How to Start an Online Business in 8 Steps

The internet has reshaped where, when, and how people shop for goods and services. The popularity of digital shopping has opened a world of opportunities for online business owners. With a computer and a stable internet connection, you can work from anywhere, set your own schedule, and sell to customers worldwide while avoiding the hassle and costs of owning a brick-and-mortar business.

Whether you're just starting to brainstorm about the best online business ideas or already have a concept in mind, here are some tips for getting your business up and running.

8 Ways to start your online business

1. Establish a business niche

If you haven't done so already, you'll need to decide what you want to offer and who your target customers will be. Here are a few factors to consider:

Your interests

Mark Twain once said, "Find a job you enjoy doing, and you will never have to work a day in your life." While only some would agree with this work/life approach, it's a good starting point for choosing a business niche. Think about your passions, skills, and expertise, then focus on ideas where they intersect.

Target audience

Consider your target audience and whether they have a problem no one else is solving or a product no one else is providing. If so, do they have the discretionary income to afford your product or service and are they willing to pay for it? Will there be adequate demand?

Profit potential

Consider if your niche has profit potential in an online environment. For example, an overly large or heavy product may be too expensive to ship at a reasonable cost. Is the idea scalable so you can accommodate more customers and transactions in the future?

2. Choose a business model

A business model is how your company will provide products or services to customers and make money. Some options to consider include:

• Affiliate marketing. Promote other businesses and receive a commission for each sale you make.
• Coaching and consulting. Share your expertise and offer guidance.
• E-commerce. Launch a website and sell products online using one of the best payment gateways.
• Franchising. Pay a franchise fee and operate under an established brand.
• Freelancing. Offer a service such as writing, programming, web design, or social media marketing.
• Information products. Create and sell eBooks or online courses.
• Subscriptions. Package software or subscription boxes and charge a recurring fee.

3. Write a business plan

A good business plan outlines the steps to start and manage your business. The important thing is to think through the key elements of your venture while focusing on your goals. According to the Small Business Administration (SBA), a traditional business plan format includes some combination of the following:

Executive summary

Explain what your company is and why it will be successful. This section should include your mission statement, product or service, basic company information, and financial details if you need financing.

Company description

Provide detailed information about your company: the problem it solves, your target audience, and your competitive advantages.

Market analysis

Explain your industry outlook, what other businesses are doing, and how you can do it better.

Organization and management

Outline who will run your company and how it will be structured. Will it be a general or limited partnership, a C or S corporation, limited liability company (LLC), or are you a sole proprietor?

Service or product line

Describe the product or service you offer, explaining how it benefits your target customers.

Marketing and sales

Explain how you will attract and retain customers and the steps for making a sale.

Funding request

Explain the level of funding you'll need over the next five years and how you'll use it. Include financial projections detailing your forecasted income, cash flow, and budgets. Research how to get a business loan, and familiarize yourself with the SBA website to learn more about its loan programs.

4. Develop your brand

Once you know what you'll sell and how you'll run the business, developing your brand is next. You'll have to choose a business name and create a logo. This process can be relatively simple if you already have ideas in mind—or challenging if you're starting from scratch. You might want to hire a graphic designer to implement your vision.

5. Create a website

Once you have developed your brand, it’s time to build a website. You’ll need to lock in a domain name and choose a hosting service. There are website builders, such as Squarespace, available to help you get started—or you can hire someone to do the work for you.

6. Cover legal bases

The next step is to make your business official. While the requirements vary by business, here are the essential action items:

Register your business

Registering with your state gives you legal grounds to use your brand's name. You can utilize a service like LegalZoom to register as a sole proprietor, LLC, corporation (C corp or S corp), nonprofit, or DBA (doing business as). Consult a tax specialist for help choosing the best business structure for your situation.

Apply for an EIN

You'll need an Employer Identification Number (EIN)—a federal tax ID—to pay federal taxes, apply for business licenses and permits, open a business bank account, and hire employees. You can apply for an EIN for free on the IRS website. The IRS says to beware of websites that charge for this free service.

Licenses and permits

Depending on your business activities and location, you may need licenses and permits from your state, county, or city. Check with your state's website (e.g., ca.gov, nc.gov) to determine your necessary licenses and permits.

Taxes

Most businesses must file an annual income tax return, and the form you use depends on how your business is structured. Online services like Found, a banking and tax app designed for small business owners, have tools to make keeping track of taxes easier. It's also helpful to establish a relationship with a trusted tax specialist.

7. Market your business

Once your online business is ready for the world, it's time to market it. While marketing strategies vary depending on your business model and target audience, here are a few options to consider:

• Include your brand in online directories.
• Create social media profiles and share high-quality content often.
• Launch compelling email marketing campaigns.
• Use SEO best practices to optimize your site for search engines.
• Collaborate with influencers to promote your brand.
• Leverage your network—including professional contacts, friends, and family.

8. Reward customer loyalty

Keeping existing customers happy is often easier than generating new leads, so it can be worth the extra effort to reward them for their loyalty. Consider offering discounts to repeat customers or perks to patrons who refer friends and family. You might also provide spending-based rewards or incentives for sharing positive reviews on social media.

Of course, one of the best ways to reward loyalty is to connect with your customers personally, making sure they always feel welcome and appreciated. That way, they'll be more likely to become repeat customers, recommend you to friends and family, and help you grow a thriving online business.

Why should you consider starting an online business?

Consumers increasingly prefer shopping online, providing virtually unlimited opportunities for digital entrepreneurs to reach a global audience. Further, many of the traditionally time-consuming aspects of starting a business have been simplified—and made more affordable—by websites such as LegalZoom.

One outcome of the pandemic was the emergence of new and enhanced tools that make remote work not only possible, but more efficient. As a result, it's easier than ever to work anywhere in the world with a laptop and a reliable internet connection.

How to save when starting an online business

Businesses have a slew of start-up costs that can be difficult to manage before you're up and running. Here are a few ways to make balancing the budget a little easier.

Rewards credit cards

A business credit card is an excellent way to keep your business and personal expenses separate for accounting purposes, but that's not the only perk. With the best small business credit cards, you can also earn rewards on your spending, enjoy perks like free travel insurance, and score a hefty welcome bonus.

Tax prep software

A good way to save money in the early days of your business is to use upgradable tax prep and other business-related software. Start with the free version, then upgrade to the premium package once your business takes off.

Payment processing

You'll need a payment service provider to accept online payments. Not surprisingly, some payment solutions are more expensive than others. For example, Square charges 2.9% + $0.30 for online transactions, while Venmo costs 1.9% + $0.10 between Venmo accounts. Of course, fees shouldn't be the only consideration when choosing a payment service provider. Still, they're worth paying attention to; even small differences can add up over time.

TIME Stamp: Research and strategy are key to success

Starting an online business involves many of the same steps as opening a brick-and-mortar business. You’ll need to determine your niche, conduct market research, craft a well-thought-out business plan, and develop a brand and website. Implementing a successful marketing plan is also key to building and retaining a solid customer base.

Frequently asked questions (FAQs)

What is the best type of online business to start?

The best online business for you depends on your professional background, skills, interests, and goals. Think about what you're good at and enjoy doing, then brainstorm ideas for monetizing it.

Which kind of online business is most profitable?

There are a wide variety of online businesses ranging from e-commerce to private tutoring. How profitable one is over the other depends on a number of factors. The start-up and ongoing costs of some are nominal compared to others. For example, an online tutoring business would typically have much lower costs than selling collectibles online. Demand, competition, and how well an online business is managed also impact profitability.

Can I start an online business with $100?

You can start an online business on a shoestring budget. With $100, you’ll be able to buy a domain name, build a basic website (using a free template), and publish the site through a web hosting provider long enough to get you started. Of course, some ventures have higher start-up costs, so you may well need considerably more than $100, depending on your business.