How to start an ecommerce business: definition and tips

Published Friday 27 March 2026

Table of contents

• Ecommerce definition
• Types of ecommerce business models
• What you need for an ecommerce business
• Advantages of ecommerce
• Disadvantages of ecommerce
• How to start an ecommerce business
• Connecting in an online sales world
• Xero helps manage your ecommerce business finances
• FAQs on ecommerce business

Key takeaways

• Choose your ecommerce model — B2C, B2B, C2C, or C2B — before building anything else, as the right model shapes your platform, pricing, and target audience from the start.
• Account for transaction fees and shipping costs from day one, as these eat into your margins and make it harder to measure true profit per sale without accurate tracking in place.
• Use accounting software that connects directly to your ecommerce platforms and payment gateways, so sales data, fees, and payouts import automatically rather than requiring manual entry.
• Build customer loyalty online through fast service, clear communication, and consistent branding across every channel, since shoppers have countless alternatives and will not return without a reliable digital experience.

Ecommerce definition

An ecommerce business sells goods or services online, handling sales transactions and payments over the internet instead of in person.

Ecommerce takes several forms:

• Retail ecommerce: Businesses sell products through their website or digital marketplaces like Amazon, Alibaba, or Facebook. Buyers browse, select, and purchase online for delivery via courier.
• Service ecommerce: Service businesses use online invoicing and payments to complete transactions digitally.

Retail remains the most common form, but service-based ecommerce continues to grow as more businesses move their operations online.

Types of ecommerce business models

Understanding the different ecommerce models helps you choose the right approach for your goals and target market.

Business-to-consumer (B2C)

B2C ecommerce is when a business sells directly to individual consumers. This is the most common model and includes 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 transactions between businesses. One company sells products or services to another company rather than to individual consumers.

Examples include wholesale suppliers, software providers, and office equipment vendors.

Consumer-to-consumer (C2C)

C2C ecommerce happens when individuals sell to other individuals, typically through a third-party platform that facilitates the transaction.

Examples include marketplace platforms like eBay, Facebook Marketplace, and Etsy for handmade goods.

Consumer-to-business (C2B)

C2B ecommerce is when individuals sell products or services to businesses. This model is less common but growing, particularly in freelance and creative industries.

Examples include freelance platforms, stock photography sites, and influencer marketing arrangements.

What you need for an ecommerce business

Running an ecommerce business requires specific tools for displaying prices, processing payments, and managing orders online. The exact setup depends on whether you sell products or services.

Retail ecommerce

If you're selling physical products online, you'll need a few core things in place before you can start taking orders.

• Product website: A place where shoppers can browse your inventory
• Shopping cart: Functionality that lets shoppers select items for purchase
• Payment processing: A secure method for accepting online payments
• Delivery logistics: A way to ship products to your customers
• Terms of trade: Clear policies covering returns, refunds, and shipping

Digital marketplaces like Amazon or eBay provide many of these services, including payment processing and delivery options. Marketplaces take a percentage of each sale and may delay passing payments to you.

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

Service or manufacturing ecommerce

Service and manufacturing businesses have different requirements. Rather than a storefront, you'll typically need tools that let clients review and pay invoices online.

• Online invoicing: Send invoices digitally so clients can view and pay from anywhere
• Secure payment processing: Accept payments through integrated payment gateways
• Payment terms: Set conditions that encourage or require online payment

Online invoicing comes built into accounting software like Xero. To add a "pay now" or direct debit option, connect a payment service to your invoices.

Most payment services are free to set up but charge transaction fees on each payment received. To include these options, you'll need to attach a payment service to your account.

Accounting for ecommerce

Transaction fees and shipping costs are unavoidable in ecommerce and directly affect your profit margins. Tracking these expenses accurately helps you understand the true cost of each sale.

Use accounting software like Xero to automate expense tracking. Apps like A2X connect directly to ecommerce platforms and import sales data, fees, and payouts automatically, so your books stay accurate without manual entry.

Advantages of ecommerce

Starting an ecommerce business offers several benefits for small business owners looking to reach customers online.

• Customer convenience: Buyers can shop anytime, anywhere, without visiting a physical location.
• Faster payments: Online invoicing helps you get paid more quickly than traditional methods.
• 24/7 sales: Retail customers self-serve, so you can sell while you sleep.
• Lower overheads: Online businesses typically have lower running costs than physical stores.
• Wider reach: Selling outside your region becomes easier without geographic limitations.
• Simpler record-keeping: Electronic transactions create automatic records for easier bookkeeping.

Disadvantages of ecommerce

Like any business model, ecommerce comes with challenges you should understand before getting started.

• Transaction fees: Payment processors charge fees on each sale, reducing your margins.
• Shipping costs: Retail customers often expect free or discounted shipping.
• Complex returns: Processing returns becomes more complicated and expensive online.
• Technology demands: Keeping up with platform updates and tech changes takes time and effort.
• International taxes: Selling abroad may require you to charge and remit sales taxes in multiple regions.
• Profitability tracking: Transaction fees and shipping costs make it harder to measure true profit per sale.

How to start an ecommerce business

Starting an ecommerce business takes planning and preparation. These steps help you get your online business up and running.

1. Choose your ecommerce business model and niche: Decide which ecommerce model fits your goals: B2C, B2B, C2C, or C2B. Then identify your niche by considering what products or services you can offer, who your target customers are, and what makes your business different from competitors.
2. Research your market and competition: Study your target market to understand customer needs, preferences, and buying habits. Look at what competitors are doing to identify gaps you can fill and opportunities to stand out.
3. Create your business plan and budget: Outline your business model, revenue projections, and startup costs. Include expenses for inventory, website development, marketing, and ongoing operations. A clear budget helps you make informed decisions as you grow.
4. Select your selling platform or build your website: Choose between selling on established marketplaces or building your own online store using an ecommerce platform. Consider factors like fees, control over branding, and your technical capabilities.
5. Set up payment processing and accounting: Connect a payment gateway to accept customer payments securely. Set up accounting software to track income, expenses, and transaction fees from day one so nothing slips through the cracks.
6. Organise your logistics and fulfilment: Plan how you'll store inventory, pack orders, and ship products. Options include handling fulfilment yourself, using a third-party logistics provider, or dropshipping directly from suppliers.
7. Launch your marketing strategy: Develop a plan to attract customers through channels like social media, search engine optimisation, email marketing, and paid advertising. Start with one or two channels and expand as you learn what works.

Connecting in an online sales world

Building customer loyalty works differently online. With countless options available, your digital experience and brand strength determine whether shoppers come back.

Focus on these areas to connect with customers:

• Fast, reliable service: Quick responses and on-time delivery build trust.
• Clear communication: Keep customers informed about orders, shipping, and any issues.
• Consistent branding: Create a recognisable experience across your website, emails, and social media.

Find out how to optimise your online selling strategy and grow your customer community.

Xero helps manage your ecommerce business finances

Managing ecommerce finances can get complicated. Transaction fees, shipping costs, and sales across multiple platforms make it harder to track profitability and stay on top of cash flow.

Xero simplifies ecommerce accounting with tools built for small businesses.

• Automated bank feeds: Transactions import automatically, reducing manual data entry.
• Payment integrations: Connect payment services directly to your invoices.
• App connections: Sync sales data from your ecommerce platforms to keep your books accurate.

Get one month free and see how Xero makes ecommerce accounting straightforward.

FAQs on ecommerce business

Common questions about starting and running an ecommerce business.

What are the four types of ecommerce?

The four main types are business-to-consumer (B2C), business-to-business (B2B), consumer-to-consumer (C2C), and consumer-to-business (C2B). B2C covers everyday retail sales to shoppers. B2B is where one business sells to another. C2C connects individuals buying and selling through platforms like online marketplaces. C2B is where individuals, such as freelancers or content creators, offer their services or products to businesses.

Which ecommerce business model is most profitable?

Profitability depends on your niche, pricing, and how efficiently you run your operations. B2B ecommerce often produces higher order values and more repeat business, while B2C can reach a larger customer base. The model that suits your skills, resources, and market is usually the one with the best profit potential.

How much does it cost to start an ecommerce business?

Costs vary widely depending on your model and what you're selling. You can start a dropshipping business with relatively little upfront investment, while a business that holds its own inventory will need more capital. Key expenses to plan for include website hosting, payment processing fees, inventory, and marketing.

What accounting software do I need for ecommerce?

Cloud-based accounting software suits ecommerce well because it connects directly to your sales channels and bank accounts. Look for features like automated bank feeds, payment integrations, and the ability to connect apps that pull in data from your ecommerce platforms.

Do I need a business licence to sell online?

In most regions, yes. You typically need a general business licence, and depending on what you sell, you may need additional permits. Requirements vary by country, state, and product category, so check with your local government or a business adviser to confirm what applies to you.