How to start an e-commerce business UK

What is e-commerce?

Since the dawn of the internet, online sales have been growing year on year. This process of buying and selling products online has become known as e-commerce.

Generally, when we talk about e-commerce, we’re thinking about businesses who operate mostly online – as opposed to, for example, High Street retailers who have both an online and bricks and mortar presence. So, for the purposes of this article, we’re focusing on keeping things online-only.

It is said there are over 20 million e-commerce sites. The two biggest are Amazon and eBay. These two are also referred to as marketplace sites meaning third party sellers can showcase their products on the platform.

However, there are plenty of much smaller e-commerce companies who are successful, whether selling through their own website or through marketplace sites.  

Given the general direction of travel, along with the Covid-19 pandemic, the number of e-commerce businesses is only going to increase as more customers shop online.

What products should I sell?

If you’re starting an e-commerce business, you need to first decide what you’re actually going to sell.

You might already have a good idea. If not, here are some of the most popular items that are sold online according to Shopify:

• Peel-off face mask
• Nail polish
• Exercise bands
• Water bottles
• Blankets
• Yoga and pilates mats
• Kayak accessories
• Jigsaw puzzles
• Kitchen and dining room furniture
• Rugs
• Board games
• Laptop skins

How to source products

Another consideration when picking your products should be where you’re getting them from. Are you making the product yourself or sourcing it from elsewhere?

• Make it yourself: There are plenty of craftspeople who make a living selling their own homemade creations by setting up an online shop. It’s a good option if you want to keep costs low and maintain quality control. However, it can be time-consuming and harder to scale.
• Manufacture: Don’t have the resource to make the product yourself? Alternatively, you could find a manufacturer to make it for you. This option allows you to produce greater quantities of stock at a lower cost per unit – but comes with more financial investment and risk. 
• Wholesale: The low-risk option is buy readymade products straight from manufacturers or from wholesale suppliers (usually at a discounted rate). 
• Dropship: This is an increasingly popular option. Instead of buying and owning a product inventory, you work with dropship partners to sell their stock through your website. They also provide the fulfilment (delivery of the product to the customer). It’s a cheap and low-risk option as you’re not paying for inventory costs. However, the margins are low and the competition is high. 

Whichever way you go, conduct research for a new business and assess the numbers. The cost of getting your products to market will determine your pricing strategy and profit margins – and ultimately the viability of your business. For example, if you need to sell high volumes to break even or turn a profit. 

What to research before starting

We touched on research, and it’s definitely worth spending some time collating various bits of information on the current market situation. Try and and answer the following questions:

• Target audience:
  • Who are your products most likely to appeal to?
  • What makes them tick?
  • Where are you going to go online to find them?
• Competitors:
  • Who are the competitors in your product space?
  • What are they doing well and not-so-well?
• External factors: 
  • What are the current and possible future market trends?
  • What is the economic forecast looking like?

This is valuable information that will help you to determine how you position your business. For example, if we’re going into a recession and your target audience are likely to be impacted by this financially, your product focus and pricing strategy needs to reflect this.

A lot of these insights can be found simply by typing the product into Google and seeing what comes up. Look at competitor websites, Amazon reviews and social media feedback to build a compelling picture.

Writing a business plan

Your business plan is the summary of your idea, vision and objectives – and how you plan to achieve this. The information you’ve gathered in your research should be factored into your thinking and provide evidence for the viability of your business.   

Here are some of the typical things you’ll need to include:

• What your business will do 
• The business structure and operations  
• Team members and their expertise 
• Market analysis to see current and projected state of the market and industry
• How your business will sell and market  
• Startup costs and funding required 
• Financial projections 
• Legal requirements 
• Free business banking

To make life easier, we’ve created a simple-to-use downloadable business plan template.

How do I price my products?

A lot of people find writing a business plan to be a difficult task, particularly when it comes to the numbers.

One of the most important areas to concentrate on is your pricing strategy. A good tip is to set a revenue target.

“To do this, you’ll need to look at everything you’re paying out for stock, running costs, and marketing.

“The next step is to estimate how many products you expect to sell over one year. Then, you simply divide your revenue target by this number to give you the cost at which you would need to sell each product. You can then adjust your revenue target accordingly if the price seems much too high or too low.”

Victoria Greene, ecommerce and marketing specialist

If you’re using Shopify, there are a number of pricing apps available to help you:

• Dynamic Pricing– boosts sales by automatically setting up the best product price
• Quant Price– increases your revenue with A/B price testing to boost conversions
• EdgePi– keeps track of your competitors’ pricing and stock status
• Wholesale Hero– incentivises wholesale customers with volume discounts

Building a website Vs Marketplace websites

We’ve got all this way and we haven’t even talked about what online form your e-commerce business will take.

What do we mean?

Well, you can go two ways. Creating your own e-commerce site either using a website builder like Wix or with a specialist design agency. Or, alternatively, selling through a marketplace website.

We’re going to look at the pros and cons when assessing which is best:

Whilst a lot of people will be keen to have their own website, one way to test out your business is to start small and sell your products via eBay, Amazon or Etsy, for example.

This can be a good way to learn and develop your proposition as you build an understanding of the market appetite for your products. Do this at minimal investment at first and then take things to the next level by creating your own custom e-commerce solution – once you’ve proven its viability.

Of course, many businesses will sell both via their own website and marketplace websites.

Do I need insurance?

To begin with you may not need insurance as the risks of losing out financially are likely to be minimal.

However, as your revenues grow, you’ll want to ensure safeguards are in place if something does happen.

• Liability insurance: If you’re selling products and something happens to your customers whilst using it – an allergic reaction or an injury, for example – liability insurance can help. The policy would kick in if you needed to pay damages or legal fees.
• Property insurance: If there was a fire or flooding to the place where your products are kept, property insurance can help you to claim the replacement costs. If they’re kept in your home, business items are usually not covered by your existing homeowner policy.
• Transit insurance: If you’re relying on large shipments of stock and there was to be an issue in the delivery process, transit insurance can help. You’ll need to check first what is covered by the supplier/warehouse/distributor’s insurance and what is not.