How to become an ecommerce seller
Being an ecommerce seller means buying or selling goods and services online with payments and data also being transferred via the internet.
It’s estimated that in the next decade 95% of purchases will take place online, and with the market cap for ecommerce reaching $5 trillion last year it seems like a healthy time to get your ecommerce business up and running. If you’re an entrepreneur, an artisan or just want to make some money on the side, being an ecommerce seller could be the answer you’re looking for.
Here we look at how to set up an ecommerce business, earn money and (yup) pay tax on what you make.
How do I start an ecommerce business?
Starting an ecommerce business should be an exciting prospect (and can be a little daunting too), you have everything ahead of you and probably a decent hunch at what you want to do. But in order to get a successful business up and running you’ll want to be as prepared as possible. Here’s a few things to check off as you get going:
Do your research:
1. Research your business model: This is usually decided off the back of what you want to sell. There’s an endless array of business models you can follow but here’s a few to get you started:
- Dropshipping – Dropshipping is where you act as a third party between a wholesaler and the consumer. You don’t stock the items the consumer purchases but they place the request and then you make the order, taking a share of the revenue.
- White-labelling – Similar to dropshipping, but where you purchase goods or services and then sell them on as your own. Much like the way Tesco own brand isn’t actually made by Tesco (but some other bulk producer for multiple supermarkets) but they package it as their own.
- Wholesaling – This is where you bulk sell products to other businesses. You might sell kitchen utensils to restaurants or clippers to barbers. This has some of the highest overheads if you need to store, purchase and manufacture large quantities of a given product.
- Subscription – One of the most popular forms of ecommerce is the subscription model, where customers sign up and pay a monthly fee to receive a regular batch of your products. This can work for herbal remedies, perfumes, or candles.
- Private labelling – You might not have the means to make your dream product en masse, but you can make one or two samples and then have it sent to a site that will bulk produce your product to your specifications. In many cases when you purchase from an independent retailer this is the process used.
2. Research your audience, try to understand who it is that’s going to be interested in what you’re making and where you would market to them. In many ways you’re making the product for the customer, if you don’t know who’s going to be interested in it then it’s probably not worth selling (even if you really like it!). Build brand personas and work out what they like, need, don’t like and see if there’s a product that might work for that persona.
3. It’s important that during your research you nail your USP (unique selling point). So often people decide to sell an eclectic mix of products without really understanding how it ties to their image or audience, and so become lost in the ether of the internet. At least initially it can help to stick to 1-3 products. If you sell candles, work on making that what you’re known for before going into kitchen wares.
4. Once you’ve decided on your product then it’s about pricing it. Work out how much it costs to source, or source the materials for, and then look at how much competitors are selling theirs for. Between business costs and undercutting competitors while you build a reputation, where would that ideal price point be?
Register your business:
Once you know what you’re selling and who you’re selling to, you get to the fun bit, which is registering with HMRC.
You’ll either need to register as a limited company, which means you have a company name, you act as director, and money paid goes into a company account where the profits are taxed at 19%.
Or you’ll need to register a self-employed income which is a bit easier, although it can mean you pay more in tax if you earn over a certain threshold (which we’ll get onto).
Either way at this point you should be coming up with the business’s name which is the fun bit. If you register with HMRC you’ll have to inform them of the name too.
Find the right vendors:
It’s important to get this right from the start and save yourself a headache later on. To beat the competition you need the best quality materials for the best possible price, which is a fine balancing act. You’ll also need to think about how the business will scale and grow. If you have a slow supply chain coming into you, it’ll be harder to get the growth you need. Spend time on researching this before committing to anything.
Set up shop:
Part of understanding your costs, and the quality of your products and services, will be the online shop you make. You need to consider the payment processor that’s going to be used, the way your products will be offered, the user experience when navigating around your site. A few good sites to consider are Shopify, Wix, and Squarespace if you want to make your own brand and shop. Otherwise the big sites like Amazon and Etsy can be good starting points.
Get your marketing right:
Given that your business is online you’ll be doing all your marketing there too. Some things to consider to get your business in front of people:
- Social channels will give you visibility and allow you to interact with followers and customers. Generally speaking it’s also free. Choose your social channels based on your audience persona.
- Paid social ads - this can cost anything from £20 for a trial to thousands of pounds if you keep ads running the whole time. It will get you infront of new people though and you can tailor your ads to reach the audience you want.
- SEO content - you might also want to appear in searches for things like jewellery or furniture, consider creating blog posts or videos that will make that happen. Search Engine Optimisation, means making your website appear in searches as much as possible with the aim that it’ll lead to selling your products.
How much do ecommerce sellers make?
According to Indeed, the average ecommerce specialist makes about £30,000. Although this is someone who is hired specifically to run the store, rather than the business owner. The business owner’s income varies because so many people pursue the business to different levels. Ecommerce accounted for £693 billion of trade in the UK alone last year making it one of the biggest industries of the year.
How do I pay tax as an ecommerce seller?
If you’re self-employed
If you make more than £1,000 selling goods online, you’ll need to pay tax on it. In which case you should register as having a self-employed income with HMRC.
Even if it’s a side hustle and you have a fulltime job which is being taxed through PAYE, your total income (including your ecommerce income) will need to be taxed.
You can read more on how to complete your self-assessment tax return in this Earnr article.
The usual cut off date to complete your self-assessment is the 31st of January if you’re doing it online, and 31st of October if you’re completing the form by post.
The tax bands for ecommerce income is the same as any other occupation:
- Tax allowance: 0% of earnings (You earned between £0 - £12,570)
- Basic rate: 20% of earnings (You earned between £12,571 - £50,270)
- Higher rate: 40% of earnings (You earned between £50,271- £150,000)
- Additional rate: 45% of earnings over £150,000
You can read more about tax bands, how they work, and what a personal allowance is in our blog post here.
If you’re registered as a business
Then you’ll pay 19% corporation tax on profits and then pay yourself a wage separately which would be part of the Pay as you Earn Scheme like any other full time employee.
How can Earnr help?
Earnr allows you to track your incomings and outgoings over the course of the year, and automate your tax return. You mark each payment you receive and each expense to your income so that by the time you get to doing your tax return, we’ll have everything we need to do the process for you.
We also give you real time projections for your income as the year progresses so you know how much tax you’ll need to pay. You can say goodbye to manual bookkeeping!
