How Do I Start An Online Business – Starting an online business is different from starting a traditional physical business. Yes, you need an idea, a plan and a budget. But even the basic elements are done differently online.
We surveyed 171 professionals who work with online businesses to find out what motivates them. We were told that the idea could be more unique, the plan shorter (yay!) and the budget smaller (hooray, again!).
How Do I Start An Online Business
This guide combines their insights with quotes from online business owners and ecommerce consultants so you can see how to start an online business.
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The accountants and bookkeepers who completed this survey prepare financial statements for 6,000 small businesses in the US, UK and Australia. We asked them to compare the performance of online businesses versus brick-and-mortar businesses. Here’s what they said.
It makes it look good online. So what’s the catch? Well, experts say there are more.
The online and brick-and-mortar businesses in this study have comparable profits, so these differences are likely not due to size. 171 accountants and bookkeepers participated in the survey, each with an average of 35 clients (corresponding to a total client base of 6,000 companies).
Online business ideas fall into four broad categories – retail (including those who create their own products), service providers, apps and content producers. Check out our online business ideas article for tips on what might work for you.
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Although online businesses are generally cheaper to start, our study found that they use just as much energy and effort as a brick-and-mortar business. You don’t want to waste all that sweat on an idea that could be better. A little research can help you tailor your product or service in the right way.
We asked business experts for their best advice for online startups. The most common answer is “identify your target market”. In other words – find out which people (or businesses) will buy from you. They could be local parents, fitness fanatics, thrill seekers, restaurants, schools, hairdressers or others. Consider this before starting an online business.
Regardless of who your target customers are, make it all about them. A product or service should be perfect for a specific user. And target your marketing to them too. One way to get into their collective heads is to chat with some of them. Ask if they like your idea, your packaging, your price. While you’re at it, ask who you would buy from now and take the opportunity to learn about your competitors’ strengths and weaknesses.
Writing a business plan for an e-commerce startup can seem strange to anyone who has ever run a brick-and-mortar business. You may not need to enter more details. Actually, maybe not.
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Large business plans with buttons are great if you are a natural planner. But most people do this to give themselves a strong presence in front of investors and lenders. Online startups cost less to operate, which means you’re less likely to need outside cash. In addition, institutional investors and lenders are still generally not supportive of e-commerce startups.
This allows you to write a business plan that works for you. It could still be 20 pages long, but it doesn’t have to be.
When planning how to start an online business, you will probably find that you don’t have all the information you want. Nearly 60% of new online business owners have trouble predicting revenue in the first few months (Global E-Commerce Report, 2019) after starting an online business.
That’s because a lot depends on the success of your digital marketing, which is a huge ongoing experiment to begin with. You’ll probably try a lot of tactics on multiple digital platforms before you crack it. Only in this way will you have enough information to forecast sales and profit.
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Because online startups have to launch in the dark and learn quickly, they tend to have shorter, more fluid plans. Something that is easier to update as more information comes out.
Although planning has been cut back a bit for online startups, it hasn’t gone away and it shouldn’t. Studying the steps of a business plan will help you think about your startup from different angles. This process will help you build on your idea and make it better.
Although it is difficult to estimate income when starting an online business, it is still good to have a rough budget. You need to know how much the venture will cost you and when it can start paying off. Accountants and bookkeepers generally agree that an online business is cheaper to run, but they also say that beginners often overlook some big costs.
List all your business expenses and put them on a calendar so you know when they are due. Then enter some modest sales projections on the same calendar. There will be a lot of red faces in the beginning, but that’s how business starts. Just make sure you have a plan to pay your bills during this time.
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Online business consultant Shahemen Farid of Boobooks Accountants says it will take some time before your long-term budget is clear. “We suggest clients starting an online business start with three months of capital and base their forecasts on that first quarter.”
Although online businesses are cheaper to run, they are not expected to pass these savings on to customers. They can maintain prices similar to their regular competitors, leaving them more of a spread between the purchase price and the selling price.
Some of that extra margin will pay for things like shipping, which most customers expect to be free. Some will end up in the business owner’s pocket, and our study confirmed that e-commerce businesses have higher net profit margins.
Banks are unlikely to finance an online startup unless you already have a solid business track record. Fortunately, many people have figured out how to start an online business without outside support.
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Many online business services grow from small independent teams that do not have very high operating costs. They can start with a laptop and a few software subscriptions that they pay for out of pocket.
Retailers have to pay more, but can manage risks more easily than a brick-and-mortar store. They can try a soft launch, with limited inventory, and scale up only when they find demand is good. “Today, you can start an online retail business with 20,000,” says Shaheman Farid of Boobooks Accountants. “So people are increasingly able to self-finance.”
If you still find that you need more money to start an online business, there are still options such as:
In the online world, people don’t come to your business by accident. You need to monetize every visit to your site and only about 2% of those visitors will actually buy anything.
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If you’re buying all of your traffic through pay-per-click ads, costs can get out of control. Online business expert Shaheman Farid says he’s seen failed campaigns gobble up thousands of dollars without generating a single sale.
This is not a unique problem. More than a third of accountants and bookkeepers in our survey say that digital marketing is a big challenge for anyone learning to start an online business. So how can you avoid the pitfalls and set yourself up for online success?
The truth is, there is no one-size-fits-all digital marketing playbook for every business. Maybe you’re doing search marketing through Google, creating articles on LinkedIn, posting videos on YouTube, or telling stories on Insta. Most things will not work as they should.
There will be a lot of trial and error. Of course, you can take some educated guesses. But in the beginning, you need to try a few options because the results can be unpredictable.
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“There’s no way of knowing what will work and what won’t,” says Ben Charlton of Air8 Digital, an agency that helps small businesses navigate the complex world of digital marketing. “You have to experiment. But you can do it without breaking the bank.” Ben’s low-cost tips are in our digital marketing guide.
E-commerce consultant Marc McKeown of FortBrave encourages clients starting an online business to keep 40% of their startup budget for marketing. “We’ll spend the first three months seeing what works and make a plan from there.”
This may seem like a lot of money, but remember that digital marketing may be your only source of sales or leads. And that investment pays off with money you don’t have to spend on remodeling your store or office.
Geography becomes irrelevant when you start an online business. You can sell to customers in other parts of the country or the world. Even people with super niche ideas can find enough customers from all over the internet to make money with it.
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This may explain why 63% of accountants and bookkeepers say digital businesses are more likely to be based on a new idea. But how do you actually communicate and transact on the Internet?
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