There is no escaping the fact that eCommerce sales and the industry as a whole are witnessing unprecedented growth. As it stands, the largest 18 eCommerce platforms rake in more than $1 trillion in global sales annually. In addition, these were the numbers before COVID-19 made traditional brick-and-mortar stores a literal health hazard.
This, in turn, caused astronomically high demands and profits for eCommerce businesses. Therefore, if you’ve been thinking about how to start an eCommerce business, now’s the time to plan. Keep on reading for a full breakdown of how to start an eCommerce business in five steps.
How to Start an eCommerce Business 101
As it stands, you’ll encounter some major differences between starting a traditional brick-and-mortar business and an eCommerce one. However, they do share some similarities, at least in the planning, researching, and legal phases.
1. Research the eCommerce Market and Select a Niche
Before starting any type of business, conducting solid research into the market you want to enter is a key ingredient to business success. For example, in the case of starting a restaurant, the first step would be looking into a variety of different locations, the type of cuisine, and even the themes. The same rule applies to eCommerce.
You’ll have to decide on whether you’ll be selling a product or a service. Then, if it’s a product, you’ll need to identify whether it’ll be a digital or physical product. Furthermore, what type of business model will you be following?
For example, you can be B2B, B2C, or even C2C. In addition, you might want to consider exploring what a subscription model can do for your product or service. After setting the base of what your business will be selling and its model, the next step would be researching how exactly your product or service will make its way to your customers.
Financial and Legal Research
Now that you’ve taken a cursory dive into what your business will look like in terms of products and customers, it’s time to untangle the finances and legalities. Generally, it’s preferred to create a list (or even a spreadsheet) of what your startup costs will look like. They don’t have to be 100% accurate, but rather a good estimate.
Yet, try your best to provide yourself with as close of an approximation to the actual costs as possible. Afterward, start researching what the legalities and regulations are in regards to the product or service that you have in mind, or even your business model.
The Building Blocks of a Business Plan
All of this research will help you create a concrete business plan and provide a stable ground for your business to be built on. Also, it’s essential to choose your niche at this part of the process. Selecting the right niche for your product or service will deeply affect all the research you’ll be doing as well as the direction your business plan will take.
In addition, once you have an initial plan in place, it’s time to extend your research outwards and take a close look at your competitors. Competitor research will help you correctly position your business in terms of customers, branding, and marketing.
2. Choose Your Business Name and Legal Structure
You’re now the proud owner of a concrete eCommerce business plan. Now, it’s time to choose a name for your business. Considering the naming conventions of businesses, you’ll want to pick a name that’s unique.
Yet, you’ll want to ensure that it’s deeply connected to what your business does. After adding a couple of potential name candidates on a list, you’ll have to consult your local secretary of state’s website in addition to the U.S. Patent and Trademark Office.
It sounds terrifying. However, all you’ll need to do is confirm that your business name hasn’t already been claimed by another business. On the other hand, keep in mind that before closing the deal on your business name, you’ll want to check whether there’s domain availability for that name.
For example, if your business name has already been used in a domain, you might want to consider picking another one. It’s essential that your business name matches your domain. Otherwise, you might lose customers to competitors who might visit their website instead of yours due to confusion.
Your Business Legal Structure
With a freshly-minted business name, you’re ready to choose your business’s legal structure. The reason why we emphasized the importance of research in the first step is due to the legal and financial implications that your legal business structure will have on your eCommerce operation. Usually, you’ll get to choose between a sole proprietorship, a general partnership, LLC, or a corporation.
Each business structure comes with its own advantages and disadvantages. Therefore, see if you can afford to consult with a lawyer or a legal professional for advice on which might be best for you in the long run. On the other hand, know that you can start with the simplest business structure and change it down the line as your business grows.
For instance, if you chose sole proprietorship or general partnership, you might not have to register in the state where you’re located. In this case, your business will be legally associated with your name. This means that you might need to file a “doing business as”, also called a DBA, with your local government. It basically states that your business doesn’t have a separate entity. In the eyes of the law, you and your business are one.
3. Apply for an EIN – Before You Start an eCommerce Business
At this point, you can go ahead and apply for an EIN. This is the employer identification number for your business. Now, depending on your chosen business entity you might not be required to have one.
However, this nine-digit-number will be essential for separating your personal finances from your business finances. Additionally, you’ll find that out of the majority of legal procedures and paperwork you have to tackle for your business, applying for an EIN is refreshingly easy and straightforward.
All you’ll need to do is fill out the form from the IRS for free. You can do so online, by mail, fax, or even on the phone. Furthermore, as you’re going to be an eCommerce business, you might as well apply for it online. After submitting your form, you’ll receive your EIN almost instantly.
4. Get Your Business Permits and Licenses
This is the time to obtain any business licenses or permits that you’ll need to legally run your business in your city and state. If you happened to go with a sole proprietorship or general partnership as your legal business structure, then (as we previously stated) you won’t need to register your business with the state.
On the other hand, for the remainder of business entity types, you’ll have to register your business with your state. You will be granted a general operating license, and even a local operating license in some cases. Generally speaking, most eCommerce businesses are home-based.
This translates into fewer business licenses and permits required. Yet, you’ll have to confirm that you’ve checked all the boxes your area requires from you. You can easily do so by checking your state or local government website for all the details.
5. Select Your eCommerce Platform and Create Your Website
Congratulations on making it this far. You’ve completed all the paperwork required for you to legally start your eCommerce business. Prior to this step, all of the tasks you had to accomplish mimicked the processes of starting a brick-and-mortar business.
However, from here, we get to start creating your website and online store instead of searching for a location and creating your physical store. Your website is your brand, your storefront, and where you keep your product or service. It’s critical for you to take your time building a great looking and well-functioning website.
As we’ve said before, your website will start with your domain name. Finding the right domain name will take you through a journey of different eCommerce platforms, like Shopify, Magento, Wix, or Squarespace. Pick your eCommerce services and platform with care.
It won’t only help you with building and developing your online store. It’ll also allow you to customize your designs and manage your inventory. Besides, it’ll allow you to receive and ship orders, receive payment, add your domain (or even purchase one), and market to potential customers.
How to Start an eCommerce Business for Success – Begins with Funding
Simply learning to start an eCommerce business is the very first step on your business journey. Now, we’ve taken the process apart starting with your planning and research, and ending with your actual eCommerce business prime and ready to go.
Yet, if you’ve done your research, you’ll know that a huge issue that pops up in your research will be acquiring enough funding for your eCommerce business. Therefore, make sure you check out these small business loans as well as SBA loans that might be available to you.
Remember that all the great successful business started small and built their way up. The most common trait that leads to their success is learning all about how businesses operate. Thus, check out our blog for all the advice and business guides you’ll need.