BlogEcommerce Basics
-
15
min read
-
Written by: 
Nikolaus Hilgenfeldt
-
Category:
Ecommerce Basics

How to Get Started in E-Commerce: 7 Steps to Grow Your Business

It’s no secret that e-commerce is a growing field—in just the past decade, this market has experienced explosive growth that has proven fruitful for online merchants. 

No matter what types of products you plan to sell online, there are a series of steps to complete that will help you start an e-commerce store and grow your business.

Continue reading through this guide as we lay out all important aspects to consider and the steps to take to get started as an online seller. 

1. Select a Niche

If you don’t already have a good idea of the niche you want to operate in, this is something you should start brainstorming ASAP. 

As an online seller, there are many niches to explore, including beauty products, apparel, sustainable products, and health and wellness, among others. You may select a niche based on your own professional expertise, like how a dermatologist may choose to start selling skincare, or based on your interests, like in eco-friendly household products. 

In either case, consider the size of the market you’re trying to address, and whether it’s a worthwhile choice for your business. For example, if you’re trying to start an online store that sells encyclopedias, you may want to reconsider. Plus, consider the feasibility of offering your desired products online, like if you’re trying to sell alcoholic beverages, which would not be legally allowed on some platforms.

All in all, find a niche that you’re interested in, and ensure that it’s in a growing field to help support business growth over the long term. You don’t have to identify the exact products you’ll offer at this point, as you’ll hone in on this later, though you should have a general idea of what you’d like to sell. 

2. Identify Your Target Audience

During the early stages of starting an e-commerce store, one of the most important aspects you’ll need to hammer out is who your target audience is within the niche. Essentially, your target audience is the group of individuals or demographic that you want to sell products to.

Identifying your target audience before you go any further is very crucial, because it will help guide the rest of your business, like selecting the exact products you’ll sell, how you’ll promote the business, and more. This will take some research, though if it’s a niche you’re interested in, you may already have a good idea of what your potential customers look like. 

If your selected niche is home goods, some of the target audiences in this space could include: 

  • Mothers who are interested in natural home products made from organic and non-toxic materials
  • Millennial women who like home goods products that promote relaxation
  • Men who feel like the home goods sector has historically overlooked them 

Already, this may get you started thinking about exact home goods products you could offer to meet their needs and interests. So when you have a target audience in mind, it will be easier to make informed business decisions for your future customers. This can be very helpful for new store owners who have a lot of decisions to make in the beginning parts of their business, and need to make such decisions quickly. 

So while it may be tempting to create an e-commerce store with a broad scope that sells to everyone, this may mean you end up selling to no one. Consumers want to buy products that resonate with them and meet their specific needs, which you can only get once you narrow in on a target audience with your products, messaging, and other details. 

3. Select Your Products

Now with a better idea of your niche and target audience, you can come up with some specific products that you could sell to them. Throughout this process, you’ll need to do some research to consider where the current market is failing to meet their needs, or where it could improve. 

If in your research you recognize that there’s already some stiff competition in the market for your selected product, don’t get discouraged automatically. This could just be a sign that there is a healthy demand in the market for the given product. 

Above all, you’re trying to find a product that will actually generate demand and help you grow your business by meeting your customers’ needs. Using the above example of Millennial women who are interested in home goods that promote relaxation, you may choose to sell a line of candles that are infused with relaxing essential oils. 

Product Sourcing

At this stage, you’ll also need to consider how you will source your products. Some online sellers may produce their own goods, though chances are, you’ll be buying products wholesale and reselling them at a markup. 

Depending on the exact product you’ll offer, there will likely be a number of options for suppliers to choose from. Again, this may take some research to ensure you’re using a supplier that can meet your expectations and produce quality goods. 

One decision you have to make is whether to do nearshoring, or sourcing products from local manufacturers, or sourcing the goods from the Chinese suppliers. To successfully negotiate with the latter, we wrote a short guide on how to select and communicate with your suppliers!

Each supplier may further have their own requirements for orders, like a minimum order quantity or value, which is something to keep in mind. Plus, you’ll want to request samples if possible to test out the quality of goods for yourself before you begin selling them to customers. 

Fulfillment

After you’ve decided on a supplier, consider how you’ll get your products to customers after they’ve made their order.

Will you order and hold on to inventory yourself and fulfill the orders as they come in? Or will you utilize another option that allows you to be more hands-off like Amazon FBA, dropshipping, or third-party logistics companies. 

Each of these options has their own advantages and disadvantages, so it’s important to consider all the available choices and select the one that’s right for you. Let’s take a look at the pros and cons of each. 

Amazon FBA

If you mainly sell your products on Amazon, you have probably heard of Fulfillment by Amazon - a way for you to sell your products directly to Amazon customers, using the company’s warehouses, delivery and return management systems. 

Pros: 

  • Access to Amazon customers
  • Outsourced customer service and return process
  • No need for physical warehouses
  • Omni-channel fulfillment

Cons: 

  • Hard to build brand loyalty
  • FBA fees
  • Long-term storage fees
  • Product prep requirements
  • Sales tax complications

Dropshipping

Dropshipping allows you to put up products on your storefront with a mark up, and let a dropshipping partner take care of everything else, including supplying, storing and shipping the goods. While this is the least time-consuming option, it gives you little to no control over the product quality and the customer experience.

Pros: 

  • Low barriers to entry
  • No inventory management
  • No need for physical warehouse
  • Not risky to test new products
  • Passive income source

Cons: 

  • Very competitive
  • Lack of control
  • No bulk discounts
  • Different suppliers for different products

Self-Fulfillment

Most sellers would usually start with keeping the stock at their homes or garages while their store is still young. Self-fulfillment, or internal warehousing is an option that gives you the most control over the fulfillment process, but is also very demanding when you are scaling up your business. 

Pros: 

  • Low barrier to entry
  • Unlimited customization
  • Direct control over fulfillment

Cons: 

  • Time consuming
  • Hard to manage peak ordering seasons

Third-Party Logistics

Third-party, or 3PL, providers will ship orders to your customers all at once from the inventory stored in their warehouses. 3PL warehouses are logistics experts, so it may be a sizable upfront investment, though it could save you money over the long run. 

Pros: 

  • No inventory management
  • Save money over the long-term
  • Access to logistics experts

Cons: 

  • Loss of control over fulfillment
  • Sizable upfront investment
  • Trial and error to find the right 3PL company

4. Form a Legal Entity

Forming a legal entity for your online business may seem daunting, though it’s an important step to getting your store up and running officially. This is the prerequisite to paying taxes, hiring employees, opening up a business bank account, and even securing external financing.

Even if these elements seem very far-out for your new e-commerce store, you should prepare yourself from the beginning to reach these stages after experiencing business growth.

You may consider hiring a professional at this point to help you ensure each element is done correctly, though many choose to complete the following steps on their own. 

Choose a Store Name

First thing’s first, you need to select a name for your e-commerce store. Again, you don’t have to overcomplicate this step too much, and you can always change it later if you’d like. 

Something to keep in mind is that e-commerce stores that have shorter names that are easier to pronounce and spell tend to perform better. Consider incorporating your niche or products into the name, but make sure it’s unique and easy to remember before anything else. However, you should do your research to ensure your chosen name isn’t protected under any trademarks or copyrights. 

Select a Business Structure 

Next, you’ll need to officially register your business with your store name and legal structure to make things official. Many online sellers opt for the LLC, Ltd. or GmbH structure, depending on the country you are based in, that provides the most protection to business owners, though you may choose to operate as a sole proprietorship or partnership during the earlier stages. 

Although it requires more operational effort and is more costly, the LTD is usually a better solution as you are not liable for any company losses, so there are no personal guarantees. As a Sole Trader, you are the business and therefore you are liable for the company’s actions/debts. 

As an LTD, you need to file proper accounts and need a business bank account, while as a Sole Trader you only need a balance sheet and you are fine with your personal bank account.

5. Set up Your Online Store

Next, you’ll need to get your actual transaction engine up and running–your website. While this may seem like an overwhelming task to the many online sellers that are not web developers, it doesn’t actually have to be too complicated.

Even though your site does need to look presentable to customers so your store appears trustworthy and legitimate, you don’t need to overthink it too much. Put some good thought into the appearance and copy on your site, though you can always update it later.

Nowadays with all the various ways to sell products online, you may not even need to have your own dedicated website. So whether you’re running an Amazon FBA store, selling through Shopify, or any other method, consider some of the following aspects of your online store that you’ll need to define in order to grow your business. 

Set Your Prices

While you’re setting up your online store, you’ll need to set the pricing for your goods. 

Correctly defining the prices for your products can be the difference between earning a profit and suffering a loss. Even still, there are some simple ways you can calculate a price that will be profitable for your business. 

Consider the scenario where you’re selling relaxing candles, and the supplier you selected will charge you €4 per unit to source them. If you would like to experience a 60% margin, you will nTeed to charge at least €10.40 per candle to make your desired profit.

Of course, as you add on costs like software, employee payroll, or marketing spend, you’ll need to adjust your pricing accordingly to maintain that same level of profitability. So, the good news is that you can always revise your pricing on your website later on as you evaluate performance and profitability. 

Order Your Inventory

The last step before going live is to order your inventory. Even if you’re utilizing Amazon FBA or 3PL companies and you’re not physically storing the inventory and mailing customer orders yourself, you’ll need to monitor your inventory levels and make sure these fulfillment companies have enough stock for incoming orders. 

When ordering your initial inventory from your chosen supplier, you’ll want to order enough units to at least fulfill your first thousand dollars in sales. This will be an upfront investment you’ll have to make, though it’s typically not as expensive as you may think. 

Let’s consider a situation where you’re planning to have enough inventory for your first €2,000 in sales. If you’re selling each candle for €10.40, you’d need to sell at least 193 units to hit this level. And at a per unit sourcing cost of $4, this means you’ll have to order at least €772 worth of inventory to fulfill your first €1,000 in sales.

As you monitor your sales level and keep track of your inventory, you’ll need to make additional orders as needed. 

6. Market Your Store

Now that you have a functional storefront where customers can make purchases, you should begin to promote your e-commerce store. 

There are many channels to market your products, including on your personal social media profiles, through paid advertising, on marketplaces like Etsy and eBay, or other online communities like Facebook groups, Reddit, or Quora. 

Each online seller may have their own background in marketing or have access to certain resources to help them promote their goods at reasonable rates. But, it’s important to note that some of the aforementioned sales channels are free, while others can require some marketing spend in order to be effective.

Depending on the products you sell and the audience you serve, one channel might be more effective than others, so feel free to test out your marketing channels and materials to find what’s most effective for your e-commerce store. 

7. Secure Financing

Once you have been in operations for a while and have proof of concept that your store is gaining some good traction, you can seek out external financing. While many e-commerce store owners bootstrap operations at the beginning to get their store off the ground, lenders will be more willing to provide you with capital once they see some positive success from the business.

Accessing this capital can give merchants more options to promote e-commerce growth through hiring efforts, investing in new product lines, and more. 

Let’s take a look at some of the main options that e-commerce store owners consider when seeking external financing. 

Equity Investment

As you grow your business, you may consider securing an equity investment. This can include  receiving funding through venture capital, angel investing, or friends and family. 

Equity financing is a very popular option, as it typically provides merchants with a sizable chunk of capital in exchange for equity in the business. Because of this, the provided funds don’t need to be paid back. Rather, the investors have ownership in the business. However, this can be a negative aspect, as merchants may lose some of the control over their business depending on how much equity the investors hold. 

Bank Loans

Bank loans are a traditional form of business financing, though they can be more difficult to secure by e-commerce businesses because of the strict requirements set out by lenders. 

If a merchant is able to receive a bank loan, they will receive a lump sum payment from the financial institution which will be paid back in monthly installments plus interest until the full amount is paid back–typically over five to ten years. 

Most of the time, the business owner will need to make a personal guarantee for the loan, meaning they’ll personally pay it back if the business fails and is unable to make repayments. Plus, many banks will require a formal business plan, loan proposal, and performance history before approving applicants, which many early-stage online sellers may not have. 

Finetrading

Another method of external financing to support e-commerce growth is finetrading. This is a service offered by third parties who are intermediaries between suppliers and merchants. In this case, the finetrader will pay the supplier directly for the goods. 

The repayment plans for this method tends to be quite flexible, giving e-commerce store owners a good way to cover short-term cash needs. Similar to bank loans, though, they will need to make a personal guarantee for the financing. 

Revenue-Based Financing

Revenue-based financing is very popular among online sellers. With this method, lenders provide an upfront payment to merchants for business use, and they repay lenders with a fixed percentage of their monthly sales until the amount is fully repaid. 

Repayment is flexible and proportional to the sales that the business brings in, which is a draw of this method. The higher the sales, the quicker they’ll be able to pay it off, but it could take longer if sales slow down. 

Most of the time, these lenders won’t require a formal pitch deck, business plan or lengthy business history to approve the funding.

Asset-Based Financing

Lastly, one of the quickest-growing financing methods for e-commerce businesses today is asset-based funding. Rather than providing a personal guarantee like with many of the other methods, this route uses the goods you’re selling as collateral. 

Lenders will approve applicants based on data from e-commerce platforms to assess the sales potential of your retail products. So, the loan is offered based on your future potential, not your past history.

Unlike middlemen or finetraders, asset-based lenders do not interfere or contact your suppliers or customers, leaving you in full control of your business. 

Experience E-Commerce Growth with Asset-Based Funding from Myos

By following each of the steps listed above, you can get your e-commerce business off to a good start and moving towards growth. But after you have successfully completed this process, this doesn’t mean you can take the foot off the gas when it comes to the future success of your business. 

Like we mentioned in the last step, once you’re up and running, many e-commerce businesses find themselves with a need for financing to take advantage of growth opportunities. 

Though there are many options available, asset-based funding continues to be one of the best routes that offers merchants a wealth of benefits with limited downside. Even if you have limited business history, you can still be approved and quickly access the funds you need to continue expanding your e-commerce business. 

The e-commerce space moves quickly, which is why asset-based lenders make quick lending decisions to help you get the capital you need, when you need it. Plus, you’re not giving up any control over your business, and can enjoy flexible repayment terms.

When working with an asset-based lender like Myos, online sellers can apply with lean document requirements and limited business history. There’s no personal risk on your end as the merchant, so check out this financing option that brings you all the upside of being an e-commerce entrepreneur, without the downside.

Boost your store growth today with Myos asset-based financing

Also interesting

This is some text inside of a div block.