How to Start an Online Store in 7 Steps

There’s more to starting an online store than setting up a website. You’ll also need to define your target customer, source your products and take steps to make your business official. Starting small — offering just a few products at a time, for instance — can help you get your e-commerce business up and running fast.

Here are seven steps to take as you get ready to launch your online store.

What are you selling and who are your customers? Answering these questions upfront will help you focus your e-commerce business idea so that you can choose the right tools.

To further structure your idea, try writing a business plan. In addition to defining your products and target audience, this process can help you dig into other questions, like:

• Who are your competitors?

• How do you plan to ship products to customers?

• Do you need a license or permit?

• How much will it cost to run your business?

• How much do you need to charge to break even or turn a profit?

Even if you’re planning for a small online store — like opening an Etsy shop where you’ll list a handful of handicrafts each month — look at your competitors and think about your target customers. This information can help you with everything from writing more effective product listings to deciding which social media platforms to advertise on.

Once you have a vision for your business, it’s time to shop for your virtual storefront. You can use an e-commerce website builder to create your own website, with its own domain name and unique design. Or you can build your store on a third-party marketplace, like Amazon, Etsy or Depop.

Here’s how to choose.

E-commerce website builders

Best for: Online stores that want to develop a strong, unique brand via their own website.

These tools help you build a freestanding e-commerce website that isn’t linked to any particular marketplace. Popular options include Shopify, Squarespace and Square Online. Think of this as renting a storefront on Main Street with your own address, signage and space inside to customize.

On one hand, building your store this way gives you more control over the look and feel of your website, and you’ll likely save money on transaction fees. On the other, you may have to invest more in marketing and advertising to compete with sellers across the web.

There are a few free e-commerce website builders, and paid options generally start at $25 to $30 per month.

Third-party marketplaces

Best for: Online stores that are willing to pay higher fees and sacrifice some branding opportunities in exchange for easier access to customers.

Third-party marketplaces include websites like Amazon, Etsy, Depop, Poshmark and eBay. You can set up a storefront and list products on your chosen platform, and when shoppers visit the site to search for a certain type of good, they may find yours. Think of this as renting a kiosk at a craft fair or a booth at a farmers market.

On one hand, these marketplaces already have dedicated shoppers, so you only have to compete with other sellers on the platform. On the other, your store will probably look a lot like other stores on your chosen marketplace. These places tend to charge higher transaction fees in exchange for providing so much infrastructure.

» MORE: Shopify vs. Etsy: Read our head-to-head comparison

If you sell services instead of physical products, look for an e-commerce platform that lets you take appointment bookings, prompt customers to fill out intake forms and send them reminders.

Now that you’ve decided what your store will look like, it’s time to fill its (virtual) shelves.

If you’re planning to make items yourself or resell vintage goods, this may be pretty straightforward — your listings will be governed by how much you can create or what you find at estate sales each month, for instance.

But if you’re selling manufactured goods, you’ll have more options to consider.

If you’re willing to keep inventory in stock, your options include:

• Wholesaling, or buying goods in bulk from industry sellers, then selling them in smaller quantities. You can search online for wholesale goods, but visiting trade shows and wholesale markets can help you zero in on a specific niche.

• White-labeling, or buying generic goods from manufacturers, then adding your own branding. 

• Retail arbitrage, or searching for retail goods at steep discounts and selling them at their usual prices.

» MORE: How to find products to sell on Amazon

If you don’t want to deal with inventory management, consider:

• Dropshipping, which is a popular online business idea but can be a difficult space to compete in. Dropshippers identify products from manufacturers or wholesalers that they want to list in their stores. When a buyer places an order, the dropshipper hands the order off to the dropshipping supplier. Then, the supplier ships the good to the customer — the dropshipper never handles it themselves. 

• Print-on-demand, which is a type of dropshipping. Print-on-demand services print your designs on generic goods like T-shirts and coffee cups. When a customer orders a product, the print-on-demand supplier creates it and ships it out. 

Now it’s time to turn to your online shopping cart.

Your shoppers need to be able to pay for their purchases, probably with debit or credit cards. This service is called payment processing. Expect your payment processor to take around 3% of your revenue in exchange for its services.

If you build your online store on a third-party marketplace like Amazon, payment processing and fees probably come built into your total transaction cost.

If you choose an e-commerce website builder, you’ll likely have the option to choose a built-in payment processing option — for instance, Shopify defaults to Shopify Payments, and Squarespace offers Stripe. The payment processor will automatically take a percentage of each transaction on top of the website builder’s monthly subscription fee if you have one.

Some e-commerce platforms let you choose your own payment processor. The more you’re planning to sell, the more you stand to benefit from shopping around for the cheapest credit card processing.

Think about how you’ll get goods from their source — whether that’s your basement or a warehouse — to your customers.

Many online store builders offer shipping label printing, and some even give you discounted rates with certain shipping companies. They may also provide tracking information to your customers automatically. And some offer dynamic shipping rates at checkout, which means they’ll determine the cost of shipping based on a customer’s address and then pass that cost along to the customer.

Choosing an e-commerce platform with shipping tools can help eliminate the headaches of handling shipping manually.

If you choose to manage shipping on your own, though, know that shipping costs are usually determined based on how much your package weighs and how far it’s traveling. The bigger it is and the farther it’s going, the more you’ll pay. Research shipping costs in advance and make sure to build those costs into your prices.

It's important to separate your business and personal finances when starting an online store. Even if you’re only selling a small handful of goods, you’ll need to know how much revenue your business is generating when it’s time to file your taxes.

Key decisions at this point include:

• Choosing a business structure, like an LLC or sole proprietorship. A sole proprietorship doesn’t require any setup work, but it’s important to understand what it is and how your business income will be taxed.

• Opening a business checking account. You can do this for free online. NerdWallet recommends all business owners have a bank account dedicated to their business, no matter how small it is.

• Figuring out whether you need any licenses or permits. You may need a business license. If you perform certain services, you may need an occupational license, too. Check your state or local government website for requirements. 

» MORE: Do you need a business license to sell online?

It’s time for your grand opening: Publishing your website and listing your first few products for sale.

If you’re creating detailed listings on a third-party marketplace, orders may start rolling in as shoppers come across them. But if you choose to build your own website, you may need to invest more time and resources in online marketing.