Are you considering starting an ecommerce business? Perhaps you’re looking to launch a new business. Or maybe you have an existing business that you are looking to expand to the online arena. Either way, an ecommerce business holds huge opportunity if it is set up in the right way. Before jumping in, be sure to research and plan ahead to ensure that you are setting up your ecommerce business in the best way for your customers. Here are some steps to review before starting an ecommerce business.
Should you start an ecommerce business?
If you have a new product or service to sell online, then the answer to the question of “should you start an ecommerce business?” is rather easy. However, there are several steps that you will need to tackle first before starting the ecommerce arm. First, you will need to set up your business. There are 4 simple steps to doing this, but they are critical before starting a website or online store.
You can get much more detail in the article Start Your Own Business in 2021 in 4 Steps, but here is a quick review of the steps. 1) Set Up a Business Address and a Registered Agent 2) Register your company and business name 3) Open your business bank account with an EIN and Business address 4) Set yourself up for success with a website, phone number, and marketing plan.
As you work your way through the steps in this article, you can start getting your business set up legally. As mentioned above, to do so, you need a business address, and a Virtual Office is a great way to get one setup! It’s a low-risk, easy way to get a business address that gives you credibility and privacy.
If you have an existing business, there are many benefits to adding an ecommerce arm to it. First, is the obvious – reach new customers. If you have a physical presence in one location, you are only able to reach customers within a certain limited proximity to that location. Offering your product or service through an online store opens the door to any location across the country or even world. You may be limited by your shipping or servicing capabilities, so as you work through your ecommerce model below, consider the shipping method. But, otherwise, the opportunities are endless for your customer reach once your offer is online.
Second, ecommerce may allow you to more easily expand your product or service offering. If you currently sell products, a model like drop shipping will allow you to test out new products from different suppliers with your customers without having the cost of inventory to worry about. Read more about this below. For service businesses, being online allows you to test and see what services your customers are more likely to buy.
Third, expanding into ecommerce allows you to lower overhead costs from having a brick and mortar in new locations. It also help to reduce complexity and inventory when inventory management can be done through other suppliers or distributors.
Before starting an ecommerce business, you must take the time to research first!! Is your business conducive for selling online? What do your customers want and need? What are competitors doing? Taking the time to ask as many questions upfront and then finding the answers will save you tons of money later.
Determine the Ecommerce Business Model
An ecommerce business model is essentially a flow of how you will sell your products or services to your customers. There are many different factors to consider in this, which ultimately can be summarized by five primary ecommerce models. Before determining which model best fits your business offering, you will need to understand WHAT you are offering and to WHO you are offering it.
For example, if you are selling office supplies, you need to have a large assortment of products within various categories. This may require a great deal of inventory management and shipping complexity.
If you are selling only printers, you have a more narrow product offering, but may have a great deal more questions. For this example, you may have less inventory to carry, but likely will need more customer service available to customers.
You will also need to determine who your target customer is. Depending on whether your target is Consumers or Businesses your store layout, information provided, and other shopping needs may differ.
What are the different types of models?
The next thing to look into is the type of model. Are you manufacturing your own products? Will you have a warehouse with product inventory and a shipping department to ship all orders? Or do you want to operate as the middleman, connecting customers to other vendor products? Where will you ship to – local, country, worldwide?
Based on the answers to these questions, one of these models will fit your business best.
1. Drop Shipping
Essentially, in this model, your business operates as the store for other suppliers’ products. Customers come to your online store, place the order, send you payment, and then the orders and payment are forwarded to suppliers to fulfill. If you are not manufacturing your own products, than this is easy to set up through different ecommerce platforms, such as Shopify.
This model has low overhead costs as you do not need to carry inventory, but because you are a third party in this model, your profit margins are lower than other models. This model also has limited control over the products themselves or the time it takes for customers to receive them. This is because you never actually see the physical product or place it in a shipping box, this is all handled by the suppolers.
2. Wholesaling and Warehousing
In this model, your business carries all inventory. Your online store connects to an inventory management system to track products ordered and available. Customers place orders online and your business will need to process those orders, then fulfill them. Fulfilling means shipping orders and updating inventory.
3. Private Labeling and Manufacturing
If your business has a unique product, then you can manufacture it and sell it on your website. There are many third-party manufacturers with capabilities to make your products. They can take your idea, in the form of a prototype or drawing, and make it for you to sell to customers. Some will also carry the inventory and ship directly to customers. Others, will sell to you at fixed quantities and then you must carry the inventory and ship to customers.
Private labeling is where you also work with an outside manufacturer, but rather than inventing a brand new product, you start with a more generic idea. For example, a private label bag company can offer you a general bag type, but then give you options for material, features, color, and size so that you can customize the bag to your specifications.
4. White Labeling
White labeling is where you work with a supplier to sell existing generic products that are branded with your business name. These are often manufactured on demand based on your orders from your online store. However, you can also order in bulk and maintain an inventory to fulfill orders on your own.
This final model is a recurring income stream model where customers receive ongoing shipments based on a subscription. This can be anything from clothing to food. These types of businesses are often similar to a warehousing model, where your business maintains inventory and ships the subscription boxes. Examples of this are MisFits Market, FabFitFun.com, or Hello Fresh. This can be a more lucrative model than the straight forward warehousing model as the revenue is consistent and ongoing. Inventory management may be easier if you are able to predict the weekly, monthly, or quarterly demand from the subscriptions. You are also better able to cover the cost of holding inventory as you have the consistent revenue.
Here’s an article to get a more detailed review of the various Types of Ecommerce Business Models.
Build your Online store
Once you have selected the ecommerce model, you will need to decide on a platform to help you build your online store. If you have not started an website at all for your business, first check out the article, Guide to Starting Your Own Website.
There are several options available for building your online store or new ecommerce website. You will want to review each to find the best fit for your needs.
Here are some to consider:
Set up Payment Gateway
The last critical step in starting an ecommerce business is to select a Payment Gateway to process payments for all online orders. A Payment Gateway is an online merchant service software application where providers authorize credit card or direct payments. This allows for seamless online transactions between a variety of different sellers and purchasers. According to wikipedia, it facilitates a payment transaction by the transfer of information between a payment portal (such as a website, mobile phone or interactive voice response service) and the front end processor or acquiring bank.
Your Successful Ecommerce Business is Around the Corner!
This may seems like a lot, but taking this guide one step at a time will help immensely as you navigate the ecommerce opportunities and next steps.
Here are additional articles as you navigate the next steps on starting your ecommerce business: