Is Starting an E-commerce Business a Profitable Idea?
Starting an e-commerce business in Australia can be both rewarding and profitable. Since the pandemic, digitisation has skyrocketed to become firmly entrenched in everything we do and how we interact. There has never been a better time to start an e-commerce business, but it will take far more than an idea to become successful!
What is an e-commerce business?
An e-commerce business is one in which transactions take place entirely online. You can sell almost any product or service using the power of the internet to target a global audience quickly, easily, and cost-effectively.
The key benefits of starting an e-commerce business in Australia
E-commerce businesses are very flexible and scalable:
- Low costs of entry. With everything online, you can set up your e-commerce store easily with a website and an online store and even outsource your storage and delivery.
- Scalability. Your market is global, creating almost unlimited potential.
Data-driven decisions. E-commerce businesses only exist online, meaning decisions are made based on data, not guesswork. With the appropriate digital tools on your website, you can see:
- where buyers have come from,
- which pages and products buyers prefer
- how many buyers discarded purchases at your checkout
Data enables you to make quick decisions and re-assess your strategies in near real-time - that’s powerful!
With the right ideas and execution, starting an e-commerce business can be a fulfilling pursuit. Consider two great Australian examples:
The Iconic is the leading online fashion and lifestyle e-commerce retailer in Australia and New Zealand. It has since become a global fashion house brand listed on the Singaporean Stock Exchange, with over $1bn in global sales.
Atlassian is an e-commerce business that specialises in online workflow management software, such as Trello, Jira, and Confluence. Atlassian listed on NASDAQ in 2015, valuing the company at a whopping $4.4bn.
Both the above businesses started from scratch - perhaps in the same position that you are in now as you read this guide. Make no mistake. - running any e-commerce business is far from easy, but with the right ideas and great execution, it can be the most rewarding journey!
How to Set Up Your E-commerce business
Before you start your e-commerce business, you want to ensure your products or services will sell:
- Spend time researching products that are trending well and likely to trend well into the future. Google trends can be a good starting point.
- Choosing your product niche can be a delicate balancing act. You want a market that has sufficient competitors to prove a market is viable, but that has limited established players to make it very expensive to compete for buyer attention Focus on your Unique Selling Points (USPs) to ensure you can compete effectively.
Low costs of entry mean new competitors can easily enter your market. So, as you expand your e-commerce business, you need to look in the rear-view mirror as well as the road ahead. Bottom line - never stop researching.
Choosing your e-commerce business model
Your choice comes down to your own personal experience and preferences.
Business to Consumer (B2C) - selling products to consumers - e.g., the Iconic
Business to Business (B2B) - selling products to other businesses e.g., Atlassian
Consumer to Consumer (C2C) - enabling consumers to sell to each other - like Uber, e-Bay and Aussie-based Airtasker where local tasks get done by skilled locals.
Consumer to Business (C2B) - where consumers add value to businesses primarily through social media - e.g., corporations sponsoring influencer Instagram posts.
Choosing your revenue model for your e-commerce business
Your ideal revenue model depends on your risk appetite. The more you are in control of your stock, the higher your margins, but the greater the risks.
Wholesaling and warehousing – you’ll purchase bulk inventory from a supplier. Your products involve additional costs and create the risks of holding stock that you cannot sell.
Drop shipping companies - This is a high-risk, lower-reward business model where you sell products that others store and fulfil. Check out the top 22 drop shippers in Australia.
White labelling - A fast way to jump on a new product trend is to sell products manufactured by others but customised to your branding.
Private labelling - Very similar to white labelling, but the manufacturer's product specifications are changed to suit your specific requirements.
Subscription-based - Often used by software platforms where your customers pay a monthly or annual subscription - e.g., Canva
Find out more: Need funding? Check out our guide on small business grants.
Understand your customer
To sell to your customers, you must understand why they will buy from you. Identify your customer personas - their background, demographics, and their reasons for buying. Imagining your ideal customer in front of you not only helps you create the right messages for your advertising and marketing but will also help you identify different markets and customers for your products.
Your e-commerce business plan
If you don’t have a target, you will never hit it. You must know your numbers.
For example, if you are starting an e-commerce business importing Chinese products, consider:
- exchange rates,
- the lead time to produce your products and
- fund the pre-payment of the goods you are buying that can take 6 weeks to arrive in Australia.
If you are not used to writing business plans, check out the e-commerce business plan template from HubSpot (they also have additional templates for those starting an e-commerce business).
By writing your own business plan, you can firm up your ideas, which funders will also need to see.
Find out more: Need funding? Check out our guide on small business grants.
How to Fund Your E-commerce Business
Cash is the lifeblood of an e-commerce business. Without it, your e-commerce idea is just an idea. You need funds to execute your strategy. You may need finance for:
- Advertising and marketing
- Customer support
- Developers - especially for software applications
So, where do you find finance?
Investing is high-risk capital. Investors will want to know everything about you and your e-commerce business. They will own a percentage of your business and have a say in how you run your business. The two main types of investors:
- Angel investors - who will typically invest from $25k - $250k in projects
- Venture Capital (VC) firms - who will invest from $250k upwards.
It is very intense getting capital from investors - so make sure you have a strong business plan. They are also very cautious about who they support - e.g., VCs support only 1% of projects they assess.
To help you find potential investors, Airtree Ventures publishes an open-source list of investors broken down by investor preferences.
Lenders do not take equity, but they charge fees and interest and want security for any loans they provide. Australian banks typically want property security.
To understand more about using debt to fund your e-commerce business, check out our guide on loans and other financing options.
Grants are a great source of capital for your e-commerce business - as no security or equity is required. Grant funding is, however, highly competitive, and in Australia, most grants focus on innovation and exports.
These grants are constantly evolving, so check out our guide to small business grants in Australia.
How to Build Your E-commerce Website
Setting up your legal entity
There are three primary legal structures in Australia for your e-commerce business.
Sole trader - where you trade under your own name. You are personally liable for all aspects of your e-commerce business.
Partnership - where two or more people come together to start an e-commerce business. Each partner is equally liable for all aspects of your e-commerce business.
Proprietary Limited Company (Pty Ltd) - by setting up a limited company, you are creating a separate legal entity that is liable for all activities related to your e-commerce business.
For more information on the various legal structures, check out the Australian government website. You can also register your e-commerce business in Australia at the official government registration website or through your accountant or lawyer.
Setting up and protecting your branding
The branding of your e-commerce business is crucial for your online presence. You can get a logo designed cost-effectively at Australian sites like Airtasker or Freelancer or global sites like Fiverr. You may also want to protect your logo with a trademark. For further guidance on Trademarks, check out the Federal Government’s IP Australia website.
Building your online store or site
You can build your e-commerce business quickly by using automated online store creators. For smaller businesses, consider using Wix or Squarespace and for those with more sophistication consider Shopify.
These options are for those with no coding experience who just want a “plug and play” option to get started and easy ongoing maintenance.
As your e-commerce business grows, there are website platforms that embed sophisticated Content Management Systems (CMS). The most widely used is WordPress, which is very powerful and supported by “plug-ins” that give you building blocks to build very powerful online stores specifically for your needs.
Taking payments online
While your bank may have facilities if you are a new start e-commerce business, you may not qualify. Luckily, there are specialist independent payment gateways to help you accept payments quickly. The key risks providers look at are the chances the goods you sell will be rejected, disputed or subject to fraud. Providers will delay sending you customer funds to accommodate these risks - so check out their terms and conditions.
The key Aussie payments providers are:
- PayPal - listed on NASDAQ and the global market leader (>40% market share). PayPal accepts payments via email as well as via credit card.
- Stripe - 20% market share for payments globally and accepts more than 135 currencies and forms of payment, including cryptocurrencies.
- Shopify is listed on the New York Stock Exchange with 12.5% market share. Shopify’s payment platform integrates seamlessly with its shopping platform.
- After Pay - Aussie buy-now pay-later company that is favoured by Zoomers has over 2% market share. It enables customers to pay for goods (and services) over multiple instalments interest-free.
How to Market Your E-commerce Website
Once you start your e-commerce business, you must promote it.
Social media marketing is very powerful as you can target your customers by demographics and very specific locations. Some platforms, such as Meta, enable you to create a digital storefront across their various apps - e.g., Instagram and Facebook.
Influencers on YouTube, Instagram or other social media platforms build up their audiences through regular, engaging content. This creates pools of influence over potential customers. The process of working with influencers is constantly shifting and usually involves:
- Organic engagement with influencers - if they like your business (and you)
- Being sponsored - where you pay to be mentioned in their content.
SEO (search engine optimisation)
SEO is a longer-term marketing strategy, which means your website ranks highly on Google through engagement with others. The Google algorithm is constantly changing - but one feature that remains consistent is having high-quality sites linking to your e-commerce business. These links take time to build through high-quality content that engages.
PPC (pay-per-click) Advertising
Pay-per-click (PPC) advertising is powerful, performance-oriented and can be started immediately. By focusing on the keywords that buyers use to search, you can create digital advertising campaigns to sell your offering. You only pay for each click on your advert.
Check out this useful introduction to PPC marketing from HubSpot.
Google’s auction process determines how high your advert ranks on Google. Other social media platforms also have similar PPC structures.
Find out more: Need more advice on this sector? Read our sector-specific articles.
Starting an E-commerce Business is not Your Only Option
Starting an e-commerce business in Australia can take time and patience. An alternative is to buy an existing e-commerce business, where there is:
- An existing customer base
- Repeat revenues
- An established presence online
While this can reduce your risk of starting from scratch, you will need to fund the purchase of the business. For the key areas to consider when making your decision check out our guide for buying a business in Australia.
You can also find a selection of e-commerce businesses for sale in Australia.
With the continuing growth in digitisation and the increases in e-commerce volumes, the timing is ideal to consider starting an e-commerce business in Australia. The key to success is to thoroughly plan before you start.
- Research your products and competitors thoroughly
- Plan your ideal business model and understand the risks of each
- Set up your business legally in a way that suits your needs and preferences
- Explore different ways of funding your e-commerce business - especially if you are buying an existing e-commerce business.
Every 10,000-mile journey begins with the first step - so take your first step and buckle up for an exciting future!
If you want any assistance in starting your e-commerce business in Australia, we’re here to support you. Just reach out to our team and we’ll be pleased to support you on your journey.