What is Ecommerce? A Guide to How It Works & Getting Started

Ecommerce (short for electronic commerce) involves selling products or services online. In this model, customers use websites or apps to make purchases instead of visiting physical stores.

While some companies operate solely as ecommerce ventures, others combine online and offline sales—like Crumbl Cookies.

Crumbl Cookies locations search page shows a map with stores in your area as well as an Order Now button in the top right corner.

If you’re considering starting an ecommerce business, understanding how it works in practice is essential.

How Does Ecommerce Work?

Here’s a breakdown of how a typical ecommerce transaction unfolds between sellers and buyers:

• The seller lists their products or services on their website, mobile app, or a third-party marketplace (or a combination). They may also use digital marketing tactics to boost visibility.
• Potential customers discover these products or services through online searches, social media, advertisements, or by directly visiting the online platforms where they’re sold.
• When ready to purchase, customers add items to their virtual shopping carts.
• At checkout, customers provide payment information, such as credit card details, digital wallet credentials, or other online payment methods.
• The payment is securely processed through an online payment gateway.
• For physical goods, the order is fulfilled and shipped. For services or digital products, access or delivery is provided electronically.
• After receiving their order, customers may leave feedback, rate their experience, or initiate a return if needed.

Advantages of Ecommerce

• Global reach: Ecommerce enables businesses to sell products or services to customers worldwide, expanding their potential customer base significantly.
• Convenience: Customers can shop anytime, anywhere, without being restricted by physical locations or business hours.
• Low operating costs: Many ecommerce businesses enjoy reduced operating expenses compared to traditional brick-and-mortar operations since they avoid costs like rent and utilities.
• Online purchase popularity: Global ecommerce transactions are projected to exceed $8 trillion by 2027, according to Statista, presenting vast opportunities for online selling.
• More data: Ecommerce businesses often have better access to collecting and storing customer information, which can be leveraged for personalized marketing and retention strategies.

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Disadvantages of Ecommerce

• Intense competition: The ease of entry into ecommerce has led to a highly competitive landscape, with both established players and new entrants vying for market share.
• Shipping and logistics: Selling physical products requires managing inventory, fulfilling orders, and handling returns, which can be complex.
• High customer expectations: Shoppers demand fast shipping, hassle-free returns, and responsive customer service, which can be difficult to maintain consistently.
• Limited face-to-face interaction: Ecommerce often lacks the personal touch of in-store shopping, which some customers may prefer.
• Data security: Since customers provide financial and personal information during online transactions, ecommerce businesses must take extra measures to ensure data protection.

Types of Ecommerce Business Models

In ecommerce, there are several business models that can be adopted. Below are the primary ones:

Business to Business (B2B)

The business-to-business (B2B) model involves businesses selling products or services to other businesses. Typically, the sales cycle is lengthy—often taking weeks or even months to close a deal.

A prime example of a B2B ecommerce company is Salesforce. This CRM software provider offers cloud-based customer relationship management solutions to businesses of all sizes.

Salesforce’s B2B ecommerce page highlights their starter suite of tools and features an engaging video.

Business to Consumer (B2C)

The business-to-consumer (B2C) model refers to businesses selling products or services directly to individual consumers rather than other businesses.

This is the most common form of ecommerce. Amazon serves as an excellent example in this category. The online marketplace offers a vast array of products directly to consumers.

Amazon’s “Today’s Deals” page showcases items across various categories with discounted prices.

Business to Government (B2G)

The business-to-government (B2G) model involves businesses selling products or services to government entities, such as agencies and departments at federal, state, and local levels.

This may include supplying equipment, services, or advanced technology solutions. For instance, Microsoft provides specialized versions of its software to government agencies, enhancing efficiency and security.

Microsoft 365’s government landing page displays tailored solutions for the U.S. public sector.

Consumer to Consumer (C2C)

In the consumer-to-consumer (C2C) model, individuals sell products or services to other individuals, often by becoming sellers on online marketplaces.

eBay exemplifies C2C ecommerce by enabling individual buyers and sellers to connect seamlessly.

eBay’s homepage features search options and categories to help users begin their shopping journey.

Consumer to Business (C2B)

The consumer-to-business (C2B) model flips the traditional dynamic, allowing individuals to offer products or services to businesses.

Fiverr is a prime example of this model. The platform connects businesses with freelancers who provide services ranging from graphic design to programming and writing.

Fiverr’s homepage includes a search bar where users can browse freelance services by category.

Ecommerce Revenue Models

Ecommerce businesses can generate revenue through one or more of the following models:

• Direct Sales: Revenue is generated by selling your own products or services. For instance, an online electronics retailer or a business consultant both follow this model.
• Subscription: This model offers access to products or services through a recurring fee, often monthly. Many businesses also operate on a freemium model, providing a basic version for free while charging for advanced features. Spotify is a classic example of this approach.
• Affiliate Marketing: In affiliate marketing, you promote other companies’ products or services and earn commissions based on the results driven through your unique referral links. Commissions are typically tied to sales but may vary depending on the partnership terms.
• Marketplace: Marketplace models allow third-party sellers to list and sell products on a platform, with the platform provider earning a commission on each sale. Amazon’s third-party seller program is a leading example of this revenue model.

How to Start an Ecommerce Business

Launching an ecommerce business isn’t a one-size-fits-all process. It depends on factors like your chosen business model, the revenue model(s) you adopt, and other unique variables.

For instance, let’s say you’re planning to run a B2C ecommerce store selling cosmetics directly through your own website. Here’s how you can get started:

Step 1: Conduct Market Research

The first step is understanding your market and customers to make informed decisions. This process is called market research, and it’s critical for laying a strong foundation.

Use Semrush’s Market Explorer tool to gather insights. Open the tool, click “Analyze Category,” select your location, choose your business category (e.g., beauty and cosmetics), and click “Research a market.”

Analyze the beauty and cosmetics ecommerce category. You’ll see key information about your industry, such as the key players, their market positions, and the overall market size.

This market’s key players are Fragrantica, Sephora, and QVC. The market size shows the total addressable market and serviceable available market.

Note: This is also a good time to verify if your business idea is viable. If the market size seems small or is dominated by just one or two companies, consider exploring other options.

Scroll down to the “Domain vs. Market Dynamics” section and click on different competitors. You’ll see data about their website traffic, including where that traffic comes from.

We can see how Sephora’s traffic compares to the market at large, including how their traffic sources stack up.

This information can inspire ideas for marketing activities you may want to try.

Step 2: Understand Your Audience

Next, click the “Audience” tab to learn about your audience’s demographics, such as age, gender, socioeconomic status, and more. This data will help you make decisions related to targeting, pricing, and product offerings.

This ecommerce market’s audience summary includes demographics, socioeconomic details, and behavioral insights.

If you scroll further, you’ll also discover your audience’s top interests and preferred social media platforms.

This market’s interests are mostly retail, education, and computer software and development. They primarily use YouTube, Facebook, and Instagram.

These insights can guide your ecommerce marketing strategy because you’ll know where your potential customers spend their time online.

Step 3: Build Your Website

Once you’ve analyzed the market data, it’s time to develop your website. You can build it yourself using platforms like Shopify or Wix, or enlist the help of a developer for a more customized solution.

After setting up your digital storefront, add your products, upload high-quality images, write detailed descriptions, and set competitive prices to help customers make informed decisions.

Step 4: Set Up Payment Processing

Next, establish a secure payment system. Popular options include PayPal, Stripe, and Square. Make sure to offer multiple payment methods to cater to different customer preferences.

Step 5: Establish Shipping and Fulfillment

Decide how you’ll handle shipping and fulfillment. This includes choosing shipping carriers, setting shipping rates, and determining how orders will be fulfilled.

You might handle order fulfillment in-house or partner with a third-party logistics provider like ShipMonk or ShipBob.

Step 6: Launch and Promote Your Store

Finally, your store is ready to go live! Push your site live and start promoting your products through targeted marketing campaigns.

Launch Your Ecommerce Business Today

If you have a solid ecommerce business idea, now is the perfect time to turn it into reality.

Semrush offers all the tools you need to succeed, from market research to audience insights.

Sign up today and start your ecommerce journey.

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