How Does eCommerce Work?

By Vladana Donevski

June 19, 2023

Many will say that shopping from the comfort of your home is the best way to shop. Luckily, many merchants jumped on board and seized this opportunity – which is why we can now shop without having to get out of our pajamas. Catalogs moved to the internet, and eCommerce (short for electronic commerce) allows you to have everything delivered to your doorstep with just a couple of clicks.

ECommerce is one of the biggest industries these days, weighing trillions of dollars. If you are interested in selling your product or service online, you might be wondering, “How does eCommerce work?” Let’s dive in and explain this skyrocketing market in detail.

What Is eCommerce?

The simple definition of eCommerce is that it is a business model that allows people to buy and sell products and services on the internet. Nowadays, you can buy almost anything through your computer, tablet, or mobile device. It’s this convenience that’s making it one of the fastest-growing markets.

Almost every retail business now has an eCommerce shop as an addition to their brick-and-mortar ones. Online-only retail business numbers are growing each day, too, and many shops have closed their physical doors in favor of an online storefront. After all, sellers want to be where their customers are.

So, if you want to become a part of an eCommerce world, let’s discuss what makes an eCommerce store. We’ll cover its types, how eCommerce businesses work, and how to start an eCommerce store yourself.

What Are the Aspects of the eCommerce Industry?

An eCommerce system doesn’t differ much from a regular physical store. It all starts with a product you want to sell. From there, you would need a place to sell the product. In eCommerce, your website is your store – the site takes on the role of the shelves and display, and your customers use it to browse and purchase your goods.

The internet is a crowded place, so it will be hard for your shoppers to just stumble upon your store. You have to attract them, so catchy and carefully planned eCommerce marketing will be crucial to your success.

Once customers start shopping on your site, they’ll have to be able to order and pay you for the products. You’ll also need to put some security measures in place, as you’ll be dealing with a lot of sensitive information.

Figuring out how to get the product to your customers’ doorstep is the next link in the chain. You’ll typically need to sort out a fulfillment method and shipping, unless you are selling digital goods.

ECommerce sites also have to handle returns and, if applicable, warranty claims. To do this, you need to find a way to provide support to your customers. In a regular brick-and-mortar business, you have shop assistants to accommodate your buyer’s requests. You can rely on email, phone calls, online forms, or live chat.

Depending on your business model, you might want to add additional features for a better user experience and more satisfied customers.

How eCommerce Works

Typically, your customers will land on your site with some help from the search engine where they looked for a product you sell. They could have also clicked on a paid ad, social media image, or received a recommendation from a friend.

Your eCommerce site then presents them with your listed products, with images, descriptions, and prices. The customer browses, selects the product they like, and places them in their virtual shopping cart. If they decide to make a purchase, they will head on to the check-out page.

There, the shopper completes the check-out process. They add their payment information and finalize the transaction. The order is then processed by a payment gateway, for example, your bank or PayPal. This step provides secure payment processing.

In the meantime, your website provides the customer with information about their order. It could be estimated shipping times, postal tracking numbers, or other information they need to track their purchase.

As mentioned, the next step for ​​eCommerce services is order fulfillment – or the actual process of getting the goods delivered. Depending on who stores and ships the product, it could be an in-house team or outsourced to an order-fulfillment company.

Of course, the last step is the product arriving to your customer’s address. You want to ensure that the customer is satisfied with the product and service provided, so you might forward them a survey inquiring about their impressions once the order is delivered. 

Types of eCommerce

Your business model when setting up an eCommerce company will typically fall under one of the four main categories:

B2C (Business to Consumer)

The first type of eCommerce we’re going to cover here is the B2C model. It’s the one people are most familiar with: A business sells directly to consumers; Amazon is a great example.

B2B (Business to Business)

The business-to-business model is one where a company sells to another company. Outside the internet, we associate this business model with wholesalers. However, it’s also used by companies that sell ready-to-use software to other businesses, for example.

C2C (Consumer to Consumer)

The C2C model was popularized by digital commerce platforms that allow regular Jos to sell products or services to other regular Jos. Some good examples of the C2C model are eBay and Etsy.

C2B (Consumer to Business)

This model is used when a business extracts extra value from its consumer base, like when influencers get paid to promote a product, or customers agree to share their data for market research purposes in exchange for discounted goods.

To make understanding eCommerce easier, let’s discuss the different shapes these models can take:

Of course, the most common kind of eCommerce is retail – businesses selling directly to their customers. But, there are also wholesale eCommerce sites that sell products in bulk, as well as stores selling digital products to companies and consumers alike. On a whole different level, dropshipping businesses work together with wholesalers, so they don’t have to handle inventory and shipping.

Subscription-based eCommerce websites recurrently sell the same product on an agreed schedule. Of course, people can also offer their services on eCommerce sites.

Overall, eCommerce can take many forms. As long as someone is selling or buying something via the internet – it is eCommerce.

eCommerce vs. Traditional Stores

There are many benefits to starting an eCommerce business over opening a brick-and-mortar shop. For example, your reach will be much broader. Expanding your business globally is also much easier to do online, as you won’t be limited to the customers in the vicinity of your physical store.

What’s more, one of the many benefits of eCommerce is that your overhead costs are typically much lower. Not only do you get to avoid rent, but your transaction costs will also likely be cheaper. Also, with this type of business, you can rely on different inventory management software for help, and outsource your customer support, instead of having to hire employees.

If you decide to join the eCommerce system, it’s good to know that the right software can automate many aspects of your day-to-day business operations. For example, with the dropshipping model, entrepreneurs don’t even have to handle inventory or shipping. All the dropshippers need to do is forward the order to their supplier.

With eCommerce, there is also no limit or rule on what you can sell. Just like you could order an entire house to be shipped to you by mail via a catalog back in the day, the same goes for eCommerce. Golf clubs, children’s Halloween costumes, plants, or candy – if you can think of it, there’s someone on the internet who’ll want to buy it.

Speaking of customers, starting an eCommerce business means earning regulars quickly, thanks to the wide selection of software that can help you establish a connection with your customers. There are also tools to provide excellent support to your buyers and have them rely on you for your product or services for as long as you are in business.

However, there are also cons to this type of selling. It takes a bit of a tech-savvy customer to shop online, which narrows the customer base slightly. Also, people might feel reserved about shopping online because they can’t touch or see the product before purchasing. Lastly, there is also the lack of personal shopping experience that some people appreciate.

Lastly, the biggest issue is security: eCommerce stores are often targets for hackers, and your customers’ personal and payment data can be in danger unless you introduce strong safety measures.

How to Start an eCommerce Business

Starting this type of business is no mean feat. You’ve got many things to check off your to-do list before the launch:

The first step is, of course, figuring out what you would like to sell. Are you going to offer physical or digital goods, or your services? How will you obtain the products – are you manufacturing them yourself or relying on a wholesaler for your inventory?

Once you have these basic questions answered, it is time to research the competition and their prices, and crunch the numbers. This will also allow you to see how saturated a particular niche is and find out what you can do better to rise above other eCommerce companies.

It will also give you a great insight into the prices you can expect to charge and pay for running your store. You should use this information and the information on how much it will cost you to fill your inventory to gauge your margins. If the idea is viable, and there is a market, then it is time to start working on your store. 

How to Build Your eCommerce Store

Typically the first step is to define your eCommerce store’s name. You should have a domain name pinned down before you get down to building the site. Your domain name should match your store’s name, and should be descriptive of what you’re selling, so take your time with it. You also want it to be memorable and, most importantly, unique.

Building your store is the next step. You can approach this by using an eCommerce website builder or relying on an eCommerce platform to help you get set up. Your store should be easy to navigate, have detailed descriptions of the products, excellent visuals, and a simple payment process. Making your eCommerce web design as memorable as possible and adding as many payment options as possible is a good idea.

You should also consider adding features that will help you maintain and promote your store as effortlessly as possible. For example, tools for promo codes or options to start eCommerce sales without changing the price for each product manually.

Once your store is complete, it’s time to find your customers. Start by working on your SEO first, then start advertising. There are many marketing approaches you could take, from social media and email marketing, to paid ads. Which one will work best depends entirely on what kind of product or service you’re selling and who your target customer is. Understanding who your perfect customer is will help you narrow down your eCommerce marketing to-do list, and significantly increase your revenue.

Even after the launch, your job is not done. You need to keep an eye out on your store’s KPI, conversion rates, and overall performance at all times, and look for room for improvement. You might need to find cart-abandonment solutions, or improve your support system. You’ll also have to manage inventory, negotiate with wholesalers and suppliers, and provide support to your customers. And if you want to have many new customers at all times, marketing never stops, either.