Ecommerce business explained: models, costs and tools

Published Thursday 2 April 2026

Table of contents

• Ecommerce definition
• Types of ecommerce business models
• Examples of ecommerce businesses
• Advantages of ecommerce
• Disadvantages of ecommerce
• What you need for an ecommerce business
• Managing your ecommerce accounting
• Start selling online with confidence
• FAQs on ecommerce businesses

Key takeaways

• Choose the right ecommerce model for your business by understanding whether you're selling to consumers (B2C), other businesses (B2B), or facilitating peer-to-peer sales (C2C), as each requires different platforms, pricing strategies, and customer approaches.
• Track all hidden costs including transaction fees (typically 1.5-3% per sale), shipping expenses (now 53% of total seller costs), and platform fees to understand your true profit margins and avoid unexpected losses.
• Start with low-cost options like existing marketplaces (Amazon, Etsy) for built-in traffic and payment processing, or use affordable platforms (Shopify, WooCommerce) if you want more control over your brand and customer relationships.
• Integrate your ecommerce platforms with accounting software to automatically track sales across multiple channels, reconcile payments, and consolidate financial data for accurate profitability analysis.

Ecommerce definition

Ecommerce (electronic commerce) is the buying and selling of goods or services over the internet. Instead of transacting in person, you handle sales, payments, and customer interactions online.

Retail is the most common form of ecommerce. Businesses sell products on their own website or through digital marketplaces like Amazon, Alibaba, or Facebook. Customers browse, select, and pay online, then receive delivery via courier.

Service businesses use ecommerce too. They accept payments through online invoicing and payment gateways, making it easy for clients to pay from anywhere.

Types of ecommerce business models

Different ecommerce models serve different purposes. Understanding which type fits your business helps you choose the right platforms, pricing, and approach.

Business to consumer (B2C)

B2C ecommerce is when a business sells directly to individual customers. This is the most familiar model, covering online retailers, subscription services, and digital product sellers. Examples include clothing stores, meal kit deliveries, and streaming services.

Business to business (B2B)

B2B ecommerce involves businesses selling to other businesses, a sector where site sales grew 10.5% year over year in 2024 to reach US$2.297 trillion. Orders are often larger, pricing may be negotiated, and relationships tend to be longer-term.

Consumer to consumer (C2C)

C2C ecommerce connects individual sellers with individual buyers, usually through a marketplace platform: a model that in 2023 accounted for nearly one-fifth of China's online retail sales. The platform handles payments and sometimes shipping. Examples include eBay, Facebook Marketplace, and Depop.

Other ecommerce models

Some businesses operate in less common models:

• B2A (business to administration): selling services or products to government agencies
• C2B (consumer to business): selling services or content to businesses, such as freelancers or influencers

Examples of ecommerce businesses

Ecommerce spans industries and business sizes. Here are a few examples across different models:

• Amazon (B2C and B2B): sells products directly to consumers and operates a marketplace for third-party sellers
• Alibaba (B2B): connects manufacturers with wholesale buyers globally
• eBay (C2C): enables individuals to buy and sell new and used items
• Shopify stores (B2C): enable thousands of independent retailers to sell directly to customers
• Online consultants (service ecommerce): invoice clients and accept payments online

Whether you sell physical products, digital goods, or professional services, ecommerce tools can help you reach customers and get paid faster.

Advantages of ecommerce

• Customer convenience: buyers can shop or pay anytime, from anywhere, with research showing that 80% of B2B buyers use mobile devices at some point during their purchase process
• Faster payments: online invoicing speeds up how quickly you get paid
• 24/7 sales: retail customers self-serve, so you can sell while you sleep
• Lower overheads: online businesses often have reduced running costs compared to physical stores
• Wider reach: selling outside your local area becomes easier without a physical presence
• Simpler record-keeping: electronic transactions create automatic records for easier bookkeeping

Disadvantages of ecommerce

• Transaction fees: payment processors charge a percentage of each sale, and in 2024 alone, US businesses spent more than US$187 billion in fees to process card payments
• Shipping costs: retail customers often expect free or discounted delivery, and this final stage of delivery now represents 53% of total expenses for sellers
• Return handling: processing returns online is more complicated and costly than in-store
• Technology upkeep: staying current with platform updates and security can be time-consuming
• Cross-border taxes: selling abroad may require you to charge and remit sales taxes in other regions
• Profitability tracking: transaction fees and shipping costs make it harder to measure true margins

What you need for an ecommerce business

Running an ecommerce business requires specific tools for displaying products, accepting payments, and delivering to customers. The exact setup depends on whether you sell physical goods, digital products, or services.

Retail ecommerce

To sell products online, you'll need the following tools and systems:

• Product website: a place where shoppers can browse your catalogue
• Shopping cart: functionality that lets customers select and review items before checkout
• Secure payment method: a way to accept credit cards, digital wallets, or bank transfers safely
• Delivery logistics: a process for shipping products to customers
• Terms of trade: clear policies covering returns, refunds, and shipping timelines

Digital marketplaces like Amazon or Etsy provide many of these services, including payment processing and fulfilment. Keep in mind they take a percentage of each sale and may delay payouts.

If you prefer more control, off-the-shelf ecommerce platforms like Shopify or WooCommerce let you build your own store and manage orders directly.

Service or manufacturing ecommerce

Service and manufacturing businesses need different tools to manage online transactions:

• Online invoicing: send professional invoices electronically to clients
• Secure payment options: accept credit cards, bank transfers, or direct debits online
• Clear payment terms: set expectations that encourage clients to pay digitally

Accounting software like Xero includes online invoicing with built-in payment options. Adding a "pay now" button requires connecting a payment service, which typically charges transaction fees but nothing to set up.

Managing your ecommerce accounting

Ecommerce accounting involves tracking transaction fees, shipping costs, and sales across multiple channels to understand your true profitability. Without proper tracking, these costs can quietly eat into your margins.

Here are the key financial factors to monitor:

• Transaction fees: payment processors typically charge 1.5% to 3% per sale; for example, a basic plan on a popular platform starts at 2.9% + US$0.30 for online sales
• Shipping and fulfilment costs: courier fees vary by destination, weight, and speed
• Platform fees: marketplaces like Amazon or Etsy take a percentage of each sale
• Multi-channel reconciliation: selling on multiple platforms means consolidating sales data in one place

Accounting software like Xero integrates with ecommerce platforms and tools like A2X to automatically import sales data, match transactions, and calculate the true cost of each sale. This gives you real-time visibility into what's actually profitable.

Start selling online with confidence

Ecommerce gives small businesses the opportunity to reach more customers, reduce overheads, and sell around the clock. Whether you're selling products through your own website or offering services with online invoicing, the right tools make all the difference.

Managing the financial side of ecommerce doesn't have to be complicated. Xero connects with popular ecommerce platforms to automatically track sales, reconcile payments, and give you a clear view of your profitability.

Ready to simplify your ecommerce accounting? Get one month free and see how Xero helps you focus on growing your business.

FAQs on ecommerce businesses

Here are answers to common questions about starting and running an ecommerce business.

What's the difference between ecommerce and a traditional business?

Ecommerce transactions happen online, while traditional businesses typically sell in person at a physical location. Many businesses now combine both approaches, selling in-store and online.

Do I need a lot of money to start an ecommerce business?

Not necessarily. You can start with low-cost options like selling through existing marketplaces or using affordable ecommerce platforms. Costs increase as you add inventory, marketing, and custom features.

Can service businesses use ecommerce?

Yes. Service businesses use ecommerce by sending online invoices and accepting digital payments. This makes it easier for clients to pay and speeds up your cash flow.

What ecommerce platform should I use?

The right platform depends on what you sell and how you want to operate. Marketplaces like Amazon suit product sellers wanting built-in traffic. Platforms like Shopify work well for building your own branded store.

How do I handle taxes for online sales?

Tax obligations vary by location and where your customers are based. You may need to collect and remit sales tax or GST in multiple regions. Accounting software can help track what you owe.