During the pandemic, many consumers turned to ecommerce to acquire their daily necessities. Ecommerce sales exploded, prompting many companies to invest more money in their digital presence.
But you might be wondering, is ecommerce still profitable now that things are back to normal?
Maybe you have a solid business idea and are considering whether you should test the ecommerce waters.
Well, you're in the right place. We'll explore where ecommerce stood at the end of 2022 and what the future looks like for business owners interested in online sales.
After that, we'll share a step-by-step ecommerce strategy guide on how to become an entrepreneur or a startup owner.
So, let's dive in. Here's what we'll cover:
- Ecommerce business landscape in 2022 and beyond
- Is ecommerce profitable?
- What are some advantages of ecommerce over traditional retail?
- What kind of products sell well through ecommerce?
- What’s a good profit margin for ecommerce?
- How to start building a profitable ecommerce business
- Final thoughts: Is ecommerce still profitable — how to grow a business online
Ecommerce business landscape in 2022 and beyond
A 2022 Insider Intelligence report forecasted retail ecommerce sales worldwide to reach $5.72 trillion by the end of the year. That’s a 9.7% increase from 2021. The report shows retail ecommerce sales account for 19.7% of total retail sales.
By 2025, experts expect ecommerce sales to reach $7.53 trillion, contributing to almost a quarter of total retail sales.
This positive trend is influenced by "mobile-first" communities, such as those in Asia and Latin America. Many of these communities have traditionally only had access to fixed broadband connections due to infrastructure or financial constraints.
The people in these regions can now enjoy the benefits of cheap mobile broadband connections, including mcommerce.
A 2022 Insider Intelligence report expects U.S. retail mcommerce sales to more than double those from 2021 by 2025, totaling up to $728.28 billion. That means mcommerce should account for around 44.2% of overall U.S. retail ecommerce sales in 2025.
In 2022, the three largest ecommerce markets were:
- China (ecommerce contributed to almost half of the country's retail sales).
- The UK (36% of total retail sales were ecommerce sales).
- South Korea (32% of retail sales were ecommerce sales).
Anot 2022 Insider Intelligence report found that Brazil and Argentina are among the fastest-growing online retail markets due to the surge in digitalization in Latin America during the pandemic.
Millennial and Gen Z shoppers are the predominant users of ecommerce stores. A 2022 National Retail Federation report found that 58% of millennials and 56% of Gen-Zers shop on mobile apps and web browsers.
They make their purchase decisions using internet searches, social media apps, and influencer marketing.
Is ecommerce profitable?
Yes, ecommerce is profitable and is projected to remain so. Insider Intelligence estimates that ecommerce will make up 23% of retail sales by 2025. The biggest factors adding to its growth are mcommerce, online retail shopper demographics, and increased online shopping in Asia and Latin America.
What are some advantages of ecommerce over traditional retail?
Online shopping has exploded in popularity since the start of the pandemic. Besides the convenience of having your products shipped directly to your door, ecommerce also helps with accessibility.
From a buyer living in a remote area to someone who’s unable to make the trip to the store, ecommerce empowers people with an improved customer experience through better access to products and services.
Ecommerce also gives buyers more choices than they could ever get through in-store purchases and access to information not found at a traditional retail store.
The reviews and feedback left by previous customers build brand credibility and help online buyers make better purchasing decisions.
Selling online is also a more cost-effective business model. It requires fewer tangible resources and provides small businesses with a greater reach than a physical store.
In short, online shopping saves time, money, and effort when compared to traditional retail.
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What kind of products sell well through ecommerce?
Here are some of the top trending digital commerce business segments.
As the world gets busier, people crave meals to be delivered to their doors.
It's no surprise that a 2023 The Business Research Company study projected the worldwide online food delivery market to reach $143.05 billion by the end of the year.
The study expects a compound annual growth rate (CAGR) of 11.5%.
From ready-made dishes to meal-making kits, hungry buyers have more options than ever.
Fashion items like clothing or jewelry are always in high demand in the ecommerce space. And while the competition can be fierce, you can carve your own brand identity with items like handmade jewelry and print-on-demand T-shirts.
Millennials and Gen-Zers are the most important customers for these items. The good news is that they like to shop online.
In fact, a 2022 National Retail Federation study shows that 64% of customers in these age groups prefer to shop either online or both online and in-store.
The demand for natural and organic products is growing with the rising desire to stay healthy, use fewer chemicals, and care for the planet. Take the organic skincare market as an example.
A 2022 The Business Research Company report projected the global market to reach $9.78 billion at a CAGR of 9.9% for the year.
Experts expect the market to continue to grow at a CAGR of 10.2% to reach $14.42 billion in 2026.
Creative or technical services
Have a unique talent? Why not turn it into a profitable ecommerce business idea? Whether you're a writer, designer, photographer, or coder, you can start your own freelance business selling your services.
The number of freelance workers in the U.S. is on the rise. A 2022 McKinsey report found that 36% of the U.S. workforce are independent workers, which includes freelance and gig positions. That’s up from 27% in 2017.
Would you prefer to only invest a small amount of money into your ecommerce business at first? If so, dropshipping is an excellent and profitable ecommerce business idea.
A 2022 Research Reports World study projects the global dropshipping market to reach $621.41 billion by 2028. That’s a CAGR of 20.7%.
Through dropshipping, you can partner with manufacturers and distributors to sell their products.
All you have to do is display your selected products from dropshipping suppliers’ catalogs in your ecommerce store.
You send order and shipping details to your supplier when a customer orders a product. Your dropshipping supplier takes care of everything from manufacturing to shipping.
In return, you pay a commission to the supplier but receive the wholesale price of the ecommerce products.
What’s a good profit margin for ecommerce?
According to a 2023 NYU Stern School of Business study, you can make around 42.78% in gross profit margins and 0.64% in net ecommerce profit margins from your online business.
But bear in mind that these are ballpark figures.
Your final profit will depend on the following:
- Kinds and prices of products you sell.
- Size and popularity of your online store.
- Efficacy of your supply chain.
- Your ecommerce marketing strategies.
Also, you might face stiff competition depending on the type of products you sell. This is evident from the rising cost of acquiring ecommerce customers through advertising.
A 2022 WordStream report shows that Google Ads’ cost-per-lead increased yearly for 91% of industries. The average cost-per-lead has risen 19% year-on-year for 23 industries.
This implies that the demand to advertise ecommerce products and services on the world's biggest search engine is increasing steadily as competition in this space intensifies. Every digital commerce business wants to stay on top of search engine results to grab buyers' attention.
To improve the profitability of your ecommerce store, you’ll need to focus on selling high-quality products and building a solid presence among your target audience.
How to start building a profitable ecommerce business
Now that you know that ecommerce is profitable, let’s look at how you can build your own online store.
How do you start selling online?
You need to think of several factors before you start making online sales.
Some questions you need to ask yourself about product sourcing are:
- What ecommerce products or services do I wish to sell?
- Who are the target buyers for my products or services?
- How do I source my products before I can start selling them?
You also need to ask yourself the following:
- What are my brand's values and visions?
- What should I call my online business?
- How do I register for business permits?
- Where on the internet will I sell? Should I have my own ecommerce store or sell through a marketplace?
- What are my ecommerce marketing strategies?
Why do you need an ecommerce store?
Marketplaces like Amazon and eBay are comparatively easier to start selling from. But there’s little scope for differentiating yourself from other brands in a marketplace. The competition is stiff on these platforms, and brand loyalty is low.
So, building your own ecommerce store is a better idea for growing a loyal customer base.
You can also combine selling in your own online store with featuring your products on larger marketplaces like those mentioned above.
To choose an ecommerce platform, look at each option’s usability, scalability, security, technical support, marketing plans, payment options, and shopping cart features. Some of the best platforms to run your ecommerce business are WooCommerce, Nexcess StoreBuilder, and Magento.
Out of all these options, WooCommerce is the most popular. A 2022 Datanyze report shows WooCommerce dominates the ecommerce space with a market share of 36.68%.
WooCommerce is free, highly customizable with many important plugins, and easily scalable. It’s an excellent option for both big and small businesses.
How do you ensure customers visit (and keep visiting) your ecommerce store?
One of the most important aspects determining ecommerce profitability is how your online store looks and feels to your customers.
Imagine going to a physical store where the clerk is unresponsive or rude, the counters look dingy and dusty, and the products are displayed haphazardly. Would you shop there again? Of course not.
And the same principles apply to digital commerce.
Some of the things that could turn off your potential customers are:
- Your ecommerce store is slow to load, is hard to navigate, and doesn't look professional or aesthetically pleasing.
- Your product photographs are blurry or low definition.
- Your product descriptions are vague.
- Your product categories are random or illogical.
- There aren't enough payment options for your customers to choose from.
Studies have shown that even a slight improvement in user experience could improve your online store's traffic. Pay close attention to creating a store that's a pleasure to visit and navigate.
For example, a 2023 Baymard Institute report found that a large ecommerce website could improve its conversion rate by 35.26% just by improving its checkout design.
But your work doesn't end after creating a professional and easy-to-navigate ecommerce website. You need to build customer relationships so that buyers keep coming back for more.
Some ways to drive new and repeat customers to your website include:
- SEO optimization of your website, product descriptions, and URLs.
- Email marketing, newsletters, and social media updates.
- Pay-per-click advertisements.
- Brand building on social media.
- Effective content marketing strategy.
Ecommerce platform optimization for mobile users.
Final thoughts: Is ecommerce still profitable — how to grow a business online
Now that you understand how to run a profitable ecommerce business, you might be thinking of starting an ecommerce platform of your own.
Keep in mind all the factors we mentioned before you zero in on your ecommerce product or service and target audience.
Remember, one of the best ways to stand out in the competitive ecommerce landscape is to sell high-quality products or services. It also helps to have a user-friendly, secure, and reliable ecommerce store.
To build a solid ecommerce business, you must choose the best platform to run the business on.
Our fully managed WooCommerce hosting plans are among the most affordable, secure, customizable, and easiest-to-implement options.
Start building your online store today with a Nexcess WooCommerce hosting plan.