Starting an online business has many advantages, most of which narrow down to saving on expenses and operating costs. Regardless, opening an online store can be an exciting step in your entrepreneurial journey. Check out our comprehensive guide on how to start an online business from home. 

How to Start an Online Business

So you want to learn how to start an online business, but don’t quite know where to start. You may be weighing the costs and risks versus the reward of running an online business. These days, it’s very easy to start an online business and begin making money right away.

You can follow these steps to ensure success in starting an online business. 

  1. Identify your niche and business model. 
  2. Carry out market research.
  3. Take care of the legal requirements. 
  4. Determine your sourcing method. 
  5. Plan and create your website. 
  6. Promote your online business. 
  7. Build a reputation for your business.

Let’s go over each step.

#1: Identify Your Niche and Business Model

A niche is a specialized or focused area in a larger market that businesses can serve. When developing your niche strategy, make sure to determine your target audience and identify unmet or underserved needs. Some examples of success niches today include:

  • Eco-friendly and sustainable consumers. 
  • Tourists and travelers. 
  • Gaming. 
  • Sleep promoting products. 
  • Drones. 
  • Remote workers. 
  • Vegan products and baking. 
  • Homeownership. 
  • Fitness. 
  • Books and online courses. 
  • Smartphones. 
  • Pets. 

Below are five common business models that you might want to try out. 

  1. Learn how to start an eCommerce business. With the rise of companies like Amazon, people are now shopping online rather than setting foot in a store. The internet has made online shopping so easy with the push of a button. 
  2. Dropshipping. You may have heard this thrown around in the last couple of years. Well, it is simply selling physical products without keeping inventory yourself. 
  3. Affiliate marketing. Receive a commission for selling other people’s products. 
  4. Offer digital services. With the rise of digital business comes the rise of digital services like web design, content creators, social media management, and business management. 
  5. Blogging. Passionate about a topic. Share your knowledge through a blog and monetize the content. 

#2: Carry Out Market Research 

Before knowing how to start a small business online, you need to know what type of product or service you want to offer to the general public. Take a look online and try to find out what the public wants. 

What kind of industry is popular and booming? Is the product you want to sell very popular, meaning that you will have a lot of competition? This step will take time. It won’t happen overnight, nor will it happen over a span of a month or two. It can take some people months (perhaps a year) to truly find a product or service that is right for their business.

Check the SERPs

Search Engine Results Pages (SERPs) are search engine pages, like Google, that return after a user types in a search query. There are various free and paid tools that you can use to check SERPs. 

Conduct a Competitor Analysis

Understanding your competitors is important for identifying opportunities and gaps within your own strategic and product/service planning. By conducting a competitive analysis, you will gain insight into your competitor’s sales, marketing, and product strategies. 

First, start by determining who your competitors are. Then you will be positioned to research their tactics, analyze pricing or perks, review their marketing plans, and take notes of how their social media performs based on their different campaigns. 

Define Your Target Audience 

Understanding your target audience boils down to one thing: research. Start with conducting client interviews to get an idea of who is currently buying similar products or services. One way to do this is by engaging on social media or sending out surveys. 

Next, expand to a broader audience by analyzing the current market and industry trends. This will allow you to adapt your product/service to newer potential audiences and understand what is being forecasted. You can also learn a lot by taking a peek at what your competitors are doing. What are they doing that is successful? What patterns do they tend to incorporate in their products and marketing? 

Once you have researched what your target audience wants, you need to create a customer persona, which is a fictional and general representation of your own ideal customers. Creating a persona will help you tailor your product or service to a person with specific needs and beliefs. When creating your persona, keep it high-level, but with a story. 

For example, a young woman in her twenties buys coffee every morning before going to her office job. You can deduce that coffee is part of this woman’s routine and that she likes the convenience offered by a shop instead of making it at home. She also has enough money to afford a coffee each morning. This will help inform how you will tailor your products to different audiences. 

After you have developed your customer persona, it is best to describe what your target audience does not want to see. Having a clear list will help you avoid campaigns that will not perform well because it is not what the audience wants to see.

Lastly, use tools like Google Analytics, which will provide insight into prospects. 

Legal Requirements  

Before you fully execute your business, it’s important to also make sure that you are complying with your local and state laws. 

When thinking about starting an online business, taking care of the legal stuff is incredibly important to ensure you’re operating according to the law. You’ll need to consider things like the following:

  • Depending on your location, you may need to register with the government
  • Any industry-specific regulations that apply to your business
  • All necessary taxes that must be paid correctly and on time
  • Insurance policies as needed to protect yourself and your customers

Here’s some more information on the specifics for legal requirements.

Choose a Business Structure

You must choose a business structure before you can register it. The type of business you operate affects how you'll file taxes and any impact on your personal liability should something go wrong.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business entity defined as its own legal organization. If owned by one person, enter into a single-member LLC, and if owned by multiple people, enter into a multi-member LLC. 

Limited Liability Partnership (LLP)

A Limited Liability Partnership maintains the benefits of a limited liability for the company while holding a partnership structure. 

Sole Proprietorship

In a sole proprietorship, the company and the owner are considered the same for legal and tax purposes. Thus, the owner is held personally liable if the business fails. 

Private Limited Company (LTD)

In a Private Limited Company, ownership is determined by shares owned by shareholders. Thus, the company pays corporate tax using its profits, and then distributes the remaining profits to shareholders, as dividends. 

Corporation 

Like an LLC, a corporation limits your personal liability. It can either be taxed as a C corporation, where owners and shareholders are taxed separately from the entity, or an S corporation, where the business can pass its taxable income, credits, deductions, and losses to its shareholders.

Get All the Necessary Licenses and Permits

First and foremost, you most likely need to obtain a business license, depending on your location and state. This will allow you to operate in the location where your business is located. Home-based businesses may also be subject to business licenses.

You may also need any or all of the following:

  • Employer Identification Number, or EIN
  • DBA or fictitious name
  • Business Operating License 
  • Seller's permit
  • Zoning permit
  • Special permits
  • Industry Licenses
  • Federal Licenses 

You can also check in with a legal professional to ensure you are meeting the legal standards.

Tax Obligations 

Tax obligations are determined by your business structure. For example, sole proprietorships, partnerships, and limited liability companies do not pay a corporation tax, but rather are charged at the owner’s personal rate. 

It is, however, estimated that small businesses pay 19.8 percent in taxes on average. 

When it comes to taxes, keep in mind that:

  • Tax varies by state. 
  • Tax rules are dependent on your business structure. 
  • Small business owners may be subject to additional taxes such as payroll tax, income tax, self-employment tax, capital gains tax, property tax, and dividend tax. 

Trademarks and Intellectual Property 

Your ideas are what build this online business, so it is important to protect them. Copyright and trademark are two tools to help protect your intellectual property. Copyright protects literary and artistic works, whereas trademark protects words, phrases, symbols, or designs. It is best to contact a business lawyer or seek legal advice to determine the steps to registering a copyright or trademark.  

For example, a lot of business owners choose to trademark their website name. If you choose to do this, you’ll need to take some additional steps to trademark the domain name.

It’s important while creating your business to also check if a business name is available to avoid accidentally infringing on someone else’s intellectual property.

#4: Determine Your Sourcing Method 

Great suppliers are an important part of your business because they allow you to maintain a certain service level and deliver great products to your customers. Learning how to set up an online store will only be successful if you establish and maintain good relationships with suppliers.

  1. Align your values. When shopping around for a supplier, choose one that aligns with your values. For example, some businesses may value customer service or eco-friendly products, so a business owner should look for those qualities in a supplier. 
  2. Respect your supplier. Just as you will expect your supplier to meet your demands and requests, you will also need to seek out a supplier that you can respect—so that you can also follow any of their specific protocols and procedures. 
  3. Be a great customer. Just as you hope to build strong relationships with your customers, the supplier will expect the same from you. 
  4. Communication. Keep in touch with your supplier on updates and feedback in a timely manner. Providing feedback in a timely manner reduces stress and allows for preparation. 
  5. Be loyal. If you receive good service from your supplier, be loyal. There will always be another flashy deal, but you can still reward them with your loyalty, if they’ve done everything to your liking. 

#5: Plan and Create Your Website 

Choose a website name 

Do you want your website name to be identical to your company’s name? If so, you’ll want to first find out if the domain name is available before even choosing your business name and registering it. A lot of business owners choose to trademark their website name. If you choose to do this, you’ll need to take some additional steps to trademark the domain name.

Also, be sure to check out the many domain registration companies. 

Find a company to host your site

This company will rent you the space you need on its server to host your website. With a little research, you can find free hosting services, but if you choose to pay for such services, you’ll want one that offers all the services you will need to successfully run your online website.

You may consider using the following eCommerce systems: Shopify, BigCommerce, Wix, ShopWired, Zyr, Shift4Shop, WooCommerce, Volusion, Sellfy, Squarespace, and Magento.

Get help with designing your website

You could design your website yourself. It’s not too difficult. But, if you choose to hire someone to help you, you’ll want to ensure that this person or company has the experience necessary to increase foot traffic on your site. The site should be user-friendly and appealing to the eye. Remember that your website is what brings customers back. For example, if you choose to sell handbags, the visuals must be strong in order for your customers to spend money on a handbag that they haven’t seen in person.

You will also need to embed a payment system when designing your website. Some hosts have built-in systems, and others have add-on features. For example, FreshBooks, Payfirma, Moneris, TD Merchant Services, and PayPal are all online payment systems. 

Figure out how to deal with delivery 

You’ll want to provide a couple of different shipping methods, including expedited shipping choices. Will you use FedEx, UPS, or another carrier? What will that cost you in terms of shipping and overhead costs? Where will your products ship from? If you are offering downloadable products (e.g., e-books), you may want to consider using an electronic fulfillment company.

#6: Promote Your Online Business

Another very important part of the process is promoting your online business. Without promotions, sales, specials, and advertising, no one will know that your online business even exists. You’ll have to increase the amount of foot traffic to your website. You can do this in several ways, including:

  • Registering your company with large search engines such as Google and Bing; 
  • Content marketing;
  • Make your website search engine optimized (SEO);
  • Market your business on social media;
  • Pay for ads;
  • Email marketing; and,
  • Direct mailing to potential customers that will include specials and coupons; promotional ads that can be found on billboards and other brick-and-mortar areas.

#7: Build a Reputation for Your Business

Building a good reputation for your company starts with providing a quality experience with your clients. From first impression ads to blog posts and initial meetings, it is important to put the client’s needs first and showcase how your business will best meet their interests. 

Closely tied to providing a quality experience is providing excellent customer service. Being friendly and helpful will help build a strong relationship, leaving your customer satisfied with their service. If the customer is not completely happy, try to offer a solution. After all, it takes about ten to twelve good reviews to make up for one bad review. Let the customer know that you appreciate their feedback and want to provide the best possible experience. 

Although your business is online, you will want to get involved in the community by attending local events or supporting local causes will help to build your presence. 

In addition to treating your customers well, make sure your staff is also happy. When employees are unhappy, then they may have a bad attitude towards customers. 

Last, but certainly not least, engage with customers in a transparent way. Be honest and authentic with your customers.

Conclusion

The internet is always changing, but the principles of creating a business remain the same. whether it is a brick-and-mortar or online. Stay consistent and patient because growing an online business can take time, but it is also a very rewarding experience to stick with your passion and see how your hard work pays off. 

If you need help with starting your online business, you can post your legal needs (or post your job) on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

FAQs

What online business should I start from home?

Some of the best online businesses to start from home are SEO consultant, small business consultant, social media consultant, niche market e-commerce retailer, web designer, blogger, virtual assistant, affiliate marketer, remote tech support, and handmade craft seller. 

How can I start a small business online?

Follow UpCounsel’s guide on ‘How to Start an Online Business that’s Guaranteed to Succeed’ to find out how to start a small online business. We will cover the following steps: 

What online business type is the most profitable?

Affiliate marketing is one of the most profitable online businesses. 

What are you allowed to sell online?

There aren’t many products you cannot sell online. If you have any questions about what is prohibited, contact your state, who issues your business license. 

If I have no money, can I start an online business?

There are a number of businesses you can start without any money, including starting a blog, doing affiliate marketing, offering SEO services, translating documents, providing content services, selling things online, web design, online coaching, data entry, organizing travel, creating a podcast, and creating a vlog. 

Am I required to register my online business?

It is recommended that you register your business as soon as possible. 

Where should I register my online business?

You can use our helpful guide on where to register your business.

Do online businesses require a business plan?

Creating a business plan helps you set goals and think ahead for your business. It is one tool to help your business become successful.

What type of online business should beginners start with?

Training on specialized topics, selling digital products, and blogging are three examples of great online business examples for beginners. Ultimately though, the best business for you is the one that aligns with your skill set. 

What are the 5 top online businesses?

The top five online businesses include launching a dropshipping business, freelance writing, teaching an online course, starting a blog, and doing freelance web design.

Is a business license required to sell online?

Yes. There are only a few exceptions for businesses that don’t need a business license.

How can I attract customers for my online business? 

Ways to attract customers to your online business include running ads, optimizing your social media, partnering with creators and influencers, running flash sales, writing interesting blog content, making sure your website is search engine optimized, and providing good customer service. 

What are some requirements for running an online business?

The basic requirements for an online business are watching your market, registering a domain name, hosting your domain, creating a website, setting up payment options, establishing product delivery, and creating social media and website traffic. 

Do I need to pay taxes if I sell online?

Yes, you are taxed based on the state you live in and where your business is registered.