An e-commerce business is one that provides products and/or services via the Internet. It can be a traditional bricks and mortar store that also has an online presence, or it can be an online only business.
An online business is more complex than just creating a website to display and sell your products or services. There are many factors to consider such as determining customer demand and identifying a business model that will meet that demand. You also need to determine costs and deliver reliable payments and fulfillment to your customers. All of this must be accomplished to gain customers and succeed in an online business.
For existing retailers or manufacturers who wish to sell to customers directly, understanding the principles of an online business will help to establish a more secure online presence.
What Is an Ecommerce Business?
An ecommerce business is one that facilitates commercial transactions electronically. Customers are able to identify and evaluate products online, transact and receive products or services digitally or through physical delivery.
An ecommerce business can be a traditional bricks and mortar store that has an online presence, or it can be a pure online store.
Payment processing: Receiving payment using an accepted payment method, or sourcing an eligible alternative.
Order fulfillment: Receiving and storing product, as well as picking, packing and shipping product to the customer, or sourcing supplier fulfillment for digital product.
Customer support: Support for product delivery, return and exchange, complaint and future purchase.
Revenue is earned for product sold, however profit is the ultimate goal. Product costs, payment and marketing fees, shipping and return costs, software, taxes and other costs impact the bottom line.
Ecommerce Business Models
Depending on the chosen ecommerce model, one can determine who you sell to, how you source your product and how you facilitate order fulfillment.
1. Business-to-Consumer (B2C)
Products are sold to the end user via online channels. Types of businesses can include, but are not limited to, clothing, electronics, cosmetics, home decor, etc.
A B2C model can work well when you are targeting individual consumers.
2. Business-to-Business (B2B)
Products or services are sold to a business via online channels. Examples of businesses can include office supplies, equipment, uniforms, industrial supplies, etc.
A B2B model can work well when you are targeting a business.
3. Direct-to-Consumer (DTC)
A DTC model means a business sells its products to consumers via online channels.
This model gives the business control over pricing, product and presentation, as well as customer and first party data, but can be challenging as the business must manage and attract customers.
4. Dropshipping
A seller takes order from the customer, and the supplier stores and ships the product.
Reducing the initial investment in inventory is one advantage of the ecommerce business models described. While not requiring an upfront investment in inventory, these models typically lead to increased responsibility for seller controls such as supplier reliability, order delivery, product quality, returns, customer service, and profitability.
Low inventory investment does not automatically mean low risk or high profitability.
5. Wholesale and Reselling
Reselling is buying a product and then selling it for a higher price. Wholesaling involves selling a larger quantity of a product to another business.
This model works best when the seller is able to purchase the product at a low cost and sell it for a high price.
6. Print-on-Demand
Customers are able to buy items with logos or pictures printed on them, like mugs, posters, and t-shirts. A production partner makes the item after an order is placed.
This model is beneficial for selling items with custom graphics and text.
7. Subscription Ecommerce
Recurring sales of a product or service is the basis of subscription businesses. Some examples include product boxes with assorted products each month or monthly digital magazines.
Subscription businesses have the advantage of predictable income. However, customer retention, attrition, and profitability of each subscription must be managed.
8. Digital Products and Affiliate Ecommerce
Downloadable products and ebooks can be sold with a low investment. A subset of this model is affiliate ecommerce.
Affiliate ecommerce websites are able to generate revenue by publishing information about a product and using a special link to direct customers to the product. A commission is earned when the customer makes a purchase.
Affiliate publishing means you don’t have to fulfill product orders yourself. However, you still have to depend on relevant traffic, merchant relationships, and commission rules.
How to Start an Ecommerce Business Step by Step
Starting small can significantly reduce the financial risk.
Step 1: Choose a Product Niche
A product niche is a specific product category or customer group that your business has been set up to serve.
Some examples include eco-conscious home products or specialty food storage and supplies.
When evaluating your ideas, consider the following questions.
- Is there a problem or need that your product solves or addresses?
- Is there a defined segment of the market where your product would cater to?
- Is there demand for the product? Are people looking for or purchasing similar products?
- Is there a way for you to source or manufacture the product?
- Is it profitable? Consider all the costs associated with the product and your business.
- Can you offer something special or unique?
If you are looking to evaluate product demand, use online search suggestions, customer reviews, competitor product pages, and directly talk to your potential customers.
Step 2: Validate Demand Before Investing Heavily
Pick a few products and see if there is customer interest. You may want to set up a landing page, or advertise or list the product to test demand.
Track things like qualified leads, purchases, customer feedback, and the cost to acquire a customer.
You can use tools to track things like how many people see your posts, how many people like your posts, etc, to find things like potential customer interest, but these tools can’t tell you if those people will actually buy your products.
Choose Your Business Model
There are several ways to make money with an ecommerce business.
- You can produce your own products and sell them to customers.
- You can purchase products from a supplier and resell them to customers.
- You can sell other brand’s products to customers and not actually own or hold any inventory.
- You can sell digital products.
Compare potential suppliers based on the items listed below.
- Packaging and Branding
- Quality and Consistency of the Product
- Order Minimums
- Purchase Price and Payment Terms
- Delivery and Production Timeline
- Return Policies
- Defect Policies
- Supplier’s Ability to Meet Growing Demand
Sample and check the specifications of the product you wish to sell.
Calculate Profit Margins and Startup Costs
Create a budget that includes the one-time costs and the recurring costs of starting your business.
- Register your business and become legally compliant.
- Purchase a domain name and build your website.
- Host your website and integrate necessary applications.
- Purchase product samples.
- Purchase the initial inventory.
- Purchase shipping and packaging materials.
- Process payments.
- Create product, branding and sales content.
- Advertise and market your product.
- Hire customer support, operational and return employees.
There is no universal startup cost for ecommerce businesses. Factors like what you sell, where you sell it, how and when you fulfill your customers’ orders, and how you structure your business, will impact how much it costs you to start your business.
Understand your contribution margin before scaling your business.
Let’s say an online store sells a product for ₹1,000. Variable costs for that product may look like this:
Variable Costs per Order
| Item | Amount |
|---|---|
| Selling Price | ₹1,000 |
| Cost of Goods Sold | ₹400 |
| Packaging and Shipping | ₹100 |
| Payment and Marketplace Fees | ₹70 |
| Advertising Cost | ₹150 |
| Contribution Margin Before Other Overhead | ₹280 |
Once a product sells, ₹280 is available towards covering other fixed costs. In this case, that would be a 28% contribution margin.
These are illustrative examples, not averages for the industry. Most businesses operate based on multiple variables including taxes, discounts, refunds, fraud, and failed/missing deliveries.
Let’s say a business incurs ₹28,000 of monthly fixed costs and contribution is ₹280 per order. In this case, the business needs roughly 100 orders a month to break even.
This calculation is more helpful than estimating profitability based solely on selling price.
Step 5: Choose Where to Sell
The three main options are selling on your own website, on a marketplace, or on social media.
Selling on Your Own Website
You control the customer experience and branding but need to create and maintain your own website. You also need to attract your own customers.
Selling on Marketplaces
You can sell to customers on established platforms but have to share your product page and checkout with the competition. You also have to pay fees to the platform.
Selling on Social
You can use social media to showcase, answer questions about, and sell your product. Requirements and features vary by platform.
Many businesses integrate these channels. As you begin, you can stick to a single channel to keep things simple and focus on expanding other areas of your business.
Step 6: Create a Trustworthy E-Commerce Website
If you go the direct route, have your store and focus on usability, transparency and a trustworthy checkout process.
Some of the important features include:
- Usability and design: ensure your website is easy to use, accessible, mobile friendly and has clear product categories and navigation.
- Content: provide product descriptions that are useful and relevant, include necessary and relevant product specifications and use high quality product images.
- Availability and pricing: ensure your product prices and availability are up to date and available on your website.
- Process: provide a secure checkout and offer a variety of payment and shipping methods.
- Policies: have clearly listed shipping, return, refund and cancellation policies.
- Contact: provide ways for customers to contact you and/or provide order confirmations and/or delivery updates.
Pick the e-commerce platform that meets your needs and aligns to your goals. Hosted platforms may be the best for you if you have a very limited product catalog and/or have very little/no technical skills. The same can be said for highly anticipated and/or seasonal stores. Custom e-commerce solutions may be ideal for larger enterprises that can afford the time and resources to develop/manage a solution.
When using a hosted or 3rd party service, assess the total cost of ownership, integrations and order management.
Step 7: Configure Payment, Shipping and Return Settings
It is no good having an easy checkout process if you can’t fulfill the orders.
Establish appropriate payment and shipping methods. Determine standards for packaging and set procedures for tracking and/or loss in transit. For cash on delivery in India, consider the additional operational risks of undelivered orders and cost of reverse shipping.
Set Aside Working Capital
Set aside working capital for refunds, shipping, and advertising. A store can report sales growth and still experience cash flow problems. This is especially true if money is tied up in inventory or if payouts are delayed.
Step 8: Handle Legal and Tax Requirements
Legal Requirements
Your legal obligations depend on your business location, where your customers are located, and the products you sell.
Ecommerce businesses in India should familiarize themselves with the applicable business and GST registration requirements and rules, invoicing, consumer protection, product-specific licensing and regulations, data protection laws, and rules related to online marketplaces.
There are numerous different types of GST registrations, and the obligations for collecting GST vary based on the type of transaction, the seller, the marketplace, the goods and services sold, and applicable exemptions. Online sellers should not make assumptions about the obligations of other sellers.
Prior to starting your business, consult the applicable government regulations and/or engage a licensed tax practitioner to help you with your questions. The Consumer Protection (E-Commerce) Rules, 2020, and subsequent amendments, can be found on the website of the Indian Department of Consumer Affairs.
Step 9: Launch with a Limited Product Inventory
You do not need to carry hundreds of products to launch your online store. Having a limited selection of products can help you become better at listing products, managing your store, and understanding your customers. Before your official launch, be sure to test your product offerings and ensure your website is fully functional. Your customers should be able to complete the entire buyer’s journey, from browsing products to placing orders. Set up your refunds and support policies to identify and address issues customers may have. Avoid sending large volumes of paid traffic to your store until all website issues have been resolved.
Marketing an Ecommerce Business
To get repeat relevant buyers, a business needs an effective way to attract customers. This calls for a marketing strategy that integrates the product price, competition, and available budget.
SEO
This helps search engines to list and identify products on different categories of the website.
Important page elements include:
- Descriptive page titles and meta descriptions
- Helpful category pages
- Unique product descriptions
- Alt text for images
- Navigable website with internal links
- Fast mobile site
- Appropriate structured data for products
- Accurate prices and availability of products
- Purchase decision support content
A well optimized ecommerce site ranks products appropriately. Fast and useable mobile websites ranks high in the eyes of users. Product data, structured data, and useful content support the purchase decisions.
Content marketing
Educational content to support purchase decisions ranks higher, draws traffic, and ultimately increases conversions. Relevant and useable content supports purchases and ranks higher in comparison to keyword stuffed pages.
Link helpful content to relevant product or category pages.
Paid Marketing
Useful marketing helps drive traffic to product pages to increase purchases.
Keep a limited marketing budget, relevant customer base, and for how long you want to run the campaign.
Monitor outcomes. Is the full cost of a given order covered by repeated purchases? Does the order have a high contribution margin? Is the order refunded?
Social Media and Email Marketing
Demonstrate your products and services on various social platforms, create content that educates your audience and answers their questions, and build your brand.
Email marketing can be used as a follow-up to an abandoned cart, order-related communication, or to educate customers on how to use a product. For communication to be permitted, customers must have opted in.
Segment messages based on customer behavior. Do not increase the volume of messages simply to increase promotional messaging.
Customer Reviews and Retention
customer feedback, both good and bad, provides information on the quality of a product and how well it meets customer needs.
Aid in reducing customer acquisition by aiding in repeat purchases of products that are consumed or used up.
To increase repeat purchases, enhance the customer experience and improve customer satisfaction by reducing the reliability of the customer experience before implementing customer loyalty programs.
Ecommerce SEO for Google and AI-Powered Search
Improving the product information on your website can increase the likelihood that your website is found when a customer searches for your product or service on Google or other search engines.
Strengthen your product information by using detailed headings and page titles, including all pertinent product information, ensuring that product pages are easily accessible from your website’s main navigation and internal links, and keeping structured data consistent with page content.
Evaluate product feeds through the Google Merchant Center, or other authorized retailers or marketplaces, based on your sales strategy.
Write blog posts to answer frequently asked questions, and comparative product reviews to aid customers in making an informed purchase.
Use analytics and search tools, including AI, to evaluate potential issues, technical debt, and how your website is performing with respect to organic search engine optimization.
I align to the published guidance by Google on eCommerce content and product data.
Generative search systems, such as ChatGPT and Copilot, may be searching for relevant business data to structure their results, which may not be obvious to the end user. Make your business and product data clear, consistent, factual and easy to understand. Explain the features, limits, and intended use of your products. Explain your shipping policies and provide demographic information to help determine who your products are appropriate for.
As for AI-related schema and markup, there are no guarantees that your site will show up in the ai-generated answers with or without them. The focus should be on creating great content, making pages easy to access and giving the end user the best, most accurate and trustworthy experience.
Common Ecommerce Business Challenges
An ecommerce business can face a lot of challenges even if their website looks professional.
- High customer acquisition cost (CAC): Advertising can eat up your profit margin. Increase the quality of your product and landing pages to increase organic discovery and repeat purchase rate instead of increasing your ad budget.
- Intense Competition: Differentiate yourself by being the best at what you do instead of following the herd.
- Inventory and Supply problems: Communication with your suppliers and providing realistic, accurate stock information will help prevent cancellations due to stock issues.
- Returns and Delivery Failures: Returns can be high due to unrealistic expectations, bad packaging and inadequate product descriptions.
- Cash flow problems: Forecasting your cash needs will help avoid tying up too much cash in unvalidated stock.
- Low Customer Trust: Letting customers take a risk on your product can discourage purchases if they can’t see your policies and contact info. Give customers all the info they need throughout the journey to make an informed purchase.
Performance Metrics in Ecommerce
It’s better to rely on a small number of important metrics when making business decisions.
- Conversion rate: This metric shows what percent of visits to your website end in a purchase.
- Average order value (AOV): This measures what the average customer spends in your store.
- Customer acquisition cost (CAC): This metric measures what you spend to acquire a customer.
- Contribution margin: This is what’s left over after variable costs of doing business.
- Return rate: What percent of orders are returned.
- Repeat purchase rate: What percent of customers purchase from you more than once.
- Inventory turnover: How often does your inventory sell and need to be replenished.
While reviewing these important metrics, you should take into account the average profit margin to help determine if a higher conversion rate and/or higher average sales are actually better.
Practical Example: Starting a Small Ecommerce Business
We have an entrepreneur who wants to sell uniforms online.
Instead of trying to build a large business right away, this entrepreneur could take the time to determine demand for these kinds of uniforms in clinics, labs and other businesses, as well as in individual practices.
The first year plan for this small business could include items with a size chart to help the customer determine the right fit, an informative website with individual and bulk order forms, and an elegant, yet simple, website.
The entrepreneur could keep the initial inventory small and test what kind of products bring in the most profitable orders.
Repeat bulk orders may indicate the presence of a reliable customer base with consistent, sustained demand. To capitalize on these opportunities, business pricing and quotation features can be enabled. Alternatively, the entrepreneur can focus on consumer pages and retention. The consumer pages and retention focus would be particularly applicable if the demand was generated by individual consumers.
From the information given, the gist is to leverage validated demand and actual operating results to determine expansion strategy, rather than make expansive investments based on assumptions.
ECOMMERCE BUSINESS FAQ
What is eCommerce in simple terms?
An eCommerce business is one in which the merchant sells their products and/or services online. This entails setting up a web presence where customers can find and buy products and/or services.
How do I start an eCommerce business?
The general process is to identify a product niche, verify customer demand, scope out competition, determine costs, select a business model, organize suppliers, create a sales channel, and manage the logistics of taking payments and delivering products to customers. Finally, review legal and tax implications.
Is eCommerce profitable?
Yes, if operating expenses and CAC (customer acquisition costs) are managed appropriately. Profitability hinges on cash-flow management and repeat customer purchases.
Can I run an eCommerce business from home?
Certainly. You can run an eCommerce business from home using a hosted web store, marketplace, dropshipping, print-on-demand, or digital products business model. The only exception would be if you sell physical products which would require adequate storage and shipping logistics.
5. Is it essential to have a website to set up an ecommerce business?
No, it isn’t necessary. You can first set up shop on the right marketplace or social selling channel. An independent website gives you better control over your brand and the customer experience. However, you will have to work on customer acquisition and be prepared for the maintenance load.
6. What is the ideal ecommerce business model for beginners?
In the absence of a ‘best’ model, you can evaluate based on the skills and available capital. For example, dropshipping and print-on-demand models require lower initial investment. However, your ability to reach your target customer should also be part of your evaluation. For example, small-inventory retail would not be ideal if your target customers are in a different region or country.
7. How can I acquire customers for my ecommerce store?
You should integrate paid advertising, relevant SEO and content, and develop good customer reviews, partnerships, and social media and email marketing. Knowing which of these levers impact your business the most, and which are loss-making, is a better way to gauge performance as opposed to traffic.
8. What are the legal requirements for an ecommerce business in India?
Requirements vary based on your business structure, product type, sales channel, transaction type, and governing laws. Find out the relevant business registration, GST, consumer protection, licensing and invoicing requirements using official or professional resources.
Conclusion
Launching an ecommerce business means creating an offer, designing a business model, and devising operations to consistently reach customers in a professional way. An ecommerce website can help achieve these, but it can not replace low product demand, poor margins, or unreliable order fulfillment.
Start small by researching and validating your target customer with a select, yet relevant, product range. Set competitive pricing and delivery processes and use marketing, SEO and other online promotions to reach your target customer.
To be successful in ecommerce, the focus should not be on the order volume, but on ensuring customers are served well and supporting long term business health and viability.
