Once you’ve decided what to sell, who you’ll sell to, and how you’ll deliver products to customers, you need to consider the many ways ecommerce businesses can sell online. Most cost you very little per month, while some online store platforms are even free.

 

Sales Channel

 

Works Best For

 

Costs

 

Online Store Products that will be shipped or drop-shipped, print-on-demand products, digital products Shopify: $29/month

WooCommerce: Free

BigCommerce: $29.95/month

 

Ecommerce-enabled blog

 

Products that will be shipped or drop-shipped, print-on-demand products, digital products

 

WooCommerce: Free

WordPress: Starts at $6.95/month

 

Seller Marketplaces (Amazon, Etsy)

 

Selling on the Amazon platform;

Etsy is best for handmade products

 

Amazon: $39.95/month. Average seller fee is 15% of product selling price. Etsy: $.20 listing fee covers 4 months plus 3.5% of selling price

 

Online Auctions (eBay)

 

Selling products via an auction format or at a fixed price

 

Based on listing type

 

Social Media Sites  (Facebook, Instagram, Pinterest)

 

Selling products via Facebook Marketplace, Instagram Shoppable Posts, or Pinterest Promoted Pins

 

Posts are free but there is a fee to promote items via Marketplace or Shoppable Posts or Promoted Pins

 

To process your customers’ payments, you’ll need to integrate a credit card processor with your online store platform. Most platforms will allow you to select from multiple companies, each charging a fee to process customers’ online payments.  Seller marketplaces like Amazon and Etsy handle payment processing and include the cost in seller fees. The following payment processors are highly-rated by online businesses: 

 

Payment Processor

 

Processing Fees

 

PayPal 2.9% + $.30 per transaction plus monthly fees on some accounts
Shopify  

2.4% to 2.9% + $.30 per transaction

 

Square

 

2.9% + $.30 per transaction

 

Stripe 2.9% + $.30 per transaction

 
 
Once you’ve decided on the sales channel(s) for your ecommerce business, here are the next steps:
 

    1. Create a budget that covers the monthly web hosting fees and/or seller marketplace fees.
    2. Create a budget that covers credit card processing costs.

 

How Will You Promote Your Ecommerce Business?

 
Effective marketing is critical to the success of your business. To have a viable ecommerce business, you need to have a plan for introducing your business to prospective customers in a way that differentiates you from competitors. To start out, it’s best to focus on a few marketing channels and learn the ins-and-outs of those before adding more channels to your marketing mix.
 
Here are several methods for promoting your ecommerce business:
 
 

Marketing Method

 

How it Works/Tips

 

Search Engine Ads (Google Ads)

 

Budget-friendly way to run targeted ad campaigns. Allows for flexibility in monthly spend.

 

Email Marketing

 

Highly-rated, budget-friendly marketing method for online sellers. Build an email list from customers and prospects. To improve your email response rate, keep your message short and link to a landing page for more info.

 

Search Marketing

 

See Ecommerce SEO

 

Content Marketing

 

 

Content marketing involves the creation and sharing of online material such as blogs, videos, and social media posts. It’s not intended to explicitly promote products but to generate interest and build rapport with customers and potential customers. The ultimate goal of content marketing is to obtain leads and increase sales.  A blog can increase ecommerce site stickiness (time spent on site), and establish trust.

 

Social Media Networking 

 

Social media platforms help you connect to customers and can bring them to your site quickly. (1) Post links from social media posts to blog posts; (2) Offer special promotions; (3) Get feedback re: products; (4) Announce & promote events; (5)Give insider info

 

Social Media Advertising 

 

Facebook Ads provides a budget-friendly way to reach highly-targeted audiences. Posts and Pins can be promoted on Instagram and Pinterest to increase exposure.

 

 

Once you’ve decided on the marketing method(s) you’ll use to promote your ecommerce business, you should create a budget that covers marketing costs for at least six months. 
 

Can You Price Your Products Profitably?

 
When you consider the cost to manufacture or purchase your product as well as marketing and operating costs, can you profitably price your product?  Will market pressure (saturation) drive down the price? 

This is where you need to crunch the numbers to see if the product you’re planning to sell can be priced in a way that covers your costs. A mistake that many business owners make is disregarding costs other than product costs. All costs associated with getting the product in the hands of your customer needs to be taken into account. 

If, after market research and competitor analysis, you’ve determined that you should be able to sell 150 units per month, here’s how your product should be priced to break even. This example assumes that you will buy your products wholesale, store in your own warehouse, and ship to the customer:
 

Component Estimated Cost

Wholesale cost of product (including shipping)
$1,500 (150 units @ $10 each)

Storage & fulfillment costs

$1,850/month ($600 warehouse rent, $250 packaging materials, $1,000 shipping)

Sales channel

$29.95 BigCommerce store

Marketing method

$200/month ($100 Google Ads, $100 Facebook Ads)

Total costs

$3,579.95

Product break-even price

$23.87 ($3,579.95/150 units sold)

 

In order to make a profit, your product selling price would need to be above the break-even price of $23.87. But, what type of markup should you apply? A typical markup, keystone markup, is 100 percent of the product cost but will the market bear this price? This is where the competitor analysis you performed proves helpful. What are retailers of similar or closely related alternatives selling their items for? If your product has a lot of competition, this will affect the markup that you can apply.

As shown in the example below, if you can get the supplier to drop-ship orders for you, your total costs are reduced considerably. This gives you a better chance of applying a markup that gives you a decent profit margin while pricing competitively.  


Component

Estimated Cost

Wholesale cost of product 

$1,350 (150 units @ $9 each)

Fulfillment costs (supplier can ship to customer at lower cost)

$750/month ( $300 drop-ship fee @ $2 per order, $450 shipping)

Sales channel

$29.95 BigCommerce store

Marketing method

$200/month ($100 Google Ads, $100 Facebook Ads)

Total costs

$2,329.95

Product break-even price

$15.53  ($2,329.95/150 units sold)

 

In the drop-ship scenario, your upfront costs will typically be your online store platform and marketing. You won’t have warehouse rental costs nor will you pay for products before they’re ordered by your customers. Because your business reputation is on the line, you have to carefully select the suppliers that will drop-ship for you. 

Payment processing fees would also be included in both examples, but without having the selling price available during these calculations, it’s not possible to estimate the cost of payment processing.
 

Launching Your Ecommerce Business

 
After completing your business plan, you should have a clear picture of the ecommerce business you want to start and how you’ll price your product. Here are the steps to take to make your planning come to life: 

  1. Create or purchase your products, or establish drop-ship relationships with carefully-vetted suppliers. 
  2. Set up your fulfillment system whether in-house or external. If selling digital products, research and test distribution methods.
  3. Research, choose, and set up your ecommerce platform (See Small Business Ecommerce Platforms). Build out your product pages and/or place product listings on your chosen sales channels.
  4. Choose no more than three marketing methods to start out with.  Establish a budget for the first six months.
  5. Launch your store by setting your chosen marketing methods in motion.

 

 

Small Business Ecommerce Platforms

 
Using a software-as-a-service (SaaS) model, ecommerce platforms provide web-based entrepreneurs with the functionality to list products for sale, manage payments, orders and inventory, and connect to social and marketplace sales channels. The platforms handle the customer-facing front end component of an online store as well as the back end functions such as order management, inventory management, accounting, and customer service. Because of a platform’s unifying infrastructure, entrepreneurs don’t have to create a website from scratch in order to sell their products online. 

When it comes to choosing an ecommerce platform to showcase your products, there are three that consistently receive high marks in terms of price, marketing features, ease of use, and online sales:  Shopify, WooCommerce, and BigCommerce.  
 

Shopify

 
Shopify delivers a complete, all-in-one online and multichannel sales solution for the modest price of $29 per month. If you’re looking for an easy-to-use, out-of-the-box solution, you’ll be pleased with Shopify. In mere minutes, you can launch a Shopify store with a custom domain name, payment processing, and email marketing. These features, and many more, are built into the platform.

Selling on marketplaces like Amazon and eBay and on social sites like Facebook and Pinterest can be accomplished with the click of a button. When creating marketing emails and blog posts, you can add “Buy Buttons”. Shopify even supports mobile selling and offers in-store point-of-sale (POS) functionality.

If you want your online store to have a custom look, prepare to pay $140 or more for a premium theme.
 

WooCommerce

 
WooCommerce powers approximately 40% of all online stores worldwide. A WordPress site can be transformed into a functioning online store with the use of this free plug-in. The types of websites that you can create with WooCommerce is expansive – a blog with a shopping section, a dedicated storefront, a blend of physical product and affiliate sales – there’s practically no end to what you can create on WordPress using WooCommerce.

When it comes to design flexibility and site functionality, WooCommerce outshines most ecommerce platforms but there is a somewhat steep learning curve. If you’re new to setting up an online store, prepare to invest time in learning how both WordPress and WooCommerce work. 

If you want to extend functionality, you’ll need to add additional plug-ins to your WordPress site. This isn’t difficult but can be time-consuming and involve additional costs. If you decide to tackle learning the ins-and-outs of WordPress and WooCommerce, you’ll end up with a site that gives you loads of flexibility – you can expand, modify, and update it to your liking using any of the free store themes and plug-ins. 
 

BigCommerce

 
BigCommerce is right behind Shopify in terms of popularity. Like Shopify, BigCommerce delivers a complete, all-in-one online and multichannel sales solution for a starting price of only $29.95 per month. Also included are plenty of built-in marketing and multichannel sales tools and integration options.

BigCommerce, however, doesn’t offer built-in POS functionality to support mobile and in-store sales but it does provide seamless integrations to POS systems that deliver more features than its closest competitor. Two highly-rated POS systems (Square POS and ShopKeep POS) seamlessly integrate with BigCommerce to allow you to add in-store and mobile sales to your online business with just a few clicks.

You can also integrate your choice of payment processors with BigCommerce without incurring additional fees. If you have a payment processor you’d like to use with your BigCommerce store, you can do so without having to pay .5% to 2% per sale as you would with Shopify. 

Setting up an online store is quick and easy with BigCommerce. This platform also offers a plethora of great selling features like product listing options, and inventory, order, and store management tools. BigCommerce also offers seamless multichannel sales integrations to Google Shopping, eBay, Amazon, Facebook Shop, Pinterest Buyable Pins, and Instagram Shoppable Posts. 

Because of BigCommerce’s easy-to-use dashboard, easy-to-setup store functions, and unencumbered, mobile-friendly store themes, it’s highly-rated by both web novices and seasoned online entrepreneurs. 

 

google search engine

 

Ecommerce SEO

 
Like any business owner, you want to get traffic to your ecommerce site.  What if you could get consistent, high-quality traffic that you don’t have to pay for? That’s the goal of search engine optimization (SEO). SEO is the process of generating more organic (free, natural) traffic from search engines like Google, Bing, and Yahoo. When you perform a search on Google, for example, the search engine results page (SERP) appears, displaying ten organic results. The goal of ecommerce SEO is to have your product pages appear within those ten organic search results, or on the first page. There are more pages beyond the first page, but the further you go past the first page of results, the less likely someone will click on your listing.

According to Moz, the first page of Google has captured as much as 92% of search traffic clicks in recent years. Second-page results are far from a close second coming in at below 6% of all website clicks. Yeah, you want your product page to be on the first page of Google. 

Your position on the first page matters as well since the #1 spot is likely to get 10 times the number of clicks as the #10 spot. The goal, then, is to rank as high on the first page of Google, Bing, Yahoo, and other search engines as you can for search terms that your potential customers might use to find your product.  How do you find out what those search terms are? Keyword research.
 

Keyword Research

 
To find out what terms potential customers most often search to find the product you’re selling, there are a number of ways you can conduct keyword research. It’s important to note that ecommerce keyword research is different than most other forms of keyword research. While other forms focus on informational keywords, ecommerce keyword research focuses on commercial keywords that suggest buying intent. 

Here are some ways to find relevant keywords for your product(s):

  • Google and Amazon Suggest – When you start to type a search query into Google or Amazon, the autocomplete feature suggests relevant queries. At the bottom of the page, Google will list additional related search queries. You can obtain a lot of keyword ideas this way. In Amazon, the suggested queries are product-focused which is even better. Long-tail keywords of three to four words or so are best because the longer the keyword, the more specific it is. There’s less competition for them and the conversion rates are often higher. 
  • Keyword Research Tool (SEMRush) – If you pay for a subscription to a keyword research tool like SEMRush, you can find out all of the keywords that competitors rank for by entering their domains.  You’ll also get a list of sites similar to the domain entered. Use Gap Analysis to see what keywords competitors are ranking for that you aren’t. 

You’ll likely end up with a long list of keywords, but that doesn’t mean they’re all good. You want to use keywords that have high search volume and low competition. Keyword research tools will provide this information. You also want keywords that have commercial intent.  For example:

Women’s brown coat size 10  vs. current women’s coat trends 

The searcher who enters the first term is more likely to buy a coat because the search term is very specific, suggesting buying intent.
 

Site Structure for Ecommerce 

 
The way the pages on your site are organized affects your search engine ranking. It also affects the user experience (UX). You want to make it easy for visitors and search engines to find information in your store. Every page of your site should be as few clicks from your homepage as possible.

Not all pages on your site need to be optimized since some don’t fulfill an actual audience demand or they contain duplicate content. The best way to handle these pages is to noindex or canonicalize them. Canonicalizing a page is a way of telling a search engine that its URL is the version you’d like to show in search results. If you don’t do this, the search engine might lower your ranking. 
 

On-Page SEO for Ecommerce

 
Once you’ve conducted keyword research and your site structure is organized, it’s time to optimize the most important pages on your ecommerce site:  

  • Product pages
  • Product category pages

To get the search engines (mainly Google) to favorably rank your product pages and product category pages, here’s what you can do:

  • Edit the meta title and meta description tags to include keywords.
  • Add alt text that includes keywords to images. Optimize images to reduce file size.
  • Ensure that the URL for each product page includes keywords. Match the URL and page title as closely as possible. Short URLs are better than long URLs; try to keep them between 50-60 characters.
  • Reduce the number of sparse pages by creating long product descriptions and including product reviews. Google and other search engines use the content on product pages to decide which keywords to rank the page for and how high the page should rank for each keyword.  

When optimizing your title tags and descriptions, you want to provide information in a way that both gets Google to rank you on the first page of results, and entices potential customers to click on your listing. 

 

website

 

Final Thoughts

 
There are numerous benefits of starting an ecommerce business instead of a brick-and-mortar one. The initial investment is much lower, your store is open 24-7, and you can expand operations easily and less costly.

However, if you want your ecommerce business to prosper, there are critical steps to take. You must first comply with government agencies by obtaining the necessary licenses and permits. You also need a solid marketing plan that covers attaining and retaining customers.  For long-term results, employing SEO tactics should be part of that plan. 

To reach the maximum number of prospects, you need to ensure that your site or selling platform is mobile-friendly since a February 2019 survey found that 57 percent of U.S. consumers used a mobile retail app to find out more information about a product or service. 

 

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