A business plan isn't strictly necessary for starting your own e-commerce business, and not every successful company has launched with one. However, it can be a great help as a foundation, to get yourself organized, and understand your idea's full potential.
What’s more, a good e-commerce business plan is a must-have when applying for a loan, or pitching your company to investors. Even if you are thinking of using your own capital, a comprehensive plan can help avoid surprises and identify potential problems before they snowball into more significant issues.
A good e-commerce plan can also help you set your strategy, plan the necessary resources, research the market, and evaluate the competitive feasibility of your idea.
Keep reading if you want to learn more about the crucial steps to take when writing your business plan for e-commerce.
A business plan for e-commerce is a comprehensive document that describes how the company operates, the product or service they sell, their financial plan, market and competitor analysis, staffing, digital marketing strategy, tools, logistics, and operations.
In a nutshell, this document should describe and include all aspects of the business, from website and product design to customer support, to financials and accounting - things to think objectively about before launching your digital store.
For example, investors rely on business plans to evaluate the feasibility of your business and its potential before investing any capital. Even if you don’t need to pitch investors, writing up your e-commerce plan can help you evaluate your business idea.
After all, starting a business is risky, and even though a business plan seems like a lot of work, it can save you from potential financial losses.
A business plan is helpful for:
It is crucial to know who your competitors are, what they do better or worse, how you can stand out from the crowd, and your unique selling point (USP). A thorough understanding of the market will help position yourself and identify your target audience.
For example, consider the minimum prices of your products or services you have to charge your future customers to break even after the operational costs. You’ll also want to factor in the cost of subscriptions to digital tools that can help you save time and boost your business growth, like a Social Media Manager and Reputation Management.
A solid business plan for your e-commerce business can act as a push to get organized and plan accordingly. It also helps build confidence and eliminate uncertainties and surprises you otherwise wouldn’t have thought about.
For example, if you are setting up a digital store that sells furniture, you need to think about high storage, shipping, and product returns costs. Or the fact that as an online retailer, you will need to allocate more budget on marketing than a physical store may need.
What’s more, without a solid business plan, it can be challenging to get started, especially if you are a team working remotely from different parts of the world. If you are several co-founders working together remotely, using tools like board meeting software can be a great help.
So, here are steps to take to write a successful business plan.
Starting and running an e-commerce business often involves more fun and creative aspects, such as shooting your products, designing the website, or sourcing your products.
However, there are also legalities and administrative processes involved. Besides registering a domain name, you need to legally register your company and its structure. The type of business you will register will determine how much tax you’ll have to pay, which is a crucial aspect to consider when writing your financial plan.
Your business structure determines how your company is taxed, your liabilities, and how you can secure funding for your business. The type of business and tax rates depend on which country you are planning to set up your company. As an example below, we will go through the main types when registering a business in the US.
While each type comes with its pros and cons, the structure you choose depends mainly on the size of your company. Some set-ups are better suited for individuals running their business on their own. In contrast, others are perfect if you plan to employ more people or start your company with your business partner.
If things change along the way, you can adjust your company type, but it does come with some additional administrative efforts.
In the US, about 40% of small business owners are:
What sets them apart from freelancers is that they are selling a particular product, not a service, which often applies to small retail businesses. It is an unincorporated company without the legal differentiation between the person who runs it and the owner. It is often the easiest and best choice for small online retail businesses, as it is straightforward to set up and manage.
The downside of it is that it comes with the liability on the owner. However, e-commerce start-ups with relatively low setup costs and taxes can be the best option. What’s more, the business type can be changed later, when the business grows.
When you are thinking about setting up a business with a partner than being a sole owner, all partners would share the profits and also contribute to funding and labor of that business, and there are two types:
General partnership (GP) is where the business is evenly divided and formally agreed upon beforehand.
Limited partnership (LP) is where control and liabilities are unevenly distributed.
Setting up as a corporation is often the least common for new e-commerce start-ups. It is a little more complicated to set up and involves more administrative processes, but it is best when the company plans to make several hires and rapidly grow the team and sales.
The plus sides are that the liability lies on the company, separate from the company's owner, and taxes are often lower. It assumes the risk on the entity rather than the person running it.
A Limited Liability Company is a good structure for a single founder, making it an excellent option for e-commerce businesses just starting out. LLC is technically a combination of a partnership and a corporation.
As the name suggests, owners would have limited liability. LLC doesn't have to file taxes as a legal entity, and the members get the option to be taxed either like individuals or as corporations depending on their preference. They also get liability protection like in the corporation's model, meaning you can separate the business from your taxes, a great advantage of an LLC.
An executive summary is a general description of your business, including what your company does, its vision, products or services you are offering, your target audience, go-to-market strategy, financial plan, and finally, how much funding you'll need. It should be written after you have completed the other sections of your business plan.
Writing down all of these facts on a one-page, high-level summary of your idea and its operations gives a better overview to investors. An executive summary is crucial if you are planning to pitch for funding, a chance to persuade investors to keep reading further and raise interest.
A company description is a section that explains why you are different, what your unique selling proposition is, and why your business is a good investment. It should include more in-depth information about your business structure, the industry you are operating in, your vision, value proposition and a mission statement, your team setup, their salaries, and your long-term plan.
For example, Amazon's vision statement is "To be earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online." Essentially, a company description is to show your business in more detail, including what you sell, how you sell, your values, and what makes you unique.
Whereas the executive summary and the company description are a great addition and are crucial when pitching for investment, market and competitor analysis is a necessity to determine whether your product or service has market potential. Considering how much competition there is and the market potential are essential aspects.
Nowadays, there is much readily available public information out there. By searching for the keywords, you can find your main competitors and reports about the market potential, growth, and overall size. You can also use web scraping to extract website data about your competitors, including product descriptions and prices.
For example, say you are thinking about starting a fashion clothing e-commerce business:
It would already show the market and customers are there. However, due to its size, this product area is highly competitive, and you would need to think about what makes your business stand out. Perhaps you would only produce sustainable and hand-made clothing or make them only out of recycled materials.
Consider what is missing, the white spots, and how you could solve that problem. A simple SWOT (strengths, weaknesses, opportunities, threats) analysis can make it clear where the opportunities are, but also highlight the negatives and help to estimate the potential:
• Previous experience scaling e-commerce business
• Strong ad management experience
• Patented product
• Exclusive deal with a manufacturing company
• No team management experience
• Breakable product, making shipping more expensive
• Strong growth in product category sales
• No market leader in category; many smaller firms
• Regulation pending for product
Determining who your target audience is can help maximize your marketing efforts and adjust the marketing activities accordingly. Once you have specified your target customer, you can choose your campaigns' contents, website design, the platforms you should market through, etc.
By understanding your target audience's age, where they live, their disposable income, where they shop, and their beliefs and values, you can create relevant content accordingly. You can then distribute it through the most appropriate digital marketing channels.
For example, you are thinking about launching an online accessory business, and price points range from anywhere between $2 - $40. Your target market is younger customers, students with less disposable income. It can determine which social media channels are best to reach and connect with this audience. For instance, let's take the social media platform TikTok. 41% of its users are between the ages of 16 - 24. It would be the ideal marketing opportunity for this segment.
All in all, the marketing plan section of your e-commerce business plan should include the following:
Price: how much does your product cost, the RRP?
Product: profitability and key differentiators
Promotion: how will you market these products?
Place: where will you sell these products?
Defining your operational setup and including it in your business plan is also important. No matter how good your product is, if you cannot produce these in bulk and keep up with the incoming orders, you can’t make the sales.
So map out your supply chain, production, shipping, and logistics processes to keep organized, know what steps to take, and include customer support.
For example, write down which suppliers you will use, calculate how long the production process takes, manufacturing costs, and which equipment you need. Consider the shipping company you plan to use, who pays for shipping, how returns are processed, and how and where you will store your stock.
Even if you don’t need your e-commerce business plan to apply for funding, it can be a great help to know which steps to take to make your business a success.
This part is vital if you write your business plan for e-commerce to pitch to investors and gather funding. Investing in a business that is set up to lose money, in the long run, won’t raise the interest of investors or banks. And most importantly, you don’t want to set up a business that is bound to fail, especially if you invest your own money or quit your job to launch it.
Therefore, it is hugely important and recommended to plan this part to see if and when your business can start generating profits.
A comprehensive financial plan should include:
If you haven’t dealt with financial planning before, this step may seem a bit intimidating; however, if you follow through with it and break down what needs to be done, it will be pretty straightforward and clear.
So, even if you don’t want to apply for funding or need to present your business plan for e-commerce to anyone, completing this step for yourself is a great idea either way. It gives you an indication and a rough estimate of how profitable your business idea could be when you break even, and how much revenue your business could make.
All in all, writing your business plan may seem like a daunting task, involving time and effort. And as a small business owner who has written one, I can confidently say that it does.
However, I can also guarantee that having a business plan before you build your new e-commerce website is really beneficial. Not only does it help to think through your ideas, and confirm the feasibility, it also generates new ideas and clarifies why it’s worth the effort.