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If you want to start an eCommerce business or you’re a new business owner, making money is the goal; it’s easier said than done. 

To maximize profits, you need to juggle the factors that affect whether a business is profitable. And to juggle the factors, you need to know them.

You don’t have to wonder what profit margins to aim for, how to gauge profitability and whether eCommerce is worth getting into at all. This guide will answer that.

eCommerce: The basics, benefits and beyond

eCommerce — the buying and selling of goods online — has been a staple of the global market for years. Businesses, entrepreneurs and consumers have embraced the alternative to traditional retail.

The appeal of eCommerce is universal: Purchase goods on the go or from the comfort of your home at any time. It’s highly convenient, and you can access stores across the world in seconds.

eCommerce is an active, thriving industry, but the intense competition makes it difficult to survive. Yet, selling online can be immensely profitable if you know how to play your cards. For businesses, the benefits of eCommerce are numerous:

  • Global reach is one of the biggest appeals. Rather than being limited to a local market, your potential customers can total in the millions.
  • Maintaining a website costs much less than maintaining a brick-and-mortar store. Anyone can start an eCommerce store without paying property taxes and rental fees.
  • Online services allow you to collect customer data, meaning more accurate analytics and more impactful personalization — which keeps customers returning for deals tailored to them. 
  • You can embrace technological innovation and streamline your customer experience online.

The growth of eCommerce has certainly changed a lot over the years.

In the early days of computer technology, global eCommerce was no more than a dream. In the early 1990s, there were limited online marketplaces, one notable example being CompuServe.

Amazon and eBay were launched in 1995, and Alibaba in 1999. Throughout the 2000s, online marketplaces continued to expand — by the 2010s, eCommerce was a thriving industry.

More recently, the COVID-19 pandemic accelerated the growth of eCommerce. Physical store owners and consumers sought contactless alternatives, and eCommerce-capable businesses capitalized on a rising demand for online shopping and delivery.

During the pandemic, the percentage of global retail sales via eCommerce increased by 4.4% (compared to a 1.4% increase from the previous year). Worldwide, eCommerce revenue grew by 19%.

These weren’t just temporary trends; consumer habits have permanently changed. People have come to appreciate the convenience of online shopping, so if you can provide a shopping experience more effortless than your competitors’, people will bite.

Is eCommerce profitable?

The simple answer is yes. In 2022, eCommerce accounted for 19% of all retail sales globally, and it’s expected to grow to nearly 25% by 2027. Moreover, the U.S. eCommerce industry is projected to experience a remarkable growth of 53% by 2027.

Likewise, eCommerce revenue in Asia reached almost $1.7 trillion in 2022, surpassing the Americas by $700 million. 

These statistics highlight the immense profitability and potential for financial success in eCommerce.

What is a good profit margin for eCommerce?

As of early 2023, the average online retail business had a gross margin of 42.78% and a net margin of 0.64%. The gross profit margin for eCommerce is quite impressive compared to the average for all businesses. On the other hand, the net profit margin for eCommerce is much lower than other types of businesses.

For context, gross profit margin represents the percentage of revenue a company retains after deducting the cost of goods sold (COGS). Net profit margin represents the percentage of revenue that remains after deducting all expenses, not just COGS. 

This disparity indicates that most online retailers reach eCommerce profitability by minimizing 

their COGS and capitalizing on low overhead costs. But when it comes to controlling expenses like marketing and operations, they need help to retain profits.

The future of eCommerce profitability

Billions of people shop online every year.

The future of eCommerce holds immense promise, according to projections. The past few years have seen massive growth for online retailers with no sign of slowing down.

Consider these projections for eCommerce’s growth in the coming years:

It’s fair to say that marketplaces like Amazon and eBay dominate the eCommerce sphere. Still, independent selling is holding its ground as viable.

What affects eCommerce profitability?

Going into eCommerce can feel like a big gamble; there’s an element of luck in becoming massively successful. However, many controllable factors go into eCommerce profitability. Let’s dissect these factors and how to optimize them.

Industry, target market and business model

Everything from the industry you’re in to your target market can affect profitability.

Your industry, choice of target market and business model will certainly impact your profitability.

While these can be difficult to change if you already have a clear idea of the business you’re starting — or have launched — it’s still worth knowing how each affects profits.

Industry: Some industries are highly competitive, while others are less so but have lower demand. Some industries have restrictive operating costs, strict regulations or other significant barriers to entry.

Target market: Different demographics behave very differently online and respond better to certain types of marketing. Seniors have different buying habits compared to sports fans, new moms and New Yorkers.

Business model: There are dozens of business models. Will you cater to a few high-paying clients or a bigger, more open-minded general public? This choice should entirely change your marketing plan and how much you expect to make.

The best way to determine your ideal industry, target market and business model is to conduct market research.

Product type

The types of products you choose to sell will directly impact profitability.

The type of products and services you offer is pivotal to whether eCommerce is profitable for you. 

Think about who you’ll need to pay to receive materials, design and craft the product, store it, maintain it, update it and more. Get an idea of how much shipping costs for different weights and destinations.

Pricing strategy can be a challenging factor. For example, selling more expensive items can bring in significant chunks of money, but it can be hard to convince as many customers to make the purchase.

Keep in mind you have many options for revenue streams, such as dropshipping, subscriptions, commissions and affiliate marketing.

Operational costs

Operational costs vary by industry and can affect profit potential.

Operational costs will vary widely depending on your industry and what you choose to invest in, but you can expect it to comprise a significant chunk of your expenses. 

Business owners can expect to pay:

  • SaaS subscriptions.
  • eCommerce platform fees.
  • Web hosting and web maintenance fees.
  • Logistics and supply chain costs.
  • Employee salaries and benefits.
  • Web and app design and development.
  • Payment processing fees.
  • Marketing investments.
  • Taxes and insurance.

A 2023 study revealed the highest defined expenses for eCommerce, according to sole proprietors, are online sales commissions, supplies and advertising expenses.

Careful budgeting and cost management will keep these operating expenses from eating into your profits.

Sometimes, your profitability depends on how quickly you can get ahead of trends and find new ways to draw in customers before your competitors.

The market is constantly evolving, and eCommerce trends arise seemingly out of nowhere; they will impact your profitability for better or worse. 

Stay up to date with eCommerce trends by closely following industry news and getting involved with an entrepreneur community in person and online. 

Stay up to date with eCommerce trends by closely following industry news and getting involved with an entrepreneur community in person and online. 

Keep a close eye on social media: Use tools that track certain tags and topics, then attend conferences and webinars to learn more.

Lastly, stay proactive and willing to experiment in accordance with current trends. 

Marketing strategy

Depending on what you sell and your target market, identify the best marketing channels to focus your campaigns on and build a customer base.

Here are some examples of marketing channels to consider: 

  • Social media marketing: Posting and interacting with customers on an eCommerce-friendly social network like Instagram, TikTok and Facebook.
  • Online advertising: Paying to host advertisements on people’s websites via services like Google Ads.
  • Email marketing: Building a subscriber list and sending carefully crafted emails to earn interest, loyalty and repeat sales.
  • Third-party selling: Selling eCommerce products on another company’s marketplace — think Amazon, Etsy and eBay.
  • Organic traffic: Optimizing your eCommerce website for Google search results, then funneling visitors into your storefront.

It’s essential to gauge the effectiveness of your marketing campaigns by tracking various metrics.

Tracking eCommerce profitability

If you want your eCommerce business to thrive, you better monitor your operations, brand and customer behavior. These are the lifeblood of your venture; knowing what to do with this data can single-handedly save a business.

Tracking key performance indicators empowers your business to make data-driven optimization choices based on real-time insights. Instead of guessing what your customers like best or which decisions are leaking money, just look at the data.

Multiple types of software can track your profitability as an online business. Popular choices include analytics platforms and specialized accounting software. You can also choose eCommerce platforms like WooCommerce and eCommerce web hosting with built-in analytics.

To make sure your venture in eCommerce is profitable, keep an eye on these key metrics:

  • Conversion rate: This measures the percentage of visitors who complete a particular desired action, whether clicking a signup button or completing a form on a landing page.
  • Return on investment (ROI): ROI measures how much money you made from a particular investment, typically a marketing or advertising campaign.
  • Customer retention rate: The percentage of people who have remained your customers throughout a given time period. 
  • Customer acquisition cost (CAC): The average amount your business spends in pursuit of each customer.
  • Customer lifetime value (CLV): An estimate of how much revenue the average customer will generate for your business.
  • Average order value (AOV): The average amount your customers spend per order.

By leveraging this data, you can respond to trends, refine your marketing strategy and adapt to market changes on the fly.

Final thoughts: Exploring eCommerce profitability in 2024

eCommerce is a thriving industry, but the low barrier to entry makes it fiercely competitive. Data proves there’s money in eCommerce, but it takes time for startups to reach profitability. 

For the best chances, carefully consider your industry, the type of products you sell and current marketing trends. It can be challenging to get off the ground, but once you do, you’ll find a profitable industry waiting to be explored.

Starting an online store doesn’t have to be costly. Choose Bluehost’s affordable eCommerce web hosting with built-in themes and eCommerce analytics — this eliminates web design expenses and enables you to track your marketing efforts.

Exploring eCommerce profitability in 2024: FAQs

Is eCommerce profitable for small businesses?

Yes, eCommerce can be profitable for small businesses. Owners with low cash flow or low upfront investment potential can benefit from eCommerce due to the much smaller overhead. However, it can be difficult to get off the ground since there’s more competition.

How can I make my eCommerce business more profitable?

The best route to eCommerce profitability is conducting preliminary market research to determine your ideal industry, target market and business model.
Additionally, evaluate your product selection and operational cost efficiency. Track your visitors using key metrics and refine your marketing strategy.

Should I start an eCommerce business?

It depends on your goals and how much resources you can dedicate to your prospective business. Conduct market research, then decide whether you have profitable business ideas.
If you feel confident and have the resources to sustain your business comfortably, then it’s the perfect time to get started.

How does the size and scale of an eCommerce business affect its profitability?

While larger eCommerce businesses reach a bigger audience, have access to more resources and hold more negotiating power with suppliers, they also have much higher operational costs.

  • Minal Agarwal

    Minal is the Director of Brand Marketing at Bluehost. With over 15 years of business experience in the technology industry, she strives to create solutions and content that fulfill a customer's needs. She is a dog mom and a stickler for calendaring.

    Masters in Marketing Management
    Previous Experience
    Strategic Partnerships, Customer Success, Events and Community
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