How to start an online retail business in the UK

As the world’s third largest ecommerce market, the UK offers access to a potential customer base of over 52 million people, with revenue forecast to reach £131.4bn by 2029. To enter this market, building a presence online is more accessible than ever before, thanks to the emergence of no-code platforms and AI website builders. From ecommerce websites and social commerce to online marketplaces, digital channels can enable you to launch a business with lower upfront costs than running traditional retail stores.

While it may be simple to get started, competition is intense and customer expectations are rising when it comes to product choice and pricing, fast delivery, secure payments, and professional service.

Our guide below explains what you may need to know about how to start an online business and the risks to consider as a new online retailer.

What is an online retail business?

An online retail business sells products and services to customers through digital channels such as ecommerce websites, online marketplaces, or social media platforms rather than face to face.

Types of ecommerce businesses can significantly vary, ranging from sole traders selling handmade crafts through platforms like Etsy, to larger branded websites selling products across the UK and internationally through their own websites and fulfilment systems. Some online retailers may choose to hold their own stock, while others use models such as dropshipping or print on demand to reduce the space and costs required.

How long does it take to start an ecommerce business?

How much time and effort you need to start an online retail business will depend on the products and services you intend to offer and the platform you plan to sell them on. You could choose to set up a store with an online marketplace within a few days, whereas building a full ecommerce store, with larger inventories of custom products sourced from external suppliers, could take several weeks or months.

The initial tasks involved in setting up the business, such as creating product listings and organising payment systems, can be handled relatively quickly using ecommerce tools, however building visibility and customer trust to ensure consistent sales can often take much longer.

How much does it cost to start an online retail business?

Your startup costs will depend on the type of products you sell and whether you hold stock. Costs can range between £0-150 to sell products on marketplaces and £150-500 to build a custom ecommerce store – budgets can exceed £1,000 for a range of businesses, such as photography and marketing.

Typical costs can include:

• Ecommerce platform and marketplace subscriptions
• Domain name registration and web hosting plans
• Product sourcing or manufacturing
• Packaging and postage materials
• Marketing and advertising expenses
• Payment processing fees
• Accounting software
• Business insurance

How to become an online retailer

To start selling online, you must choose what to sell, where to sell it and how to sell it, register the business, and then set up a store to accept orders and payments. The nine steps below outline a process you can follow to start an online retail business:

1. Decide what products to sell

Before investing in stock, carry out market research to define your target market and identify if there is demand for your products or services that could translate into sales. Your research should help you to understand your target buyer, as well as what works or does not work for your competitors. Online marketplaces, search engines, and social media platforms can provide useful insights for this step.

Consider product pricing and profit margins, storage and delivery costs, product regulations or restrictions, and seasonal trends that could affect your potential sales.

2. Source the products

Deciding where to source your products from can affect your profit margins and fulfilment processes, as well as your startup costs. If you choose to create handmade or original items, such as crafts, artwork, jewellery, or skincare, you can allow yourself more control over branding and pricing. However, if you choose to buy stock in bulk from manufacturers or wholesalers to resell online it can require substantial upfront investment.

In terms of dropshipping or print on demand, you can sell products without holding stock, but you would have less control over order fulfilment, product quality, and customer service.

3. Choose where to sell

One of the biggest decisions is choosing whether to sell through third-party marketplaces, your own ecommerce website, or both – each has strengths and weaknesses.

Online marketplaces, like Etsy, eBay and Amazon, are the fastest way to start selling and give you access to millions of customers around the UK and beyond, which can help you generate early sales as a new retailer. Depending on the marketplace, you may have to pay seller fees and give up some control over branding and customer relationships.

Ecommerce platforms allow you to create a branded online store with full control, so that you can build a brand identity, collect customer data, increase long-term profitability, and control marketing. However, you will need to invest time and money in marketing the store to generate traffic.

Some small retail businesses combine both approaches, using marketplaces for visibility and ecommerce stores for branding.

4. Create a business plan

The next step is to create a business plan based on your market research and what you have decided to sell. A business plan helps to define your strategy and structure your business launch by outlining the practical and financial requirements to take it from an idea to a reality.

Your business plan should outline your products and target customers, sales channels, competitor analysis, and marketing plan. It should also include a financial plan that breaks down all the expenses involved, pricing strategy, and revenue projections, which can indicate whether the business is likely to remain a side income or develop into a full-time occupation.

5. Understand legal and compliance requirements

Online retailers are obligated to comply with a range of legal regulations covering business operations, product safety, consumer rights, and data protection.

Before you establish the legal structure for the business, you should understand the responsibilities associated with the operations of a sole trader, partnership, or limited company.

Your business will also be responsible for complying with consumer protection rules, including those around clear pricing and product information, refund cancellation rights, delivery information, and faulty goods. Businesses collecting customer information must also comply with rules on privacy, data protection, and cookies, including UK GDPR.

Some products may require additional compliance checks or certifications, such as food, cosmetics, electrical goods, children’s toys, and health-related products. If you choose to import products to sell you will need to understand customs duties and regulations.

6. Register the business

Once you are ready to start trading, choose a business name and legal structure to register with the authorities, including HMRC and Companies House, and depending on the nature of the business, your local council.

Many online retailers start as sole traders as the setup is simple and startup costs are low, while others choose a limited company status for tax planning or liability protection.

In addition to registering the business with HMRC, you will need to register for Value-Added Tax (VAT) if your annual turnover exceeds the threshold. Once you have received registration documents, you can open a business bank account, and track expenses and income for tax records.

7. Build an online presence

At this stage, you can sign up for your preferred online marketplace, such as Amazon, eBay, or Etsy, and set up a storefront.

You could also set up a simple store by registering a domain name for your brand and using an ecommerce platform or website builder to create product pages that sell – Squarespace, Shopify, WooCommerce and Wix eCommerce are all popular choices.

8. Set up payments and delivery

Customers expect secure and convenient checkout experiences online, meaning you will need a safe and reliable integration between your ecommerce store, a payment service provider, and your business bank account. Most platforms work with PayPal, Shopify Payments, Square, Stripe, Klarna, Apple Pay and Google Pay – offering multiple payment options can help avoid customers abandoning their baskets without completing purchases.

An order fulfilment strategy that takes into account packaging costs, courier pricing and tracking and delivery times helps to ensure customers receive their orders efficiently. As order volumes increase, shipping software and fulfilment integrations can be used to automate processes and reduce errors. You might start by handling packaging and shipping, but as the business grows, you may opt to use a third-party fulfilment provider for storage, packing, and delivery.

9. Market the business

Launching an attractive store listing products may be less likely to generate sales without also implementing marketing that makes it visible to customers. Understanding your target buyer outlined in your business plan can help you to begin to market to the right audience.

You can start with search engine optimisation (SEO), such as using product titles and descriptions containing relevant keywords and optimising images, to help customers find your store when they search for products online. Publishing informative content in engaging blog articles and social media posts can also enhance your SEO rankings and build awareness of your brand story.

Platforms such as Instagram, TikTok, Facebook and Pinterest are an increasingly important source of sales for ecommerce businesses, particularly those selling visual or lifestyle products.

Email also remains an effective marketing channel for online retailers to promote new products, encourage previous buyers to make repeat purchases, and share offers – email marketing software makes it straightforward to create newsletters and track engagement to refine messaging.

Paid advertising on Google, Instagram, Facebook, and other platforms can be another way to help you target potential customers based on relevant interests or past engagement. You can start with a small budget and track results, such as click-through and conversion rates, to test the most effective ads.

If you launch the business gradually, placing orders to test the full customer journey and fix any issues that arise, you can increase marketing to promote the business with confidence.

Consider the risks of online retail

Online retailers face various operational, financial, and reputational risks, including:

• Cyber-attacks and payment fraud
• Customer disputes and chargebacks
• Stock damage or theft
• Delivery delays
• Supplier disruption
• Product liability claims

Even small ecommerce businesses can experience reputational damage if orders, customer data, or payments are affected – taking steps to protect the business early can help reduce any disruption as sales increase.

To protect your online retail business, you may want to consider online retailer insurance to safeguard against risks such as cyber incidents, customer disputes, and stock-related losses.

To learn more about how you can protect your online ecommerce business from cyber-attacks, visit our dedicated article.

Read more about our online retailer insurance and discover additional help and guidance for small businesses.

Please note: This article provides guidance for information purposes only and is accurate at the time of production. It should not be relied upon wholly when making or taking important business decisions – always seek the services of an appropriately qualified professional. The views expressed by websites referenced to are limited to those of the websites, and do not necessarily reflect the views of Markel Direct. Markel Direct is not affiliated with any of the brands, companies or websites mentioned in this article.