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How to Start a Profitable Ecommerce Business from Scratch?
How to go from a business idea to a successful ecommerce store with minimal distraction, failures, and frustrations along the way? Read on to learn from other online store owners’ mistakes and success stories.
Mar 25, 2020
If you are one of those free-spirited entrepreneurial people who want to try their hand at starting their own ecommerce business, you have landed in the right spot. As proper preparation is half the battle.
Below we are providing a proven algorithm on how to go from a business idea to a successful ecommerce store with minimal distraction, failures, and frustrations along the way. Read on to learn from other online store owners’ mistakes and success stories.
The Internet was invented less than 30 years ago. So no wonder, that selling goods, and digital products have been on the rise ever since. Amazon itself managed to establish global hegemony in ecommerce in a matter of just 25 years.
From 2015 the share of ecommerce sales comprised 7,4% of total retail sales. It almost doubled in 4 years, expected to reach 14,1% in 2019. Guess what? The progress is nowhere to slow down. The next 4 years are forecasted to bring further growth of 56%, nearly reaching a quarter of all retail sales!
Mind you, the projections may prove pessimistic due to the introduction of 5G, 6G or other technological breakthroughs not yet anticipated by the scholars.
Takeaway: Our quick feasibility study demonstrates that the industry is on the upward curve with lots of potential. Ecommerce is definitely worth investing the time and effort into.
There is a lot of debate going on now among ecommerce enthusiasts, that ecommerce is dead. But that usually comes from the people of 2 breeds:
To illustrate the theory, let’s see how many ecommerce businesses are there in the world? According to PipeCandy, there are at least 2-3 million online stores worldwide, excluding China. Approximately 1,3 of them are in North America. If we deduct the marketplace companies, the approximate estimate of purely eCommerce companies is 250K-300K in the US alone.
Takeaway: With a quarter of a million enterprises engaged in the niche in the US alone, our best guess is: yep, it is still profitable. Ecommerce does bring money.
While there are few classification systems on eCommerce Business models, we will make things easier for you:
This classification is based on one parameter: the persona of a buyer and a seller. So depending on if it’s a consumer or a business on either end of the selling process, we distinguish 4 types of the business model in ecommerce:
They also distinguish another segment, B2G, meaning Business to Government, but it carries all the characteristics of B2B with maybe more red tape to it and stringent quality checks.
This classification system takes as the basis for its classification another major parameter: which part of the business cycle is the business responsible for, faces costs for and gains revenues from. Let’s have a closer look into each of the types of ecommerce models as per this classification:
Direct to the Consumer model of ecommerce business suggests a full cycle from concept to selling is done by one brand without any distributors and intermediaries. You must have heard about DNVB – digital native vertical brands, like Glossier, Harry’s, Allbirds – all of them belong to this category.
Whilst it has one of the highest thresholds to start this type of business, as it requires lots of investment and a diverse set of talent, this model has seen a quick and takeoff recently. A number of successful projects demonstrating amazing progress, check out OutDoorVoices as an example.
The private label model or manufacturing assumes low-to-moderate investment and resources to start. In this model, a business will create their own design, website, brand but hire a manufacturer to produce it for them. So the manufacturer will be producing items as per your specifications in this case. The distribution in this model can be outsourced as well – partially or fully. Sourcify is one of the popular platforms to look for a manufacturer.
White labeling allows for further flexibility and even lower entry threshold. In this ecommerce model, a business will put its own label on the products mass-produced by some manufacturers. This model suggests low uniqueness of the product but pays off by low average check and low initial investment as well. With minimum quantity order terms coming with this revenue model though, there are chances a business may end up stuck with plenty of inventory and little demand.
Wholesaling and warehousing model assumes some hefty advance investment alongside higher margins. This model is great for the established ecommerce businesses with funds to invest in warehouse space, logistics and purchase of big amounts of products from different suppliers.
Dropshipping suggests the lowest entry threshold and minimal initial capital out of all models. All a business needs to take care of is setting up an online store and taking the customer’s money. The rest is taken care of by the dropshipping partner. Inferior quality of products and slow delivery may have a major detrimental impact on this type of business though.
The subscription-based model is rather rare and mostly survives in beauty, grooming and food-related industries. This allows for great savings for customers due to the repeat nature of the business, that is guaranteed over a certain period. Beer Cartel, an Australian business, offers a monthly subscription of greatest beers from around the world delivered to the threshold at prices lower than in supermarkets, for example.
Takeaway: it is vital to realistically gauge your initial resources and match them with the right ecommerce model for a successful start.
With all that theory down, it is time for a step-by-step guide on how to launch a profitable ecommerce business. Starting with selecting a product for your online business.
One of the defining moments for the success of an ecommerce business is the choice of the right product to sell. Without further ado we are enumerating below the practical ways to select a product for online store:
Follow your passion or hobby
This is the easiest one to start with, as in this case – you are a target audience. You know the pains, the customer journey, the motivation. You are the user persona.
Follow your education or profession
Once you spent 4 to 6 years studying the subject and then more time working in the field, you have to be a connoisseur in that niche. Moreover, your professional network might quite quickly translate into your first client database too.
Follow your friends and family’s hobbies
Or just any hobbies for that matter. There are enthusiasts of sports, arts, music, pets, traveling, parents crazy about their kids, and whatnot. If there is passion – there is a market. Starting this research with your friend and family might give you an easily-accessible pool of insights. Just grab a beer or a bottle of wine and deep dive into that small focus group research.
Capitalize on what’s trending
Trends are there to last and evolve. You just need to know how to recognize a trend at its first upward spirals.
These tools might help:
Monetize on what’s suggested next to trending
Put those smart marketplace algorithms to good use by looking through the suggestions at the bottom of the page. They may go under different categories, like “similar items”, or “sponsored products related to the item” or “other products customers buy”. Whatever the suggestions, they are there for a reason and you might want to check them out for inspiration, – while on a mission to select a product for your ecommerce shop.
Feel the pains to reap your gains
Read the reviews of existing products in your chosen niche. Look for the unaddressed pains and unsolved customer complaints. Look into the third party reviews or Google reviews of the products you are considering selling in your online store.
Hunt for ideas on social media:
Instagram, Facebook, Pinterest, Snapchat are not all just addictive time-wasters. They are a great source of information for the ones asking the right questions. Searching by hashtags, products and by simply browsing what the search offers, will provide a wealth of diverse insights.
Scan forums and community sites:
Reddit and Quora are the general ones with the bottomless abyss of topics, products, services, and trends discussed daily. If you have narrowed down on a niche you are searching for, just google “HOBBY X forum”. For the sake of illustration, such a mundane hobby as “Hiking” in combination with the forum yielded a search result of 34 million URLs to go through. Judging by the dates of latest updates and posts in a thread – they are huge communities and pure gold for a marketer selling hiking goods.
Takeaway: product selection is of utmost importance to the success of any ecommerce business, so it requires all the thoroughness and attention to detail.
2. Research the chosen niche and competitors
Now that you have decided on the product, it is time to have a closer look at the market. Conduct competitive analysis, scrutinize the sales channels, research your target audience, learn the communication media, ascertain all stages of the customer journey.
All this homework will save you lots of time and money. Mistakes will be avoided and potential issues are foreseen and softened. While doing competitive analysis make sure to research the following aspects of 5-7 top competitors:
3. Prepare an eCommerce store business plan
Once the competition research is complete there is enough knowledge accumulated to set out a business plan for your online store. The mission requires time, effort and know-how, but is necessary to set out your KPIs as well as highlight the ways to get there. For a detailed algorithm on how to write an efficient Business plan, that will become a working document for your business, we recommend the following 2 guides:
Name your online shop
While choosing a name, keep in mind it should be easy to pronounce, remember, spell and ideally have a keyword in it or be otherwise telling of the products you are selling.
Find a domain name for your website
Domain names can be purchased on the first-hand market and on the second-hand market. It is important to check the authority of the domain name before buying it. GoDaddy.com or Namecheap.com are great for first-hand domains. Pananames.com is a small domain name registrar, but we find their prices reasonable and their search rather extensive with lots of domain extensions.
If you are looking into premium domain names in king “.com” extension, Sedo.com or Dan.com might be good to check out.
Get a hosting
Hosting is usually provided by the registrars of the domain. Check for the best packages so that to enable your website high-speed loading.
Choose a website design platform
There are a few options when it comes to website design, that requires different stages of technical literacy to create a website with. The more user-friendly will be the Shopify or Oberlo, that have website drag and drop functionalities. WordPress and Wix are somewhat more advanced but also manageable with proper Youtube code-along tutorials. Goes without saying, that Shopify and Oberlo are created with ecommerce in mind and have payment systems integrated into the sites as well as other ecommerce plugins and features.
Create a logo
The logo is one piece of design, that you absolutely must have – however small or local your store might be. Using Canva or Crello is a fast and free alternative to outsourcing this mission to freelance.
Create a slogan
Having a catchy phrase that serves as a motto to your clients and a guideline to your business is one of those basic copywriting tasks, an ecommerce startup faces. This is the second most important piece of copywriting after naming mission, and one should take time to come up with just the right idea in just the right wording. If your slogan contains a high-frequency keyword – this is a cherry on the cake, that will keep benefitting your business.
Arrange for a product photoshoot
To get your store going, you will have to ensure a great representation of the product in the product pages of your website. If you have chosen a model, like a private label or D2C – you will have to make sure all of the items are shot at several angles by a professional photo studio or at least with professional equipment. Read on the complete guide on how pricing for product photoshoot works, so you know where to start this mission.
Get a payment gateway
If you choose to create your ecommerce store at Shopify or Oberlo, integrating a payment system should be a walk in the park. If you choose WordPress or the like, the mission might require freelance help or a few hours of watching YouTube tutorials. Either way, while choosing your payment provider make sure to research what your competition is doing in this realm. Different countries have different systems. It is worth to deep dive into particulars before signing any binding agreements.
Manufacturing a product can be outsourced at the initial stage to minimize the cost. Global manufacturers, which reads Chinese in most cases, can have quite steep MOQs – or minimum quantity orders. While per piece price is going to be the best, early-stage ecommerce business people might not have the confidence to have all that stock.
In this case, looking for a local producer is an option. Yes, per piece price is guaranteed to be higher, than with any manufacturer at Alibaba or Sourcify, but you also get more flexibility, minimum order of just 10-50 pieces, absence of language barrier, and none-to-little transportation costs.
The packaging is more important to ecommerce than to brick and mortar retail in fact. There are 2-3 more touchpoints en route of a product to a customer in ecommerce than in traditional retail. This means a product has 2-3 more chances to get damaged or broken.
As your first endeavor, packaging has to carry out one major function: keep your product undamaged with as little cost as possible. If you are going ahead with a small trial ecommerce store for starters, simply buy some thick packaging in small quantity with no branding. As you evolve, it is time to look at designer packaging or cheaper packaging at wholesale prices from China. This is the time to preoccupy yourself with the best unboxing experience for your consumers.
Shipping of your products is a process that also requires gradual expansion following the growth of your business. Starting with a trial small batch, it suffices to check out what your smaller competitors are doing and pick the best option. Shopify did a fantastic job of providing a very detailed guide on all the nuances of commissioning your shipping services.
Reputation might be the last thing on your mind for a beginner, but the repercussions of a bad reputation may disable the future at the very beginning. Few low-cost measures every ecommerce store could implement from the very launch will help deal with any arising issues and prevent poor online reputation:
We at Squareshot use Intercom.io to provide you with the best customer experience. Other well-known great apps for customers service are Zendesk, Salesforce, etc. Consider to implement them when scaling.
Provided you are all set up with the website or a landing page to sell your products online, there are a few things to be done to create a buzz around the launch.
Start your social media activity. Facebook, Instagram, Snapchat, Pinterest or TikTok – everything works. Make sure not to flood your followers with too much commercial info, but dilute it with general posts to build a rapport.
Satiate all the channels with quality product photos so that customers have a chance to relate to your brand and form the initial concept desire to purchase it. It is a great idea to make some images from the user’s perspective during a photoshoot, so they could be used for testimonials.
If you are utilizing influencer marketing, have all the activities, visuals, texts, promotional codes ready to go. Send a kind reminder to the influencer one day before launch.
Have your email marketing campaign all set up with a promo code. Use a clear visual image accompanied by a sweet deal, a promo code, and a CTA.
When the time is right you will know scaling your business is the only option.
Tips for starting and growing an ecommerce business
While it takes courage, entrepreneurial spirit and some initial capital to start an ecommerce business from scratch, the journey is a rewarding one with millions of success stories. If you have read this exhaustive guide on how to start a successful ecommerce store, you are on the right path to success – as theory helps ease the practice.
Persist. There will be times when things get a bit weird, tough or out of control. There is a solution to every problem.
Have KPIs to measure success. Tracking everything is a good thing. If you know where you started and where you need to end up, the journey is more predictable and attainable.
Be on the lookout. Knowing trends, knowing your competitor’s current promo, being aware of a change in legislation is a great thing. If you keep yourself updated on the things around you, you will be able to jump on arising opportunities first of drop the fading fab as soon as it starts its downward curve.
If there is one thing no ecommerce store can do without or can be successful without – this is product photography. Even a mediocre product may look fantastic on the right model shot in the right lighting, against the right setting. Even a great product may look “blah” when shot by an amateur with wrong lighting and inappropriate model.
High-quality visual content is a given in today’s Instagram-driven world and those online stores having no quality product photos are not taken seriously. Vice versa, bad product photography impacts your ecommerce store sales negatively in many ways from higher returns to smaller conversion.
Now that you have gotten the theoretical part down, it is time to move on with practice. Thinking about a particular product? Niche? Have a hobby to take inspiration from? See, we got you going. Step by step. You have just started with the first action along with the algorithm of how to build an ecommerce business.
Setting up an ecommerce business is a path taken by many and dropped by many. What differentiates those who succeed and fail is proper preparation, scientific approach to tracking data and infinite persistence in attaining goals.
We hope this roadmap on how to set up and run a successful ecommerce business will help you join the league of those who win this game. The main thing is to enjoy the process along the way!
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