Is Starting an Ecommerce Business a Profitable Idea?
Starting an e-commerce business can be lucrative, but you’ll be joining a booming, fast-paced market with fierce competition, so validating your product idea is crucial.
Simply put, an e-commerce business is a type of business model that allows buyers and sellers to exchange products and services over the internet. Online shopping has grown relentlessly over the past few years, and the growth of digital buyers will continue to rise.
The UK has one of the most advanced e-commerce markets, totaling an incredible revenue of £110 billion, and an overall retail share of 38%.
Whether your idea involves fashion, ornaments, second-hand products, or educational resources (and the list goes on), there are several benefits to starting an e-commerce business:
- You can reach a larger market (both nationally and internationally)
- It costs far less to start an online store than a physical store
- Marketing your business is more affordable
- You can collect customer insights to improve different elements of your business
E-commerce markets will still face macro-economic pressures like recessions, inflation, and supply chain disruptions, so make sure you conduct market research to prepare for and mitigate any risks.
This guide will provide valuable and comprehensive tips and advice on starting your own small online business you can be proud of!
How to Set Up Your Own E-commerce Business
Setting up an online business can be straightforward and inexpensive, but it will still be labour intensive. This section of the guide will give a detailed breakdown of what research you’ll need to undertake to set up your e-commerce business.
What e-commerce business model is right for you?
As an entrepreneur wanting to start a business in the e-commerce sector, you’ve likely heard of the terms B2B, B2C, C2C, and C2B. These are different types of business models, and they will form the foundations of your business. Your business model will determine what you sell, who you will sell to, and how you will sell it.
B2B (business-to-business): this model encompasses online businesses who sell a product or service to another business. Examples include BigCommerce, Microsoft and Shopify.
B2C (business-to-consumer or customer): this is where an online business sells directly to an individual (consumer). There are hundreds of examples that illustrate this model, including Gousto, ASOS and Bloom & Wild.
C2C (consumer-to-consumer): this business model accelerated during the COVID-19 pandemic, where consumers exchange products with other consumers through an intermediary platform. Examples include Etsy and eBay.
C2B (consumer-to-business): consumers have become more involved with the products or services they use, and this has resulted in a relatively new business model whereby consumers develop products, content, or services for businesses. A great example of this is the freelancing platform Upwork.
It is essential that you choose an e-commerce business model that suits your objectives, professional abilities, and market knowledge.
Find out more: Need funding? Check out our guide on small business grants.
What are you going to sell?
The next step you’ll need to take is to decide what product or service you will sell based on your business model.
E-commerce businesses selling fashion and jewelry are one of the fastest growing markets, so you may want to consider creating a niche product offering in this segment. However, there are a plethora of markets you can target. We’ll discuss this in more detail later.
Let’s look at furniture as an example. Instead of selling wholesale couches or chairs online, you can purchase unwanted furniture, refurbish it with different materials and rebrand it as upcycled, personalised furniture.
Whatever product or service you choose to sell, you need to ask yourself the following questions:
- Are you keeping up with trends relating to your product, and are people actually searching for it?
- What will set your idea apart from your competitors?
- Is there a target market for your product idea?
- Have you validated your product?
- How are you going to make or source your product?
- How are you going to deliver it to your target market?
To help you answer the last two questions, let’s look at some e-commerce revenue models that you can consider.
What e-commerce delivery model will you use?
Once you have a viable product and a market you can penetrate, you’ll need to decide how you’ll generate revenue and deliver the product or service. There are several models you can choose from:
Do it yourself
This is a straightforward model, where you will essentially be the whole supply chain. You’ll source your own material, make the product yourself, and ensure it gets to your customer. While you’ll have more control over your business processes, you’ll need a significant number of resources and time once you start scaling up.
Dropshipping
Dealing with inventory and shipping can be a time-consuming task, and dropshipping is a model that takes responsibility for these tasks. All you will do is list a product and take payments. Your dropshipping partner will deal with storage, processing, stock inventory, and shipping. However, the dropshipping model has significant risks that you should be aware of.
Wholesaling
If you’re thinking of purchasing bulk items and reselling them at a profitable markup, then a wholesaling model might be a good fit for you. You’ll need to order large quantities of products that are then stored in a warehouse. Once your customer places an order, you’ll ship it to them from that warehouse.
While you’ll have more control over certain processes and markup flexibility, you will need your own warehouse and staff to run it. You will also need capital to purchase large quantities of products in a single transaction.
Private labelling
This model allows you to form a partnership with a manufacturer who will create a customised product based on the specifications you give them. This is a suitable option for entrepreneurs who cannot afford equipment or physical space.
It’s up to you to decide if you want to ship the product directly or through your manufacturer.
White labelling
This model allows an entrepreneur to buy stock from a manufacturer, which is then relabeled with your branding. You then market it and sell it through your e-commerce store.
It’s important to remember that once you’ve bought stock from a white label manufacturer, it’s unlikely that you can return it, so ensure your product will be sold.
Subscription-based services
This model requires customers to pay you for a service or product on a recurring basis. It is usually monthly, but this will depend on what you are selling.
Researching your competitors
Starting any business requires extensive analysis and monitoring of competitors. After all, you need to think of ways to satisfy your customers better than your competitors.
Here is a list of five key questions you should ask yourself when conducting a competitor analysis:
- Who are your competitors?
- What are their strengths and weaknesses?
- What are their strategic objectives? (You can gain insights from this by studying market conditions)
- What are their strategies? (What is their positioning, differential advantage, and marketing mix strategy?)
- How do they respond to market and competitive changes?
When conducting research on your competitors, you should also stay up to date on e-commerce trends and challenges.
Who is your target audience?
By now, you likely have an idea of who your target market consists of. But knowing you’ll be selling to a male demographic between the ages of 20 and 40 is not enough.
Consumers and businesses are complex; they seek specific benefits, have different purchasing behaviour, lifestyles, personalities and socio-economic backgrounds. You need to take these factors into account when deciding how you’ll market your product to an audience.
Creating a buyer persona can help with this. This is a marketing strategy of creating a representation of your target market to understand them on a deeper level. It requires intricate market and competitor research, and observation.
Your e-commerce business plan
Of course, a business plan is crucial to the success of your e-commerce store.
Your business plan is the foundation of your success. Without it, you are unlikely to survive. An e-commerce business plan is integral to validating your idea, understanding your financial strengths and weaknesses, and constructing a detailed and strategic marketing approach, amongst other important elements.
How to Fund Your E-commerce Business
Funding the start of a business is always a pain point for entrepreneurs. Starting an e-commerce business with little or no money is possible, but you will need capital to grow.
If you’d like to understand more about e-commerce funding to start a business, you can visit Swoop for helpful details on e-commerce financing.
There are also grants available in the UK to help the start and growth of different business sectors, and we’ve created a comprehensive small business grants guide that will benefit you.
Our loans to buy a business guide will also be helpful if you’d like to explore different financing options. While this guide focuses on financing an acquisition, it is still relevant and beneficial if you want to start an online business.
Now that you have information on where to secure funding to start your business, let’s get into how you’ll set up your e-commerce store through a website.
How to Build Your E-commerce Website
Building an online business can be simple, but if you want to stand out, you’ll need to put in effort. This section will run through the technicalities of setting up an online store.
Your business structure, registration, and trademarking
To set up an e-commerce store, you’ll need to first choose a business structure that suits your objectives. This will either be a sole trader, partnership, limited liability partnership or limited liability company. Each business structure has its own advantages and disadvantages, so, ensure you understand these.
You’ll then need to register your business, solidifying your journey to business ownership!
The e-commerce sector is competitive, with approximately 24,000 UK entrepreneurs starting an e-commerce business in 2021 alone. This means you need to protect your brand and its product or service. It is crucial that you trademark your name, logo and other elements of your business. This will allow you to take legal action against counterfeits.
You can register your trademark with the UK government, and it will cost you around £170, depending on your business’s nuances.
Choosing an e-commerce website builder
You can set up an online shop for free, but most e-commerce platforms will require you to pay for certain benefits. The top four e-commerce website builders to launch your online store include:
- Wix
- Shopify
- Squarespace
- BigCommerce
If you plan on incorporating different forms of content to promote your product and engage with your target audience, then you should consider using a content management system (CMS). CMS software also allows you to build a website without needing coding skills, and there is a plethora of options available:
- WordPress
- Joomla
- Drupal
- HubSpot CMS
How will you take payments from your online store?
If you’re selling a product or service through an e-commerce store, then setting up a payment system is the obvious next step.
To do this, you’ll need to get a merchant account to process and verify payments safely. You can also consider using a payment facilitator, which is cheap to set up and processes payments efficiently. Payment facilitators include Square, Klarna, PayPal, Clearpay and many others!
You should also ensure that the customer's experience of paying for something is integrated and seamless. Depending on your target market, users may want to insert their card details manually, while others may want to use Apple Pay.
How to Advertise Your E-commerce Website
Marketing your new e-commerce start-up is crucial to its initial success. As an entrepreneur, you probably won’t be able to afford TV or billboard advertising. The good news is that there are different, cheaper ways to advertise your e-commerce website! Let’s run through a few:
Social media
As an owner of an e-commerce store, advertising your product on social media should be a priority. Most importantly, how you use social media will depend on your objectives. You may want to drive traffic to your e-commerce website, or you may want to connect and communicate with your customers pre- and post-purchase.
Using social media will help you:
- Build brand awareness
- Understand your community and connect with them on a personal level
- Collect customer insights
- Analyse what your competitors are doing
Influencer marketing
This marketing technique has accelerated as consumers have become more aware of - and somewhat annoyed by - promotional tactics. It can be expensive, but it will be a worthwhile investment if you have a clear strategy, and you have thoroughly researched potential influencers.
Individuals with a high level of social influence will ‘authentically’ endorse and promote your product or service to customers who are looking for product recommendations.
PPC (pay-per-click)
Before we recommend this digital marketing technique, we urge you to understand and learn how to implement it effectively. PPC is a skill, and it will take time to execute a successful paid search campaign.
PPC is often considered one of the most effective forms of online advertising, and it essentially helps businesses gain visibility in major search engines, consequently promoting conversions.
It is a complex strategy, so we recommend reading top tips for PPC start-up marketing.
SEO
SEO is a fundamental technique in the world of digital marketing, and without it, your e-commerce website might not achieve high conversion rates.
Search engine optimisation helps small businesses improve a website to:
- Rank higher in search engines
- Promote quality traffic to a website
- Improve user experience of the website
- Build brand awareness
- Stay ahead of competition
Find out more: Need more advice on this sector? Read our sector-specific articles.
Starting an E-commerce Business Is Not Your Only Option
To end off this guide, it’s important that we give you a comprehensive analysis of routes into business ownership.
Starting a business is exciting and something to be proud of, but it is not easy and failure statistics are not disguised.
Luckily, there is another route you can consider: buying an existing business. Our e-commerce business category is the most popular, with thousands of incredible e-commerce businesses for sale. Feel free to browse through them if you think this option would be a safer, economically and more manageable route for you.
Remember that buying a business is not a quick win. It requires research, dedication and preparation, so read our buying a business guide to gain a better understanding of the process.
We hope this guide on starting an e-commerce business has been helpful, and we wish you every success on your new journey. If you’d like any support, guidance or advice, please feel free to connect with us.