How to Start an E-Commerce Business in 2023: A Step-by-Step Guide
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An e-commerce business sells goods, services and funds over the internet. Starting an e-commerce business is a lot like starting any company: You’ll need to create a business plan, get licenses and permits and set up dedicated finances. You’ll also need to choose an e-commerce website builder, source your products and market to online customers.
Follow these six steps to get your e-commerce business up and running.
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1. Define your e-commerce business idea
The first step in starting any business is to hone your idea. Online business ideas can include selling physical or digital products as well as professional services. Whatever you choose, you’ll want to define your e-commerce business model and write a business plan that outlines your niche.
During this process, you’ll start to ask a lot of questions: How will you get your products or services to your customers? What sort of licenses or permits do you need? How much will it cost to get your business up and running — and how will you foot that bill? Your business plan should answer these questions and provide a road map for the coming months.
More resources to help shape your idea:
2. Set up your business
Once you've solidified your e-commerce business idea, the next step is to set your company up for success.
This includes back-office steps like:
Choosing a business structure. There are benefits and drawbacks to each of these entity types, so talking to an attorney may be helpful as you choose the one that’s right for you.
Naming your business. Consult your local secretary of state's website as well as the U.S. Patent and Trademark Office to ensure that you're not choosing a name that belongs to another company. Check to see if your potential business domain name is available as well.
Applying for an employer identification number (EIN). You can get an EIN from the IRS for free online or by mail, fax or phone. Not all businesses need an EIN, but having one can help you separate your personal and business finances.
Opening a business checking account. NerdWallet recommends all business owners have a dedicated bank account for their business.
Getting licenses and permits your city or state requires. This probably includes a business license, and if you perform services, you may also need an occupational license. Check your state or local government website for requirements for your area.
Answers as you set up your business:
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3. Source or develop your products
Next, you'll need to source the products you're going to sell. If you’re selling physical products, you may need to make them yourself or work with a manufacturer.
A key decision at this point: Are you going to order products in bulk and keep inventory in stock? If so, you’ll need to think about storage space and raising capital to order goods upfront. However, you’ll have the power to ship items yourself.
Other businesses choose to rely on dropshipping, in which products are manufactured or sourced at the time the order is placed. In general, dropshipping may keep your overhead costs lower, but it can be more difficult to manage since inventory levels and shipping will be out of your hands.
Other options for sourcing e-commerce products include:
White-labeling, or ordering items in bulk from a manufacturer and then branding them with your company’s identity.
Print-on-demand, or paying a third party to print your company’s designs on merchandise like T-shirts, mugs and posters. Print-on-demand normally functions like dropshipping, in that a customer places their order, then the manufacturer creates the product and ships it directly to the customer.
Retail arbitrage, or buying discounted items from retail sellers and listing them in your own store at a markup.
If you're selling professional services, you might just have to describe and list what you offer on your business website. Still, you’ll need to figure out how much to charge and decide how many clients you can see each day or week.
More to help you develop products:
4. Set up your e-commerce website
Your e-commerce website will be your storefront. It’s where your customers will learn about you and your business, browse your products and make purchases.
The easiest way to set up a website is to use an online store builder. These platforms can walk you through the process of launching your website, from buying a domain name to managing your inventory to taking credit card payments.
Popular e-commerce website builders include Shopify, Squarespace, Square Online and BigCommerce.
If you’re a very small business or just experimenting with online sales, a free e-commerce website builder may be a good place to start. But to list unlimited products and access more robust suites of tools — which can help with things like shipping label printing, order management and sales analytics — you’ll typically need to spring for a subscription.
In general, many online store builders should be simple enough for someone without web development experience to navigate. But most offer the option to pay a professional designer or developer if you don’t want to build the website on your own.
The best e-commerce platform for you fits into your budget and is appropriate for your skill level.
Choosing the right website builder:
5. Figure out order fulfillment
Order fulfillment is the process of getting customers’ purchases in their hands.
Most e-commerce website builders offer shipping label printing, which is the first step in the fulfillment process. Some also offer the ability to add shipping costs onto customers’ orders at checkout.
If you choose to handle order fulfillment yourself, research shipping rates so you have a sense of how much it’ll cost. Look for an online store builder that can help make the shipping process easier or research shipping software providers like Shippo.
Note, too, that e-commerce may connect you to customers across the world. If there are places you’re not willing to ship to, make that clear on your website.
If you don’t want to manage order fulfillment, you can outsource it to an e-commerce fulfillment center or use a service like Fulfillment by Amazon. Fees for fulfillment services vary depending on the size of your products, how far they’re traveling and how much you’re shipping.
More to help you manage orders and inventory:
6. Market your e-commerce business
Now that you've started your online store, you're ready to start serving customers — as long as they can find your products.
Your small-business marketing strategy might include:
Omnichannel commerce, in which you list your products on third-party marketplaces like Amazon and Instagram. Some e-commerce website builders can help facilitate this.
Influencer marketing, in which you pay popular social media creators to plug your products.
Social media content or paid social media ads.
Optimizing your business website for search engines.
Sending email campaigns to past and future customers.
Many e-commerce website builders include some marketing features, which can help you do things like create social media ads or send emails to customers when they’ve abandoned their carts.
But if you want to develop more sophisticated campaigns, consider investing in marketing software. These tools can help you create email templates and campaigns, text customers, keep track of how individual customers are responding to your emails and more.
More help with marketing:
How much does it cost to start an e-commerce business?
The cost of starting an e-commerce business can vary widely depending on what you’re planning to sell and in what volume. Your expenses may include:
Your e-commerce website. Subscription plans for online store builders generally start around $25 to $30 per month when billed annually. You may also need to spring for a domain name if your e-commerce website builder doesn’t include one — and make note of annual fees to keep your URL registered.
Payment processing fees. In general, the company that provides your payment processing will take a cut of around 3% from each online sale.
Stocking up. If you plan to order inventory in bulk, be prepared for significant upfront costs — even before you’ve started generating revenue. Inventory financing may be able to help you bridge the gap.
Order fulfillment. In general, you’ll pay a third-party service to fulfill each order, with rates varying depending on item size and weight. The more customers buy at once, the less you’ll have to pay per item. Order fulfillment services may also include warehousing, for which you’ll pay a per-item storage cost.
Warehousing. If you’re buying more inventory than you can keep in your home or garage but not using an order fulfillment service that provides storage, you may need to spring for warehouse space of your own.
General costs of running a business. These could include monthly or annual fees for accounting software, business insurance, any employees or contractors you plan to hire and more. You may also need to set aside money for small-business taxes.
Tips for starting an e-commerce business
As with launching any business, starting an e-commerce business can feel overwhelming. Here are some tips for managing the transition.
1. Start simple
If you’re not certain e-commerce is the right path for you, set up an online store with low overhead first. This may mean starting with the free version of an e-commerce website builder, ordering a small amount of inventory or selling only one or two types of products.
Starting small can limit how much startup funding you need and make it easier to pivot if your first idea doesn’t land. As your business starts to get traction, you can trade up to a more robust e-commerce platform and expand your product line.
2. Cultivate a loyal customer base
Your e-commerce business needs customers who appreciate your products enough to buy them more than once and, ideally, customers who will promote them to their networks.
Establishing a strong brand presence on social media can help you build a following. But the more information you can gather from your customers, the more you can market directly to them, whether that means creating an email marketing campaign, sending discount codes through text message or letting them know where your booth will be at an event in their region.
3. Invest in multichannel selling
Loyal customers may be willing to visit your website frequently. But to reach new ones, you might have to meet them where they are — which might be on Amazon, Instagram, TikTok or elsewhere. Start with the platforms where your customers are most likely to be, launch those integrations and then see how they perform. You can add platforms later if they fit into your business strategy.
Keep in mind that selling in person is a channel, too. Craft fairs, local shops and industry or trade events may help you connect with new customers while generating some revenue.
A version of this article originally appeared on JustBusiness, a subsidiary of NerdWallet.
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