How to start an online business: your practical guide
Learn how to start an online business, choose smart tools, and get your first sales with less admin.
Written by Lena Hanna—Trusted CPA Guidance on Accounting and Tax. Read Lena's full bio
Published Thursday 2 April 2026
Table of contents
Key takeaways
- Define your target market before developing your product or service, then build everything around their specific needs, preferences, and pain points to increase your chances of success.
- Validate your business idea by interviewing 10-20 potential customers, analysing competitors, and testing demand with a simple landing page before investing heavily in development.
- Reserve 40% of your startup budget for digital marketing in the first three months, as online businesses rely entirely on earned traffic rather than foot traffic to attract customers.
- Start with a shorter, flexible business plan that you can easily update as you learn, since online businesses launch with uncertainty and require ongoing experimentation to find what works.
What goes into starting an online business?
Starting an online business requires an idea, a plan, and a budget, but each works differently in the digital world. Your idea can target a narrower niche. Your plan can be shorter and more flexible. Your budget can be smaller than a traditional storefront.
A survey of 171 experts who work with online businesses reveals what makes them tick. This guide combines their insights with quotes from business owners and ecommerce consultants to show you exactly how to launch online.
How to start an online business
Pros and cons of online business
Online businesses outperform brick-and-mortar operations on profitability, resilience, and startup costs, according to a survey of small business advisors. Here's how ecommerce stacks up against traditional businesses.
Key findings
The accountants and bookkeepers who completed this survey prepare financial statements for 6,000 small businesses across the US, the UK, and Australia. Here's how online businesses compare to brick-and-mortar operations:
- Profitability: 57% say online businesses have higher net profit margins
- Resilience: 67% say online businesses are less likely to fail, and 69% say owners lose less if they do
- Innovation: 63% say online businesses are more likely to be based on a novel idea
- Lifestyle: online business owners are twice as likely to hold down a day job as well
- Stress: just 9% say online owners are more stressed, compared to 48% for brick-and-mortar owners
- Startup costs: six in 10 say retail is cheaper to start online, and two-thirds say services are cheaper online
- Running costs: seven in 10 say running a small business online costs less
- Break even: seven in 10 say online retailers break even sooner, and five in 10 say services break even sooner online
Online businesses have clear advantages, but experts identify several common challenges.
Common pitfalls
- Digital marketing: 35% say figuring out digital marketing is a major challenge
- Technology: 32% say understanding the tech can be difficult for owners
- Transaction fees: 33% say online payment fees catch people off guard
- Time investment: 29% say managing social media and reviews takes more time than expected
- Website quality: 26% say creating a genuinely good website is a struggle
The online and bricks-and-mortar businesses in this study had comparable revenue so these differences weren't likely due to scale. 171 accountants and bookkeepers participated in the study, with an average of 35 clients each (equating to a collective clientele of 6,000 businesses).
Choose your online business model
Your business model determines how you make money online. Before choosing a specific idea, understand the different structures available. Each model has different startup costs, time requirements, and growth potential.
Here are the most common online business models:
- E-commerce: Sell physical products through your own shop or marketplaces.
- Digital products: Create and sell downloadable items like courses, templates, or software.
- Services: Offer expertise remotely, from consulting to design to coaching.
- Subscriptions: Charge recurring fees for ongoing access to products or content.
- Affiliate marketing: Earn commissions by promoting other companies' products.
- Advertising: Generate revenue from ads on content you create.
Choose a model that matches your skills, available time, and startup budget.
Online business ideas
Online business ideas fall into four broad categories:
- Retail: selling physical products, including handmade or manufactured goods
- Services: offering expertise remotely, such as consulting, design, or coaching
- Apps: building software or digital tools for customers to use
- Content: creating videos, courses, newsletters, or other media that generates revenue
Explore the article on online business ideas for specific examples that could work for you.
Making your idea the best it can be
Online businesses cost less to start, but they require just as much energy and effort as a physical business.
A little research upfront can help you refine your product or service before you invest significant time. Here's how to make your idea stronger.
Experts' number one tip for better ideas
Define your target market before you start. This means identifying the specific people or businesses who will buy from you, whether that's local parents, fitness enthusiasts, restaurants, or another group entirely.
Once you know your audience, build everything around them:
- Tailor your product: Design features and packaging for that specific user.
- Focus your marketing: Speak directly to their needs and preferences.
- Talk to potential customers: Ask what they think of your idea, pricing, and competitors. Businesses that consistently integrate customer feedback report a 49% marketing success rate, compared to just 1% for those that don't.
- Research the competition: Learn what alternatives they currently use and why.
Related articles
Research your market and validate your idea
Market validation confirms demand before you invest heavily. Testing your concept with real potential customers helps you avoid building something nobody wants to buy. For example, using search data can indicate demand; the term "foam mattress" garners more than 11,500 monthly searches, showing a clear market for companies like Casper.
Here's how to validate your online business idea:
Talk to potential customers
- Interview 10–20 people in your target market
- Ask about their current solutions and frustrations
- Test your pricing assumptions directly
Analyse the competition
- Identify who currently serves your target customers
- Study their pricing, positioning, and customer reviews
- Find gaps you could fill or improvements you could make
Test your idea with a soft launch
- Create a simple landing page describing your offer
- Run small-budget ads to gauge interest
- Take pre-orders or collect email signups before building inventory
Validation increases your chances of success by helping you launch something customers want to buy.
Writing an ecommerce business plan
An ecommerce business plan can be shorter and more flexible than a traditional business plan. You may not need as much detail, and in the early stages, you may not have all the information anyway.
Why a shorter plan works
Traditional business plans are often written to pitch investors and lenders. But online startups cost less to launch, so you're less likely to need outside funding. This frees you to write a plan that works for you, whether that's 20 pages or just one.
Why you may only need a one-page plan
A one-page plan works because you won't have all the information you need upfront. Almost 60% of new online business owners struggle to forecast revenue for their first few months, according to the Global eCommerce report.
Revenue depends heavily on digital marketing, which is a rolling experiment in the early days. You'll try multiple tactics across different platforms before finding what works.
Because online startups launch with uncertainty, shorter and more fluid plans make sense. Choose a format that's easy to update as you learn.
Shorter plans still matter
Planning still matters, even when it's abbreviated. Working through the steps of a business plan forces you to examine your startup from multiple angles, and the data supports this: small businesses with a marketing plan are 6.7 times more likely to report marketing success than those without one.
Related articles and templates
Creating a budget for a digital business
A digital business budget tracks your startup costs and estimates when you'll break even. While online businesses cost less to run than physical stores, beginners often overlook several significant expenses.
Three common ecommerce budgeting mistakes
- Website costs (35%): Templates make websites affordable, but creating a great user experience often requires freelance help.
- Digital marketing (37%): Cost-per-click advertising adds up quickly when only about one in 50 visitors converts to a sale.
- Transaction fees (33%): Payment processors take up to 5% of each sale, which needs to be factored into your pricing.
How to do a budget
Here's how to build your budget:
- List all your business costs and plot them on a calendar
- Add modest sales projections to the same timeline
- Plan how you'll cover expenses before revenue comes in
Expect to be in the red at first. Online business consultant Shahemen Farid of Boobooks Accountants recommends starting with three months of working capital: "We suggest clients base their forecasts on that first quarter."
Budgeting for an online business? See the guide to startup business costs for a breakdown of typical expenses.
Experts' pricing tip for online businesses
Online businesses can price competitively with brick-and-mortar stores while keeping more margin. You don't need to pass your lower operating costs onto customers. Some of that extra margin covers expenses like free shipping, but the rest contributes to higher net profit margins.
Related articles and templates
Finance options for an online business
Most online businesses self-finance because banks rarely fund startups without a track record. However, alternative options exist.
Online businesses cost less to launch, but for those who need capital, Loans guaranteed by SBA can provide from $500 to $5.5 million for purposes like operating capital.
Service businesses often start with just a laptop and a few software subscriptions. Retailers need more capital but can manage risk through soft launches with limited inventory.
"You can start an online retail business for 20K now," says Shahemen Farid of Boobooks Accountants. "So people are increasingly able to self-finance."
Sources of extra cash
If you need additional funding, consider these options:
- Credit cards: Quick access but high interest rates.
- Personal loans: May be secured or unsecured depending on the lender. Secured loans require collateral, while unsecured loans are based on your creditworthiness.
- Friends and family: May lend cash or invest as partners.
- Angel investors: Industry contacts who believe in your concept.
- Crowdfunding: Works best for ideas with viral potential.
- Grants: Available for some cause-driven or innovative businesses.
Related articles
Register your business and handle legal requirements
Registering your business makes it official and protects you legally. Requirements vary by location, but most online businesses need to complete several setup steps before trading. In most cases, the total cost to register your business will be less than $300, but fees vary depending on your state and business structure.
Choose your business structure
Consider these common business structures:
- Sole trader: Simplest setup, but you're personally liable for business debts.
- Limited company: More paperwork, but separates personal and business liability.
- Partnership: Shared ownership with defined responsibilities.
Register your business name
Complete these steps to register your business name:
- Check that your chosen name is available
- Register with the appropriate government agency
- Secure matching domain names and social media handles
Get your tax identification number
Set up your tax registration:
- Apply for the relevant tax registration in your country
- Understand your VAT or GST obligations if applicable
- Set up systems to track income and expenses from day one
Understand licences and permits
Research what licences and permits you need:
- Research industry-specific requirements for your business type
- Check local regulations that may apply even to online businesses
- Keep documentation organised for compliance
Set up business banking
Separate your business finances from personal accounts:
- Open a dedicated business account to separate finances
- Choose a bank that integrates with your accounting software
- Consider payment processing needs for online transactions
How to set up an online shop, office or app
Online businesses reach customers anywhere. Selling digitally means you can reach customers in other parts of the country or the world. The internet can make it easier for niche businesses to reach dispersed customers and build a sustainable business.
According to the survey, 63% of accountants and bookkeepers say digital businesses are more likely to be based on a novel idea. Here's how to set up your online presence.
Creating an online shop
You have two main options for setting up an online shop:
Marketplaces (Amazon, Alibaba, Facebook):
Marketplaces offer these benefits:
- Fast setup with product listing tools
- Marketplace handles payment processing
- Limited control over shop appearance
- Pay a percentage of each sale to the platform
Your own shop (Shopify, Square, BigCommerce):
Your own shop provides:
- Monthly subscription plus transaction fees
- More flexibility over design and branding
- Requires more setup and maintenance
- Greater potential for mistakes without careful planning
Setting up an online office
An online office runs on software that helps you collaborate, create, share, and manage projects. Many professional-service firms now use remote-work tools to stay productive.
Remote work is proving highly productive. Online businesses have higher net profit margins than brick-and-mortar equivalents.
Some teams report that online brainstorming tools work well for generating ideas together. Michael Yared's app development agency, Echobind, prefers digital collaboration: "Digital brainstorming boards capture ideas from everyone, not just the loudest people in the room. Plus remote work encourages better documentation because so much is exchanged in writing."
Creating an online studio
An online studio lets you train, coach, or deliver creative services digitally. You can attract customers with free content, then convert them to paid courses or one-to-one sessions.
Olivia Park Coaching delivers physical and wellbeing training to clients across Asia using this model. The digital approach lets her help more clients: "It's enabled me to create more products with different tiers of service."
Building an app
Building an app requires turning your idea into working software, which involves costs to develop it and potential pitfalls. An app development company shared insights about how apps are made and what they cost.
Learn more: How to make money from an app
Set up payment processing
Payment processors let you accept money from customers online. You'll need a payment gateway to handle transactions securely.
Common payment processors include:
- Stripe: Popular with online businesses, integrates with most platforms.
- PayPal: Widely recognised by customers, easy to set up.
- Square: Good for businesses that also sell in person.
- Platform-native options: Shopify Payments, WooCommerce Payments, and similar.
When choosing a processor, consider:
- Transaction fees: Typically 1.5% to 3% plus a fixed fee per transaction.
- Supported payment methods: Credit cards, digital wallets, buy-now-pay-later.
- Integrates with: Your website platform and accounting software.
- Payout timing: How quickly funds reach your bank account.
Factor these fees into your pricing from the start. A 2.5% transaction fee on every sale adds up over time.
Related articles
Digital marketing 101
Digital marketing drives every visit to your online business. Unlike a physical store, you don't get foot traffic by chance. You need to earn each visitor, and only about 2% will purchase anything. This is made more challenging when businesses neglect key strategies; for example, only 17% of small businesses use search engine optimisation (SEO) despite citing their website as their most influential tool.
Pay-per-click advertising costs can add up quickly without careful management. Online business expert Shahemen Farid has seen failed campaigns burn through thousands of dollars without a single sale.
More than a third of accountants and bookkeepers in the study say digital marketing is a major challenge for online startups. Here's how to approach it strategically.
The unsatisfying secret to digital marketing
Every business needs its own marketing approach. You'll need to experiment across multiple channels to find what resonates with your audience:
- Search marketing through Google
- Content on LinkedIn or your blog
- Videos on YouTube or TikTok
- Stories on Instagram or Facebook
Some tactics will work better than others for your specific business. "You have to experiment. But you can do that without spending a fortune," says Ben Charlton of Air8 Digital.
Find Ben's low-cost tips in the guide to digital marketing.
How much to budget for digital marketing
Reserve 40% of your startup budget for marketing, recommends ecommerce consultant Marc McKeown of FortBrave. "We'd spend that in the first three months to see what things work and make a plan from there."
This sounds significant, but digital marketing may be your only source of customers. The money you save on physical retail space offsets this investment.
Related articles
Essential tools and software for your online business
The right tools help you run your online business efficiently. Here are the core categories most businesses need.
Accounting and financial management:
Accounting software helps you:
- Track income and expenses automatically
- Generate invoices and manage cash flow
- Prepare for tax time with organised records
- Connect with your bank and payment processors to simplify bookkeeping
E-commerce and website platforms:
- Host your online shop or service booking system
- Process payments and manage inventory
- Options include Shopify, WooCommerce, Squarespace, and Wix
Marketing and customer relationships:
- Email marketing tools like Mailchimp or ConvertKit
- Social media scheduling with Buffer or Later
- Customer relationship management (CRM) to track leads and sales
Communication and collaboration:
- Video calls with Zoom or Google Meet
- Team messaging through Slack or Microsoft Teams
- Project management with Trello, Asana, or Notion
Start with the essentials and add tools as your business grows. Many offer free tiers for small businesses.
Start your online business with confidence
Online businesses cost less to start, reach break even faster, and carry lower risk than traditional storefronts. The expert survey confirms they're less likely to fail, and owners lose less if they do.
Write down your plan. Test your idea. Then launch.
Ready to manage your finances from day one? Accounting software helps you track expenses, send invoices, and see your cash flow in real time.
FAQs on starting an online business
Here are answers to common questions about starting an online business.
Do I need a business plan for an online business?
Yes, but it can be shorter than a traditional business plan. A one-page plan that you update regularly works well for most online startups.
How much money do I need to start an online business?
This depends on your business model. Service businesses can start with just a laptop and software subscriptions (under $1,000), while online retailers typically need $10,000–$20,000 for initial inventory and marketing.
What's the best online business model for beginners?
Service-based businesses are often easiest to start because they require minimal upfront investment. You can begin offering consulting, coaching, design, or freelance services with skills you already have.
How long does it take to make money from an online business?
Most online businesses take three to six months to generate their first sales. Digital marketing requires experimentation, and you'll need time to find what works for your specific audience.
Do I need technical skills to start an online business?
Not necessarily. Website builders like Shopify, Squarespace, and Wix make it easy to set up an online shop without coding knowledge. However, you'll benefit from learning basic digital marketing skills.
Should I quit my job to start an online business?
Most experts recommend keeping your day job while you launch. Online business owners are twice as likely to maintain other employment compared to brick-and-mortar business owners, which reduces financial risk during the startup phase.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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