Whether it's running an online-only store or adding online shopping to an established brick-and-mortar business, web sales are necessary. Those who don't find a way to sell their goods via the internet will quickly see their customers take their money elsewhere.
As of Q2 2017, e-commerce accounted for 17.5 percent of consumer spending, according to a study by comScore. The study showed that 1 in 6 U.S. dollars are spent online.
Shoppers cite numerous reasons for their online shopping preferences, including that it saves them time, makes comparing prices easy, doesn't require fighting through crowded stores and provides a larger variety of items to purchase.
Businesses have two main options for selling goods online: run their own e-commerce websites or sell their goods in an established online marketplace. To run their own e-commerce sites, businesses need several critical services and pieces of software. Among the most important are a web hosting service, shopping cart software and a credit card processor.
Small businesses can take the simpler route of setting up a store in one of the many online marketplaces, such as Amazon, eBay or Etsy.
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Pros of e-commerce
Selling goods and services online has a wide variety of benefits. Most significantly, it opens businesses up to a much larger customer base than they can access with a brick-and-mortar location alone. With an e-commerce site, businesses aren't limited to selling their merchandise to those in and around their local communities. Shoppers all around the globe can access the sites, significantly boosting the potential for profit.
In another plus, e-commerce businesses always stay open. While most brick-and-mortar locations may operate eight to 10 hours a day, e-commerce businesses run around the clock. Being able to makes sales and money at all hours of the day is a big advantage.
Running an online business can also reduce costs. Specifically, online-only businesses don't have to pay rent on a physical location and don't have to pay employees. Since they don't require the same amount of manpower to run, these businesses enjoy huge cost savings. [Read related story: How to Start a Business: Step by Step]
Inventory costs also fall for online stores. E-commerce businesses don't face the same demands as brick-and-mortar ventures, which must stay fully stocked at all times. Online stores, by contrast, can keep inventory low using drop-shipping methods, in which products are shipped to consumers straight from the manufacturer.
E-commerce operations are also readily scalable, meaning it is easy to start off small and expand as needed. That can be much tougher with brick-and-mortar businesses, since growing often means finding a new, larger location to house the business.
Cons of e-commerce
E-commerce has some drawbacks too. Online stores often lose out on the ability to interact with their customers in person. Brick-and-mortar businesses can build their customer bases by creating personal relationships with buyers. The only way for online shops to do this is through impersonal means of support such as email or live chat.
E-commerce ventures also face cutthroat competition. For every online business, at least another 10 businesses on the web sell the same thing. Hundreds of thousands of e-commerce sites operate worldwide, meaning online businesses must work even harder than brick-and-mortar businesses to stand out from the crowd.
Finally, e-commerce businesses must deal with technical issues that brick-and-mortar locations never face. E-commerce businesses are run completely online, so if something goes wrong with the website, credit card processor or any other aspect of the operation, the business has to shut down to be fixed. While some of these problems may be out of the business owner's hands, they have the same result: lost money and lost customers.
What's needed for an e-commerce business
While opening an e-commerce business can be relatively easy, you need a number of things to get started. Here is a rundown of everything an entrepreneur must have to open an e-commerce business.
- Product to sell: Most importantly, small business owners need something they can sell. The good news is that with the internet, this can be basically anything. Big or small, expensive or cheap, any item can be sold online. Also, since the business is run online, e-commerce owners have the option of selling digital goods that can be downloaded to a customer's computer or mobile device.
- Domain name: Before a small business can start building an e-commerce website, it needs a domain name. This is the online address at which shoppers can find the business's website. Most online business domain names end in either ".com" or ".net." The domain name should match the business's name as closely as possible.
- Web hosting service: You'll need a web hosting service to publish the website online for shoppers to see. These services store the data files that make up websites, and then upload those files to the web for viewing by those who visit the site through its official domain name.
- Website: The website serves as a business's online home. The site, which can be created with the help of either web hosting services or e-commerce software, must feature the products the business wants to sell and offer a way to sell those items directly to consumers. The website's design should encourage shoppers to stay and make purchases.
- Mobile: Just as important as your website, a presence on mobile devices is more crucial than ever, with more people buying directly from their smartphones. Your website needs to be optimized for mobile, meaning it dynamically changes size and layout for easy browsing on smaller screens. You can also build a special app that customers can download. [Read related story: Building a Website: A Small Business Guide]
- Shopping cart software: To sell items from an e-commerce website to customers, you need shopping cart software. These programs give shoppers the chance to search the business's inventory to see what's available, select items they want to purchase and eventually buy them. In addition to assisting with transactions, many shopping cart software options include features for controlling inventory, setting up shipping and calculating taxes.
- Merchant services provider: Since online businesses can't accept cash payments via the website, they need a merchant services provider to handle their credit and debit card needs. This service acts as a link between the business, customer and credit card company. It processes the payments and takes the money from a credit card account and places it into the business's account, also known as a merchant account. Most merchant service providers offer this type of bank account, which acts as a holding location for the debit and credit card payments an e-commerce business collects. Once the funds have been approved, the merchant services provider transfers the money, minus a commission, to the business owner's bank account. Without a merchant services provider, a small business has no way of collecting money from customers.
- Marketing: All successful e-commerce businesses have a strategy for attracting customers to their sites. Without a carefully thought-out plan, turning a profit becomes much more difficult. Various marketing options online businesses have at their disposal include search engine optimization (SEO), pay-per-click advertising, and email and social media campaigns. Your website should have links to the business's social media pages and offer ways to subscribe to electronic newsletters and deals as strategies to keep customers coming back.
While online business owners do need several things to get up and running, there are all-in-one solutions to help you. E-commerce software simplifies the process of opening an online store by walking owners through each step of the process, including registering a domain name, designing a website, uploading and managing inventory, connecting to a shopping cart, and providing secure payment options for shoppers.
When choosing e-commerce software, small business owners should consider several factors. The software should incorporate all aspects of creating and maintaining an e-commerce website, such as hosting, website design and SEO integration. In addition, business owners should ensure the software offers a shopping cart capable of accepting a variety of payments, including credit cards, PayPal and eChecks. Finally, the software should provide top-notch security, such as fraud and secure sockets layer protection, to give consumers peace of mind that their personal information won't end up in the wrong hands.
Most e-commerce software providers charge online businesses a monthly fee for their services. While most of the top software providers waive a setup fee, monthly costs can range from $15 to $300 a month depending on several factors, including how large the online store is and how many of the software's services the business owner needs.
Our other site, Business.com, has done extensive, in-depth reviews of numerous e-commerce software options. These are its top three options:
- 3dcart, which allows you to create a unique website with its versatile customization tools, plenty of integrations and easy checkout process
- Shopify, which features a searchable customer menu for targeted marketing campaigns and a lot of flexibility to grow with your business
- Volusion, which offers advanced security and back-room tools, and integrates with Amazon to boost sales
Small business owners who feel creating their own e-commerce site is too difficult have other options for selling goods online. In one increasingly popular method, many entrepreneurs go through a third-party provider, like Amazon. These large-scale online marketplaces provide each individual business with its own page within the third-party provider's site.
The benefit of such sites is that business owners don't have to set up an extensive e-commerce website and deal with the hassle of accepting payments. The process is very simple. Within hours, any business owner can register in the marketplace, set up a page and start selling.
One big negative of such sites is the cost. Most online marketplaces charge a host of fees, including those to list items, which are generally 20 to 25 cents per item, plus a percentage of each sale, which can be 3 to 10 percent of the total sale price.
Additionally, shoppers must search for the business within the huge marketplace. While a regular e-commerce site only has products listed for one business, visitors to sites like eBay or Amazon will see a wide variety of goods. Even though each business has its own page on these sites, other sellers can easily lure a shopper in another direction. This can make closing sales much more difficult.
Some of the more popular online marketplaces today are eBay, Etsy, Amazon, Yahoo Shopping, Overstock.com, eCrater, Webstore.com and Bonanza.