• Your home must be your principal place of business. This means is that you conduct all of your business related activities in your home and you have no other set locations where you do business
• You must have a special area sectioned off for your business. This might be a separate room or the garage. Anywhere that you store inventory or products counts as well.
• You must actually conduct business at home and use the dedicated space solely for business.

In your case, I would probably set up a desk and a divider and call that your office.

Question:
Hello Steve!

First off I want to thank you for sharing your information about starting an online store! I downloaded your book and your information has been a real help for me since we are a small store and I’m the one who wears all the hats here.

Anyway, here’s my question…I’ve already made our website and would like to get our online store going this winter. My next step (from you book) is to purchase my SSL Certificate. My webhost is HostMonster and when I choose to purchase the SSL Cert they say I need a “dedicated IP” to have an SSL. Is a “dedicated IP” the same as the “dedicated hosting” that you discuss in your book? The reason I’m asking is because I’m thinking about using Magento for my shopping cart and you say you need “dedicated hosting” for that cart.

Answer:
In order to obtain an SSL certificate for your domain, your site needs to have a dedicated IP address. Having a dedicated IP has nothing to do with dedicated hosting. In fact you can have a dedicated IP on a shared hosting account. In your case, since you are using Magento, you will probably need both dedicated or VPS hosting and a dedicated IP address for your SSL certificate. Hope this helps!

• You can place customers on hold automatically
• You can route calls to any phone number anywhere
• You can route commonly asked questions to automated recordings
• Depending on urgency or the category of the call, you can route the customer either to a live person or to voicemail.

In case you are interested, I wrote an entire blog post on this topic on how to handle customer service with little or no staff.

Finally, I would setup several reasonably sound proof workstation zones within your house. That way when a customer calls and it’s urgent, you have a quiet place to answer phone calls without your child screaming in the background.

In terms of hiring employees, I would advise that you hire outside help as soon as your revenue grows enough to support it. My wife and I used to be so concerned with profits that we took our time hiring outside help. And ultimately, this was a horrible decision because we were using the majority of our time on tasks that we could easily have outsourced. Please don’t make that same mistake. Also, make sure that you hire all of your employees by the book and follow all of the necessary rules and regulations that are involved. Unless you can trust your employee implicitly, handling things under the table can lead to lawsuits later on down the line if things don’t work out.

Finally, since the wedding business is very cyclical, I recommend that you find additional products to sell so that your business is not completely dead during the off season. For example, when the wedding season slows down in October/November, we sell linen napkins and towels to event planners for holiday parties. As a result, our business is fairly balanced throughout the year.

Question:
I actually came across your site after having a conversation with my brother about how he didn’t have the time to start anything on the side, but he did want to escape the corporate world. I thought someone must have written a blog post about how you can find the time if you really want it- and I found it on your site!

I’m in the planning stages of starting an online business and I’ve found your site to be a great resource. One of the questions that I have is when starting out, how did you decide how much inventory to carry? I am struggling with that right now. All of my items will be imported, so dropshipping is not an option for me.

Not sure if you covered that in one of your posts, but if you did please point me in the right direction!

Thanks for the great blog!

Answer:
Sounds like we share something in common with our online stores in that we both import all of our items. In terms of inventory, it takes a while to understand the supply, demand and cyclicality of your business. Therefore, you should carry as little inventory as possible until you see the patterns.

In the beginning, my wife and I carried very little inventory until we figured out what sold well and what didn’t. The 20% rule applies here. 20% percent of your products make up most of your revenue. So once you find out what sells, carry a lot of that item and keep a small amount of the other items to fill out your store. Hope this helps. There’s a lot of situational criteria that comes into play that I can’t describe unless I understand your business better. Just don’t make a huge order of any one item until you are confident it will sell.

Question:
Hi Steve, Is it worth selling anything with only a 10% mark up? Of course if it were a $100,000 sale I would be more than happy to accept 10%. I am looking for $50-$100 price point products and I don’t think it is unreasonable for a keystone mark up. My challenge is finding products where there isn’t so much competition and other sellers are marking it up only 10%. If it is quantity that is giving them a better price, I cant compete with that either because I cant afford to risk buying a container full of products that might not even sell. Any suggestions? Thanks for your time.

Answer:
A 10% markup sounds really low to me. In general, your margins should be between 35-50%. If you import your goods from Asia, the margins can be 2-3X higher. The disadvantage of only a 10% markup is that you won’t have as much room to play around with prices and discounts. If all of your competitors are pricing their products such that you can only make 10%, then I would strongly consider another product category.

However that being said, the lowest price doesn’t always win. Many of our products are priced higher than our competitors but we still get the sale. If you can manage to take the top spot in the search engines, you will make sales even if your prices are higher.

I have just begun to read your blog and have found myself addicted to the content. I have read your e-book and have been thinking of doing an online store for years now…. well actually I was stuck for a while, it seemed as though I understood what I needed to do but I got so caught up on little stuff that I gave up, I also think what attributed to my giving up at the time is that I was on information overload. I have recently been laid off and I am not interested in the corporate lifestyle. I want to pursue my own business…

finding my niche is where I got stuck in the past because I am interested in so many things. I feel as though I have grown and learned a lot more in the time that i have been dedicated to a job I truly dislike.

I am in the process of talking to manufacturers and would like your advice I have multiple questions. I want to set up an online store, however if i purchase a min. order from every supplier i am looking at then I will have spent thousands… do you have an recommendations on setting up shop for testing and marketing purposes before starting to order large min. orders?

Answer:
It really depends on what you are selling, but you can proceed in any of the following ways.

1. Stock some sample amounts of your product by paying a much higher price for them for testing purposes. Some distributors will sell you smaller quantities if you ask, but if they don’t? Just go ahead and pay full retail price for a few products and see if they’ll sell. If you want, you can even sell items you don’t have and then go out and buy the products as orders arrive.

2. Make some tradeoffs and sell less items. In the beginning, it helps to be focused with your product selection. Once you gain some traction with a particular product category (from both an SEO and customer standpoint), you can gradually expand your product line.

3. Drop ship your items. You can drop ship all of your goods first and if things work out, you can choose to stock them later at lower wholesale prices.

My wife and I did a combination of 1+2 when we first started out. We negotiated with our vendors to obtain sample quantities of everything at higher pricing.

Question:

I’m trying to figure out why Google is not indexing my site. And Yahoo is only indexing one page. My pages have unique title tags, keywords, and meta descriptions. There are keywords in products URLs, and I use a sitemap. One thing I know is that I have very few links from other sites. Could this be the problem? How do I change that?

Answer:
Is your site domain fairly new? If so, you may be stuck in what is called the Google sandbox. Before your site is let loose in the search engines, Google sometimes imposes a waiting period on your site.

To get out of the sandbox, you can either wait or get some quality backlinks pointing to your site. There are variety of ways to get backlinks through guest posting on blogs, writing for article directories, content sites etc…

Question:

Hi, I wanted to know your feelings about using “prostores” ? Thanks!

Answer:
I would shy away from any service that charges any sort of transaction fee. Pro Stores charges .5% which may not seem like much when you just start out. But hypothetically if your store were to make 100K in sales, that would amount to $500. I like Volusion or BigCommerce because they only charge a flat monthly fee.

The decision really depends on your store and you should calculate what makes the most economic sense for you. For example, if you run a low margin business, I would shy away from any platform that imposes a transaction fee. However, if you are just starting out and you carry thousands of products, prostores might be cheaper because their lowest plan allows you to sell more products than Volusion or BigCommerce.

Looking at the big picture, even if a service that imposes no transaction fees is slightly more expensive early on, I’d still pay the extra money. After all, it’s hard to switch platforms and once your business grows, you don’t want your fees to scale with revenues.

In any case, I know several shops that run on Prostores and the platform seems to be solid. Run the numbers to see what you are comfortable with.

I live in Winnipeg, Manitoba Canada and am looking at starting an online business selling virtual strategic planning tools to Canada and the USA. My question is about paying sales tax on online sales. I have been doing research and apparently in February of 2010, many of the US states started collecting sales tax on online sales. There are varying rules, depending on the state. But what I am wondering, is who do I contact in each state to find this out, and how do you manage the diversity of sales taxes charged by individual states? Secondly or was that thirdly, hmmmm, well is there yet a federal sales tax in the USA on online sales, or is that still coming down the pike?

Tyler of Webbiz Finance responded
While most states now require the vendor to collect sales tax from customers for internet sales you are only required to do so if you have a “nexus,” a physical presence, in that state. So if Steve sells something to me in Indiana and he doesn’t have any type of shop or presence in Indiana then he can not be required to collect Indiana sales tax.
Aside from that, if your product is delivered entirely over the internet (no physical item) most states don’t collect sales tax on that. If you want more detail I did a post on internet sales tax for my blog; feel free to come by and take a look.

Here was my 2 cents
Everything Tyler says is true. The only thing that you have to be careful about is if you run an affiliate program. If you are giving a cut of your revenue to people who refer customers to your website, you may have to have customers who reside where your affiliates live pay sales tax.

In other words, let’s say Tyler is an affiliate for my store. If a customer buys something from Tyler’s state, I might have to pay sales tax for that purchase. Not all states do this right now but I know Amazon has rescinded their affiliate program in several states already because of this. In any case if you don’t have an affiliate program, you are fine.

Hi Steve. I understand the importance of having content within an online store. Just curious – do you use Google Adwords for your content pages also?

Answer:
We don’t use Adwords for our content pages because the content pages attract traffic organically via search. The basic strategy we employ is to funnel free traffic to our content pages and then divert these customers to our product pages. If Adwords is required to get traffic to content, then the content isn’t good enough.

Hey there! I just signed up for your newsletter and am loving it so far.:)

My husband and I have been back and forth between starting a brick store, or an online. Drop shipping or wholesale shipping?So many choices!!

I have been researching online for over a year now and have finally decided to start (well it didnt take me that long to decide, but I had our daughter who had health issues and passed away at 3 1/2 months of age).

I do have a few questions for you… first off, why do you not suggest a free host such as angelfire and etc…. also I noticed you said you lost money,basically,using Paypal. Why is that? They are secure and do money back guarantee with customers. I know I purchase alot online and that is only way I rather check out is Paypal.

Also, I can not really fly overseas to go to conventions and etc.,but who is a trustworthy online over seas company to use wholesale who does orders smaller than say $1000.00? I found liquidations.com here in the states…do you know anything about them?Are they trustworthy?

Just wondered your input on these things.Sorry to bombard you with a million questions..but you do great work and I would love to see your site!!!!!!Thanks

Answer:
Thanks for the comment and introducing yourself. In answer to your
question, I would never use a free host to host a real business
because of several reasons. One, free hosts are not reliable and do
not guarantee their uptime. Two, there are usually bandwidth limits
involved and limitations with what you can do with your account. For example, Angelfire only allows 15MB storage with their free account which isn’t nearly enough. Three, regular shared hosting is so cheap at around 5 or 6 bucks a month so why bother? Take your business seriously and pay the money.

When I talk about Paypal in my ebook, I’m referring to Paypal standard
which is the free service that Paypal offers. With Paypal standard,
your customer is forced to leave your site in order to complete a
transaction on the paypal.com website. Having customers leave your site for any reason is bad for your conversion rate. That being said, Paypal offers a paid service called Paypal Website Payments Pro which allows customers to process their payment on your site directly. Paypal Payments Pro is the service that I recommend.

In terms of product sourcing, if you do not want to attend the various
wholesale tradeshows then I would suggest using Worldwide Brands to do your vendor research.

My wife got fired by US Mail! Now we are looking into ecommerce, I am a licensed insurance agent.

I guess product liability isn’t a real issue in as much as errors and omissions would be. So what would be the best route? LLC for some protection up front or C Corp, because once you start earning commission on premiums the sky is really the limit. Your income depends on your time and closure rates.

Answer:
If you ever plan on issuing shares of stock or taking the company
public, then do a C corp. Otherwise an LLC is much easier to handle and you can elect to have it taxed like a corporation if you want. No matter what the business however, I would still consider purchasing product liability insurance. After all, the US is a very litigious country.

Steeeve . . I don’t know how I found this page, must be the Lord workin’ I am trying to finally launch my greeting card business. Everything is finally in order after so much hard work and money invested. I finally figured out that what I need is an order fulfillment company to work with me. However I discovered that when it comes to order fulfillment places, they charge for everything and if a person only orders one or two greeting cards, you make no money. There must be some sort of fulfillment service company that TRULY caters to startups. Please help if you can. God bless you and your family.

In general, order fulfillment companies are going to always be more expensive because that is how they make their money. In other words, order fulfillment companies like ShipWire.com charge a lot of money because they don’t stand to gain anything from working with you outside of collecting your money.

In order to find a more economical solution, I suggest that you look for a company to work with in which the relationship is mutually beneficial. You mentioned that you run a greeting card company. Instead of looking at generic fulfillment companies, why not contact and partner with a printing company? That way when you sell more greeting cards, both you and the printing company make money together. The printing company does what they do best and you make money from the design of the greeting cards. It’s a win win situation.

Thank you for your posts! I love them all as they are very resourceful. I hope you can help answer my question. How do you approach supplier for an e-commerce website? Some of them want to see website first but then in order to complete the site, I would catalog content. What would be the best way to go about in this situation? look forward to hearing your suggestions. Thank you in advance!

I’m going to be posting a blog entry on this soon, but the short answer is that not every supplier will require you to show them your website first. In fact, my wife and I rarely get asked this question at all. There are a wide variety of wholesalers that each cater to different classes of buyers. The key is to find a supplier that caters to your specific business size and volume requirements.

When my wife and I first started out, we didn’t have a website and we never brought it up. If you know what you want and how much you want to buy and speak with confidence, the right vendor will always deal with you. That being said, if you do have a website, you might want to mention it but it’s not a requirement.

Thank you for your articles. Right now I’m deciding between whether to open up a store using Yahoo vs Ebay. Which one should I choose?

Ack! If you’ve read any of my articles on how to create an online store, you would know that my philosophy is to try and avoid both of these services altogether, most of all Ebay. Read Why You Should Never Start An Ebay Store to get an idea why.

If you have the motivation, you should always try and host your own online store rather than relying on a third party hosted solution. Both Yahoo and Ebay charge hefty fees(more so Ebay) to sell products online whereas you can avoid those charges altogether by hosting your own website.

• Do you want to issue shares of stock and eventually take your company public?
• Is your company extremely profitable or borderline?
• Do you have many employees or plan to grow your company?

In general, if you need funding or want to take your company public, a C Corp is required. A C Corp also has the advantage of lower tax rates if you leave money in the company itself. However, if you don’t want to keep money in your business, then having an S Corp or an LLC might work for you. Here in California, it pays to have an LLC if your company is extremely profitable because the cost of having an LLC is based on revenues. However, if your profit margins are low, an S Corp might make more sense because you get taxed based on profit. In any case, read my tutorial and check with your state.

Thank you for the great content on your site! I currently run an online store and wanted to ask if I should use adsense to help fund the site and/or affiliate marketing?

I would definitely NOT use adsense for your online store. The way adsense works is that ads are displayed based on the content of your site. Therefore, all of the adsense ads you display will have links directly to your competitors. Sure, you make make a few bucks here and there when customers click on the links, but these customers could be buying your products!!

As for affiliate marketing, I’ve seen stores partner with other complementary businesses to cross promote products so it can be an effective business tactic. If you can find a related business that works for you, I don’t see the harm. That being said, I always try to keep my customers on my website. After all, you make the most money when someone buys your own products.

I love your introduction to corporate entities and I am linking to it in my own blog to recommend it a resource for my readers. One question, I’m surprised that you didn’t choose the S-Corp as a store owner. Often, the S-corporation structure can help the owner avoid some employment taxes (social security, medicare, etc.) that a pass-through entity like a limited partnership or LLC cannot shield them from. I believe that a businessperson should speak with both their attorney and their tax specialist before deciding upon an entity as both legal and tax issues are involved.

My wife and I definitely considered forming an S corp over an LLC or rather we considered forming an LLC taxed as an S corp over just a plain old pass through LLC. The main reason we didn’t was because we didn’t think that the extra paperwork burden was worth it. As you probably already know, S Corps have the advantage in that you can pay yourself a small salary and then take the remaining profits as a distribution which avoids a good chunk of self-employment taxes. If you factor in Social Security and Medicare, the self-employment tax comes out to about %15.3.

You would think that a %15.3 savings on our taxes would be worth it, but in my situation I still have a full time job so I already max out on my social security payments every year. If you remove social security out of the self-employment tax equation, the savings is drastically reduced to only %2.9. But in order to save this %2.9%, my wife and I would then have to…

• Do payroll and pay ourselves a salary. If we paid someone else to do this, it would probably be around $30/month plus additional headache.
• Pay taxes as a corporation which carries a much greater paperwork burden which could lead to additional accounting costs

In the end, we decided to keep things simple and leave a little money on the table.

Google webmasters tools tells me that my website is slower than 97% of all sites on the web. Does this mean that I need to switch to dedicated or semi-dedicated hosting for my website? How did you know when to switch to dedicated hosting?

Just because your website is slow doesn’t necessarily mean that you require more high powered hosting. In fact, I would argue that 9 times out of 10 the webmaster is to blame for a slow website and not the webhost.

It’s hard to provide a diagnosis without a URL but without getting too technical, here are few common things to look out for.

• Are your images larger than they really need to be? Make sure you resize your images to their exact dimensions at a reduced quality for the web. Also, avoid hotlinking images from other sites.
• Try to reduce the amount of external javascript on your site. Each access requires a DNS lookup which makes your website speed dependent on a third party.
• Are you taking advantage of caching? Are you using gzip compression for your site? By compressing down your website, there is less data to be downloaded to the client. Since webpages are mostly text, the compression rates can be extremely high.

I’ll probably follow up your question with a dedicated post so please stay tuned. My wife and I knew we had to switch when staying with shared hosting was actually costing us more money.

Thank you for your articles on product sourcing! They’ve been really helpful and I’m now trying to import clothing from overseas. This vendor from China is quoting me really low prices for name brand apparel. Should I be suspicious?

Beware of any name brand goods from Asia especially if they seem too cheap to be true. Don’t get sucked in, otherwise you not only risk getting cheap merchandise but you might also get sued by the designer as well. I remember this one vendor who tried to sell us designer handbags that he claimed “accidentally fell off the truck” so they were 100% genuine. Yeah right! Use common sense and you’ll be fine.

I’m creating a website to promote affiliate products. I wasn’t sure if I needed to apply for a separate taxpayer ID if I’m a sole proprietor. If I do get a taxpayer ID for the business, do I have to file a separate tax return, or can the business expenses/profits be included on my personal tax return?

No matter what business you are involved in, I would always recommend that you get a separate taxpayer ID. Otherwise, you’ll end up having to give out your social security number to all of your affiliate companies in order to get paid. Of course there is nothing wrong with that but it’s generally better to keep your SSN private if possible.

As for your taxes, whether you have to file a separate tax return depends on your corporate structure. If you have a flow through entity like an LLC or a sole prop, then you do not need to file separately. However, you will need to include a schedule C with your return.

I am 22 years old and currently working at a financial company. I have not yet finished my undergraduate degree due to lack of funds, and I was hoping that as I work now I can develop a web business that I can hopefully keep going to offset tuition when I go back to school next year.

I am currently trying to brainstorm and organize my ideas for a my web business, but any tips you have would be great. Your website is so far a great resource, and I look forward to reading more.

I’m glad to hear that you want to start a small web business on the side. Picking a niche to pursue can be a pretty difficult task. Just keep in mind that depending on your motivations, your business idea doesn’t have to be a home run, knock it out of the park idea. With the proper marketing and positioning, you can make some decent money on a wide variety of ideas even if there’s a lot of competition.

The story about how my wife and I stumbled upon our niche is well documented on the blog already at the links below.

• How We Got The Courage To Start Our Own Business
• How We Found Our Niche For Our Online Store

My wife and I looked into a bunch on non-web ideas initially as well because we were afraid of the learning curve involved with running a web based business. But I’m glad that we ultimately decided to run our business purely online. Here’s an article that talks about Business Ideas That Didn’t Pan Out For Us

Currently, we rely on our shopping cart software to track all of our inventory. To prevent selling items that are out of stock, our shopping cart will not let anyone complete a purchase unless we have sufficient stock on hand.

In terms of actual storage, all of our products are organized nicely on shelves, however we don’t yet have an automated way of tracking defective items and returns. Eventually, we plan on tagging all of our merchandise with a barcode and using a barcode gun to keep track of stray inventory.

Since the internet is a virtual marketplace, could I create an online business from outside of the US but targetting mainly the US market (or English-speaking web users anywhere else), and can I use US-based internet-business service providers (web hosts, etc.) to set up? If I am not in the US, do I still need to secure a US business license to set up the internet-based business?

If you live outside of the United states, you should not need a business license. The purpose of the business license requirement is so that the state or city can enforce that you pay the necessary sales and business taxes if your place of business resides within their locality. That being said, there may be other fees and taxes involved in shipping your products into the United States. Unfortunately, I’m not an expert here so you should check with an accountant within your own home country.


This second question is in regards to what can be deducted from your business expenses when you run a business.

Doen’t the total business deduction have to exceed a certain amount in order for it to be deductible? The number 7.5% seems to ring a bell. So total travel + entertainment supposed to exceed 7.5% of your adjusted income..and only the portion that exceeds it is deductible. Is this true or false?

The 7.5% number that you are describing only relates to medical expenses. According to the IRS, business owners and employees may deduct medical expenses not covered by insurance as itemized deductions only if they exceed 7.5% of their adjusted gross income. This 7.5% in no way applies to other business expenses, just medical.

I mentioned in an earlier article that my wife and I were going to use an answering service to answer business calls.

What is the cost of the answering service, vs hiring your own people to do it? Or, having hours that you are available by phone listed on the website, and a “not available but leave a message” option?

My wife and I debated over whether to hire an employee just to answer phone calls but after doing a little research, we decided to go with the answering service for two main reasons. One, it is much cheaper than hiring an employee. And two, we can treat the answering service as a contractor so we can avoid doing payroll.

Currently, we already have available phone hours posted prominently on our website and we let all calls go to voicemail that arrive outside of normal office hours. What my wife and I discovered was that 80% of our phone calls are from people that are afraid of placing their order over the internet for fear of getting their credit card information stolen. So it made sense to have a 3rd party take these order calls.

The answering service can charge you two ways, by the minute or by the call. For example, one service we looked at charges a $259 monthly fee which includes 500 calls per month with additional fees for overages. However if the call results in an order being taken, they charge an additional $1.50 for the call.

Another answering service we looked at charges roughly a dollar per minute. Since we use Google voice for our calls, it’s easy to generate a full report of our call usage. And based on this usage, we estimated that using an answering service to take orders will cost us anywhere from 500-800 a month.

Ok and now onto the questions.

I am looking to start an online clothing store and wanted some advice on the best way to go about obtaining a retail business license or sellars license. I live in atlanta, ga which is home to America’s Mart, one of the largest apparel marts for buyers and wholesalers. This seems like a natural place to start looking for products especially since its around the corner. The only problem is in order to have access they require you to have a retail business license or federal resale tax certificate as well as business checks, proof or merchant credit card ID #, persoalized business ID and so on. I’ve done some research on other small online apparel companies and it doesn’t that many have all of these things. My question is, are all of these things necessary for a small online start-up, or is a place like America’s Mart not a good place for newbies to start.

It really depends on your state, but most states require you to have a business license before you are allowed to sell any “tangible” goods to the public. In your case, clothing is definitely considered a tangible good. If Georgia charges sales tax, then I’m almost positive that you will need a license.

In order to purchase wholesale from another business, a business license is required as well if you want to purchase your goods tax free. Otherwise you would end up paying sales tax twice, once to purchase the goods and again when you sell your goods to the end customer. In general, most wholesalers will refuse to deal with you unless you have a business license.

I’m probably a bit biased but when it comes to clothing, the absolute cheapest place to purchase your goods is from Asia. In sufficient quantities, a tshirt from Asia will cost you probably one-tenth of what it will cost you here in the US. I would probably test out the market with goods from a place like America’s Mart but then purchase in quantity from Asia once you know what works.

So to sum everything up. You probably need a business license. The rest of the items you have mentioned fall more or less into the same category. In general though, you should get yourself a separate business checking account and a federal tax ID number as well.

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