Ecommerce Business Plan – How to Start Your Online Business off Right

An ecommerce business plan defines and directs the various factors that go into an online store’s launch and continued growth. Like all business plans, cost estimates and budget forecasts are part of the equation. But for some ecommerce businesses, the management of startup funds plays a surprisingly minor role in the overall plan. There are even online businesses that you can launch and run with no upfront or operating costs at all.

The Elements of an Ecommerce Business Plan

There are six major factors to consider when building your ecommerce business plan. To get things started, these questions will help you define the type of ecommerce business you want to build. Your answers will be the foundation of your plan. Take a look at each question, then read on to explore ecommerce business models, selling options, related costs, and how to define each in your ecommerce business plan.

1. Your Business Model: What type of ecommerce business is right for you?

Ecommerce businesses sell items and ship products, right? Yes, and many do far more than that. From stocked goods and drop-ship items to made-on-order products and digital downloads, you have plenty of selling options in an ecommerce business. Deciding what to sell is the first step in defining your business and building your ecommerce business plan.

2. Your Operation: How will you deliver products to your customers?

The type of products you sell dictates how they are delivered to your buyers, but even here you have some options. If you sell physical goods, you can stock and ship items yourself or outsource this to a fulfillment company. Or, you can minimize your costs and sell drop-ship goods exclusively. Sellers of digital products don’t have these concerns but do need a way to deliver downloads or provide access to online products. Decisions here affect the next step in your plan.

3. Your Sales Channels: How will you sell your products online?

Once you decide what to sell, and how to deliver products to customers, it’s time to explore the many the different ways ecommerce businesses sell products. Online stores, ecommerce-enabled blogs, seller marketplaces, online auctions, and social media sites; all are selling channels to consider in this step of your ecommerce business plan. Take this quiz to find out which ecommerce software is right for you:

4. Your Marketing: How will you promote your ecommerce business?

This step is the ongoing challenge for ecommerce businesses, large and small. Thanks to technology, steps 1 through 3 now are quite easy to implement, so all types of businesses can quickly come online and start selling. But this ease of entry creates a saturated marketplace. It’s the successful marketers that rise above the rest, so marketing must be an integral part of your ecommerce business plan from day one.

5. Your Income: Can you price your products profitably?

Steps 1 through 4 all have associated costs that we cover in detail below. To be profitable in your ecommerce venture, you must budget any product, operating, and marketing costs into your business plan to determine a profitable pricing strategy for your products.

6. Your Rollout: How do you build each element and launch your store?

Here we’ll translate each element of your business plan into actionable steps to guide you through a successful online store launch.

Now let’s explore the many ways you can answer these questions and craft a plan for your specific business.

1. Your Business Model

Selling and shipping products is the first thing that pops into most people’s minds when you say ecommerce. So, I’ll hazard a guess that you want to start an online store that sells and ships products to buyers. If so, you’re in luck. I did that for more than 16 years and can tell you all about it.

But there are many ways to build a successful and profitable ecommerce business, and not all involve storing and shipping products. Here are several types of things you can sell online, and an idea of the costs to address for each in your business plan:

So, the first element of your ecommerce business plan is:

1. Deciding which types of product or products to sell in your ecommerce business.
2. Identifying suppliers if you don’t produce items yourself. These can be wholesale, drop-ship, or print-on-demand vendors.
3. Budget in upfront and ongoing manufacturing, wholesale, or other production costs where applicable.
4. For digital products, identify software needed to produce digital files for distribution.

Once you have an idea of what you will sell, it’s time to look at how to deliver products to your customers.

2. Your Operation

If you sell physical goods you need to deliver them to your customers in some way, and there will be costs involved. You can stock and ship goods yourself, use a fulfillment center to handle some or all of these tasks, or use drop-shippers and print-on-demand vendors and never touch a product yourself. Now if you sell digital goods, this is an easier step, but you still have a few considerations.

Here are several ways to get your products into your buyer’s hands and the costs to address in your business plan:

So, the second element of your ecommerce business plan is:

1. Deciding how to handle physical product stock storage and order fulfillment, and budgeting for those costs.
2. For drop-ship and print-on-demand products, understanding how fulfillment and shipping costs are handled by each vendor.
3. For digital products, make sure your digital files can be stored and delivered securely via your ecommerce platform.

Now that you know what you will sell and how you’ll deliver your products to your customers, it’s time to look at how you can sell these products online.

3. Your Sales Channels

Now it’s time to talk about the fun stuff: setting up a website and/or selling products through various other online channels. There are many ways you can do this and most cost you very little per month, especially at the startup stage. Some online store platforms are even free.

Here are several ecommerce platforms and sales channels to consider for different types of businesses, along with the costs to include in your ecommerce business plan:

How will you get paid for online sales, and what will it cost?

This is an operational cost to include in your business plan since credit card processing companies charge a fee to process customer’s online payments. Most online store platforms give you many processor choices, but here are the top-rated payment processors for small business, and their costs. Each integrates with some or all of the online platforms listed above. Seller marketplaces like Amazon and Etsy include payment processing costs in their seller fees.

So, the third element of your ecommerce business plan is:

1. Deciding which online store platform and/or sales channels to use to sell your products.
2. Budgeting the monthly web hosting fees where applicable.
3. Understanding and budgeting Amazon, Etsy, and eBay seller marketplace fees.
4. Understanding and budgeting credit card processing costs.

Now that you know what you will sell, how you’ll deliver products to customers, and the platforms you can use, it’s time to look at how to market your ecommerce business.

4. Your Marketing

Marketing is an ever-changing element within your overall business plan, especially considering today’s social media landscape. There’s always something new on the horizon, so marketing can sometimes seem overwhelming. But the good news is that businesses who focus consistent efforts on a few marketing outlets tend to see sales-driving results.

Here are several online marketing channels to consider using to promote your online store, along with the costs to include in your ecommerce business plan:

So, the fourth element of your ecommerce business plan is:

1. Planning a store launch marketing campaign and including these costs in your budget.
2. Creating a three- to six-month outlook marketing plan and including these costs in your budget.

Now you have a snapshot of the major costs involved in starting and running your online business. Next it’s time to see how to price your products to cover these costs and leave you some profit in the end.

5. Your Income

Here is where you pull out the calculator and run your numbers. Or, if you’re using business planning software, you can use their forecasting features. Your goal is to see how many products you need to sell to cover your costs as outlined in your plan. This is a pretty simple way to test the viability of an ecommerce business plan.

Of course, every business is different and I can’t predict what your business will sell or how you plan to manage it. What I can do however is show you some scenarios based on my own experience:

Sample store A: Sell products from a small shipping warehouse

In this example, we’ll look at the basic costs involved in a small ecommerce business model that ships 200 orders per month using in-house fulfillment.

Pricing strategy for Store A:

So our break-even is $28.54 per sale. This means we need to sell our product for more than $28.54 to cover our costs and make money to grow. This is where you need to research and test to see if you can sell your products at prices that will be profitable:

For example, if we price our $12/cost item at:

• 100% markup = $24: this won’t cover our costs at our target 200 sales/mo.
• 150% markup = $30: this leaves $1.46 profit per order at 200 sales/mo.
• 200% markup = $36 this leaves $7.46 profit per order at 200 sales/mo.

Of course, higher monthly sales will affect your profits, too. But a sound startup ecommerce business plan should have conservative sales estimates since it can take time for sales to start rolling in.

Remember! This type of business plan requires startup costs such as facility rental and setup, stock, and packaging purchases that you’ll need to fund before sales start coming in.

Next let’s look at another popular ecommerce business model that uses drop-shipping vendors for all order fulfillment.

Sample store B: Sell products using drop-ship vendors

In this example, we’ll look at the costs involved in a non-stock ecommerce business that uses drop-ship and print-on-demand vendors for all sales.

Pricing strategy for Store B:

So our break-even is $16.99 per sale. This means we need to sell our product for more than $16.99 to cover our costs. This is where you need to research and test to see if you can sell your products at prices that will be profitable:

For example, if we price our $12/cost item at:

• 100% markup = $24: this leaves $7.01 profit per order at 200 sales/mo.
• 150% markup = $30: this leaves $13.01 profit per order at 200 sales/mo.

So a simple 100% markup, called keystone in retail circles, will leave us a profit using a drop-ship model, or if the market bears a higher selling price, we can make even more.

Remember! This type of business plan requires minimal startup costs, generally just your website platform and marketing. Plus, you don’t pay for goods until they’re ordered by your customers. However, you do have to count on vendors to do their job correctly, so you must manage many aspects of this business model, too.

If this type of business is appealing, learn more about starting a drop-ship business here, and a print-on-demand business here.

6. Your Rollout

Now that you have a picture of the ecommerce business you want to build, and how to craft a profitable pricing strategy, it’s time to put an actionable plan in place. Here are the steps that turn you plan on paper into a functioning business:

Step 1: Products

Create, manufacture, or purchase your products, or assemble a collection of goods from drop-ship and print-on-demand vendors.

Step 2: Operations

Set up your fulfillment operation, in-house or outsourced, or test distribution methods if selling digital products.

Step 3: Selling Channels

Choose and set up your ecommerce platform, photograph your products, build product pages, and/or place listings on your chosen sales channels.

Step 4: Marketing

Select 2-3  marketing methods like Google ads, Facebook ads, and email, and craft your launch marketing plan and a 3-6 month marketing plan.

Step 5: Launch Your Business

Now get the ball rolling! Launch your store and marketing elements, track your orders and income, test and tweak marketing, and hopefully you’ll find yourself on a track for growth.

Find Help with All of the Above in One Place

If you’re serious about starting an ecommerce business, you can map out most of what we covered above by visiting the Internet Retailer Conference & Exposition (IRCE) or similar internet retail conferences. There, you can meet and talk to hundreds of ecommerce-focused services, including startup-friendly ecommerce platform providers like BigCommerce, Shopify and WooCommerce.

The Bottom Line

Wherever your ecommerce dreams take you, a sound business plan maps the entire process. Some ecommerce business plans involve startup costs and funding distribution. Other plans, like those for digital sellers and drop-shippers, focus on sales channel and marketing outreach, with operating costs a minimal factor. Whatever path your business takes, a sound plan provides solid footing.