What Is Ecommerce: The Definitive Guide (2022)

E-commerce has become a significant business sector in modern times. Sales professionals move with the times, and you need to meet the audience wherever they are. Nowadays, almost everyone is shopping online and involved in the digital space, which is why e-commerce growth is skyrocketing.

This dynamic has acquired the attention of entrepreneurs and well-established firms worldwide. After all, the digital space can offer access to countless customers, and previously impossible scalability is now within reach for all businesses.

What is e-commerce?

Simply put, electronic commerce or e-commerce involves selling products and services online, allowing customers to purchase goods or services using a credit card. It offers opportunities for companies to expand and upgrade their functions and processes. Technological advancements have made online purchasing user-friendly and accessible for customers and sellers. The e-commerce industry has significant potential that everyone can benefit from.

Digital commerce has advanced rapidly as a retail sector over the past few years. Retail e-commerce sales amounted to approximately $3.46 trillion dollars in 2019, and these figures are projected to grow significantly. Just looking at the rising profits of online retail behemoth, Amazon brings to light the potential of global e-commerce. 

E-commerce can be classified into six categories:

• Business to business (B2B): Two or more businesses or companies trade goods or services with each other through a website or directory.
• Business to consumer (B2C): Businesses sell goods or services directly to the end consumer through digital means (online shopping).
• Consumer to consumer (C2C): Consumers sell used goods or services to other consumers through third-party digital channels.
• Consumer to business (C2B): Consumers sell their goods or services to businesses, often used in crowdsourcing-based projects. Examples include logo creation, photos, and design.
• Business to administration (B2A): Businesses sell or bid on providing products or services to government administrations via online platforms, such as auctions and tenders.
• Consumer to administration (C2A): Consumers use this to request information, pay statutory payments, or post feedback directly to government authorities.

What is the difference between e-commerce and traditional commerce?

While e-commerce is all done online, traditional commerce involves face-to-face dealings with customers for goods and services. Here, customers are at a physical location, select a product and make a purchase decision. They then pay directly with cash or card to the seller. With e-commerce, this whole process is online. 

What is social commerce?

Alongside e-commerce, social commerce has recently gained more attention. Social commerce generally involves selling products and services directly on social media platforms. In fact, with social media, a new model of doing business has been developed.

Whereas social media marketing aims to drive traffic from social media to an online store or website, social commerce contains the entire shopping experience within social media.

Social media presents another mode of retail commerce, in addition to marketing your business. Social commerce is relatively new, reshaping online experiences, allowing customers to purchase digital products via mobile devices readily.

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How does e-commerce work?

The process behind e-commerce is quite simple. Let’s suppose that you are a customer looking for new shoes. You will search for new shoes with a web browser, and a range of stores will appear in the search results. 

E-commerce websites serve as a digital storefront for a business selling shoes. It may be a digital storefront for a purely online business or a digital marketplace for a company with physical locations. Once you select and order a pair of shoes, the website’s order manager sends your order to the business, who then dispatch it to you. 

What is an e-commerce business?

An e-commerce business is a digital store that sells products online. There is no need for you to go anywhere. You can place an order from any device as long as it has a browser and internet connection, with various payment options often available. 

Online businesses usually mean that one individual can take care of everything. However, most are run by a team, as managing everything solely can be challenging as your operations expand.

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The target audience of an e-commerce business depends on the model. The most common e-commerce models include business-to-consumer (B2C) and business-to-business (B2B). A business sells products and goods to customers in B2C. Meanwhile, a business sells goods and products to other businesses in the B2B model.

Business owners can choose any business model that they deem suitable. Customers may sell their products to businesses in a consumer-to-business (C2B) model. In contrast, in a C2C model, consumers may sell their used products to other customers. If you establish an e-commerce business, you will sell your products to customers or other businesses. 

How to start an e-commerce business?

Establishing and starting your own e-commerce business is not always straightforward. However, formulating, creating, and maintaining a digital storefront where creators, designers, and entrepreneurs can sell their products is more achievable than ever.

Establishing an e-commerce business could be right for you, depending on your goals and objectives. They vary in scope and size, from crafty sites like Etsy to online retail giants like Amazon. 

There is no doubt that, unlike traditional companies with fixed locations, e-commerce companies offer more affordable and flexible opportunities to entrepreneurs. Learn the proper process and progress through the necessary legal steps to ensure everything is correct. 

The steps to starting an e-commerce business

Even though there are notable differences between establishing a traditional business and e-commerce business, there are also several similarities. 

You must take several legal and planning steps to open an e-commerce business, following the same process as a physical business. It differs when it is the time to begin your operations and procedures. Let’s take a look.

Step 1: Do your homework and identify your niche

Before establishing an e-commerce business, you need to research the e-commerce area of your choice. Consider what your business will provide and offer. For instance, will you be selling services or products? In the case of products, will they be digital or physical? How are you going to acquire or source these products? 

Take considerable time mulling over your options. Similarly, you will also have to think about the business model. Will you offer subscriptions, packages, single products, or anything else? After all, these decisions set the base of your business and will help you develop your business plan. 

It will even help you set specific goals and a timeline for how and when to achieve them — developing an understanding through research to find areas for business growth and development. Most successful businesses rely on a good understanding of their niche and broader markets. Every company aims to gain a competitive advantage.

Step 2: Develop your products

The next step to starting an e-commerce business involves determining the source of the products you want to sell. Consider developing products or sourcing them from suppliers and distributors.

Creating new products is a challenging decision and is often the first obstacle to overcome. That’s why a product idea usually comes before wanting to run a business, rather than the other way around. 

Step 3: Evaluate your idea

Once you have an idea for your product, take the time to evaluate it. It would help if you validated the reasoning behind why your product and business should exist. 

• Is there a need for it? 
• Is the product in demand right now? 
• Does it have longevity? 
• Is there profitability in the product? 
• What are the potential profit margins? 
• Does the idea require a lot of branding to back up the concept, or will it work on its own with widespread marketing efforts?

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Even these questions are an oversimplification of what should be a long and detailed process. After all, you will be making a considerable commitment that may require substantial funding.

Step 4: Product sourcing

After committing to a thoroughly evaluated product idea, your next step is working out how to obtain the product. Figure out where and how you will source your products. For example, how much they will cost, where you will store them (if needed), and the costs of maintaining or readying them for sale.

There are different methods of acquiring your products, each with pros and cons for you to ponder, including:

• Manufacturing time.
• Product quality.
• Delivery speed.
• Manufacturing and shipping costs.
• Supply chain management.

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Step 5: Select a legal structure and a business name

After solidifying your initial plan, selecting a business name is next. You will want to consider and choose a unique brand name, as this will help you avoid copyright infringements and hopefully reflects your business somehow.

It would be best to consult the website of your state’s local secretary. Check out the US Patent and Trademark Office to ensure you are not selecting a business name owned by others. Check if your business’s domain name is available. If your domain name is in use, consider using a different name altogether. 

Selecting a suitable legal structure is also essential. After all, your business structure will have critical financial and legal implications for your business operations. Consider creating a corporation, an LLC, a general partnership, or a sole proprietorship. There are drawbacks and benefits to each of these structures. Therefore, consulting a legal professional or an attorney for expert advice is helpful.

If you consider beginning a general partnership or a sole proprietorship, you won’t need to register it in the state. Instead, your business will be legally associated with your name. 

Step 6: Apply for an EIN

You need to apply for an Employer Identification Number (EIN). Even though not all entity types are required to possess an EIN, it can be beneficial in separating your business and personal finances.

Step 7: Gain business licenses and permits

Once you have applied for your EIN, acquiring business licenses and permits is necessary to operate legally. As above, if your business is a general partnership or sole proprietorship, you will not require registration with the state. 

Since most e-commerce businesses are based in their native countries, they do not need the same permits and business licenses as traditional stores. For other types of businesses, however, you must register your business and obtain a general operating license. Depending on your business’s location, you may also require a local operating permit. 

Still, you will need to identify the specific requirements of operating and working in your area. For instance, most locations require a home occupation permit. You can often find this information online through your local government website or state. 

Step 8: Select a platform and build your website

Establish your online store and website. Like a physical storefront, your e-commerce site serves as the face of your business. It is what your clients and customers see first. They also use it to purchase your goods or services. Keep this in mind while building your online store, as it is critical to starting your e-commerce business. 

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An important decision during this process is which e-commerce platform to use. Your e-commerce platform serves as the foundation of your store. Therefore, it is crucial to choose wisely. Most e-commerce platforms enable you to design and launch your store. At the same time, they also allow you to add your domain, customize the design, and manage inventory, among other things. 

Even though numerous platforms are available, you should consider the most popular solutions, such as WooCommerce, Shopify, and Magento. You will also have to dedicate time to inventory management, optimize your site for SEO, and work on the customer experience. 

Marketing

Prepare as best you can to serve your customers. To do this, you need to work on the marketing strategy of your e-commerce business. Once your services or products are listed and prepared, your website will be live and fully functional. 

Optimizing your website for better ranking and using different online marketing tools is needed at the most fundamental level. Different marketing strategies are available for you to consider. Word of mouth, social media, and Google advertisements are a few of them. 

Focus on establishing trust with your customers. After all, they will not interact with you in person. Therefore, they could be pretty skeptical of your service. Create a blog and connect with them through a well-thought-out content marketing campaign.

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How much does it cost to start an e-commerce business?

The costs involved with creating an online site will vary for every business. As you might expect, beginning an internet business can save money on rent, property insurance, furniture, and other expenses associated with brick-and-mortar establishments. 

As with any business, it’s tough to estimate how much your e-commerce firm will cost to start. The type of business you start, the platforms you use, and how you source your products, among other things, will all influence your initial expenses.

Create a realistic budget for how much you want to spend and use this to guide your spending. Here are some critical factors to consider when working out your budget:

• Business licenses and permits: some states charge low fees, anywhere from $10 to $50, whereas others can set a few hundred dollars for incorporation.
• E-commerce software: A broad range of e-commerce options vary in price. It’s up to you to evaluate what platform best suits your needs. You can use an open-source platform with minimal operational costs, or platforms like Shopify offer packages ranging from just over $10 to $300. 
• The domain name and hosting: You’ll need to pay to obtain your domain name and pay annual hosting fees. It usually costs around $30 a month for hosting. Some e-commerce software includes this in their price, and others do not.
• Payment processing: You need to team up with a payment processor to manage online transactions through your store. You’ll usually pay around 2.9% plus $0.30 per transaction through your store. Some e-commerce platforms also set this up and include it in their fee, but that’s not guaranteed.
• Inventory and shipping: What products you sell can drastically affect shipping and storage costs. The initial outlay is likely to be your highest cost, so think wisely about how much to buy at first. Of course, your sales, the shipping providers you utilize, the quantity of the products you’re sending, and the delivery speed options you provide to clients all influence your shipping costs.
• Marketing and advertising: Many businesses budget 6-7% of their revenue to reinvest in marketing and advertising. When starting, take advantage of any free marketing you can get. As you progress, you can experiment with some A/B testing with paid options you see how they impact sales.

The role of Amazon in e-commerce

Due to the expansion of the e-commerce sector recently, an increasing number of brands are moving their operations online to reach the consumers most likely to purchase their goods and services. One of these colossal eCommerce businesses is Amazon.

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You can benefit from Amazon’s FBA program that enables third-party sellers to start an e-commerce business using the retail giant’s infrastructure. The program allows entrepreneurs to use Amazon warehouses to stock inventory and facilitates the picking and packing process for a fee. This opportunity gives new businesses the potential to scale faster.

Summing up

E-commerce allows businesses to broaden their customer base and increase the money they bring in. However, there is also the possibility of harm in addition to these opportunities. 

A company may find it challenging to maintain its current level of sales when confronted with higher levels of competition from other businesses. The competitive online marketplace means companies must fight for customers and find new ways to stand out from the crowd. 

Flippa is the best marketplace for buying and selling e-commerce businesses. You can use Flippa to buy or sell an e-commerce business in no time. Utilize our website worth calculator, browse websites, apps, and domains for sale, or list your online e-commerce business for sale.

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Frequently asked questions

What are the three distinct categories of online business?

You can break e-commerce businesses into three primary categories: business-to-business (which includes websites like Shopify), business-to-consumer (like Amazon), and consumer-to-consumer (like eBay).

What is the most significant difference between conducting business online and purchasing online?

Although most people believe that the phrases “e-commerce” and “e-Business” are synonymous, this is not the case. The phrase “e-commerce” refers to the process of conducting transactions online. However, “e-business” refers to all web commercial operations and services. 

Why is it vital to have an eCommerce FAQ page?

A frequently asked questions page is an excellent venue for showcasing your knowledge and skills. An FAQ page enhances the possibility of a casual visitor turning into a customer, as individuals are more inclined to purchase from an established firm that they consider reputable and professional.

What kind of effects does online shopping have on businesses?

E-commerce gives firms the chance to expand their consumer base and their number of sales. On the other hand, along with such opportunities come dangers. Because of the increased number of firms in the market, a company may discover that it is challenging to keep up with its sales.