The Basics of Ecommerce

By now you must have seen the hype. Big companies spending millions on advertising e-commerce solutions for small business. But try finding even a comprehensible explanation of e-commerce, let alone a complete small business solution and you begin to realize that there is an abundance of resources pressuring us to get on the e-commerce bandwagon, but the resources to allow us to achieve that goal are lacking. The following is a very basic overview of how e-commerce works.

Technically there are different forms of e-commerce, but for simplicity we will look at e-commerce as buying and selling of goods online. 

The first concept to understand is that operating a commerce site requires the same elements of operating a store in the real world.

• A way for customers to gather information about your products
• A way for customers to select and submit their order
• A way to transfer the payment from customer to seller. 

No matter where or what your selling you must be able to do all of the above in order to do business. In an average physical store, where payment is made in cash the process is quite obvious. The store is acts as the place where people can obtain information about the products. Because they are in the store the means of them selecting the products is simple, just physically pick them up. They walk up to the cashier as the means to submit their order. They use the cashier as the means to pay for the items. The cashier verifies that they have made the payment, and places the money into the till. Easy enough to grasp, now let’s look about how we do this online. 

A way for customers to gather information about the products 

This is handled by your website and, unless your want to go out and spend thousands on all the necessary hardware, you will need a web host who will store your site on their servers.

A way for customers to select and submit their order

If you have more than one product then you’ll need a shopping cart. A shopping cart is the way a customer virtually picks up the items they want to purchase. If you’ve been to any site that sells more than one item online you will have already seen shopping cart software at work. Typically you’ll see the product with a description and a little button underneath which says, add this product to my cart. When the customer is ready to check out a good shopping cart will calculate how much the order comes too including tax and shipping. And most will e-mail you the order letting you know that where to ship the products.

Getting a shopping cart for your site is fairly easy. You can purchase your own software or chances are that your web hosting company will have there own that they will let you use. There are also places online called storefront builders that you can build your store with their shopping cart right on their site. 

Sending and collecting payments

In order to collect payments from credit cards you need to have 3 things.

1. A secure server so credit card numbers can be sent safely. The most common form of this is the secure server Locket, or SSL. This allows for credit card numbers to be encrypted for security reasons. A good web host company should be able to set this up for you for a small fee and some offer this service for free.
2. An internet merchant account. In simplest terms, the merchant account is where the money for orders from a credit card transaction is placed until the transaction is complete.  Because the internet deals with “non face to face” transactions there needs to be some safe guards in place  in case the card holder is not the one who made the purchase. The most common is called a charge back. Most credit cards give their cardholders the option of refunding their money for purchases they did not make, which comes out of your merchant account. The merchant account is probably the most difficult part for small and home based businesses when it comes to e-commerce. You must apply for a merchant account. All major American banks can handle them as do some independent companies. However you must be accepted and various fees apply, from set up fees to monthly fees and fees per transaction.
3. Payment processor. Just like it sounds it is a payment processor, which processes the payment. Once the customer has submitted the order, the order is sent to the payment processor, which then transfers the order to the credit card company for validation.  If the credit card number is good and has enough credit on it, the processor then charges the account and sends the funds into your merchant account.

Now let’s walk through an online transaction and see how each element works. 

A customer goes to your website and views your products. They choose which products they want to purchase by selecting to place them in their shopping cart. They then choose to “check out” and are taken to a form where they can fill out their information. They fill out the form enter all their data including their credit card number and submit their order over a secure server. You receive notification that you have an order and the order is sent to the payment processor for validation. After the card is verified the payment is then sent into your merchant account.

If you were able to understand the above information then you now have an understanding of how e-commerce works.