3 Critical Questions for Starting an E-Commerce Site

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When you run an online store, you will ultimately have to deal with a wide array of vexing questions. However, for beginners, there are three essential questions that you must consider carefully in order to build a viable, legitimate e-commerce operation:

  • Where will you locate your business?
  • How will you get your business online?
  • How will your customers pay you?

1. Where will you locate your business?

We are afraid that “online” is not a possible answer here. Though part of the appeal of an online store is that it gives the owner perfect freedom of mobility, the tax money that you will invariably become accountable for will not have freedom of mobility. Furthermore, for purposes of liability under law your business cannot dwell in limbo. Your store, in order to exist as a legal entity, must be registered in permanent home location.

Learning About Domicile

You will have to get familiar with the formal definition of domicile. This refers to your permanent primary location under the law. Some criteria to determine it, aside from physical address, are voter registration, driver’s license, and location in which you opened your bank accounts.

It seems intuitive, but the place where you have domicile is not necessarily the place where you will spend the most time. It behooves you to establish domicile in the same location where you will register your business. This subjects you to liability within only one jurisdiction and will make things much simpler from a legal perspective.

Choosing a Place to Establish Domicile

Of course, the place where you reside might not be business-friendly, which is why you may declare domicile in a different area. Within the United States, South Dakota, Delaware, Nevada, Wyoming, and Texas are all popular states for establishing domicile due to low or nonexistent taxes and eased regulations. Always check the local laws and definitions within your country to ensure that you can start your business legally and in a locality that will benefit it optimally.

Of course, you may be perfectly fine registering your business where you currently live – this option may be simpler given your particular life circumstances. The important thing to remember is that there is no such thing as a business that is “100 percent” online. It has a permanent location just like any brick-and-mortar mom-and-pop in your neighborhood strip mall.

2. How will you get your business online?

Now we can turn our attention to the more technically interesting issue of where the software that runs your business “lives.” It will operate on one or more web servers – physical or virtual machines dedicated to web content and applications.

As a business owner, you do not need to know anything about web servers beyond the fact that they are the engine that operates your business. Even if you are a highly technical business owner, it is not generally feasible or cost-effective to set up and manage one all by yourself. There are an array of companies that operate and scale out infrastructure in order to host web servers for clients for just dollars a month. There are also those that remove all details about the web server altogether and allow you to create a website without any technical knowledge.

Choosing a host

The choice of a hosting company can be daunting as there are many offerings. The advancement of technology has driven the cost of storage and bandwidth down to the point where hosting is a commodity. It is hard to differentiate providers by introductory prices as they are bare-bones, meaning that in order to properly size them up you need to compare their additional services such as security, ability to respond to growing traffic without issues, and availability of dedicated hosting (server resources in lower tiers are always shared).

It is not possible to compare all hosting providers in one article. Instead, let us look at what you should expect at the beginner, middle, and advanced levels of traffic and the hosts that can best fulfill their corresponding needs:

  • Beginner: shared hosting for under $10/month, unlimited bandwidth, one-click software installs, email, 24/7 customer support, ease of upgrading to a higher plan.Best in category: Bluehost, GoDaddy, Fatcow, Dreamhost
  • Middle: Virtual Private Server (VPS – similar to dedicated hosting but still leveraging shared resources), managed WordPress, unlimited monthly data transfers, unlimited storage.

Best in category: Hostgator, 1&1, InMotion,\

  • Advanced: dedicated servers for $75-130/month, 99.99% up time, automatic backup, unlimited domain names, solid state drive (SSD) storage, ability to choose geographic location of server.

Best in category: Pagely, LiquidWeb, WP Engine

Using an online store builder

Though hosting companies have made it possible to get a working page online in less than a half hour, there is quite a lot of work that goes into maintaining a page, even when the host offers a free builder software. This is why online store builders – code-free managed platforms with drag and drop interfaces that hide all the details that you would have to attend to with a normal host – have exploded in popularity.

The upside of these services is that they require minimal technical knowledge to operate and their reliability has been tested by millions of existing users. The drawback is that they operate like the “shared hosting” model by default and can not provide you with as much scaling, customization, or the “power user” options that you may desire down the road. Let us look at some of the most visible providers in this space.

  • WixWix gets quite a lot of praise as the most popular and robust general-purpose website builder. It has been known to adopt new features on a quick basis in order to keep up with cutting-edge HTML5 trends and avoid the “sameness” that beleaguers sites made off of common templates. It also offers a machine-learning assistant for building your site called ADI.
  • SquarespaceSquarespace is another general-purpose platform for creating a web site without tweaking any code. It has a paying user base that is about half that of Wix. It could be thought of as a more “gourmet” option among site builders as it has a slightly higher monthly price than most and has no free tier (the closest thing it offers is a 14-day trial period). What truly sets it apart is that it readily allows for the kind of visually striking, cutting-edge designs that you can normally only get by hiring an experienced web designer.
  • ShopifyThe current market has many site builders that operate within a specific niche. Among the best known of these is Shopify – an all-in-one solution for creating an online store. It is dedicated to e-commerce, with 1,500 apps that plug in to your site and take care of common online business needs.

    With Shopify available to those getting started with an online store, is all of the previous advice of this section moot? Not at all. Despite all of its convenience, you need to consider that it charges a 0.5-2.0 percent fee for each transaction and use of its apps incurs added monthly costs. You can sidestep the transaction fees if you use Shopify‘s home-grown payment platform. Speaking of payment …

3. How will your customers pay you?

Finally, you will need to pay special attention to the issue of choosing a method of receiving payments. It is generally not a function built into hosting providers plans or web builder accounts. It is as complicated a topic as choosing how to develop and host your site and requires you to carefully research different payment methodologies and the providers that facilitate them.

ACH/e-check

Automated Clearing House (ACH) is the officially-sanctioned and regulated network that enables direct electronic transfers between financial institutions. It is conceptually similar to a standard checking transaction, and when built into a website it often gets a more consumer-friendly name such as “e-check” or something to that effect.

It is a comparatively clean form of transfer from the perspective of payer and payee since it goes directly from one bank account to another. It also tends to generate lower fees per transaction than comparable methods.

To implement ACH payments, you will need to find a third-party provider that has ready-made infrastructure for dealing with the ACH network.

ACH is generally a good option for the subscription model since it requires the originator (i.e. customer who initiates the transaction) to provide account routing information.

The biggest drawback to ACH is that it can take 2-4 days for transactions to clear, with next-day posting being the best-case scenario due to windows formally set by the regulating body. From 2016-2018, financial institutions will start implementing same-day ACH, which will allow transactions to post no later than 5:00 PM on the day that they are initiated. However, this service will incur a 5.2 cent transaction fee between financial institutions which may get passed on to the merchant and could slow down adoption. Standard ACH, with its longer time windows but lower fees, will remain.

Card Payment

It is nonsensical (though possible) to establish an online store that does not accept any of the major card networks. In both physical space and on the web, people overwhelmingly prefer to pay with plastic. Credit and debit cards offer a level of convenience and fast turnaround times that make them appealing for everyday commerce. Arguably, we have become so accustomed to the simplicity of paying with cards that it can be difficult to conceptualize how complex the process actually is.

It is important for an e-commerce business owner to be able to distinguish between payment gateways and payment processors.

  • Payment gatewayA payment gateway is a service provider that takes care of the most difficult details of accepting card payments. It provides portals that designers can readily integrate into their sites and forms that users can easily interact with to enter payment information and initiate sales. It also handles aspects of encryption, security, and sensitive information storage. Its most complex and essential function is to encapsulate all of the steps that need to occur in order to send transaction information to the systems further down the chain that will determine if they will be authorized or declined.
  • Payment processorIn discussions about e-commerce, some people use this term interchangeably with “payment gateway” but it is important to understand that they are separate ideas. The processors stand in front of acquiring banks, the target financial institutions that will hold on to the funds of authorized transactions. They generally do not have much public visibility and only gateway providers, card associations, and banks tend to have direct relationships with them.

    Though as a business owner you may not have to interact with a processor on-on-one, you should be aware that your chosen gateway depends upon them for completing your transactions and they can also choose to route through a secondary processor in the event that one goes down.

Payment gateways often handle more types of payments than cards. They tend to offer ACH, region-specific services (e.g. SEPA and Giropay within the EU), and even cryptocurrencies like Bitcoin. However, most of their volume will be devoted to card payments and so their most mature and developed resources will be dedicated to them.

When choosing between popular service providers such as PayPal (through PayFlow),Authorize.net, Braintree, Stripe, and countless others, you will need to examine:

  • If their fee structures are going to be maintainable for your business,
  • If they allow you to manage your own merchant account, if they manage all funds as a single merchant account from which they disburse payments, or if they give you a choice of either option.
  • If they will classify your business as “high risk.” Certain categories such as e-books, smoking paraphernalia, and adult materials may not be able to open accounts with all payment gateways. Those that accept all types of merchant insure against the risk by charging substantially higher fees.

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