What is an e-commerce business and how doe it work.
If you are one of those people who seem lost about making money online, you have come to the right place.
Today, I will discuss important aspects of how e-commerce works. We will cover:
- You need to have a product
- You need to have a platform
- You need to have a payment method
- You need to have a marketing strategy
After this tutorial, I am positive that you would have gained new insights about the inner workings of the industry.
Also, you should have a solid foundation about the things you need and the steps you need to take to succeed.
But first, what is e-commerce?
What is e-commerce?
E-commerce stands for electronic commerce. It simply means that it is an online business, and it refers to anything online where a trade is made between a seller and a buyer.
Many people think that Amazon and eBay are the only types of e-commerce businesses.
This is far from the truth. The internet has spawned many ways for you to earn online, including the publication of games, podcasts, books, and many more.
Here are the general business models or examples of e-commerce:
- Retail – the most basic kind of e-commerce where you sell physical goods in exchange for money; you can sell on your own website, Amazon, Etsy, eBay, and many more marketplaces.
- Dropshipping – this is a type of retail where you do not buy inventory; it is the supplier that ships the item to your customer—your duty is to market the products and make the consumer buy from your online store
- Affiliate Marketing – a type of business where you promote the product of other people; if a customer buys because of your promotional effort, you get a commission.
- Blogging – you write helpful blog posts to gain readership; you can monetize your blog via ads, affiliate links, and info products.
- Information products – a type of e-commerce where your main product is information. Here, you can sell books or courses that you made.
- Software and tools – if you are a coder or developer, you can create software that helps people solve a problem and then sell them; you can charge a one-time fee or a subscription.
- Games and entertainment – you can create games and sell them as apps on PlayStore or iTunes.
- Services and consultations – you can build a freelance business and then offer services such as video editing, writing, SEO analysis, and more.
As you can see, some of these models overlap, and that is okay.
It is not unusual for business operators to combine several types of revenue streams in their online businesses.
This ensures that they have several opportunities to earn.
On the next sections, I will discuss some of the most important things you have to prepare and consider before you venture into the world of online business.
You need to have a product
The first thing you have to think about is your product. What are you going to sell?
This is the first and fundamental aspect of business.
A sad reality is that many people who start an online business fail because they did not think this through carefully.
Here are some guidelines when choosing a product or service to sell:
- Demand – is there a demand for your product? If you sell fidget spinners today, do you really think there are still people who will buy it? You need to investigate what people are buying, and you can only get solid data about this from software which we call spy tools.
- Profitability – you need to understand how profitable your product is. To determine this, you have to find out how much it is being sold for by your competitors. You need to know how much the market is willing to pay for it, and then subtract the value of your capital. Then, you have to assess how many items you need to sell in a month before you can break even or even make a profit.
- Market – who is your market? Are you going to sell to everyone or to a specific type of people? You also need to know where to find them, what their interests are, and how you can reach them. Geography is also crucial—you have to decide if you will sell in a specific country only or if you will sell internationally.
Also, you need to seriously consider if you are passionate enough about your product.
Many online e-commerce operators fail because they chase money—if you are not passionate enough in your business, you will lose your motivation when times get tough and you have no sale, and you will shut down your business.
You need to have a platform
A platform is the method by which you sell your products.
There are many different platforms that you can use, and I will discuss the most popular ones here.
- Shopify – a website store builder that costs at least $29 per month. Shopify offers an all-in-one package, which means that once you set-it up, you no longer need other tools to be able to charge your customers and process orders.
- Amazon – by far, this is simply one of the biggest selling platforms in the world. You can post your items here for sale and pay a fee to Amazon per sale you make. You can also do the FBA program where you ship your items to them, and they will take care of shipping it to their customers.
- WordPress / WooCommerce – WordPress hosts 1/3 of all the websites in the world. If you use the
- WooCommerce plug-in, you can turn your blog into a store. This platform is best for people who want flexibility in how they design their online stores.
- Facebook – this social media platform now has a shop. However, it has not payment platform yet. You can post your items here and then charge your consumers offline or online.
- Etsy – Etsy is like Amazon, but only for handmade crafts. What you do here is you post your hand-crafted items and when they are sold, you ship them. Etsy charges a fee for each successful transaction.
- eBay – one of the oldest marketplace in the world, eBay uses a bidding style for selling where the highest bidder wins the product. Dropshipping is generally not allowed on eBay.
- Freelance sites – if you are offering services, this is the best way to get started. You do not have to spend anything, but you will pay between 15% and 20% of the transaction for every customer who purchases your services.
Before you make a choice, you have to investigate how much it is going to cost you to start a business.
You also need to assess your skills carefully because many self-hosted platforms require technical skills.
You need to have a payment method
In most situations, the payment method is already part of the deal when you sign-up for a subscription.
However, how you take the money out is going to be a problem.
This is an important aspect of e-commerce.
Most of the time, you need to have a bank account so you can transfer your money from your e-commerce store to your bank.
Here are the most popular options:
- PayPal – one of the pioneers of online payment processing systems in the world. PayPal is by far the most used by sellers and buyers. Depending on your country, you can request for a PayPal debit card so you can withdraw your money.
- Shopify – if you use the Shopify platform, you can use the default Shopify payment processing system. You can also get a device called Shopify POS where you can charge cards in person. From your Shopify account, you will transfer the money to your bank account.
- Payoneer – this is like PayPal but the main method of transferring funds is via the Payoneer Mastercard, which you will request from the company.
There are many payment processing platforms—there are hundreds of them.
Today, even corporate giants have already built their own systems like Apple Pay, Ali Pay, Amazon Pay, and Google Pay.
Each e-commerce platform has a different set of options. For example, you cannot use PayPal on Amazon.
Instead, you need to use the Amazon payment system to accept money from customers.
From your Amazon funds, you have to transfer the money to your bank account.
You need to have a marketing strategy
Marketing is the activity that pumps money into your business. It is also responsible for driving traffic to your website.
You know that all big businesses spend heavily on marketing, and you can see how important it is to them.
You need to have to the same kind of mindset. I am not saying that you have to spend a lot of money.
What I am saying is that you have to put the same level of important to marketing.
Here are some marketing techniques you can explore:
- Social media – this has to be the staple of your marketing strategy. It is free, but it requires a lot of work. What you need to do is to post regular updates and share helpful content to your target market. Once you have built an audience, it will be easier to sell your products and services.
- Paid ads – there are many channels where you can launch ads such as YouTube, Google, and Facebook. You have to tread lightly on this and not waste money. Test your ads to see which one works. Once you have seen a positive response to your ad, you can scale that up and pay more.
You can also produce free content such as blogs and YouTube videos.
What you want to do here is to build your credibility, and make yourself an authority.
It will be easier for you to make a sale if the people who come to your website know you and if they trust you.
Summary: how e-commerce works
The ecommerce industry is a huge thing.
There is no way you can start a business on all of them unless you have employees who can execute your plans.
What you need to do is to choose a platform to get started—this is going to make it easier for you to narrow down your market research and your marketing strategy.
Also, you have to really think about what kind of business model you want to get into.
For example, affiliate marketing requires less effort than dropshipping, but sales are much harder to come by.
On the other hand, dropshipping is easier to implement and also requires lesser start-up cost, but you have no control over the quality of your product.
Once you have selected your business model, the next step that I want you to take is to study carefully who your market is.
Then, create a masterplan about your marketing strategy, and then execute it well according to your planned completion date.