How to Start an Online Business in Canada (2020): Ultimate Beginner’s Guide
It’s never been easier to start an online business in Canada, whether you’re looking for some extra spending money, want to replace your job income, or build an online empire (yes – an empire!).
The Internet has been around for more than two decades and technology has evolved to the point that you don’t need technical skills or experience to create a profitable online business.
But make no mistake about it: creating a profitable online business does take work. Despite many claims out there to the contrary, overnight online riches aren’t just sitting out there for the taking, and geysers of cash won’t be flying into your pockets in a matter of days. Bottom line: it will take considerable effort to make enough income to support a typical household.
But the good news is that an online business based in Canada that reliably provides income is within reach! And while online business possibilities are almost limitless, there are fundamental concepts to understand when you are starting an online business.
This article serves as an introduction to how to start an online business in Canada and is the first in a series of dozens of articles we’ll be rolling out to help you make money online. As you read through the introduction to each section, you can click through to a more in-depth exploration of the topic.
Why Start an Online Business?
Before jumping in, you should weigh the pros and cons to decide if starting an online business is right for you:
Pros of Starting an Online Business in Canada
Cons of Starting an Online Business in Canada
What Types of Online Businesses are There in Canada?
Although the vastness and evolving nature of the web provide an incredible number of choices for starting a business, in reality, most online businesses can be placed into one of a few business types. Often there is overlap between the different business types.
E-commerce
E-commerce refers to how products or services are paid for. If you accept orders online you are in e-commerce. As we’ll explore below, you can sell your own products or services online, someone else, or both.
Selling your own product or services
E-commerce refers to how products or services are paid for. If you accept orders online you are in e-commerce. As we’ll explore below, you can sell your own products or services online, someone else, or both.
Selling someone else’s products
You could also create a website and sell products on someone else’s behalf. You could buy the products yourself, store them and do your own shipping, however online it’s much more common to rely on “drop-shipping” when selling other people’s products.
Drop-Shipping
Drop-shipping is a form of e-commerce where you sell the item to the consumer, but a third party fulfills the order, meaning they will ship the item to the customer.
You collect the payment from the consumer and then pay the drop-shipper for the item and shipping costs. To be profitable you need to sell the item at a higher cost than it is filled.
You get to keep the difference between what you charged the customer and what you paid the wholesaler to fill the order.
In the past, having a successful e-commerce business selling physical goods required a relationship with the producer or wholesaler of the item. But today services make finding products and suppliers simple.
Customer service and dealing with returns can be a pain point when running a dropshipping business.
White Label vs Private Label
In the online world and drop-shipping in particular, goods can be sold as either “white label” or “private label.” With a white label, you are selling a product that is branded by an existing company. In contrast, private labeling involves having the manufacturer brand their product on your behalf. To the consumer, it looks like you created the product when in reality it was produced by someone else.
In either case, you are selling a product created by someone else. The difference is how the product is presented to the consumer.
Affiliate Marketing
Affiliate marketing refers to getting paid when you refer someone to another site and they purchase. With drop-shipping, the sale takes place on your site. With affiliate marketing, you refer a visitor to another website through a link on your site, and if that referred visitor makes a purchase, you get a percent of the sale. Because you aren’t making the sale, having to process orders, or deal with customer service, it can be less labor-intensive to run an affiliate site.
Affiliate Programs
Many existing businesses maintain an affiliate program that encourages others to do their marketing form them.
A review site like The New York Time’s Wirecutter is a good example of an affiliate relationship. They review multiple products and include links to purchase on Amazon.
If a reader clicks through and purchases from Amazon, The New York Times will be paid a commission on that sale. Amazon’s affiliate program, Amazon Associates, is likely the largest on the web.
Affiliate Networks
Affiliate marketing usually relies on a third-party, known as an affiliate network, to act as the intermediary between the marketer and the product provider. A business signs up with the network and provides a product listing, description, artwork, etc. Those looking to promote those products will then join the specific program and promote them on their website, social media channels, etc.
The affiliate network provides the marketer with a link that includes tracking information to make sure they are paid. In exchange for a percentage of the commission, the affiliate networks mediate the relationship between the marketers and the business, monitor for fraud, and pay the marketers directly.
How much commission you make will vary by business and product. The commission usually ranges from 3% – 20% of the sale, but can vary wildly.
Commission Junction and Awin are two of the largest affiliate networks.
Lead Generation
Lead generation refers to capturing the contact information of a potential purchaser and providing it to a business that could fulfill the order. As the purchase takes place on another site, it is similar to affiliate marketing. In fact, in many respects, it is a sub-category of affiliate marketing.
Lead generation is usually most popular for industries with longer business cycles, more complex purchases, or services that rely on having a personal relationship with whoever is providing the service. Insurance, loans, and higher education are examples of industries where lead generation is popular.
If you’ve seen an ad asking “looking for a quote on insurance?” this could very well be someone running a lead generation campaign. They’ll take the contact information and sell it to companies that sell insurance.
Paying for leads can be risky for the business because the potential for fake leads is significant. For this reason, it can be harder to find a good lead offer on affiliate sites.
Ad-supported websites
Another option for an online business is to have a site that is supported by ads. Visitors come to your site for the content you’ve created, and if a user clicks an ad on your site you’ll be paid.
Because users have gotten accustomed to ignoring ads, and the low rates paid for clicked ads, it normally takes sites with a lot of traffic to be profitable with ads. If the site content and the ads shown are cohesive and support each other, your chances of success go up tremendously.
You have some options when deciding what ads you show.
Affiliate ads
You could show ads for businesses you are an affiliate of. By tailoring your content to the affiliate product you are promoting, you increase the chance the reader will purchase. If they are reading the content, chances are they are interested in related products.
Ad Networks
The other option for an ad-supported site is to rely on an ad network to determine what ads show on your site. The ad network provides you with code that you place in the appropriate place on your site. When a user lands on the site, the ad network will use their technology to find the best ad to show to the site visitor.
Each ad network is different but the content of your site as well as the data they have on the user will normally affect what ad is shown.
Note that in contrast to an affiliate ad, when using an ad network you’ll get paid when the user clicks the ad, you don’t need to wait for them to purchase.
Google’s Adsense is the biggest ad network, but there are several to choose from.
One important thing to note is that it can be difficult to make significant money with these types of ads. Users have become blind to ads and ignore them, so the percent of website visitors who click on these types of ads will likely be quite low.
These ads are best for sites with a lot of traffic. Because of their relative ease to set up, they are a good option to get started with earning money online.
Display ads
Another option is to negotiate a weekly or monthly rate with another site for you to place their static ad in a prominent position on your site. Website owners are skeptical of paying for ads that won’t drive results. You’ll want to make sure your site is getting traffic before attempting to ask others to advertise on your site.
User Supported Sites
An option for non-profit organizations as well as creative types is a site supported by the users through donations. Best suited for journalists, musicians, and artists of various types, the website asks users directly for a donation.
Patreon is a platform to support individuals and websites via user donations. It normally relies on supporters, aka “patrons,” to donate a set amount regularly.
Crowdfunding
Crowdfunding refers to getting others to pay you to create your product or business before it is produced. Normally, someone with an idea for a product or business describe their idea and ask people to support it. Oftentimes, donors will be given something in exchange for supporting the product.
If you have an idea for a product, you might want to explore crowdfunding via a site like Kickstarter or GoFundMe.
Information products
Because of the ease of transmitting files online, selling an informational product could be a good option for getting started with an online business.
This entails creating a product like a book, or e-book as it’s often referred, or a video series, and selling it. How-to-books are among the most popular informational products being sold online.
You can sell your own informational products or someone else’s.
To get an idea of what digital products are popular online, check out what digital products are available on affiliate networks like Clickbank, revenuewire.com, or warriorplus.com.
SaaS
Software-as-a-Service (SaaS) refers to a product you provide as a service. In this case, you would create software that you sell and bill regularly.
Examples of SaaS include digital accounting software like Quickbooks or CRM solutions like Salesforce.
SaaS products traditionally perform better when they serve businesses (B2B), but that doesn’t have to be the case.
Apps
Another option to creating a business online is to create an app that you then monetize. Normally you make money from people who purchase the app in the Apple or Android app marketplace. Because it can be hard to get people to pay money for an app, a popular path to monetization involves providing a free version with limited functionality and then up-selling the full paid version, referred to as the “freemium” model.
Some apps rely on showing ads as a source of revenue. In some cases, the paid upgrade removes the ads.
Writing a Business Plan for Your Online Business
Before investing significant money in a new online business, most experts recommend creating a business plan. A business plan will help guide your efforts and understand key challenges, identify expenses, and potential profitability.
Choosing a niche for your online business
To have a successful online business, it’s’ recommended that you start with a small niche (a category or subject) that makes it easier to gain traction.
Not everyone can mimic Amazon’s “everything store.” Online it’s much more common for a business to target a much smaller niche. Limiting your business to a niche makes it much easier to market to your specific audience.
As you grow you can expand your niche if it makes sense, but most marketing experts agree that when starting you should be hyper-focused on a small niche. Amazon first started as a bookstore targeting avid readers before expanding.
To choose a niche you can start with a subject you are passionate or knowledgeable about. If you are more interested in making money, you could research to identify markets that aren’t being served with the hopes of meeting those needs.
The type of online business you decide on will help you when trying to identify your niche. E.g. if you plan to make your money promoting products as an affiliate, you’ll need to be sure those products exist and are available on an affiliate network.
Competitive Analysis
Competitive research should play a big part of thinking through what the best online business for you is. Before you go “all in” on a specific niche you should have a good understanding of the competitive landscape.
Understanding the big and small players in the space and how they are acquiring customers will tell you a great deal about the potential for success.
Once you’ve picked a niche and started your business, it’s vital to continually see what others in the space are doing. This allows you to see what is and isn’t working and can provide you with ideas and inspiration for strategies.
USP – Your Unique Selling Proposition
When launching an online business, you should spend some time thinking about your Unique Selling Proposition (USP) – what makes your site special, why should anyone give you their money.
The competition online is tough and a solid USP will help you stand out.
Who is your customer?
As you work through your business plan its vital that you keep your potential customer in mind. Nobody cares about your product, what they care about is how it will help them.
Focusing on the frustrations of potential customers as well as their needs and desires will help you hone not only your website and products but your marketing as well. In digital marketing, potential customers are often thought about as “buyer personas.” Three to five distinct buyer personas will give you a better idea of who your ideal customers are, their challenges, and desires. What is their gender, profession, age, interests, marital status, etc? Having a solid understanding will help your marketing and customer service ability.
How will you acquire customers?
Perhaps the biggest challenge for any business is acquiring customers. Getting customers to not only know that you exist but to fork over their hard-earned money is not easy.
Online, customer acquisition is usually driven by advertising. Search Engine Marketing on Google and social media advertising on Facebook and Instagram are some of the most popular ways to make potential customers aware you exist. But they are by no means the only way. In many cases, it can be quite expensive to successfully market a product or service through these.
How will you make money?
If you are starting an online business you’ll need to make money. You must have a realistic plan for profitability. At some point, you’ll have to break out a pen and paper (or the digital version) and layout what your costs are and how you are making money.
What are you selling, for what price? Is that more than it will cost you to acquire and service customers? Things like shipping costs or fees technology platforms charge are easy to miss at this stage.
Even if you start with an estimate and tweak it as you go, having a solid and realistic plan for profitability is essential.
Steps to Set Up a Website
Once you are ready to launch your online business, you’ll need a website.
Register a domain
The first step to having a website is to purchase a domain name, the web address where your site will “live.”
You can choose from a huge selection of what are called “top-level domains” (TLD) but the most popular are .com .org, or in Canada .ca.
The cost of a domain will vary by the TLD but you can usually buy a .com for less than $15.
There are countless services offering name registration including Godaddy and Namecheap. Even Google offers domain name registration services.
Host your site
Once you have a domain, you’ll need a place to host your website, where the files that run your website are stored.
Most hosting companies and many website builders (see below) offer domain registration, allowing you to keep both services under one provider.
Depending on your needs, hosting costs can be as low as $100 annually.
Popular hosts include Greengeeks, Bluehost, and HostGator.
Choose your website technology
You’ll likely want to use software to create and manage your website. Usually, this comes down to a choice between a free or paid system.
Content Management System (CMS)
Don’t let the fancy name scare you – a content management system (CMS) is simply software that helps you manage the add and manage content to your site. It’s where you create and manage your pages and change the look and feel of your site.
Free CMSs
WordPress is by far the most popular CMS choice for creating a website, primarily because, as open-source software, it’s free. Other free CMSs include Drupal and Joomla.
Most hosts have functionality that allows you to install WordPress and other CMSs with a few clicks.
Website Builders
Although WordPress is free and relatively easy to use, many first-time users find it too complex for their needs and instead use website builders with a visual interface as an easier way to set up a website. While they are usually relatively inexpensive, there is normally a recurring cost associated with website builders.
Squarespace and Wix are two of the most popular website builders. Many hosts offer a proprietary builder as well.
E-commerce Platform
An e-commerce platform allows you to showcase your products and accept orders on your site.
Shopify has become one of the most popular platforms for online businesses and small businesses in particular. It allows you to manage your inventory, showcase it on your website, and take and process orders online. PayPal is another option for accepting payments on your website. Other e-commerce platforms include BigCommerce, WooCommerce, and PrestaShop, an open-source, freemium, e-commerce software. Squarespace and Wix also have an e-commerce offering.
Common Mistakes to Avoid – Starting an Online Business in Canada
- Not doing proper research – Refer to the business plan section above for some tips to make sure your research is complete before diving into your online business.
- Not understanding how you will process sales – If you choose to make sales or your site, how you accept orders is a major consideration. Refer to the section on e-commerce solutions for more information on processing orders on your site.
- Spending too much too quickly – While the allure of an online business can be strong, it’s easy to get excited and purchase software or advertising without a solid plan. Spending too much too soon might make it difficult to invest when your business is ready for it.
- Not complying with local and federal laws – As with any business endeavor, there are laws and regulations you need to comply with to remain in good legal standing. Refer to the section below to understand some of the laws you need to be aware of when starting an online business in Canada.
Frequently Asked Questions about Starting an Online Business in Canada
