How to start an online retail business

A small online retail business owner getting ready to ship an order.

Online retail is now big business. In fact, according to the Centre for Retail Research, in 2021 e-commerce became the fastest growing sector of the retail market in both Europe and North America.

On top of this, Britain currently has the largest online retail sector in Europe. This means, if you have the right business idea in mind, there’s never been a better time to launch an online retail business.

Of course, it takes more than just a good idea to start a successful online business. From conducting market research and securing initial funding to creating an online presence and purchasing the most suitable business insurance policies, online retail start-ups, like any business venture, require hard work. However the rewards can certainly make your efforts worthwhile.

So, whether you’re looking to set up a small online side hustle or you have your sights on something a little larger, this guide is for you. Below we outline some of the most important steps you may need to take when starting your online retail journey.

What are online retail businesses?

First things first. In order to launch an online store, it’s important to first understand what online retail is and the different types that exist. In its most basic form, online retailing simply refers to businesses that sell generally small quantities of goods and products to the public (rather than to other businesses) via the internet. The industry can then be broken down into different categories. These are:

- Soft goods retailers
These online businesses sell items such as clothing, footwear, toiletries, and small electronic devices.

- Food and drink retailers
These online stores sell foodstuffs such as meats, fresh produce, baked goods, soft drinks and alcoholic beverages.

- Culture retailers
These online retailers sell items such as books, paintings, craft items and jewellery.

- Big-ticket retailers
These businesses sell large and typically more expensive items such as kitchen appliances, cars and household electronics directly to the public over the internet. 

Before launching your own online retailer, it is important you define your business and how it will operate. This is because, depending on what you sell, your business may be subject to different rules and regulations. It may also have different insurance requirements and/or be restricted in the ways it can advertise.

How to become an online retailer

If you’ve got a wealth of experience in your chosen business area, you may think you already have the skills and knowledge needed to run your own business. However, the truth is, there is a big difference between simply working in an industry and owning your own business that operates within it. As the person in charge, you are responsible for all decision making and administrative tasks. This added responsibility can come as a shock at first. Below we outline the essential first five steps all online retailers should consider doing to increase their chances of success.

1. Research your target market

Before doing anything else, researching the market you want to operate in is essential. Whether you’re selling items of clothing, handmade jewellery, or novelty greetings cards, defining a target audience to focus your marketing efforts on could help your online business to thrive. By conducting research in the way of competitor analysis and identifying your target audience, you can understand what your potential target market wants and expects, and how successfully existing competitors are fulfilling these needs.

As a new online retail entrepreneur, this initial research can help you identify the demographics you want to target. This may include ideal customer characteristics, such as age groups, occupations, genders and incomes. It may also help to focus on certain geographic locations and personal interests. This can help you tailor your products, services and marketing efforts accordingly.

2. Pick a name and buy a domain

Once you settled on the type of online retailer you want to launch and identified a potential market you believe you can compete in, it’s time to select a name for your business and purchase a domain.

Although it may seem superficial, your choice of name can actually have a huge impact on the success of your business. A good name will stick in people’s minds and become closely associated with your products. A poor name could, at best, result in indifference in the eyes of your customers or, at worst, end in legal issues. When coming up with a name, keep the following in mind:

- Avoid names that are hard to say or spell
- Research the name to ensure it is not already in use or has negative connotations
- Make sure you can purchase a good domain name (, .com, etc) - if your desired domain name is taken, go back to the drawing board
- Ask potential customers if they like the sound of the name before formalising it.

Once you’ve settled on a name, it’s time to purchase a domain. As your business’ online address, this is one of the most important steps of setting up an online retail business. Ideally your business should have a name that is unique enough to ensure you can purchase your first choice domain. As a rule, you should try and select a .com or domain. If these options are not available, you may want to consider changing your business’ name. A domain extension is ideal if you are a UK-based company, while .com domains are universally recognised. On the other hand, domains (like .org or .net) tend to be more associated with non-profit organisations or network companies. This may make digital marketing and attracting online custom more difficult further down the line.

3. Create a business plan and register the business

If you need financial support in the way of a bank loan to get your online business off the ground, creating a business plan is vital. These documents are designed to help you lay out the most important information about the launch of your business. This typically includes your plans for the first few years, your future goals, and how you intend to reach and finance them. As well as being an essential part of the business loan application process, these plans can also help you as the owner. By putting your plans on paper, you may find you have a better understanding of what your new business venture will look like.

As well as creating a business plan, all start-ups need to be officially registered. This is to say, you need to declare whether your online retail store will operate as a limited company or you will run as a sole trader. There are a number of key differences between business structures you need to be aware of before making a decision. These include how you pay your taxes and who is responsible for your business’ debts.

5. Build a website

With no bricks and mortar shop front, making sure you build a strong website for your online business is key. With this in mind, if you have no previous experience in this field, it might be a good idea to hire a web developer to build your site. Although this is more expensive than buying a domain and building the site yourself, the chances are your website will look more professional and operate more smoothly if it is built by experts. However, whether you choose to build the site yourself or get professional help, there are a few things you should keep in mind when it comes to your site:

- Focus on functionality over style
While a good-looking site is important, user experience should be the priority. This means you should keep it as simple as possible and think about the journey a customer will make when navigating through the site.

- Make it mobile friendly
Most online transactions now occur via smartphone rather than desktop or tablet. This makes having a website with a mobile-friendly design key.

- Make purchasing easy!
Although this sounds obvious, one of the biggest reasons for lost sales (or basket abandonment’) in online retail is complicated, time-consuming checkout processes. Ideally, once a customer has landed on a product page, they should be able to purchase the item in a maximum of two clicks. If this is not the case, your website might need some work.  

6. Purchase insurance

Before your online retail business starts trading, it’s important to consider purchasing business insurance. Although no insurance is required by law (unless you employ someone other than yourself, in which case a employers' liability insurance policy is needed), it can be a good idea to take out specialist online retail cover. These policies are typically made up of a number of individual types of insurance, from public and product liability insurance and employers’ liability insurance to cyber and data risks insurance.

Here at Markel Direct, we offer a tailored online retailers package. This allows you to combine a number of the policies above into a one, easy to understand, specialised policy.

Business insurance from £5 a month