E-commerce allows businesses of all sizes to compete for a larger customer base. Setting up an online store typically requires less investment than creating an online store, making it possible to start as a sole proprietor or even part-time. However, the process can seem daunting at first. I'll show you how to set up an online store.
1. Determine What You'll Sell
Before anything else, decide what you'll sell. The type of product or service you sell will affect the e-commerce platform you use, taxes, licensing in some cases, and whether or not you'll have to manage inventory and shipping.
The main categories of online products are:
- Physical Products: A physical product that must be shipped to the customer. This includes dropshipping products.
- Subscriptions: Subscriptions can be content downloads or physical products sold by subscription.
- Services: Services include everything from restaurant reservations to appointment scheduling for businesses like HVAC repair or hair salons.
- Digital Products: Digital products include anything downloadable, such as instructional videos, printed wedding invitations, and coloring pages.
Within these categories, research profitable e-commerce business ideas and products and consider how they align with your personal knowledge and experience before making a decision. For example, homemade dog treats may be popular, but do you have a home kitchen license or a great recipe to make them?
2. Choose Where to Sell
Yes, you'll sell online, but where will you sell online? Will you use a standalone online store, social media platforms, a third-party marketplace like Amazon or Etsy, or a multi-channel selling experience that combines several options? There are also options for selling your used items online.
Each option has its pros and cons. Selling via social media platforms may be the fastest, but it comes with additional limitations and a lack of customization. For many, building an online store begins with testing the market before building a full-fledged website. These third-party marketplaces come with built-in customer bases, but they also include many rules you must follow. A full-fledged e-commerce site offers the most freedom, but it also means you must build your own customer base.
3. Choose a Delivery Method
For physical products, you'll need to choose a delivery method—how you'll get the products to your customers. There are three main delivery methods: dropshipping, fulfillment, and in-house delivery.
Dropshipping is popular for new stores because it eliminates the need to pay for inventory upfront, store it, and ship it yourself.
Sometimes delivery services, such as Amazon Fulfillment by Amazon (Amazon FBA), are tied to a third-party marketplace, but there are also general services. These services charge fees for picking, packing, and shipping, as well as storing products before shipping. This is a great option for small businesses that don't have warehouses.
In-house delivery means storing, picking, packing, and shipping inventory yourself. For many new online stores, this means boxes occupying at least one room in your home. For location-based businesses, there is often a shipping procedure in place.
4. Define Your Audience
Once you know what you want to sell and how to get it to your customers, you need to define who your customers are. Even brick-and-mortar stores that add e-commerce may find their customer base is slightly different from their existing customers.
For example, in e-commerce, you need to consider whether your customers are local or global. A small local grocery store may find a loyal customer base across the country for locally made products, such as regional barbecue sauces.
Another important aspect of defining your e-commerce audience is determining where your target audience is located online. The type of browser they use and whether they're active on a particular social media platform are all parts of determining how to reach your audience later.
5. Establishing Your Business
For established businesses, you can start with tax management. If you're starting from scratch, it's time to consider the legal aspects of establishing your business. Just because your business is online doesn't necessarily mean you're free from legal complications; sometimes, there are more rules than there are for website-based businesses.
Business Licensing
One of the first questions I often hear is: Do I need a business license to sell products online? Determining whether or not you need a business license is usually simple for brick-and-mortar stores. However, online stores often require a license as well. The problem is that even when you contact your local or state government, the answers may vary from person to person.
Each state, county, and municipality has different rules, and some may not have specific rules for the internet, so they over-award licenses based on other factors. If you have any difficulty getting a clear answer from government agencies, it's best to consult an attorney to ensure you have the right license for your location.
Choose Your Business Type
Choosing your business type is an essential part of starting any business. How you set up your business can affect your tax burden, your privacy, and the protection of your personal assets in the event of a lawsuit. The most common types of businesses are sole proprietorships, limited liability companies (LLCs), and S corporations. While sole proprietorships rarely require any formal paperwork, LLCs and S corporations do.
You can form an LLC in any state yourself, or you can use an LLC service to handle most of the filing process. For S corporations, you'll need to file Form 2553 with the IRS, and there are certain operating rules to follow. It's always a good idea to speak with professionals, such as qualified attorneys or legal advisors through your local Small Business Administration, about your specific situation before deciding on a business structure.
Taxes
Online businesses must handle income taxes and sales taxes. The first step in dealing with income taxes is to maintain separate accounts for all your financial affairs. You'll also need to keep accurate records, and I always recommend consulting a tax professional before getting started.
Online sales taxes are a bit more complicated. Initially, e-commerce businesses were required to have a physical presence in the state before they were subject to sales tax. However, many states soon began shifting this burden to customers, requiring them to report their online purchases and pay taxes when filing their income tax returns.
Shortly afterward, states began requiring e-commerce businesses to collect sales tax regardless of their physical location.
This controversy eventually led to a Supreme Court decision in South Dakota v. Wayfair, Inc., in which the Supreme Court ruled that the customer's location and sales volume would be the criteria. Initially, many small online sellers went out of business or moved exclusively to foreign marketplaces that handled sales tax because reconciling the different tax rules of each state was beyond the capabilities of individual sellers.
Eventually, new software and services emerged that automate the management of tax rules, and e-commerce has recovered. However, this issue remains confusing for new online sellers.
The threshold for tax nexus status varies by state, as does the number of sales or revenues that trigger sales tax collection in that area. Therefore, I always recommend using a platform that includes automated sales tax compliance for new stores.
6. Choose a Sales Platform
You should already have a plan for the type of platform you want to sell through, but now you need to decide on the details.
E-commerce Hosting vs. E-commerce Platform
The main difference between ecommerce hosting and an ecommerce platform is that ecommerce platforms are software systems that power ecommerce, while ecommerce hosting is a website hosting service that offers more power, resources, and compliance with ecommerce security requirements. In some cases, e-commerce platforms include hosting, while others do not.
Some of the best ecommerce platforms include: Shopify, WooCommerce, and Ecwid. WooCommerce is a somewhat special case because it only works as a WordPress plugin. However, it is very popular, powering approximately 30% of all online stores.
When choosing a platform, pay attention to the following:
- Performance
- Is hosting included, or is it an additional cost?
- Compatibility with multichannel selling?
- E-commerce plugins or integrations, such as shipping, sales tax automation, inventory management, and dropshipping.
- Security and compliance, such as PCI-DSS requirements required by credit card companies.
- Transaction fees plus payment processor fees.
- Any product limits.
- Supported product types (physical, digital, subscriptions, protected content).
Domain
A custom domain name is your online address. Not only does it give customers an easy-to-remember way to find you online, but registering a domain name helps protect your brand and increases customer confidence in the security of their personal data.
While some e-commerce platforms, such as Ecwid, offer free subdomains, most businesses typically achieve better results by investing in a custom domain name. Free domain names are limited now that Freenom is no longer operating, but there are many affordable domain registrars, and most domain names cost between $5 and $20 per year, although prices vary greatly depending on the domain registrar you choose. For example, I find that IONOS typically offers the best introductory pricing, while Cloudflare generally has better renewal rates.
Third-Party Marketplaces
If you're not ready for a full-fledged online store, you may prefer a third-party marketplace. Some of the largest third-party marketplaces are Amazon, Walmart, Target, Etsy, and eBay.
These marketplaces are known for their built-in customer base and handle some of the fine print, such as sales tax collection. They're popular platform options for new online sellers. However, you must adhere to each marketplace's rules, including allowing them to determine the outcome of refunds and returns.
You can connect these marketplaces via a standalone e-commerce platform, or register on each marketplace separately. Yes, you can sell on more than one third-party marketplace.
7. Create Your Online Store
Learning how to create an online store involves setting up product pages, processing payments, and more. There are many steps to set up initially. However, once the initial setup is complete, maintenance time requirements are generally low.
Theme
Your store's theme determines its appearance. Choose a theme that supports the e-commerce features you need and aligns with your brand. I find that skipping the most popular themes makes it easier to stand out from other stores. Make sure to customize colors and layouts for a more distinctive look.
Create Your Product Catalog
Your product catalog is the heart of your online store. Don't rush through this part of the setup process. You'll need product images with attractive, keyword-rich titles and descriptions. You'll also need to set up shipping rules, taxes, prices, and discounts as part of developing your product catalog.
A special note about product images: Don't steal images from other websites; this quickly leads to loss of customer trust and a copyright infringement lawsuit. Your product manufacturer will likely add promotional images for you to use, or you may need to take your own photos. If you're not a photography expert, it may be best to hire a professional to take the photos.
Connecting a Payment Gateway
The terminology gets a little confusing here, but the general process is that you need a payment processor to accept payments. These processors use payment gateways (or gateways) to encrypt and manage data.
Many services combine the processor and gateway. Some of the most popular are Stripe, PayPal, Square, and Clover. Depending on your platform, you may be able to choose from several processors or only have access to a few.
Payment Setup
How you set up payment depends on the e-commerce platform you use. However, it's usually fairly simple, as the platform presents you with a series of options. For example, setting up "Agree to Terms and Conditions" checkboxes, automated emails, collecting customer shipping information, setting up payment options, and linking upsells.
Connect Extensions
Add-ons and integrations add new functionality, improve customer experience, and make your life easier by automating some back-end tasks. Common add-ons include live chat, search functionality, inventory management, sales tax calculation automation, and analytics.
Adding All Your Policies
Every online store needs to protect itself and set customer expectations through policy pages. Some are legally required and may vary depending on your location and product type. Consult a local legal expert to ensure you comply with these notices and policies. Other common policies include shipping policies, return policies, and refund rules.
8. SEO Tuning
SEO is a very important topic, and the secret is that it's always a changing goal. Search engines don't offer comprehensive guidelines for ranking well in search results, as they know that malicious actors will exploit this to rank fraudulently against trusted stores and other websites.
However, small businesses can certainly rank well in search engine results pages (SERPs). Use the SEO tools built into your platform, follow SEO checklists, and consider adding an SEO tool to help you optimize pages, conduct better keyword research, and track analytics.
9. Open the Virtual Doors
Congratulations! You've created an online store and can now welcome customers by publishing it. Each platform has a different process, but most are as simple as clicking a button.
However, remember that everything takes time. Even with fast servers, the initial deployment can sometimes take a while. After hitting the publish button, take a short break to clear your mind, then come back in about an hour to make sure everything is working properly. After that, you can troubleshoot if necessary.
Marketing Your New Store
Once your online store is set up, your job isn't done. Just like with any website-based business, you'll need to market your new store. While you don't need to spend a huge amount of money, you'll likely need to spend at least a few dollars to access most advertising opportunities. Additionally, as part of ongoing maintenance, you'll need to analyze analytics and adjust your marketing efforts accordingly.
Online
Online marketing typically includes keyword advertising, sponsored search results, social media posts, and social media ads. Advertising budgets can range from $15 for a three-day media campaign to hundreds of thousands of dollars.
The most important part is ensuring your ads are targeted to the right audience. Use the platforms your target customers frequent, and use the targeting features in the ad setup screens to adjust demographics.
Offline
Even for online sales, offline marketing is still beneficial. For location-based online stores, such as those that book appointments for services, local magazines, and sponsor local events, it's a great starting point.
One effective advertising method I recommend for small business owners is to consider digital billboard advertising during peak times using services like Blip Billboards.
Many of these services let you get started for $20 or less, and if you choose your billboard and time wisely, you can reach a large number of people quickly. Even better, there's a common perception that billboard advertising is expensive, so viewers tend to assume your business is larger than it actually is.
Frequently Asked Questions (FAQs)
Do I need an LLC to start an online store?
Establishing an LLC isn't necessary to start an online store, but it provides important legal protection and privacy. Legally establishing an LLC also enhances your business's credibility with your customers.
How to Start an Online Store Without Capital?
You can start an online store without capital using free website builders, free trials of e-commerce platforms, and a dropshipping service to avoid upfront inventory costs. Remember, you'll eventually need to pay for essentials like a domain name, hosting, and payment processing to achieve sustainable growth.
What's the best place to start an online store?
The best place to start an online store depends on your goals. Platforms like Shopify and WooCommerce are popular for building fully integrated websites, while Amazon, Etsy, and other online marketplaces are faster ways to reach customers if you're just starting out.
What are some easy online businesses to start?
Dropshipping is one of the easiest online businesses to start, as it doesn't require inventory management or shipping arrangements. When combined with a third-party marketplace that collects sales tax, it's one of the easiest online business ideas to develop. Popular dropshipping products include custom t-shirts and blankets, jewelry, baby products, coffee, and dog clothes.
Can I create an online store for free?
Yes, but it's generally not a good idea. While you can use a free website builder, free ecommerce plugins, and dropshipping to get started for free, it's not a long-term solution. Significant elements that add additional costs include a custom domain name, payment processor fees, limited liability company fees, and e-commerce hosting plans with larger product limits.