What do I Need to Start an Ecommerce Business?

Isaac Hayward
Isaac Hayward
HK Digital Co-Founder
5th December 2022

If you've ever asked the question – "What do I need to start an ecommerce business?" then you have come to the right place to find out exactly that.

Basically, you might have an idea of what you want to sell, but you aren't quite sure what it takes to actually turn that idea into a clear reality. In this article, we will cover a 5 step process, from finding your product mix to your first sale, that helps you understand your own business-to-be, and provides you with a clear sequence that leads to success.

P.S. If you are only looking for a list of assets and partnerships that are necessary for ecommerce stores, skip to the section on fixed and variable costs.

1. Determine Your Ideal Range of Products to Offer

Before starting an ecommerce business, you'll need to determine what type of products you would like to sell. This can be a difficult decision, but it's important to choose something that you are passionate about and know enough about to be able to provide quality products.

Essentially, you want to conduct a brainstorm session to come up with as many related, novel products that you think fit into your vision as possible. If you need some ideas to get you started off, check out this article on the 25 hottest ecommerce products this year.

Once this has been completed, it is time to think critically and narrow down your selection to a niche!

Finding your Niche

Listing out a bunch of ideal products is a great way to get started: it points you in the right direction for where you want to take your business. However, narrowing these options down is essential to your success.

You must consider who you are trying to sell these products to, what other companies are already doing to service your market's needs, as well as the products themselves: are they going to be profitable enough to sell online? Remember that free shipping is pretty much standard across the breadth of ecommerce stores today.

Luckily, the next step helps narrow down your strategy to get you closer to a full, comprehensive business plan. Keep your niche development in mind while working through the rest of the steps and be sure to monitor your concept of your niche as you develop with the rest of your market.

2. Develop your Market Knowledge with Research

Your market research is where you truly begin to redefine your niche to a point where you are competitive on the market.

One of the easiest and quickest ways to gather information about your market is via desk research, which involves scouring the web for relevant information or prior research. This works really well if you are trying to simply get your business going.

However, if your offer is so innovative that the public would have to adapt to a new way of life, you will want to conduct your own, first-hand research to verify that your product is viable, and learn where the problem points are in your offer for correction.

In primary research, you can use online surveys, focus groups, and conduct studies on your ideal target audience to get some very focused data.

While this can ensure the successful launch of a true innovation, if you are selling a product that simply improves upon what has been done before, it is unlikely that you will have to go to such great lengths to remain competitive until you join your market leaders.

Build Personas for your Target Audience Members

Personas are fictional characters that you use to represent a specific group of people. By creating personas, you can better map out the needs and wants of your unique target segments for later use and development. This will be the baseline for developing all of your digital assets.

A persona consists of all the demographic and psychographic factors that apply to a segment of buyers that you think will need your product. Therefore, these personas must also cover the specific customer needs that your range, or a portion of your range of products covers.

A great way to do this is by going on Meta Ads Manager and creating personas using the list of psychographics and demographics.

How to Conduct a Competitive Analysis

Before you start an ecommerce business, it is important to conduct a competitive analysis. This will help you understand everything that the competition is doing to target and service the needs of your market, which will provide you with the insight that you need to understand what barriers you will have to overcome in competition.

The quickest way to do this is pick three competitors that you think best align with your niche, and are performing well. It is imperative that you put some good time into finding near-exact matches to your vision, as this will help you understand how to better position yourself.

Take those three competitors and look at all of their digital assets. I mean everything that is available online. Pick them apart for their key creative differences and determine the strengths and weaknesses of both.

You will apply all of the strengths to your business plan and ensure that you omit any weaknesses spotted in their approaches.

3. Estimate your Costs and set Sales Targets

Your success is largely contingent on your ability to eventually generate profits. As you are just starting your business, you are going to have to rely on your research to produce estimates of your costs and revenues, well into the future. After all, that is how you get profit!

1. Determine all of your fixed and variable costs: Your costs can be divided between those that either remain constant (fixed) or increase with increased production (variable).

Regardless, your costs are likely to arise as a result of your key activities, resources, channels, and some of your key partners (e.g. 3rd party agency).

To give you an idea of how to begin your research, I have listed some of the common expense categories for ecommerce businesses in the following section.

2. Estimate your sales per month: This is all about finding the average click-through-rate (CTR) and conversion rate (CR) for your market and comparing that data with the number of people you are able to reach.

Building your new audiences in Meta Ads Manager will allow you to see how many audience members you should be able to reach, and can serve as a great proxy, giving you some wiggle room when considering the fact that you will pull visitors from other channels.

3. Build out your scenarios: Once you've estimated all of your costs and estimated your sales, you can project out as far as you want, month by month, comparing expected cash flows to arrive at your future profit (hopefully).

Keep reading to get a better breakdown of some of the most necessary costs in ecommerce, as well as a little more on building your scenarios.

"What do I Need to Start an Ecommerce Business?" – Common Fixed and Variable Ecommerce Costs

This is the moment that I bet most of you were looking for at first: a list of assets and partnerships that you will need in order to run your company. Celebrate with a golfer's clap because, disclaimer: they are also all of your costs.

Whether you skipped ahead to this section or worked through the whole article so far, congratulations! You almost have what you need to start your ecommerce business.

Because you all live in different markets that have different resources, I can't give you precise costs, nor can I cover the costs specific to your market. What this will give you is a great start to piecing together your unique puzzle; you will just have to fill in the gaps.

Common FIXED Costs in Ecommerce

We already glossed over the fixed costs: they are those that don't increase with demand. Here are some of the most common fixed costs in ecommerce:

  • Website
    • Domain (typically annual)
    • Hosting service (either annual or monthly)
  • Staff
  • Rent and utilities
  • Warehouse (likely at a much higher stage of growth)
  • Any other non-consumable assets that are unique to your production process

Remember that your situation is unique and you will certainly need to expand this list to your needs. Keep in mind that these costs have many factors / components to consider in your cost estimates.

Common VARIABLE Costs in Ecommerce

Here you can find all of the costs that can increase with sales. Again, remember that these are large categories of costs, and you will have to refer to your research to uncover the specifics of each, which will allow you to come up with a total.

  • Marketing budget (technically can be fixed, however, is a driver of demand)
  • Inventory
  • Shipping and logistics

Because these costs are variable, it is important to log how they increase as your sales increase. This will help you when it comes time to conduct your financial scenario analyses.

How to Conduct Scenario Analyses to Estimate your Future Profits

Scenario analyses allow you to explore different possible outcomes and understand how your financial position could look in a year, depending on the quality of your research.

Essentially, what you want to do is consider all of your costs from month to month and compare them with the potential revenue that you could have, depending on your expected marketing results. 

Ideally, you want to have three likely scenarios depicting the worst-case, best-case, and most likely scenario (somewhere in between).

Much of this will depend on your confidence in your marketing strategy and tactics to be used, and what kinds of sales results (conversion rates) you can expect. To increase that confidence, check out this article on how to write a growth plan.

Be sure to include tax estimates in your calculations, as not doing so would render your scenarios irrelevant!

4. Build your Business Plan, Branding, and Develop your Site

If you have covered all of the previous steps, this is where you learn how to compile all of your knowledge thus far to strategize on every single thing that you need to start your ecommerce business. 

While we recommend writing out a full business plan at some point in your venture (it is especially important if you are seeking investment), you are looking to start your business, and we recommend getting that done as quickly as possible, securing some revenue and resources, and developing a full-blown whitepaper with your future team.

You will be able to get there with a simple business model canvas, a few strategy docs, and spreadsheets, which should culminate in most of the content needed for your whitepaper!

Use the Business Model Canvas to Organize your Research

To make the most out of your research in the timeliest fashion, I recommend using a business model canvas as an outline for everything related to your business. Your previous research should have returned enough data to fill in all of the sections:

  • Value proposition,
  • Customer segments,
  • Channels,
  • Customer relationships,
  • Key partners, 
  • Key activities,
  • Key resources,
  • Revenue streams,
  • Cost structure.

If you aren't quite sure which channels you will need, check out this article on essential ecommerce channels. Similarly, you can get some ideas of which resources you will need by checking out this article on the top 20 tools for your ecommerce toolkit.

Take a look at this example business model canvas with explanations for each section and ensure that you are organizing all of your data accordingly.

Once all of these fields have been filled in, you should have all of your key strategies in place: your business just needs its own persona and you are on your way to developing your site!

5. Develop your Site and Execute your Plan

While this is more something you need to do, rather than something that you need to start your ecommerce business, it's very much a need! You know everything that you need to start the business, you just need to put it together.

Start with building your site based on your brand archetype (this should be determined during your market research stage) and get that site flooded with keyword-rich content so that your users can find you, and begin distributing it while running your first ads.

Once you have made your first sale, I'll consider my job here done.

To summarize...

To start an ecommerce business, you need more than someone to tell you the basics of what it takes. What you need is a solid vision of where you want to end up between now and when you would consider your business a success, then you just connect the dots and fill in any remaining gaps. 

By following these 5 simple steps you won't be left sitting with the expression my friend had on her face before I realized that I was providing her with next to zero value.

What you will uncover is every detail about the business that you believe in, and the confidence of walking a path that has been predetermined by none other than yourself!

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