What is an ecommerce business?

Published Thursday 22 October 2026

Table of contents

• Ecommerce definition
• Types of ecommerce businesses
• How ecommerce works
• Advantages of ecommerce
• Examples of successful ecommerce businesses
• What you need for an ecommerce business
• Getting started with your ecommerce business
• Manage your ecommerce business finances with Xero
• FAQs on ecommerce businesses

Key takeaways

• Choose between selling on established marketplaces like Amazon or eBay for faster setup and access to an existing shopper base, or build your own website using platforms like Shopify for greater control over branding and customer relationships.
• Set up essential ecommerce infrastructure including a secure payment processor like PayPal or Stripe, a clear fulfillment method for product delivery, and accounting software to track sales and expenses from day one.
• Understand your business model by identifying whether you're selling to consumers (B2C), other businesses (B2B), or through consumer-to-consumer platforms (C2C), as this determines your marketing approach and tax obligations.
• Take advantage of ecommerce benefits like 24/7 sales capability, potentially lower overhead without a physical store, and global reach to maximize revenue opportunities while maintaining automated digital transaction records.

Ecommerce definition

Electronic commerce (ecommerce) is the buying and selling of goods and services online. Your customers can browse, purchase, and pay without visiting a physical store.

The most common types of ecommerce include:

• items sold through your website or marketplaces like Amazon or eBay
• services delivered and paid for through digital payment systems
• digital products like downloadable content, software, or subscriptions

Types of ecommerce businesses

Ecommerce business models define who is buying and who is selling. Understanding these differences helps you choose the right approach for your business.

B2C (Business-to-Consumer)

B2C (Business-to-Consumer) means selling products or services directly to individual customers. Examples include online clothing stores, subscription boxes, and direct-to-consumer brands.

B2B (Business-to-Business)

B2B (Business-to-Business) means selling products or services to other companies. Examples include software providers, wholesale suppliers, and parts manufacturers.

C2C (Consumer-to-Consumer)

C2C (Consumer-to-Consumer) means selling directly to other individuals, often through a third-party platform like eBay or Facebook Marketplace. Examples include selling used goods, handmade crafts, or collectibles.

If your sales cross the federal reporting threshold, payment apps and online marketplaces must report your payments on Form 1099-K.

B2G (Business-to-Government)

B2G (Business-to-Government) means selling products or services to government agencies. Some U.S. government agencies purchase commercial products through online marketplaces to streamline micro-purchases.

How ecommerce works

You connect customers to your products online and process transactions digitally through ecommerce. A typical ecommerce transaction follows these steps:

1. A customer finds your online store and browses your products
2. They add items to their shopping cart
3. At checkout, they enter payment and shipping details
4. You process the payment and confirm the order
5. You prepare and ship the product to the customer

Advantages of ecommerce

Ecommerce offers several advantages over traditional retail:

• shoppers can browse and buy 24/7 from anywhere, increasing sales opportunities
• digital payments can reach you sooner than checks sent by mail, helping your cash flow
• online stores can take orders around the clock, even outside business hours
• a business without a physical storefront may spend less on rent and utilities
• you can sell to customers in other states and countries
• digital transactions can sync with accounting software for easier record management

A 2018 Supreme Court decision allows states to require remote businesses to collect sales taxes even without a physical presence. The U.S. Government Accountability Office (GAO) estimates nationwide remote sales tax collections were about $30 billion in 2021.

Examples of successful ecommerce businesses

Your ecommerce business can sell physical goods, digital products, or services across many industries. Here are some common examples:

• Physical products, such as online boutiques, handmade crafts on marketplaces, and subscription boxes
• Digital products, such as online courses, software, ebooks, and templates
• Services, such as consulting, coaching, and freelance work with online booking and payment

What you need for an ecommerce business

To start an ecommerce business, you need these tools and systems:

• an online storefront, which is a website or marketplace listing where customers can view products, prices, and descriptions
• a shopping cart system that lets customers select multiple items and proceed to checkout
• secure payment processing through services like PayPal, Stripe, or Square to handle credit card and digital payments
• a fulfillment method, such as shipping, delivery, or digital downloads, to get products to customers
• clear business policies covering returns, refunds, privacy, and customer service procedures

Payment apps and online marketplaces must send you a Form 1099-K if your payments for goods or services total more than $20,000 across more than 200 transactions in a year, the federal threshold restored by the One Big Beautiful Bill Act. Some states use lower thresholds.

You have two main options for selling online:

• Digital marketplaces like Amazon or Etsy provide payment and delivery services but charge selling fees and transaction fees, and they may hold some payouts
• Your own website using platforms like Shopify or WooCommerce gives you more control over branding, customer relationships, and payment timing

Getting started with your ecommerce business

Starting an ecommerce business involves choosing your platform, setting up payments, and planning how you'll deliver products. Follow these steps to get started:

1. Choose your selling method by starting with an existing marketplace like Amazon or eBay, or build your own website using platforms like Shopify or WooCommerce
2. Set up payment processing by connecting services like PayPal, Stripe, or Square to accept customer payments securely
3. Plan your fulfillment by deciding how you'll store inventory and ship products, or consider dropshipping to start with minimal upfront costs
4. Manage your finances with accounting software like Xero to track sales, expenses, and profitability from day one

Manage your ecommerce business finances with Xero

To manage your ecommerce finances, you need to track every sale, manage inventory costs, and understand fees from payment processors and shipping carriers.

Xero updates your reports, including cash flow, automatically and suggests matches when you reconcile your bank transactions. This helps you make smart decisions and focus on growing your business instead of manually updating spreadsheets. Sign up today to get one month free.

FAQs on ecommerce businesses

Here are answers to common questions about ecommerce businesses.

What is the most profitable ecommerce business?

Your profitability varies by niche, marketing strategy, and business model, so find a product or service people want and offer it in a way that stands out from competitors.

How profitable is ecommerce compared to traditional retail?

Ecommerce may cost less to run than traditional retail because you can sell without a storefront. Your profitability depends on your pricing, marketing, and how well you manage costs like shipping and transaction fees.

What's the difference between ecommerce and online marketplaces?

Selling on an online marketplace like Amazon or Etsy is one form of ecommerce, where many sellers share one platform. Running your own website is another form, giving you more control over your store.

Do I need technical skills to start an ecommerce business?

You can start an ecommerce business without technical skills. Many platforms offer drag-and-drop tools that let you build an online store without coding.

Do I need an LLC for an ecommerce business?

You can start selling online as a sole proprietor, and an LLC can offer some liability protection as your business grows. A legal or tax professional can help you choose the best structure for your situation.