How Does an eCommerce Website Work?

Author Justin Smith
by Justin Smith, CEO

eCommerce, standing for electronic commerce, is the process of customer shopping online and processing their payment. An eCommerce website allows visitors to find their product(s), add them to their "cart," and securely enter their payment information to complete their purchase. Since the advent of credit card processing on the internet, eCommerce has permeated society and into our daily lives. With Covid and recent events, eCommerce has growth has exploded by more then 44% in Q2 of 2020 alone.

Today, just about any product or service imaginable is for sale sold on the web, whether through a dedicated eCommerce website or other means.

In the last several decades, more and more people are buying online and enjoying the benefits that eCommerce provides, such as increased convenience, lower prices, and sales tax exemptions.

Article Contents:



What is eCommerce?

definition of eCommerce screenshot

As shown above, Google defines eCommerce as:

"Commercial transactions conducted electronically on the Internet."

Given the ambiguity of that definition, it should come as no surprise that "What is eCommerce" is searched on Google an estimated 10,000 times per month.

In this eCommerce & eCommerce websites guide, we hope to clear this matter up once and for good! Let's start with the origins of the term "eCommerce."


eCommerce Etymology

eCommerce is a blend word for "Electronic Commerce," which in and of itself seems oddly vague.

It seems the word eCommerce was always meant to be a broad term used to refer to virtually any commercial transactions that take place on the Internet.


eCommerce Business Models:

Most eCommerce takes place on an eCommerce website, which acts as a virtual storefront wherein transactions and commerce can take place. eCommerce can manifest in many different forms:

  • Retail: Products are sold by businesses directly to an end-level consumer without intermediary involvement.
  • Wholesale: Products are sold in bulk, either directly to the consumer, or to wholesalers/distributors.
  • Dropshipping: Products are sold online, but shipped directly to the consumer by a third-party that manages inventory, order fulfillment, and other logistics.
  • Crowdfunding: Consumers pool money, often in advance of an anticipated product coming to market, to raise startup capital, leverage buying power, reduce product costs, etc.
  • Subscription: Recurring purchases for products or services are automated until the subscriber chooses to cancel or alter their subscription level.
  • Digital Products: Most people think about tangible products, but many eCommerce transactions include the sale of digital products, such as music, movies, audio and video files, templates, software, etc.)
  • Services: Skilled labor or services can be purchased digitally, such as hiring an Uber driver or paying someone to run your errands online.

What is an eCommerce website?

eCommerce websites are the digital portals (i.e. virtual storefronts) that facilitate eCommerce. Remember, eCommerce is a blanket term that includes virtually any transaction that takes place on the internet.

Any website equipped with eCommerce functionality and allows customers to purchase a good or service is an eCommerce website.

Historically, the earliest eCommerce transactions took place via email and phone calls.

Even at the earliest stages of development, effective eCommerce websites must be designed to:

  • Facilitate Revenue via:
    • Maximizing the aggregate quantity of transactions.
    • Maximizing "average order value."
    • Steering shoppers to the most profitable products and categories.
    • Encouraging brand loyalty, repeat customers, audience engagement.
    • Streamlining checkout and other critical conversion funnels.

eCommerce websites range from template driven plug-and-play shopping carts to complex eCommerce websites that cost millions of dollars to develop and maintain.


How do eCommerce websites work?

eCommerce websites work through a series of steps, utilizing website code, the database, and 3rd party applications such as a payment processor or payment gateway.

eCommerce websites use SSL certificates to secure and encrypt all transferred data. Sensitive data, including credit card information, should never be stored within the website's database unless the website adheres to all mandated regulations, including PCI Compliance.


eCommerce Websites Typically Work Like This: 

  1. A potential customer navigates to an eCommerce website, whether via search engines, paid advertisements, referral traffic, etc. 
  2. The eCommerce website connects to its database, which contains tons of data about the website's categories, products, product dimensions and weight, articles and content, images, etc. The website requests this data to dynamically render any requested web pages.  
  3. After browsing the eCommerce website, a potential customer adds a product or service to their virtual shopping cart and decides to check out.
  4. The shopper completes the checkout process and finalizes the transaction.
  5. The shopper's credit card information is encrypted and sent to a Payment Gateway(Paypal, for example) to handle the credit card processing securely and remotely.
  6. Once the order is complete, and the payment has gone through, the website typically provides an estimated shipping time, a unique transaction number, postal tracking number, etc. Most of these processes are automated and part of a good eCommerce website's core functionality.
  7. As transactions take place, orders are stored in the website admin and sent to an order fulfillment team. Order fulfillment can be done in-house or by a third-party company/drop shipper. 

Overall, eCommerce websites offer advantages and disadvantages when compared to traditional brick-and-mortar storefronts.

Pros of eCommerce Websites:

  • Increased market reach (global customer base).
  • Reduced costs for goods, services, shipping, etc.
  • Secure & encrypted transactions.
  • Shortened distribution chain.
  • Faster order fulfillment.
  • Better, more precise data for future sales forecasting.
  • Targeted markets can be razor-focused, based on age, demographics, interests, etc.
  • The potential for anonymity.

Cons of eCommerce Websites:

The disadvantages of eCommerce websites are few and far between, and if you work with a reputable eCommerce website development company, are easily mitigated. Disadvantages of eCommerce sites include:

  • Customers can't always see and touch the product in real life before purchasing.
  • Potential customers must be somewhat tech-savvy, potentially limiting market reach.
  • Less 'personal' shopping experiences.
  • Potential for fraud, data privacy issues, etc.

eCommerce Websites Types and Common eCommerce Business Models

The majority of eCommerce websites on the internet are B2C retailers. However, there are many types of eCommerce websites:

  • B2B (business to business)
  • B2C (business to consumer)
  • C2C (consumer to consumer)
  • C2B (consumer to business)
  • B2A (business to public administrations)
  • C2A (consumer to public administrations)

eCommerce vs. Mobile Commerce:

Mobile commerce (mCommerce) refers to eCommerce that takes place on a mobile device. With the ubiquitous nature of smartphones and tablets, a perpetually-increasing share of eCommerce transactions will take place on a mobile device. Read more about mobile commerce statistics!


Popular eCommerce Platforms:

Most eCommerce websites, including some custom eCommerce websites, utilize a pre-existing shopping cart software platform and integrated content management system (CMS). There are dozens, if not hundreds of eCommerce website platforms available. The most commonly used platforms include:

  • Magento
  • Onveos
  • Shopify
  • WooCommerce (a WordPress plugin)

Examples of Popular eCommerce Websites:

  • Amazon.com
  • Walmart.com
  • Target.com
  • eBay.com
  • Alibaba
  • Flipkart.com
  • NewEgg.com
  • Overstock.com
  • BestBuy.com

How To Promote eCommerce Websites

If you already have an eCommerce website or plan to soon, you should have a plan to drive traffic to the website.

  • SEO: Search engine optimization is the process of improving your website's ability to rank in search engines for keywords related to your business.  Learn about eCommerce SEO services with OuterBox!
  • PPC / Paid Advertising: Paid traffic is another excellent method to drive traffic to your site. Paid traffic can be purchased from search engines, other websites, social media outlets, etc. The most popular paid traffic source is Google Ads (formerly Adwords), which follows an algorithmically-influenced auction model. If you're serious about PPC, we recommend leaving your PPC campaigns in our hands.
  • Social Media: You can build brand awareness and leverage social media as an additional source of traffic to your website. Depending on your business, you may even be able to rely on social media traffic to drive a majority of your site's traffic. Some social media platforms make more sense than others depending on your industry. Your business should decide which make the most sense and focus most of your efforts on those channels. The big ones to consider are Facebook, Twitter, Linkedin,  Pinterest, Instagram, & Google My Business. 
  • Referral: Referral traffic, whether organic or paid, is an additional means of driving traffic. Network with authoritative voices (trade magazines, blogs, etc.) in your industry to find qualified referral traffic. Submitting coupon codes to the coupon aggregators can be a quick and easy way to drive some referral traffic to your site, but it may not be super-qualified. 
  • Sales / Promotions: Online shoppers love taking advantage of special sales, promotions, coupon codes, etc. If you're a standard eCommerce retailer, your shoppers will practically expect some special discount, or at the very least the illusion of some added-value. Learn more about running eCommerce promotions.


Understanding Conversion Rate for eCommerce Websites

Your website's conversion rate is the total number of conversions on your website divided by the total number of visitors. For example, if an eCommerce site receives 2000 visitors in a month and has 500 conversions, the conversion rate would be 25%.

Most of the time, when discussing conversion rate on an eCommerce website, we are talking about the percentage of website visitors that convert into a paying customer. But don't overlook other equally important website goals!

It is up to the business to define what a conversion is. Website goals and conversions are easily identified and tracked in Google Analytics. Any desired action that visitors are encouraged to take is worth monitoring.


Why Conversion Rate Matters for eCommerce

The idea of converting as many of your shoppers into paying customers is not a new concept, nor is altering elements of the store's layout and design to facilitate conversions. Brick and mortar stores have worked to increase their conversion rates since the dawn of capitalism.

Tracking conversion and conversion rates on your website allows you to predict future sales, compare performance, test changes, and more.

Ideally, you would never make changes to your website that hurt your conversion rate, but you never know what changes will make an impact one way or another until you try!

Running AB Tests (aka Split Testing) is a common way to test changes on an eCommerce website to determine which changes improve your conversion rate. Google now even offers its own AB testing tool which seamlessly integrates with Google Analytics.


My Website Needs Conversion Rate Optimization

If you're interested in increasing your website's conversion rate, check out our 11 Tips to Convert Visitors into Customers. If you're ready to call in the pros, it's time to consider Conversion Rate Optimization Services with OuterBox.

How To Measure eCommerce Success

There are many ways to track the success of your eCommerce website.


Website Analytics & Behavior Data

Google Analytics is by far the most widely used analytics tracking software out there, and it's plenty robust for most applications. Here's a list of the most commonly used web analytics software:
  • Google Analytics
  • SE Ranking
  • Kissmetrics
  • Clicky
  • Piwik
  • Gauges
  • Mixpanel
  • Foxmetrics

Check out these 20 Google Analytics Alternatives for even more options.


KPI and Important Metrics for eCommerce

The following metrics are just a few of the most important for measuring eCommerce success, but ultimately what KPI matter most is unique to each business.

  • Revenue (organic, paid, direct, social, referral)
  • Quantity of transactions
  • Average order value
  • Traffic (organic, direct, social, referral)
  • Bounce Rate
  • Conversion Rate
  • Audience Engagement (email blasts, bounce rate on organic landing pages, etc.)
  • Cart Abandonment Rate
  • Traffic Gains (organic, paid, referral, etc.)
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