Thinking about setting up an online shop?
That’s a great idea — especially since the eCommerce market exploded during the pandemic and reached $4.9 trillion in 2021! What’s more, the number is expected to almost double by 2025.
But how does eCommerce work, exactly?
In this guide, we explain all things eCommerce, including:
- What is eCommerce?
- How does eCommerce work?
- Advantages of eCommerce
- Challenges of eCommerce
- How to set up your eCommerce website
Let’s dive in!
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What Is eCommerce?
eCommerce is the process of buying and selling commercial goods or services over the internet.
Through eCommerce, customers can visit online marketplaces using a device such as laptop, tablet or smartphone and purchase products while paying electronically.
There are three main types of eCommerce business models:
Business-to-business or B2B eCommerce is the exchange of goods and services between businesses, such as Shopify Plus.
Business-to-customer or B2C eCommerce, also known as retail eCommerce, is the sale of goods or services from businesses directly to consumers. One of the biggest names in B2C eCommerce is Amazon.
Customer-to-customer or C2C eCommerce is a business model where customers can trade goods with each other using online marketplaces such as eBay.
How Does eCommerce Work?
Running an e-store is quite similar to running a physical store, except that it all takes place online. Customers browse products and make purchases, but without leaving their homes.
Here are the three main steps of the eCommerce process:
A customer browses an online store, selects a product, adds it to heir cart and places an order. The store owner gets a notification that a new order has been created.
The second step is to process the order and the payment. For payment transactions, eCommerce websites typically use a payment gateway such as PayPal or Stripe which serves as a cash register. The purchase is logged and order is complete.
The last step is to ship the product. At this point, it is important to ensure timely delivery so online stores can have repeat customers.
How To Build an eCommerce Website in 4 Steps
The process of building an eCommerce website is not as complex as it may seem. We’ll walk you through the step-by-step process.
Here’s how to build an eCommerce website:
Step #1: Choose an eCommerce Platform
The first step is to choose an eCommerce platform. Some of the biggest names in the industry include Shopify, Magento (now Adobe Commerce), WordPress and WooCommerce but before you choose one, you need to consider the features and functionalities your website will need.
When considering an eCommerce platform, you can choose between:
- An open-source platform: You build your platform on top of existing code and alter and modify the platform without purchasing a license. An example of an open-source platform is Magento.
- A traditional eCommerce platform: You purchase a license and then build your platform on top of the existing one but need to renew the license annually. An example of a traditional eCommerce platform is Shopify.
- A SaaS eCommerce platform: When you’re using a SaaS eCommerce platform, you pay a monthly fee that covers server use, updates, security and maintenance. An example of a SaaS platform is Salesforce.
- Building your own platform: This is when you hire a team of developers to build your eCommerce platform from the ground up.
So how do you know which option is right for you?
Choose the platform that aligns with your business goals, website requirements, technical expertise and your budget. For example, if you’re not technically savvy, avoid platforms that require technical knowledge to build a website, unless you plan on hiring someone to do that for you.
Research each platform and what they offer, before deciding on one.
Step #2: Purchase A Domain Name and Hosting
The next step is to purchase a domain name. If you don’t already have one, pick something catchy and easy to remember. Many hosting providers also offer the option to purchase a domain name, or you can go to a domain registrar like Namecheap and choose among available domain names.
Next, you need to purchase a hosting plan. You have multiple hosting options depending on your requirements and budget. For example, if you are expecting high traffic and you want to ensure impeccable website performance, the best bet would be to go with either a dedicated server or VPS hosting.
On the other hand, if you have a small hosting budget and you don’t expect a lot of traffic right away, you can opt for shared hosting. It is a more affordable option, but you share the server with other websites, which can potentially impact website performance.
Step #3: Build Website Content
The next step is to fill your website with content. Besides a homepage and an About Us page, you will need to add product pages with high-quality photos so users can visualize your offering.
If applicable, add videos of the product in use.
Be sure to include detailed product descriptions, as this is one of the most important parts for every eCommerce website because it helps customers make informed decisions. Include all the relevant information about your product such as size, color, function, etc.
The more information you provide about your products or service, the easier it is for your customers to make a decision.
Step #4: Set Up Payment Options
Before you launch your website, you need to set up payment options. These can include:
Card payments: Set up a merchant bank account and connect your website to a payment gateway to be able to accept online payments.
- Digital wallets: Add digital wallets that store credit card details and funds such as PayPal or Stripe. Some platforms have PayPal plugins such as WooCommerce or WordPress. You need to create a PayPal business account and add it to your website, using the plugin.
- Instant bank transfer: This allows customers to make a payment directly from their bank account without needing a card. For this payment method, you use a third-party payment provider who initiates the payment on customer’s behalf and funds are transferred instantly.
- Cash on delivery: While it’s not the most used payment option, many consumers prefer to pay the courier when they deliver the goods. This could be a consideration, if it makes sense for your business.
Advantages Of Running An eCommerce Business
Selling products online has numerous benefits compared to the traditional brick-and-mortar shop. Over 2 billion people worldwide engage in online shopping, and this eCommerce trend is expected to keep growing.
Here are the biggest advantages of running an eCommerce store:
The greatest advantage of running an online store versus a physical store is cost reduction. With an eCommerce store, you don’t have to invest in maintaining a physical shop. That means no rent, no utilities, no inventory, no cleaning fees and no repairs.
Operating an online store requires less investment, so you can set up a shop even if you don’t have a large startup capital.
Faster Buying Process
For customers, shopping online is much faster compared to shopping in a physical store. They do not need to travel to the store, browse products and wait in long lines at the cash register. They can simply go to your online store, add a product to their shopping cart and make a purchase in minutes. Then, all that’s left to do is wait for the order to arrive at their doorstep.
Another advantage of running an eCommerce store is that you don’t have set working hours. Your store can operate 24 hours, 7 days a week without having a single employee. You can accept orders any time they arrive, especially if you use an eCommerce solution for small businesess such as a software tool to automate order processing.
Increased Market Reach
eCommerce also provides an increased market reach. With an online store, you are not limited to one geographic location. You can reach customers regardless of where they are, as long as they have internet access and you are willing to ship to different locations.
Ease of Tracking
When everything takes place online, it’s much easier to track shipping and inventory. This means you can monitor your business and quickly spot any irregularities so you can rectify them. Irregularities might include issues such as shipping the package to the wrong location or a customer receiving damaged package.
When customers purchase goods in your online shop, your website collects data such as contact information (email addresses and phone numbers), demographic data, and additional information on pages they viewed, social shares and downloads.
You can use this valuable data to understand your customers’ preferences, create personalized shopping experiences and offer special discounts.
Another advantage of running an online store is that you can easily scale your business. You cannot run out of shelf space! You don’t need to move your store to a larger building to expand your company —you can simply add more products or remove them as needed.
Less Invasive Customer Experience
Many consumers today dread going to physical stores and interacting with store employees. They don’t like being asked questions or simply find it to be invasive and prefer to enjoy shopping free of human interaction.
Shopping online gives customers the freedom to browse whatever products they want without being bothered. And if a customer has a question, they can turn to live chat, email or frequently asked questions (FAQs).
While you can’t physically approach a customer in your online shop, you can tailor your messaging and features to connect with them. For example, if a customer is looking at a bathing suit, you can offer items that match below, such as flip fops, a cover up and a sun hat, to boost the sales of additional products and “speak” to the customer as if you were there, acting as their own personal stylist.
Operability (Even During a Pandemic!)
Your eCommerce store can continue to operate regardless of the weather, holidays or other events — even during a pandemic such as COVID-19! In fact, when the recent pandemic began and lockdown ensued, many physical stores had to close their doors for good.
Online stores, on the other hand, not only survived, but eCommerce in general flourished. Consumers switched to online shopping to maintain social distance and intend to continue to buy online in the future.
Challenges of Running an eCommerce Business
While the benefits may outweigh the disadvantages, operating an eCommerce store has its own set of challenges you need to consider before setting up your online shop.
Here are the top challenges of running an eCommerce business:
Cart abandonment can prove to be a big issue in eCommerce. Statistics reveal that about 69% of online shoppers abandon their carts before completing a purchase.
Many consumers tend to browse products with no intention of buying. Others abandon their carts because of a complex, time-consuming checkout process or because they are asked to create an account.
Other factors that contribute to cart abandonment include added costs such as shipping fees or taxes, lack of payment options and slow delivery.
Some of the ways you can solve this challenge is by adding more payment options, and offering free shipping and/or a return policy to give shoppers more options. You can also retarget customers who abandoned their carts elsewhere such as on social media or sending them an email to remind them their products are still waiting in the cart.
Cyberattacks such as identity theft and credit card fraud are unfortunately common in eCommerce. A staggering 44% of stores were hit by ransomware attacks in 2021.
When operating an online store, you are at risk of losing sensitive information that could lead to irreparable damage for your business — specifically, customer data such as credit card numbers, which could lead to a loss in customers, a damaged brand reputation and lost revenue.
Ensuring a safe shopping experience for your customer is the priority, but that is often easier said than done. To tackle this challenge and increase security on your eCommerce website:
- Use a secure network
- Install Secure Socket Layer (SSL) certificate
- Train your staff in cybersecurity
- Set up security policies
- Use multi-factor authentication
With over 26 million eCommerce sites worldwide, to say that it is a very competitive business would be an understatement. Because of the ease of setting up an online shop, anyone can create a store and sell goods or services that are very similar to yours.
Faced with so many choices, consumers have the option to compare prices and find great deals. To stay competitive, you need to consistently advertise and offer incentives such as a lower price, special discounts, free shipping, an extended return policy or all of the above.
We mentioned that an eCommerce store can run 24/7 and that is true, except for if the website crashes. While your site is down, no one can buy your goods. This can cause you to lose potential customers, because consumers aren’t likely to wait until your site is up, they’ll simply go to another seller.
To prevent this, you need to invest in reputable hosting services and perhaps consider virtual private server (VPS) hosting or dedicated hosting. These hosting options ensure that your website can handle high traffic without crashing down.
Wrapping Up On How Does eCommerce Work
As you can see, eCommerce works on a simple principle: receive order, process order and ship order.
Despite its challenges such as cart abandonment, data security, competitiveness and crashing of sites, this business model is highly beneficial and it's important to keep up with eCommerce trends and provides:
- Reduced cost
- Faster buying process
- 24/7 operation
- Increased market reach
- Ease of tracking
- Data compiling
- Less invasive customer experience
- Operability during a pandemic
Now that you know how eCommerce websites work, you are ready to set up your own online store by following these four key steps:
- Choose an eCommerce platform
- Purchase domain name and hosting
- Build website content
- Set up payment options
You are now equipped with all the information needed to decide whether running an eCommerce business is right for you. Remember to weigh all the pros and cons before embarking on this journey, and best of luck!
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