Contrary to popular belief, not everything sold online is considered e-commerce.
If someone sells a couch on Craigslist, they’re not in the e-commerce business. However, if they make custom jewelry and sell it on their Etsy shop, that’s e-commerce.
What is an e-commerce website?
Electronic commerce, most commonly called e-commerce, is the buying and selling of solutions using an e-commerce website. E-commerce websites are online portals that facilitate the transfer of solutions, while processing and completing transactions.
In other words, e-commerce is 100% online. This is how it usually works: someone opens an online shop, people buy things from this shop, payments are processed online, and then orders are fulfilled and shipped off to the buyer.
This guide will teach you the ins and outs of e-commerce and how to successfully launch an online business.
If you’re looking for something more specific, feel free to use the jump links below.
The history of e-commerce
Types of e-commerce
E-commerce merchant types
Advantages of e-commerce
Disadvantages of e-commerce
How to start an e-commerce business
How to grow an e-commerce business
The future of e-commerce
How does e-commerce work?
E-commerce works best for those who do research and have a solid plan.
In order to open an e-commerce shop, entrepreneurs must determine what to sell. There are many e-commerce business ideas, but finding one that actually works is the first main challenge.
From there, they have to figure out their target audience. Once they have a target market, it’s time for them to build an e-commerce website. There are many working parts to make an e-commerce website successful that will be discussed in depth later on.
E-commerce websites are tricky to make, but with the right e-commerce platform, merchants can seamlessly manage their digital storefront.
There are several key players in e-commerce, and since they’ll be heavily discussed in this guide, let’s go over who does what in the e-commerce industry.
- Merchants: Also referred to as sellers, e-commerce shops, or e-commerce stores.
- Buyers: Also referred to as customers, consumers, and shoppers.
- Software: Also referred to as platforms.
The history of e-commerce
There’s the straightforward story about the founding of e-commerce and then there’s the more fun, entertaining version of the story.
Let’s dive into what actually happened first. The first-ever online sale was on August 11, 1994 when a man sold a Sting CD for $12.48 to his friend through NetMarket, an online marketplace founded by Dan Kohn. At that moment, e-commerce was born.
Now for the less official story. There are claims that the first thing sold online was a pepperoni pizza from Pizza Hut, but that myth has been busted.
Another discussed story is about the Arpanet. In 1969, the Arpanet was founded for universities to collaborate and trade ideas.
Apparently, between 1970 and 1972, a Stanford student bought marijuana from an MIT student, but since the Arpanet was more of an instant messenger and less of a storefront, it doesn’t count as the first e-commerce sale. Not to mention the buying and selling of marijuana was illegal.
Truth is that the internet hasn’t been around for long, so neither has e-commerce. As new as e-commerce may be, it’s growth has been immense and will only continue to grow in years to come.
What is the difference between e-commerce and e-business?
It’s no shock that e-commerce and e-business get confused with each other. Both topics are similar because they involve buying and selling things online.
However, e-commerce is different from e-business because it refers to the transaction of goods or services, whereas e-businesses refer to all parts of an online business. In fact, e-commerce is a part of e-business.
E-business refers to the digital enablement of a company like flight manuals for an airline, and e-commerce is the exchange of value for money between two different entities, like a consumer buying a flight online.
Types of e-commerce
There are four different types of e-commerce models that represent e-commerce as a whole. Each e-commerce shop that opens falls under one of these types.
B2B (business-to-business) and B2C (business-to-consumer) are the two most common types of e-commerce, with C2C (consumer-to-consumer) and C2B (consumer-to-business) being the less common types.
B2B e-commerce is when a business sells a good or service to another business. These businesses often sell in bulk from a warehouse or have a digital service. The largest B2B wholesaler is Alibaba, which sells things like auto parts to automotive repair shops.
B2C e-commerce is when a business sells a good or service to a consumer. This business model is what most people think of when they think of e-commerce. It occurs when merchants sell goods or services, like jewelry or clothing, to consumers.
C2C e-commerce is when a consumer sells a good or service to another consumer. Most commonly, people use this business model to resell what they bought from a B2C business. Marketplaces like eBay are used for the selling of goods from consumer to consumer.
C2B e-commerce is when a consumer sells a good or service to a business. Most of the time it involves selling a service to a business, such as graphic design services. This type of e-commerce is growing as people value the flexibility of being a freelancer.
E-commerce merchant types
Since e-commerce is such a broad term, it encompasses a variety of solutions. To better understand the many opportunities within e-commerce, it’s important to learn about the different types of merchant websites and what they sell.
Selling anything downloadable is a perfect opportunity for an e-commerce business. From software companies to video-game sellers, there’s no need for a physical store when the product can be directly delivered to the place from which you’re buying.
Selling only digital products drives down costs because there’s no overhead of a brick-and-mortar and there’s no cost of shipping and handling.
Any e-commerce website that sells the skills of someone online is service-based. A good example of this is a freelancer.
Freelancing is sold online and then completed online without having to ever meet in-person. There are websites completely dedicated to freelancers and connecting them with people who need their service.
This type of e-commerce website is born from a physical retail store. Places like Walmart and Target are good examples of companies that started in the brick-and-mortar space and expanded to online sales to reach a broader audience and increase sales.
Dropshipping is a unique type of e-commerce website where merchants sell products online, but they don’t have the inventory. Instead, they find a supplier to fulfill the order. The cost of these products is usually higher because the supplier holds the inventory in a warehouse or other space and then fulfills the orders with shipping and logistics.
Now let’s learn how to actually make an e-commerce company. There are three major types of e-commerce platforms that you can use to sell online:
- Online marketplaces (eBay, Amazon, Etsy, etc.)
- Comparison shopping engines (Shoppping.com, Find.com, etc.)
- Software that you can use to build your cart or online store
The ideal would be to find the right mix between all three options, since you may find potential customers on any of them. It is preferable, however, to focus on one or a few platforms after you try them all and determine which option is best for you.
That being said, it helps to follow industry trends and adapt to your market. When your customers switch from one platform to another, you want to make sure that you follow them, not the other way around.
As you can imagine, the multi-billion dollar e-commerce market is a great opportunity for software vendors that specialize in software for online sales. The e-commerce software market was valued at $3.8 billion in 2016 and is expected to reach $4.7 billion by 2021.
This type of software usually provides all or most of the features you may need for e-commerce. Yet, there are significant differences between platforms, and they’re not always easy to identify.
Here’s how to compare e-commerce platforms so you can differentiate them:
- Understand what’s included “out of the box” and what is delivered through integrations or partnerships. It’s also important to know if the solution is offered as a suite made of multiple products, or if it’s one single solution.
- Pricing isn’t always straightforward because there are different models that vendors use to charge you. For instance, vendors sometimes charge a percentage of the transaction for payments instead of a flat fee.
- Sets of features and options are sold as plans, and each plan is usually priced differently. Therefore, it’s critical to understand what you get when you choose a plan and how you can move to other plans.
Security solutions provided by the vendor should also be an early consideration when selecting a cloud provider. These tools can help improve user governance and help to better control data in transfer. Users should also be well aware of who has privileged access to their business-critical applications.
Advantages of e-commerce
E-commerce is a rapidly growing industry. In fact, it’s estimated that e-commerce sales will reach $5.574 trillion in 2020. There are many benefits to entering the e-commerce industry, and since the growth isn’t stopping, there’s still time to get started.
This should be common knowledge by now, but everything done on the internet is tracked. This includes all shopping activities.
Feel like ads are reading minds? They’re actually using customer behavior to re-target advertisements toward potential buyers. For example, if someone Googles workout leggings, and then visits Outdoor Voices, they’ll see an ad for Outdoor Voices leggings next time they read an article or log into Instagram.
E-commerce is uniquely positioned to track shopper’s behavior and convert them from potential customers to repeat customers. Software like customer data platforms (CPDs) offer insights to help e-commerce shops predict a customer’s next move.
Being your own boss is a dream. Owning an e-commerce shop allows people to do just that.
Once an e-commerce shop is up and running, hired staff can also work remotely. That way there’s no cost of an office building and the employees are much happier with added flexibility.
Without the extra overhead fees, e-commerce companies can focus on perfecting their product and not on maintaining a physical storefront, which is a major advantage.
People are busy, and getting to a store before it closes is difficult. E-commerce shops are always open, which allows shoppers to experience the convenience of shopping late-night in their pajamas. Consumers want to buy what they want when they want. In smaller towns, stores close early, and with the convenience of online shopping, no one has to ever worry about closing times.
Goods and services can be sold across the globe with a click of a button. It’s all made possible with e-commerce. E-commerce platforms allow users to change the language of the page, and payment processors allow shoppers to change the currency.
It’s tough to go global with a brick-and-mortar retailer, but with e-commerce expanding globally, it’s much more simple. With international e-commerce businesses, gaining exposure is difficult, but once buyers become brand evangelists, they’ll spread the word across the globe for you.
Keep in mind that there are some barriers to going global, like cultural differences and varying legislation. And don’t forget, the time changes do matter when it comes to the employees of an e-commerce business and can impact shipping times.
Without the overhead of leasing a building, construction needs, and staffing, prices are significantly reduced by going the e-commerce route for retail. Sure, there’s the cost of the e-commerce platform, but added together, an e-commerce shop is much more affordable than a brick-and-mortar store.
Disadvantages of e-commerce
Nothing is ever perfect. E-commerce has some downsides, and if these parts of a business are important to you, then maybe it’s time to reconsider getting into the e-commerce business.
No face-to-face interactions
People really value in-person, sensory experiences. It’s nice to have someone in a store to ask questions and get some more insight about the products. Having an expert right there to assist with needs is an added bonus that e-commerce stores can’t offer.
E-commerce has chatbots and live chat options, but that doesn’t compare to the face-to-face interactions with sales associates. Employees have a high impact on sales. They can suggest something extra, explain the way the product works, and make someone’s day by just being kind.
These days it seems like everyone is selling something online. If entering the e-commerce business for the first time, it’s crucial to make sure there’s not something out there that’s the exact same. And if there is, differentiating it from the crowd will be imperative to e-commerce success.
E-commerce is an extremely competitive business. Be sure to drive reviews, offer free shipping, and focus on marketing the product as the best one out there.
Learning about e-commerce
If you’re reading this, then you’ve already taken the first step. E-commerce isn’t an industry that should be jumped into without proper knowledge. It’s a lot of work, and there are many different moving parts like website building, payment processing, shipping and fulfillment, and customer support.
Experiencing tech problems is one of the worst feelings, especially when it impacts work, or even worse, profits. Websites crash, payment processors malfunction, people get logged out of accounts, and these problems will arise and cause some stress among e-commerce pros.
Having an IT company on hand will help alleviate these stressors and prevent further issues.
No try and buy
Without a brick-and-mortar store, customers have to trust the photos, descriptions, and reviews instead. This can deter shoppers from purchasing from an e-commerce site as they don’t want to waste money on something that isn’t what it seems.
How to start an e-commerce business
Starting an e-commerce business is quite intimidating, but if you break the process into smaller tasks, then it’s easier to set goals. The way to start an e-commerce business varies depending on the business model and items being sold.
The first step is to do an immense amount of research about e-commerce and the products you may want to sell. Brainstorm a name and a brand identity so that everything created can fall under the brand look and feel. If you don’t know what to sell quite yet, then start there.
Keep in mind, an e-commerce website must include the following:
- Clear branding
- Easy-to-use check out
- Shopping cart
- Payment options
- Detailed product pages
- Similar product options
- Customer reviews
- Social buttons
- FAQ page/support
- About us page
What to sell?
Finding a product to sell on an e-commerce business is the most important part of research. It’s challenging to figure out what will be most profitable, or well-liked. Get inspired through seeing what’s working for industry leaders, then evaluate the product or service through researching its SEO potential.
Good SEO (search engine optimization) is what makes websites show up on the first page (if you’re lucky, the first result) of search engines, like Google.
Then, make sure that the market isn’t too crowded. If there are already established category leaders, then consider differentiating the product or finding a new product to sell.
Here are some things to consider when determining what to sell using e-commerce:
- Common pain points
- Niche interests
- Your talents/skills
After evaluating these factors, choosing a product will be easier. But that’s not all, now it’s time to figure out the logistics behind manufacturing and buying the product or service.
Where to get products?
Sourcing the stock for an e-commerce site is important to master. If you buy too much inventory, then profits will sink, and on the other hand, if there’s not enough inventory, the customer experience will suffer.
The most common ways to source products are:
This method is used when a product doesn’t already exist. It’s expensive to do, but allows for control of the product.
In order to manufacture original goods, you have to invest money upfront for the set-up of an assembly line or whatever is necessary for product production. Since it’s a new product, there will be more trial and error before launching the e-commerce site.
This method is the manual production of a product. For example, people who sell on Etsy mostly make their products themselves. Making products is time-consuming, but low-cost and low-risk.
This method allows merchants to buy products in bulk for a lower price per unit. The wholesaler stores and manufactures the inventory, which makes the prices drop and decreases the risk.
This method allows merchants to partner with manufacturers who own the production facility and fulfill orders for merchants. Most people getting started with e-commerce start by using dropshipping.
When figuring out which sourcing method to choose, it all depends on the amount of money an e-commerce store has to work with and the type of product or service that’s being sold.
If all of the best companies are sourcing their materials from the same manufacturer, then it’s not a good idea to do the same because it will be much harder to stand out. The safest way to make sure no one copies a product is by having the e-commerce company manufacture the product by itself, however, this method is the priciest and riskiest when scaled at a fast-pace.
How to grow your e-commerce business
The most daunting part of starting an e-commerce shop is actually making that first sale, but the work doesn’t end there. Merchants need to continually promote and perfect their brand so that their e-commerce keeps growing.
Optimize your website
Except when content goes viral (which is rare), or is featured on a TV show watched by millions of people, buyers won’t just come begging to buy. It’s a must to find them and convince them to buy; and therefore, it’s essential to know where they spend their time online and where they are more likely to buy.
The traffic on the website can be beneficial to generate online sales. There are just a few things to consider when turning website visitors into buyers:
Find a mix of organic traffic through e-commerce SEO and paid search. The best way to identify what works is to track the costs of each type of traffic and compare it with the results. Remember that organic traffic isn’t free— you still need to pay people and buy tools to manage your website.
Make sure your e-commerce store is easy to find and use. It helps encourage website visitors to visit the store and to make it available from any page on the website.
Also, you should make it easy for users to complete their transaction and have strong shopping cart abandonment strategies.
Take advantage of email
No, email isn’t dead; it’s doing quite well, actually. In the U.S. alone, the number of email users is expected to reach 255 million by the end of 2020.
When trying to reach new prospects by email, you can benefit from using different types of solutions, such as email tracking software, email marketing software, and email verification software.
Create a social media presence
Social media may seem easy when you use it just for fun, but it can be quite complicated for sales. Several major social media platforms are used globally, but some are very popular outside of the United States.
For instance, Xing is an alternative to LinkedIn that is used by almost 15 million people in German-speaking countries. LinkedIn only has 6 million users in the same region.
If you want to target B2B customers through social selling in a certain region or country, make sure your business leverages the correct social media tools and e-commerce features.
Besides the geographical location of social media users, discover other demographic details such as age, level of education, and so on. Some data sources can provide valuable information on who uses social media. Statista is a good example, as well as the Pew Research Center for U.S. data.
Generate product reviews
It’s not a secret that customer reviews are crucial to sales for e-commerce shops, but some companies don’t use this free user-generated content to the best of their ability.
People innately trust recommendations and reviews from people just like them more than advertisements and brand marketing. By using reviews in campaigns, the ad changes from the brand talking about their product to a people just like them talking about the product. That shift really matters.
If the e-commerce shop has an average of 4.6 stars, tell the world about it. Reviews are difficult to generate and if a store is having success there, it’s imperative to tell others about what people are saying.
Another opportunity with user-generated reviews is using negative reviews to further explain things about a product. Sometimes people simply misunderstand the intended use of a product and highlighting a user-error will help others who were probably wondering the same thing— or even better, show potential shoppers that there really is nothing wrong with the product.
There are many working parts that help the marketing of an e-commerce shop be effective. E-commerce marketing brings brand awareness to potential shoppers.
Marketers make sure the brand has a cohesive look and feel that is well-liked by consumers. Once the brand is known, marketers work to increase reach and tell the world why that business is the right solution for certain needs.
From loyalty programs to encouraging customer reviews, there are infinite ways to get started with marketing an e-commerce business. Learn why email, social media, and product reviews are the three most common approaches for e-commerce marketers.
Impressive e-commerce statistics
Looking at e-commerce statistics is always entertaining and educational because they’re so shocking. This industry has faced massive growth and continues to evolve every single day.
Learn about the industry before diving in head first.
- In 2020, e-commerce sales are expected to account for 15.5 percent of retail sales worldwide (Oberlo, 2020).
- There are between 12M to 24M e-commerce sites in the world (99firms, 2020).
- The average order value of a B2C online order is $52 (3dcart, 2020).
- 55% of consumers begin their online shopping searches on Amazon (CNBC, 2019).
- By 2040, around 95% of all purchases are expected to be via e-commerce (99firms, 2020).
- By 2021, analysts estimate 53.9% of all e-commerce sales will happen on mobile devices (Shopify, 2020).
- In 2019, e-commerce grew by 25%, topping $2.27 trillion USD (Shopify, 2019).
- 18% of e-commerce websites are exclusive B2B sales (3dcart, 2020).
- In America, Amazon earns 49 cents for every e-commerce dollar spent (G2, 2019).
- The number one reason people shop online is that they’re able to shop at all hours of the day (Oberlo, 2020).
- 30% of consumers would rather return to a website they’ve purchased from previously (KPMG, 2017).
Future of e-commerce
As cliche as this is, the future of e-commerce is bright. There’s a place in the e-commerce industry for everyone if it’s done right. Here are some of the major e-commerce trends to help inspire a new e-commerce strategy.
As previously mentioned, e-commerce isn’t a domestic industry anymore— it’s gone global. With the most growth happening in the Asia-Pacific region, stores in the U.S. have the opportunity to get a piece of that business. Though it’s not simple to enter a global market, with the right software, currency changes can be easily managed.
Discover the right payment processing software for a global business, so that expansion can be a seamless transition.
Nowadays, it seems like everyone’s heads are down in their phones. Not only are people scrolling through Instagram, but they’re also online shopping. This has been a major shift from previous years. M-commerce (mobile e-commerce) sales have more than doubled since 2015 and are expected to be 44% of e-commerce sales by 2024.
Making e-commerce sites mobile-friendly is crucial, but don’t go wild and create an app. People don’t like having to download apps and waste phone storage. Make sure the website is compatible with not only iPhones but all other mobile devices.
People care about where and how their products are produced and packaged. It’s hard to consider e-commerce and sustainability in the same sentence since packages typically arrive in over-sized boxes with tons of wrapping and filler.
But the companies that make sustainability a priority will be the ones to get ahead. Ways to do this are by packaging multiple things in a smaller box, cutting down on over-boxing, or even better, using completely recyclable and compostable shipping supplies.
Since e-commerce won’t stop growing anytime soon, if companies don’t start thinking about how they’re packaging products, the environment will be in trouble.
Become an e-commerce expert
There’s a ton to learn about e-commerce. Since the industry is ever-changing, it can prove difficult to stay in the know. If you keep the basics of the business in mind, it’s easier to keep up. E-commerce is here to stay, and the industry isn’t getting smaller, so learn what to sell, create an impactful brand and website, market it, and lastly, keep learning.
Don’t have the money to start your very own e-commerce shop? Not to worry, we got you covered. Learn how crowdfunding really works and how it can help you launch your store.