What is e-commerce? Everything you need to know (2024)

With advancements in technology and changing consumer behaviors, e-commerce has become an integral part of the global economy. It has transformed the way we shop over the past decade and will continue to grow. According to eMarketer, e-commerce sales in the US will surpass $1.7 trillion by 2027 (up from $1.1 trillion in 2023).

To help you fully understand what e-commerce is, our guide examines the different types of e-commerce and its pros and cons before offering tips for creating a successful e-commerce business.

What is e-commerce?

E-commerce, or electronic commerce, is the activity of buying and selling products or services via the internet. The most common e-commerce sales channels include online stores, social media and digital marketplaces. Online shopping is the first activity many people think of when they think of e-commerce, but it also includes electronic payments, online auctions, sharing economy platforms (i.e, ride-sharing) and internet banking.

Types of e-commerce businesses

E-commerce businesses can be defined based on who’s selling and who’s buying. Categories include:

• Business-to-consumer (B2C): A business sells goods or services to individual customers. This method involves multiple vendors in the middle. Businesses source products from manufacturers and sell them to customers through merchants.
• Business-to-business (B2B): A business sells goods or services to another business (e.g., a digital marketing agency sells its services to companies).
• Consumer-to-consumer (C2C): An individual sells goods or services to another individual (e.g., selling second-hand products on a marketplace).
• Consumer-to-business (C2B): An individual sells their own products or services to a business (e.g., a freelance graphic designer produces creative assets for a company).
• Direct-to-consumer (D2C): A business sells directly to consumers. Compared to the B2C model, this doesn’t include any retailers or distributors in the middle. The product goes directly from the manufacturer to the consumer.
• Business-to-government (B2G): A business sells goods or services to a government agency. Common examples of this include construction or IT services.

You can also classify e-commerce businesses based on revenue models, such as:

• Sales model: This common model — used online and offline — involves selling products and services for profit.
• Subscription model: Some brands sell subscription-based products or services. This model relies on recurring revenue.
• Affiliate: Affiliate programs help creators earn a commission when a customer purchases via an affiliate link.
• Dropshipping: In this model, the seller will not have a stock of products. When an order is received, the seller sends it to the partner company which ships the product directly to the customer.

Related: 10 great small-business ideas for 2024

Benefits of e-commerce

E-commerce businesses offer many advantages to both sellers and consumers.

1. Start with little to no capital

Starting a traditional brick-and-mortar business requires a lot of upfront investment just to get the business up and running (rent and furniture/fixtures, for example). With e-commerce, you face fewer costs, making it much easier to start a business. In fact, there are ways you can start a business with no money. In many cases, the only things you’ll need to invest in are an internet connection and a laptop.

2. Reach new markets

E-commerce has knocked down geographical barriers when it comes to shopping. A business in Atlanta can get customers from New York — or perhaps even London or Paris. An e-commerce store is open to anyone who can visit it online.

With digital marketing, brands can more easily reach and connect with their target audience. In the past, this was accessible only to larger corporations. Today, any business, big or small, can easily expand its business across borders.

3. Personalized shopping experiences

By selling online, you get a lot of data about your target audience. This data can be used to deliver personalized shopping experiences and build authentic connections with customers. For example, showcasing relevant products and offers can help you accelerate sales. You can also personalize marketing activities to create tailored interactions with the brand.

Disadvantages of e-commerce

Although modern e-commerce is increasingly flexible, it still has its downsides.

1. Security challenges

Despite the advancements in e-commerce technology, there are still cases of personal and financial information theft. Customers need to be ensured that their data is safe when they shop online. As such, businesses should use payment gateways that securely transmit payment data, SSL certificates that authenticate your site’s identity and enable a secure connection, and other security measures. You should also communicate this clearly to your customers.

Wondering what credit card processor to use for your e-commerce business? We rounded up the best credit card processing companies in 2024.

2. Lack of personal connection

E-commerce lacks interaction with sales associates who can provide personalized assistance, answer questions and offer tailored recommendations. As a result, it can be more challenging than with a traditional brick-and-mortar store to build trust, understand customer needs and provide the right customer support. Communication is often handled through emails, chatbots or customer service lines, which can lead to delays and misunderstandings. You should focus on providing a seamless customer experience across multiple channels, including websites, mobile apps and social media.

3. Customer acquisition

Acquiring new customers cost-effectively while retaining existing ones is a perpetual challenge, especially in the crowded e-commerce space. If a potential customer doesn’t find the product/service or overall customer experience they want, they can surf to a competitor’s site in a matter of seconds. E-commerce businesses must constantly invest in marketing, traffic generation, loyalty programs and personalized experiences to stay ahead.

Ready to get started? Our guide explains how to start an online store today.

E-commerce payment methods

There are multiple ways shoppers can make payments while purchasing online. Most e-commerce platforms include integrations with payment gateways, which offer a choice of payment options.

Here are the most common types of payment methods for e-commerce:

• Credit and debit cards: Customers can make payments digitally using their card number, a quick and convenient method of payment.
• Bank transfers: Bank transfers allow customers to transfer money from their bank account to the business’s account. These are also known as electronic fund transfers (EFTs) or Automated Clearing House (ACH) payments.
• Digital wallets: Apple Pay, Google Pay and other digital wallets allow customers to store payment information securely and make payments via connected devices with just a few clicks. They are among the most popular payment methods in the US.
• Cash on delivery (COD): COD is a payment method in which customers pay for their purchases when they receive them rather than upfront. Despite the name, payment can be via check, credit card, EFT, etc.
• Buy now, pay later: This payment option lets customers delay payment until a later date, often with interest or fees.

E-commerce logistics and fulfillment

A big part of e-commerce is having a seamless fulfillment process so your customers can receive the right orders on time. It’s one of the major costs involved in running an e-commerce business. You can have the best product, an attractive e-commerce website and a high-converting sales funnel, but if your logistics aren’t smooth, your e-commerce business can face major losses.

Here are the major aspects of e-commerce logistics and fulfillment:

• Warehousing: This involves storage and inventory management. You need to manage stock in a dedicated space — whether you decide to store products in your garage or have a warehouse. The main task is to keep appropriate inventory levels on hand while also keeping it lean to manage storage costs.
• Packaging: Your packaging protects the product in transit and serves as a tangible representation of your brand and its values.
• Shipping: To efficiently deliver your orders to customers, you’ll need to partner with a reliable shipper. The shipper should be capable of handling shipping and delivery to your desired locations and offer tracking services to provide visibility to both you and your customers.
• Returns and processing: Returns are unavoidable in e-commerce, so your fulfillment strategy needs a solid returns process. Have a dedicated team or system in place to handle returns promptly, inspect returned items and process refunds or exchanges efficiently.

You can process orders yourself and handle all the fulfillment steps. You might consider this if you have a low order number and enough space to store the products. Otherwise, you also have the option to outsource it to an e-commerce logistics service provider.

Tips for a successful e-commerce business

1. Find your USP (and stick to it)

No matter what you’re selling, you’re going to have competition. That’s why it’s important to figure out your unique selling proposition/unique selling point (USP). This is what defines your business and makes you stand out from the others. It will also help you develop a clear business plan and goals.

To find your USP, create a buyer persona that aligns with your customer base. This will help you identify how your product addresses their needs and pain points. Here are some questions that will help you figure out your USP:

• Why should customers choose you over competitors?
• How does your product or service improve the lives of your customers?
• How does your pricing strategy compare to competitors and what added value does it offer?

You can incorporate your USP into your messaging, brand development and advertising. It will also help you persuasively sell your products.

Weighing your e-commerce platform options? We compared Square vs. Shopify to find out which is best.

2. Experiment with marketing techniques

One of the biggest advantages of e-commerce is that you can try out different strategies, including social media and affiliate marketing, to determine what works best for you — without spending a fortune.

Instead of focusing on just one marketing channel, experiment with different ones, even if one channel is already working for you. Explore strategies like:

• Social media marketing: Brands dominate social media. Create relatable, entertaining and informative content around your product. Engage with your target audience and reach them organically.
• Influencer marketing: Find creators who have audiences that are similar to your target audience. Collaborate with them to post review content on your products.
• Email marketing: Gradually build an email list. Send out a weekly newsletter with information on sales, new content or product drops. This is a great opportunity to use your brand voice with your customers and make your brand memorable. It’s also a good way to announce new product releases.
• SEO: Search engine optimization (SEO) involves improving your website’s visibility on search engine results pages. The goal is to rank in the top results for keywords your target audience is using.
• Pay-per-click advertising: This online advertising model uses ads to drive traffic from search and social media to your site. It involves running an ad through a platform such as Google Ads or Facebook Ads and paying a fee every time someone clicks.

Zach Dannett, co-founder of machine-washable rug brand Tumble, shares how working with influencers/affiliates via the brand’s creator community helped increase customer engagement and sales.

“We started our Creator Community to partner with independent content creators who were interested in promoting our products as affiliates. We mainly use Instagram reels and UGC for promotions, which worked great for social selling.

Demo videos of how to clean spills or dirt off our rugs proved to be the most effective. A video showing one of our partner creators wiping off spilled red wine with just a rag got over 115,000 views.

These videos from our community of creators allow us to create simple, eye-catching content that highlights the best features of our rugs. This type of content really resonated with our audience’s preferences and needs.”

Zach Dannett, co-founder of Tumble

3. Start a community

Speaking of communities, creating a customer community is another great tip for e-commerce businesses. This concept is all about nurturing and providing resources rather than pushing products. A strong community brings benefits like a loyal customer base, helpful feedback and authentic brand advocacy.

Create digital spaces on platforms like WhatsApp, Discord or Instagram broadcast channels. Provide meaningful and valuable content to your community members. Some examples include industry insights, behind-the-scenes looks, exclusive content and user-generated content. Encourage discussions and knowledge sharing. By offering value, you position your brand as a resource and not just a seller.

Facebook and Instagram communities created by Clockout DC and the “Gee Thanks, Just Bought It!” podcast; images provided by Kristen Coates

4. Build trust online

To thrive as a digital-first brand, you’ll need to establish trust and address concerns your target audience may have. For example, if you’re a cosmetics brand, talk about the ingredients in your products and the safety measures you follow. Social proof in the form of reviews and community-generated content is also important in building trust.

Business and marketing coach Nielouphar Abdurahiman discusses how video content is one of the best ways to start generating trust online and make that first sale.

“If you as the founder or business owner can show up online in videos explaining how your product can help solve a problem your potential customers are facing or help them meet an innate desire, you would be able to generate trust much faster than … by sharing only product photos or posters. And, as cliche as it sounds, posting video content consistently can help nurture that trust and continue bringing in views, followers, inquiries and sales.”

Nielouphar Abdurahiman, business and marketing coach

Customer reviews and other user-generated content displayed on the Sugar Cosmetics site

5. Focus on user experience

Who has the patience to shop on a slow, unresponsive website? Visitors form their first impression of a webpage in as few as 50 milliseconds. Your e-commerce website should be able to quickly grab attention and show users what your brand is all about in as little time as possible. This is also an important factor in getting more conversions.

A fast website with perfect navigation is a must-have so your customers can browse easily and make a purchase. The design has to look presentable with a theme that matches your brand image.

Get started with popular e-commerce platforms

Our guide to the best e-commerce platforms in 2024 includes eight of the top e-commerce tools for your small business based on features, pricing and customer support. Let’s take a look at a few.

1. Shopify: Best for small businesses

Shopify pricing starts at $39 per month ($29 per month if billed annually)

An all-in-one platform, Shopify helps you design, set up and manage an online store. It has ready-made templates and a drag-and-drop interface that is easy to use, even if you have zero technical knowledge.

Shopify can integrate multiple sales channels, including web, mobile, social media, marketplaces, brick-and-mortar locations and pop-up shops. You can handle everything from a single centralized location. Other features include unlimited product listings, inventory management, multiple payment providers and high-converting checkout.

If Shopify doesn’t seem right for your business, we rounded up the best Shopify alternatives to help you find the right platform.

2. Shift4Shop: Best for SEO

Pricing starts at $29 per month; $0 software fee is an option if you process at least $500 per month and use the Shift4 payment processor

Shift4Shop is another top e-commerce platform. With only one plan, all its e-commerce features — covering store design, shopping cart, mobile commerce, and more — are available to every customer. It offers unlimited products, support for a variety of payment types, built-in fraud protection and other security, and a host of SEO tools for tagging, headings, URLs, speed optimization, analytics and more.

3. Ecwid: Best e-commerce platform for omnichannel selling

Pricing starts at $25 per month ($21 per month if billed annually); a free plan is available but it’s limited to five products

Ecwid comes with centralized inventory and order management built in. With its point-of-sale integrations, email marketing integrations and dedicated mobile app, you can manage your marketing, merchandising and sales anytime, anywhere.

We like that Ecwid enables you to set up one catalog and use it with WordPress or Wix, custom-built websites, Ecwid’s own Instant Site, etc. You can also sell on Amazon, Facebook, Instagram, TikTok and more.