FORMATION GUIDE

How to Start an Online Boutique

Opening a boutique looks drastically different today than it did a decade ago. Even for brick-and-mortar retailers, the internet has expanded markets and revolutionized how businesses reach and communicate with consumers. It has also lowered the barriers for entry for entrepreneurs looking to open an online boutique with significantly lower overhead (think, no rent, decorations, few employees, etc.).

Online boutiques aren’t just ideal for business owners, but for consumers, too. For many consumers, shopping online is simply easier than going to the store. You can quickly compare prices, expand what’s available to you, and—most importantly—purchase items without having to leave your home. It’s estimated that by 2021, 2.14 billion people worldwide will purchase goods or services online annually. That is great news for online business owners.

Just because you aren’t renting a storefront, however, doesn’t mean you won’t find your own unique challenges with an online boutique.

In This Business Formation Guide

Here at Swyft Filings, we help business owners like yourself during one of the most crucial times in their business’ lifecycle—the beginning. The decisions you make before you hit the ground running will either set you up for success or for avoidable pitfalls.

In this guide, we’re walking you through the most important things you need to know as you start your online boutique: providing some context as to what you can expect in this industry, some key details to consider as you formalize operations, and the legal steps of formation.

Click on the links below for easier navigation throughout this guide:

What to Expect When Starting an Online Boutique

Regardless of the type of business, understanding the industry’s current landscape is vital. In this section, we’ll be taking a look at the state of online shopping, and online boutiques specifically, so that you have a clear picture of what to expect.

Opening a boutique: brick and mortar vs. online

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Realistically, opening a brick-and-mortar location might be more of a long-term goal rather than a short-term one. Online boutiques are a great way to dip your toes into retail. That’s not to say that online businesses aren’t just as much work as opening a brick-and-mortar, but they do cost less upfront. 69 percent of U.S. entrepreneurs start their businesses at home, forgoing office space or storefronts altogether

There’s also plenty of consumers online. Recent reports show that:

  • 51 percent of U.S. consumers prefer shopping online, whereas 49% prefer in-store shopping
  • 67 percent of millennials prefer online shopping
  • Online shopping is growing at a rate three times faster than offline shopping

Some of the main reasons people prefer online shopping include:

  • The ability to shop at any time of the day
  • The ability to compare prices
  • It saves time and is convenient
  • There’s a greater variety of goods

What’s the online retail landscape like in 2019?

As you enter the online retail market, it’s useful to understand the current trends and challenges faced by the industry. It’s better, after all, to know exactly what you’re getting yourself into.

Online shopping experiences need to be seamless
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Amazon is the largest online retailer in the U.S. When they make moves, it creates waves throughout the industry, forcing everyone else to keep up—or at least try to. A major reason for Amazon’s success is just how easy it is to purchase items on the site, with features like one-click purchases and free, expedited deliveries for members.

Because Amazon has set such a high consumer expectation, as a new online retailer, you’ll have to ensure that your customers’ experience is a good (i.e. easy) one.

Loyalty programs yield return customers
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Major brands such as Sephora and Nordstrom use loyalty programs to keep customers coming back. The challenge here is offering a loyalty program that gives the customer something they find truly valuable, whether that’s free shipping, exclusive deals, or first looks. Small online retailers should brainstorm opportunities to get creative without giving away product or services at a price they can’t afford.

Even if you can’t offer a loyalty program when just starting out, remember that amazing customer service also breeds loyalty. If you treat people like they matter, they won’t forget.

Start-up retailers are spending less on paid advertisements

Rather than pouring budget into paid advertisements, many new online retailers are reaching their audiences organically, through social media, and with the help of influencers. This is, in part, due to the growing user base on platforms like Instagram, which reached a billion monthly active users in 2018. According to the Digital Marketing Institute , 86% of women report using social media for advice on purchases.

When your business is young and your budget is tight, you may want to consider allocating more funds to these channels rather than paid ads in search.

How to set yourself apart

The rise of the online marketplace is a double-edged sword for entrepreneurs seeking to disrupt the digital space. Where there’s vast opportunity, there’s also saturation. For your online boutique to succeed, it’s important to set yourself apart. There are a few ways to do this:

  • Target a niche audience, possibly one that’s unique to your locale or to a group often overlooked.
  • Offer above-and-beyond customer service.
  • Highlight your unique selling points, such as locally-sourced goods, chemical free products, or items designed for a person at a very specific stage in their life.
  • Find your own voice. Don’t just mimic those around you.

Before you even start your business, take the time to consider why a customer would pick your online boutique. Knowing your unique value proposition and market trajectory will impact every decision you make in the formation process and beyond.

How much does it cost to start an online boutique?

Due to a wide range of circumstances, you’re not going to find a satisfactory answer to this question without doing some research on your own. The amount needed to start your online boutique depends on what you’re looking to accomplish, with the lowest bare-bones dropshipping store (more on that soon) starting at $40. If you’re looking to start the next Amazon, you’ll need significantly more capital.

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It’s okay to start small, get your footing, and grow from there. Even popular online retailer Everlane, which now sells extensive clothing lines for both men and women, started with just t-shirts.

Here’s a list of some of the factors that will determine how much you need to start your online business:

  • The price of technology and equipment needed to run your business
  • Cost of website hosting and maintenance
  • Entity formation costs
  • Professional and legal fees
  • Licensing and permitting fees
  • Marketing and PR budget
  • Initial inventory

Depending on your skillset and experience, you may be able to take on some of these tasks yourself without outsourcing. You may also choose to only pay for the essentials upfront and take on other costs once you bring in some revenue. Unfortunately, no single person can take on every aspect of business ownership without at least some help, even if it’s just from a software or third-party provider.

Rather than trying to figure out how much you need to start your business, it may be more fruitful (and realistic) to determine how much you already have and break down your budget from there. You don’t need to have everything in place to get started.

Managing Your Online Boutique: Key Decisions to Make

Every online boutique owner has to make the following decisions to get the ball rolling:

Sourcing, storing, and delivering products

There are three primary options for sourcing products:

  1. Making them yourself
  2. Working with a wholesaler or manufacturer
  3. Hiring a dropshipper
1. Making your own product

This is typically the most involved way to source goods costing you lots of time to produce your product. It’s also likely the defining feature of your business, if you go this route. Even when you’re making your own product, however, you still have to source the materials to do so. When sourcing materials for a product you make yourself, it may still make sense to purchase wholesale (see the next section for more details). Other options are scouring your local flea market and estate sales.

As the producer of your own product, you’ll also be responsible for delivery, such as through UPS or by hiring a shipping service. Shipping costs can wrack up, so you’ll want to make sure you choose an option that doesn’t negatively affect your business’ cash flow.

In general, tracking the amount of time it takes for you to make each product, the cost of materials to produce it, and how much it costs to ship that product, will help you get a better sense of what’s reasonable for you to provide to customers and communicate realistic timelines.

2. Working with a wholesaler or manufacturer

If you aren’t able to make a product yourself, working with a wholesaler or manufacturer essentially gives you a production partner. When you purchase a good or material at wholesale, it costs less than if you were to purchase from a retailer. This is so that the retailer (i.e. you) can mark up the product in order to yield a profit.

One challenge of working with a wholesaler is that it can be a hefty investment up front and there’s a decent amount of overhead involved in storing and shipping the product. On the other hand, the assistance with production is a major time saver and you can work with reputable wholesalers who are known for producing goods of a certain caliber. A few popular wholesalers to help start your search include:

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Regardless of the wholesaler you move forward with, do your research and check references beforehand.

3. Hiring a dropshipper

When you source products through dropshipping, you’re only paying the vendor for the products that are sold. Dropshipping vendors will also typically include direct shipment to your customer. This is an ideal sourcing method if you don’t have storage space or want to avoid handling shipping. It also often costs less when first starting your business.

The challenge of dropshipping is overall lack of control. This includes potential issues with customer service, lack of control with shipment, and the inability to inspect the product before sending it to the customer.

Find more information about dropshipping here.

Creating your website

Think of your online boutique’s website as though it’s your storefront. Everything from the font you use to the images and product descriptions will tell customers a story about who your brand is. Be intentional about the ease of navigation, user experience, and visual appeal.

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Fortunately, you don’t have to be a web developer to create a beautiful and functional website. Online website builders like Rocketbuildr and Squarespace offer customizable templates, making it so that anyone can create their own personalized site.

Here are some things to consider as you create your website:

  • From the moment someone visits the homepage of your site, your product offering should be obvious. Be clear and concise, as to not lose visitors who are uncertain about what your product is.
  • Highlight what sets you apart ASAP.
  • Keep it simple. A clean and simple user experience will decrease the chances of losing someone in the sales funnel.
  • The “add to cart” button should be prominent. Make purchasing an item seamless (think Amazon Prime’s one-click purchase structure).
  • Make it easy for people to contact you. Your contact info, or at least a link to your contact page, should be in the footer of every page on the site.

Marketing your product

There are a ton of avenues for marketing your product. Understanding your target market and where they typically go to purchase goods, be that social media or Etsy, will help you narrow down where you should be focusing your efforts.

Here are a few marketing opportunities to consider:

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Social media

If you market your product in one place, it should be on social media. More and more consumers are using social media to research products they’re interested in, and are also taking recommendations from their favorite social media influencers (see more details on this in the next section). As of 2019, there are a reported 3.4 billion individuals who are active social media users, and 90% of brands use social media to increase brand awareness.

In truth, the social media landscape is becoming so robust that there are a lot of different ways you could approach marketing on social, including working with influencers, boosting posts and advertisements, or even just keeping a consistent posting schedule on your own accounts.

Learn more about social media marketing here.

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Influencer and bloggers

Influencer marketing is absolutely an area you should be exploring for your online boutique. Recent reports show that 49% of consumers depend on influencer recommendations. It’s the fastest-growing online customer-acquisition method.

If you’re unfamiliar, social media influencers and bloggers tend to have dedicated online followings who trust and heed to their recommendations. The more influential the influencer, the more expensive it is for businesses to work with them. This doesn’t necessarily mean it’s out of reach for a new online business with a tight marketing budget.

Research up-and-coming or hyper-local influencers in your area or industry. Chances are, they’re also trying to grow their brand, so they will likely be willing to feature your product for less. Depending on the influencer, they might also be happy to accept your product for free in exchange for a feature or mention.

Check out this article from Hootsuite if you’re interested in learning more about influencer marketing.

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Online marketplaces: Amazon, Etsy, and eBay

Online marketplaces like Amazon are great for increasing the accessibility of your product and getting it in front of new people who may not have found your brand otherwise. But they aren’t right for everyone. If you sell a commonly-found product with identical competitors, it’ll simply be a race to see who can sell their product for less, which could negatively affect your profit margins. Those who sell their own branded products have a better chance at finding success on online marketplaces, in addition to selling on their own business websites.

Here are some of the main reasons why businesses choose to sell on an online marketplace:

  • Leveraging a well-known marketplace’s traffic
  • Fulfillment options, like Fulfillment by Amazon
  • Testing purposes to help you determine what you should be charging for a product based on demand
  • Opportunity for growth
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Pay-per-click (PPC)

PPC involves paying for ads on search engines, such as Google or Bing. This is typically a competitive and involved method of marketing, where money can be spent very quickly. Fortunately, Google has been making adjustments so that anyone, regardless of PPC experience, can get started with Google Ads. It just depends on the time, money, and effort you have to dedicate to it.

Depending on your interest or bandwidth, you might also consider working with a third-party resource to help you effectively manage the ads.

Getting Started: 8 Steps for Formation

Once you’ve landed on your product, target market, and some key operational details, it’s time to take the formal steps for formation:

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Create a business plan

Think of your business plan as the foundation of your business. It’s the document you’ll reference every time you make a decision to discern whether or not it fits within your roadmap. A strong business plan will provide a clear picture of how you’ll start and grow your business at every stage. Aside from internal use, business plans can also help you inspire investments and potential partners.

Pro Tip: Much of the information in your business plan, like entity type or even your business name, will be determined in the later stages of the business formation process. Though creating a business plan is the first step needed to start your business, it will likely be a continuous process rather than an item to mark off a checklist. If anything, the creation of your business plan will help you make those vital decisions in a methodical and organized fashion.
Types of business plans

Business plans typically fall into one of two formats: traditional or lean startup. A traditional business plan is the most common and require more time dedicated to creating them. They’re usually many pages long (think dozens). Lean startup business plans, on the other hand, are often only a page or two long, and take just a couple of hours to create.

When considering the type of business plan needed for your business, you’ll need to consider how you’ll be using it. Investors and lenders, for instance, will likely require a traditional business plan before committing to your business.

What’s in a traditional business plan?

Most traditional business plans will contain the following sections:

  • Executive summary - This is where you explain what your company is, as well as your mission statement and basic information about your online boutique (number of employees, leadership, etc.). You can also include a high-level overview of your plans for growth.
  • Company description - In this section, you’ll take the opportunity to explain what sets your online boutique apart and how it will fit into the current marketplace. Be very specific.
  • Market analysis - Describe the current state of your market and the online retail industry. How will your online business do better than what’s already out there?
  • Legal structure - Document the entity type you’ve chosen for your online boutique.
  • Product offering - Explain what you sell, its benefits, and what the product lifecycle will look like. Also, share plans for intellectual property.
  • Marketing strategy - Lay out how you’ll reach your target audience.
  • Financial projections - Provide your financial outlook for the next couple of years, supplemented by documents such as forecasted income statements and cash flow statements. This is a significant portion of your business plan—one that will be of interest to potential investors— and may require the assistance of an accountant.

Creating a business plan can be a daunting undertaking. As a new business owner, you can choose to take a stab at it on your own or seek out a service to help you create one. If you go the route of creating it yourself, use templates specific to online boutiques to help get you started.

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Set up your business finances

As you put together your business plan, it will become much clearer how much money you’ll need to start your online boutique.

Here are a few ways you can fund your new business:

  • Self-funding - Self-funding your business, known as bootstrapping, is when you use your own financial resources to start and support your business. The resources can also come from friends and family willing to gift or invest in your business. It’s important to know that in these instances you carry the financial risks associated with your business, so it’s imperative you spend and budget wisely.
  • Small business loan - Small business loans are a good option if you need assistance with initial capital. Like self-funding, these loans allow you to remain in full control of your business. To receive a loan, you’ll likely need a traditional business plan to share with the lender.
  • Venture capital funding - VC funding is often given in exchange for owning a portion of the business. If you are a first-time entrepreneur or if your business is not yet producing high yields, you’ll likely find it challenging to get a VC investment. Another thing to consider when seeking VC funding is that the venture capitalists will most often have a say in how you run and manage your online boutique.
  • Crowdfunding - Crowdfunding has become a somewhat popular means for funding a new venture. The key here is to get people excited so they want to invest. Unlike applying for a small business loan or seeking an investment, people who give through a crowdfunding platform are your future customers. While this is a great resource for raising some cash, it can be difficult to gain the kind of viral following needed for this to work.
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Choose a business structure and file

The entity type you choose for your online boutique will influence important details such as asset protection, tax laws, and operational implications. Fortunately, there are very clear cut differences between each structure that should make it easy to determine which one will be best for you.

Sole Proprietorship

If you are the only member of your online boutique, your business will, by default, be a sole proprietorship. We recommend looking into your other business structure options, as SPs offer little to no protection and also make it very difficult to get funding.

Limited Liability Company

The LLC business structure is the most common entity type for small businesses, and with good reason. Your personal finances and assets will be protected, and the setup process isn’t too complicated. Click here to learn more about the process of filing an LLC online.

C Corporation

Also known as an inc., c corporations make sense for an online boutique with high profits, multiple employees, and aspirations of going public. This is also a more attractive structure for traditional investors. Click here to learn more about filing your c corporation online.

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For more information to help you determine which business structure is best for your online boutique, check out our comprehensive entity comparison guide. If you already know which entity type you want to move forward with, consider working with an online business filing service like Swyft Filings, which takes the actual filing off your plate and reduces the risk of filing errors.

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Pick a name

Choosing a name for your online boutique is a crucial step in your business formation process. For any business, much less an online boutique with no physical storefront, the name is most often a potential customers’ (or investors’) first impression of the business.

Check out our business naming guide for ideas on how to brainstorm the perfect name, as well as what you’ll need to do to secure and claim ownership of that name. off your plate and reduces the risk of filing errors.

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Purchase a domain name and claim
a media handle

Once you’ve chosen and secured the name for your business, take immediate steps to purchase a domain name. Ideally, your domain name will perfectly match your business name, but that’s not always possible.

Word to the wise, if you can’t secure your business name for the domain name, consider adding signifying letters or removing words like “the”. For example, let’s say your business name is “Best Site.” Here are a few domain names that would all work for your website:

  • www.thebestsite.com
  • www.bestsite.com
  • www.best-site.com
Pro tip: Be wary of using “.co,” as most of your potential traffic will likely write “.com” out of habit, only to find a different site.

You’ll also want to claim a media handle, as social media platforms will be one of your main avenues for marketing. It should be simple and short, while also unique, so that people can easily search for and find you. If possible, keep it the same across all venues, including Twitter, Instagram, and Facebook.

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Get federal and state tax IDs

Your federal tax ID, or EIN, is a 9-digit number that essentially serves as the social security number for your business. You’ll need an EIN for things like opening a business bank account or paying taxes for your online boutique. You can either get an EIN directly from the Internal Revenue Service website, or you can work with an online EIN filing service.

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Obtain business licenses and permits

Whether or not your online boutique needs business licenses or permits relies on the state you’re operating out of. Such licenses and permits ensure your business remains legally compliant.

Swyft Filings can help you figure out if your online boutique needs business licenses and permits, as well as assist you in obtaining them if they’re needed. Learn more here.

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Open a business bank account

Before you can begin selling clothing and other goods through your online boutique, you’ll need to open a business bank account, as well as set up an account with an online payment service like Paypal. Maintaining separate business and personal bank accounts is simply a good practice, as it simplifies your business accounting. Muddling the two will make it difficult managing day-to-day issues or even paying taxes.

Let us know if you need help starting your online boutique!

With the right product, niche audience, and marketing plan, you’ll be well on your way to starting a successful online boutique. If you need help with the legal aspects of your business, like choosing an entity type or securing a registered agent, contact the business experts at Swyft Filings for assistance. You start your dream business. We’ll take care of the paperwork.

Ready to Start Your Business?