E-commerce is a very attractive option for entrepreneurs – not only
does it lower traditional retail business costs it also offers a
uniquely “sticky” way for engaging with customers and building loyalty
through “personalization” and other online value adds such as offers,
social media interaction, permission-based email marketing, and so on.
And e-commerce continues to boom. Despite the recession, 2009 saw the
heaviest-ever online shopping day (December 19) with $913 million in
recorded sales. The U.S. Census Bureau also reports that
e-commerce sales continue to grow by 23.1 percent per year compared with
5 percent for total retail sales.
But, as with all business ventures and channels to market, there is
no guarantee of success for online sellers or “e-tailers”.
Taking your sales channel online, whether you choose to sell
exclusively online or wish to supplement your store-front operations, is
a whole different ball of wax than bricks ‘n’ mortar retailing –
particularly when it comes to getting started, marketing your site, and
observing the regulatory rules of the road.
Here are some “must have” resources, tips and advice to help you make
a successful and legal move to e-commerce.
Understanding E-Commerce in all its Forms – “Dabblers”,
Affiliate Marketing, and Online Stores
In this article, “Making Money Online – When Are You a
Business?“, my fellow Business.gov blogger, Bob Keating, offers some
invaluable insight into the fundamentals of making money online, “from
selling your old books on eBay to promoting products and services for
online merchants, or becoming an online merchant yourself.”
As Bob explains, e-commerce takes many forms, and different laws with
different tax and regulatory implications govern each. So it’s
important to understand which model fits with your goals and what the
associated business ramifications entail.
For example, e-commerce “dabblers” who sell a few
items on eBay can quickly turn into prosperous entrepreneurs, but the
IRS will want to know as soon as your “online hobby” becomes a business.
Affiliate marketing is another entry-point into
e-commerce, particularly if you don’t produce your own products or don’t
have established wholesale relationships. Affiliate marketing involves “an
arrangement where individual Web site owners receive a sales commission
by promoting products and services of other companies (on their Web
sites)“. As such, affiliate marketing, is considered by the IRS as a
form of income, almost akin to being an independent contractor – and
affiliate earnings must be reported.
The third and perhaps more traditional form of e-commerce involves
opening an online store – this may entail building
your own Web site and online store or using a market place like eBay,
which supports thousands of small business accounts as well as
Getting Started – Observe the Rules of Offline and Online
Whatever form of e-commerce you engage in – if you intend to pursue a
profit, you need to know that the government formally considers you a
business. As such, there are some fundamentals of starting a business
that you need to observe. Read “10 Steps to Starting a Business” from
Business.gov to better understand and navigate the key planning,
financial and regulatory factors involved in starting a business. (More
here from the IRS on what constitutes a business, as opposed
to a hobby).
Next, you will need to observe the steps needed to start your online
business. Read this “Start an Online Business” guide from Business.gov for
guidance on registering a domain name, selecting a Web host, Web
design, online marketing laws and business regulations.
Choosing a Business Name and Domain Name