eCommerce sales grew by 50% during the pandemic, reaching $5.2 trillion globally in 2021. Even now, despite the reopening of physical stores around the world, that rapid growth continues to accelerate. In short, there’s never been a better time to jump on the eComm-wagon.
But before we do that, let’s get familiar with the landscape: What is an eCommerce business, who is it for, and how do you get started?
In this eCommerce business guide:
What is eCommerce business?
eCommerce business refers to the buying and selling of goods or services electronically, online, and over the internet. This modern business model functions as the online solution to making retail, manufacturing, wholesale, and service-based sales.
Electronic commerce has its origin in the late 1940s when, during the Berlin Blockade, businesses ordered goods or sent invoices via the telex message-transfer system. Expansive adoption of the internet in the early 1990s and the introduction of the World Wide Web saw the start of eCommerce as we know it.
And it’s making strides: experts estimate that global eCommerce sales will reach $8 trillion (USD) by 2026.
In a world that’s forever shifting towards a more digital landscape, eCommerce appears to be the way forward for product-based (and many service-based) businesses.
How does eCommerce business work?
In the eCommerce business model, transactions take place online. An eCommerce store, or online shop, is used in addition to or as a substitute for brick-and-mortar stores.
Individuals and organisations buy and sell goods and services from these stores using electronic devices.
eCommerce operates in four key market segments:
- Business to Consumer (B2C)
- Business to Business (B2B)
- Consumer to Business (C2B)
- Consumer to Consumer (C2C)
For each of these segments, there are hundreds of industries comprised of thousands of unique eCommerce operations – each vying for a piece of the pie.
What do eCommerce businesses sell?
eCommerce stores sell nearly everything imaginable – from guitar lessons and life coaching to digital assets, plant pots, and groceries.
Here’s a quick breakdown of the 3 types of products sold online:
- Physical goods: Anything that you can purchase in a traditional brick-and-mortar store, from groceries to homewares, building supplies and even motor vehicles.
- Digital products: Intangible assets and content that can be created once and sold repeatedly to different customers. These include educational products, subscriptions and memberships, streaming services, music, and digital art.
- Services: Professional services that may be purchased over the internet. This covers accounting services, consultations, online therapy, livestreaming, and freelance work.
When it comes to eCommerce sales of physical goods, Amazon Marketplace has dominated the landscape since its inception in July 1994. At present, Amazon’s highest-grossing product categories are Computer & Consumer Electronics, Apparel & Accessories, and Books, Music, & Video.
eCommerce business vs. retail business vs. eBusiness
Although eCommerce business is forecasted to account for 24% of all retail sales by 2025, eCommerce and retail aren’t always the same thing.
The key difference between retail and eCommerce is that eCommerce refers to commercial transactions carried out solely via the internet, whereas retail refers to the sale of goods from a single point – such as in-store, person-to-person, or online.
eCommerce businesses are also different from an eBusiness.
While the terms are often used interchangeably, eCommerce implies the transaction of goods and services over the internet by an organisation or individual entity.
eBusiness, on the other hand, refers to any process, operation, or activity a business conducts over the internet or a digital network. eBusiness organisations may include any private enterprise, government, or not-for-profit entity.
The 4 types of eCommerce business model
To match each of the four key market segments, eCommerce is supported by four traditional business models.
The two main types of eCommerce business models are B2C and B2B. The primary difference between B2B and B2C eCommerce is that B2B covers raw materials, parts, and goods or services one business will sell to another business while B2C shops focus on getting finished products to the end user.
Additionally, there are two more popular types of eCommerce business models: C2B and C2C.
To better understand the eCommerce landscape, we’ll look at each of these in turn.
1. Business to Consumer (B2C)
B2C refers to transactions where a business sells its products or services direct to the consumer. This is the most popular eCommerce business model, and most niche product categories fall under the B2C umbrella.
Most retail and manufacturing goods – such as apparel, entertainment, groceries, and household goods – fall within this category.
2. Business to Business (B2B)
The B2B eCommerce model is where one business sells its products or services to another. It involves transactions between manufacturers and wholesalers, or a wholesaler and a retailer, via an online eCommerce sales site.
B2B businesses often sell software, assembly parts that are used to build products, and the services and supplies needed to operate a business.
3. Consumer to Business (C2B)
C2B is less common than the B2C and B2B models. It is a form of commerce where a consumer or end-user sells a product or service to a business.
Rather than the business solely gaining value from the consumer, this model allows two-way traffic – the consumer also benefits from the business. In some cases, this means creating content for a business in the form of user reviews, affiliate marketing, and social media influencer posts.
4. Consumer to Consumer (C2C)
The C2C eCommerce business model connects consumers to consumers to sell and exchange goods and services.
Most C2C eCommerce businesses are conducted via C2C platforms such as eBay, Trade Me, Gumtree or Facebook Marketplace. C2C platforms typically make their money by charging transaction or listing fees on C2C transactions.
C2C products are frequently (but not always) second-hand goods, such as used cars and clothing.
- Learn more: What is Headless Commerce?
The 4 Types of eCommerce Business Models
Other eCommerce business models
That about covers the main eCommerce business types you may encounter. But there are also a few lesser-known eCommerce models worth mentioning:
Social commerce involves using social media platforms like Facebook, Instagram, and Twitter to promote and sell products and services.
The entire shopping experience, from product discovery and research to checkout, takes place on the platform. The success of a social commerce campaign is measured by interactions that consumers have with the company’s marketing through retweets, likes, and shares.
Mobile commerce, or mCommerce, is where transactions are made using wireless handheld devices such as mobile phones and tablets.
mCommerce is largely conducted using mobile apps to perform any number of commercial transactions online, including buying and selling goods and services, online banking, and paying bills.
Direct to Consumer (D2C)
D2C is an eCommerce business model that enables manufacturers to sell direct to a consumer without any intermediaries involved.
Businesses engaged in D2C selling manage their own marketing, sales, and shipping. The D2C eCommerce model is becoming increasingly popular for businesses and consumers alike, as it allows for direct communication and transactions.
Dropshipping is an eCommerce order fulfilment method that allows online businesses to hold no stock and outsource all of their shipping processes to a third party – usually the supplier of those goods.
The dropshipping product cycle looks like this:
- A customer places an order on a business’s website
- The dropshipper then places a similar order with their supplier
- The supplier ships the goods directly to the customer
Dropshipping is a low-cost way to sell goods online, as there are few-to-zero overheads. However, customer service and brand reputation typically suffer as this business model comes with long lead times and no opportunity to QC your products before they reach the customer.
4 types of eCommerce sales channels
A sales channel is a method or platform used to sell a product or service. It’s where customers discover and buy things, and where businesses advertise and sell them.
There are four main types of sales channels available for eCommerce sellers:
- Online shop
- Social media
- Product comparison sites
Developing a website or mobile app is the most popular option for businesses of any size.
It requires an investment in time and resources, to ensure the online store has an attractive design and a seamless browsing and shopping experience for the consumer.
eCommerce hosting platforms like Shopify have gained increasing popularity in recent years. The ease and simplicity of creating a store without the help of a designer or web developer – coupled with new demand for an easy-to-use, professional-looking shop – has resulted in many businesses turning to these drag-and-click website builders.
An eCommerce marketplace is an online market where shoppers can search for products and sellers can present their products to a broader audience.
Additionally, shoppers can compare products from multiple vendors (or the same vendor) within the marketplace to find the best choice for them.
Here are a few examples of the most popular eCommerce marketplaces:
- Amazon Marketplace: This has been the most popular marketplace for a long time, dominating the top spot thanks to its ubiquity, range of choice, low prices, and fast shipping times.
- eBay, Etsy, and Walmart: These are also popular marketplaces that offer a vast range of consumer goods and provide a platform for large companies, SMEs, and individuals to sell their goods.
- TradeMe, Craigslist, and Gumtree: These smaller online marketplaces tend to be more targeted to local shoppers. Many of these platforms began life as C2C marketplaces – however, they’re becoming increasingly popular as a channel for B2C.
- Alibaba and AliExpress: These are the most prolific B2B eCommerce marketplaces and are an example of a multi-vendor B2B marketplace that allows multiple B2B companies to register and sell their products online.
Social media platforms
Many social media companies have launched integrated eCommerce channels to make it simple for businesses to sell directly to their existing audiences, without having to go through another platform in between.
This includes many of the biggest players in the social media world, such as Facebook, Instagram, and Pinterest.
Customers can click on a photo or video of a product, see the price and variant options, and place an order – all without ever leaving the site.
Product comparison sites
Like marketplaces, comparison sites are dedicated to comparing products in the same category.
The difference is that this type of eCommerce channel doesn’t sell the products or act as an intermediary. The consumer will search to see all the options available from different brands but link directly to the pages where the products can be purchased.
The growth of eCommerce: Why all merchants should consider selling online
The eCommerce industry experienced steady growth over the past 10 years. Largely helped by the COVID-19 pandemic, the surging demand for online shopping has permanently changed the way people shop.
The convenience of eCommerce at a time when malls were inaccessible has had a huge impact on consumer behaviour.
Nowadays, if people want something to purchase, they expect to find it available online.
Statistics for B2B eCommerce also indicate continued growth; research from Statista suggests that an estimated 17% of all B2B sales will be generated digitally in 2023.
With this in mind, let’s take a look at some of the latest trends in eCommerce.
Which eCommerce products are currently trending?
Shopify currently lists the top five products trending online as power tool accessories, dog toys, costume shoes, laptop batteries, and shot glasses.
Meanwhile, the top five product categories on Amazon are currently: Home & Kitchen; Beauty & Personal Care; Toys & Games, Clothing; Shoes & Jewellery; and Health, Household & Baby Care.
Another category that experienced massive growth during the pandemic is groceries.
According to a report by McKinsey, much of the North American grocery eCommerce sector experienced the equivalent of five years of growth in just five months in 2021.
Some more eCommerce business trends to consider:
- Post-pandemic, manufacturers are responding to longer lead times by carrying more stock on hand. Our own research into anonymous data from over 4000 customers found that SMEs in the UK, NZ, and Australia were forced to hold record levels of stock in Q3 2022.
- The global book market is expected to see revenues of $112 billion in 2023 – the highest amount since 2017.
- Consumers care more about ethical purchasing, with 3/10 saying that environmental factors influence their purchasing behaviour and 4/10 saying that social factors, such as brand diversity and inclusion, determine whom they buy from.
- Social commerce is making strides: 48% of consumers are now likely to purchase products directly from TikTok.
One final fact to consider: Advertising costs for eCommerce skyrocketed throughout the pandemic – with the cost per click for paid search ads increasing by 15% between Q2 and Q3 of 2021 alone.
For sellers, this hints at an ever-growing need to focus on organic strategies and branding.
The pros and cons of starting an eCommerce business
The primary advantages of eCommerce are the low cost of entry and the convenience it offers consumers – they can now shop from anywhere, on any device, at any time.
However, any business model has its downsides. For customers, this includes the inability to touch and try on items and for sellers, the risk of their store crashing or being shut down by the server host.
5 advantages of starting an eCommerce business:
- Low barrier of entry. Start-up costs are low, business expenses are generally lower, and companies can save on inventory costs when choosing drop shipping options.
- Global audience. Selling goods internationally helps to build a brand faster, broadens the marketplace, and enables greater profitability. eCommerce businesses are always open, making it easier to make sales outside of traditional business hours. Customers with limited mobility or access to physical shops are also primed for eCommerce shopping.
- Ease of promoting top sellers. It’s much easier to showcase best-selling items to customers. They can be showcased to new and potential customers through targeted advertising, digital marketing, and inside your digital store.
- Personalisation. Landing pages on an eCommerce website can be customised for different audiences and upsells can be personalised based on what the customer has looked at or previously purchased.
- Capacity for scale. eCommerce businesses can easily be adapted and scaled as the store grows. With eCommerce dropshipping, new products can even be added to the store without the need to hold additional inventory or the burden of shipping products to your customers.
5 disadvantages of starting an eCommerce business
- You don’t own your store. If your sales platform or website crashes, or your hosting server bans your account, it could kill sales and drive customers to your competitors. Always use trusted hosting platforms for your eCommerce website to minimise the risk of losing your site.
- No try-before-you-buy option. It’s difficult for customers to ‘try before they buy’ with eCommerce products, which leads to purchase hesitation. eCommerce businesses must address this with robust return policies, often coupled with free shipping.
- Highly competitive landscape. Cutting through the noise to attract customers can be tough in eCommerce. Niche products and services are often the most competitive and advertising in niche markets can be costly.
- Timely customer service. Responses to customer enquiries are often delayed because, unlike a traditional store, no salespeople are standing by ready to answer customers’ questions. While it’s impossible to always be online, chatbots and FAQ pages can help to minimise the need for person-to-person customer support.
- Longer lead times. Customers want what they want when they want it, and they usually want it now. Shopping in-store means a customer can have the product then and there. With online shopping, customers can wait a week or more to receive their goods.
While you must remain wary of the risks involved in eCommerce, neglecting to investigate whether it can work for your business is a risk in and of itself. There’s a good chance that, by refusing to consider eCommerce as a business model, you miss out on a large portion of potential sales.
- Learn more: The 18 pros (and 11 cons) of eCommerce business.
Omnichannel vs multichannel eCommerce business
Multichannel eCommerce is gaining increasing popularity this year, based on 75% of shoppers now claiming to browse multiple shopping channels before making a purchase. However, multichannel eCommerce should not be confused with omnichannel selling.
The main difference between multichannel and omnichannel eCommerce is that omnichannel is a strategy that encompasses selling in every possible sales channel, whereas multichannel simply means selling in more than one.
Omnichannel also includes what happens behind the scenes to meet operational requirements, and how the customer experience is connected across these channels.
Let’s explore these strategies further.
What is multichannel eCommerce?
Multichannel eCommerce refers to a sales or business strategy with many distribution channels, each offering a different opportunity for consumers to interact and make purchases with a brand.
This strategy allows consumers to shop where they prefer – whether it’s your website, on Amazon marketplace, or in a physical store – without having to turn to one of your competitors.
Traditionally, multichannel selling was limited to the in-store experience, print catalogues, phone, and email. Today’s consumers shop across multiple channels and switch between online and offline.
As a result, businesses are increasingly implementing multichannel sales strategies to keep abreast of customer expectations.
Advantages of multichannel eCommerce
Multichannel eCommerce has numerous advantages for B2C and B2B eCommerce businesses and their customers.
The advantages of multichannel eCommerce include:
- eCommerce stores are effectively open 24/7 enabling customers to search, research and make purchases at any time from any location globally.
- The global reach of multichannel eCommerce removes geographical boundaries, enabling companies to reach a wider audience. Seasonal products have twice the market demand because they can be sold seasonally in both the northern and southern hemispheres.
- Multichannel eCommerce makes it much easier to personalise the shopping experience for both B2C and B2B customers, meeting them where they are, and where they shop.
What is omnichannel eCommerce?
Omnichannel selling refers to a unified strategy to create a single experience across different channels.
A company can achieve dramatic growth and business success with omnichannel selling, but for retailers and eCommerce businesses to achieve omnichannel success they first need to identify how customers are already interacting with their brand and why.
An effective omnichannel strategy ultimately relies on a seamless transition between online and offline, providing greater value to and receiving more value from customers by giving them a consistent brand experience wherever they are.
Advantages of omnichannel eCommerce
An omnichannel eCommerce strategy has many benefits for businesses seeking to reach more customers in their natural purchasing habitats.
The advantages of omnichannel eCommerce include:
- Customers can make purchases in their preferred place to shop.
- Omnichannel shoppers tend to have greater brand loyalty – leading to more repeat sales.
- Customer satisfaction can be improved by analysing and cross-referencing data from all your different sales channels.
How to start an eCommerce business: A quick guide
Thousands of consumers migrated to online shopping during the COVID-19 pandemic, leading many companies to quickly launch their own eCommerce stores.
Before you join them, you must first determine if eCommerce is a viable business strategy for your brand. This can be achieved by performing a SWOT analysis of the eCommerce business model as it pertains to your business.
Once you’ve found evidence that validates your choice to build an eCommerce store, the steps below will help you turn ideas into action.
1. Create an eCommerce business plan
Developing an effective eCommerce business plan requires serious forethought and planning.
First, you’ll need to identify your goals and expectations.
Consider these factors when creating your eCommerce business plan:
- Which KPIs and metrics you’ll track for each area of the business.
- The total cost and ROI of building an eCommerce store.
- The current landscape of your industry – main competitors, market size, and saturation.
- Which sales channels are best suited for your product.
- How many employees and resources you’ll need to implement an eCommerce strategy.
Use the information acquired during this process as the framework for your eCommerce business plan.
Your goals and KPIs should inform the breadth and scale of your strategy.
Employee costs and company resources will determine how quickly you can afford to go to market.
And the research you unearth about your product will tell you which sales channels to incorporate into the strategy, and the portion of your focus each deserves.
2. Make necessary preparations for your future store
This is the fun part: Preparing for success.
The first preparations you should make are around your software stack.
You’ll want to have automated systems in place to tackle each area of business – how many software products you use will be determined by your budget.
An essential software stack for eCommerce sellers looks like this:
- An inventory management platform like Unleashed for managing stock
- An accounting platform like Xero for crunching numbers
- A CRM system like Prospect for tracking sales data
There are hundreds of other apps and tools available for eCommerce sellers. Make sure you research your options and only opt for the services that will give you a positive ROI.
Next, start building the assets and relationships that will allow you to sell products online.
Create the following assets before launching your store:
- Business name and logo
- Shipping policy
- Terms and Conditions
- Privacy policies
- Returns policy
- Refund policy
- Answers to FAQs related to your product
As well as these assets, you’ll want to build up a relationship with each of your suppliers for the products you intend to sell.
Ask each supplier to set expectations for lead times, product costs, shipping costs, packaging process, and price fluctuations. If you’re starting a dropshipping business, you’ll also want to understand their fulfilment process and customer policies.
The best way to ensure the accuracy of supplier promises is to get them written up into a supplier agreement or contract.
3. Build your eCommerce store
Once you’ve got everything you need ready to go, it’s time to create your store (woo-hoo)!
First, decide where your store will live.
Consider the pros and cons of using a website hosting platform such as Shopify or Squarespace vs. hiring developers and designers to build you one from scratch.
You may choose to limit your store to a single sales channel, such as Amazon, instead of creating your own website – this should be determined by your product and industry research (see Step 1). In this case, ignore any website-specific instructions below.
Once your store is up, there’s some critical information that needs to be visible. This may be in the form of individual web pages on a website, or sections of information on a sales channel business page.
Make sure your online store includes:
- Information about your products (Homepage)
- Information about your company (About & Contact pages)
- Product listings, images, and categories
- Your various policies around shipping, privacy, returns, and refunds
- Your terms and conditions of service
- Social proof in the form of customer reviews or case studies
- Simple navigation – header and footer menus
4. Optimise your product listings and site layout
Once your online store has been built, it needs to be optimised for search results and sales.
Consider search engine optimisation (SEO) best practices around site navigation, product titles and descriptions, images and videos, and meta descriptions.
Following these will give your online store a better chance at attracting new customers organically through search engine results pages (SERPs) such as Google and Bing.
Additionally, you’ll want to ensure your store is optimised for conversion.
This means using persuasive copy in your product descriptions, creating the best user experience for visitors to your store by minimising the number of clicks needed to make a purchase, and reducing buyer hesitation through social proof and clear messaging.
5. Hit the ground running!
If you’ve followed the previous steps, you should have a fully functional eCommerce store ready to go live.
All that’s left is to create a go-to-market strategy.
Your eCommerce business launch strategy should include:
- How you’ll tell the world about the launch
- Your budget and expectations for advertising and marketing
- How you’ll raise awareness of your brand and product
- What a successful launch looks like and which KPIs you’ll measure
Once that’s ready, use the handy pre-launch checklist below to make sure you’ve nailed every step.
eCommerce business launch checklist
- Research, source, and test the products you intend to sell
- Acquire a website and domain name for your online shop (or a business page if only selling on a third-party marketplace)
- Set up all standard web pages: Home, About, Contact, FAQs
- Set up and optimise all product pages for conversion and search results
- Set up and personalise all purchase pages: Shopping Cart, Checkout, Order Confirmation
- Check that all legal requirements and privacy laws have been adhered to
- Set up systems and software stack for managing inventory, sales, fulfilment, and accounting
- Decide on and set up your various sales channels and marketplace accounts
- Create business strategies and establish KPIs for procurement, growth, and human resources
- Hire the appropriate number of staff you will need to manage your store
- Create your go-to-market strategy and announce the launch of your new eCommerce store