How Does an Online Store Work?

by Billie Nordmeyer; Updated September 26, 2017
Smiling man making order by mobile phone

An online store is a website through which customers place orders. It may represent a small local store, a major retailer, an e-commerce store or an individual who sells projects through a third-party site, such as eBay. The online store can operate under a number of business models, including business-to-consumer, business-to-business or consumer to consumer. To operate an online store, you’ll need a product catalog, a shopping cart and other items.

Web Hosting

A web server hosts an online store and e-commerce hosting provides the functions required to create, operate and manage an online store. Web hosting features include the shopping cart software, SSL protocol, database support, payment processing services, security features and other functions. E-commerce hosting is a service that web-hosting service providers offer in addition to the web server needed to host the site

Domain Name

An online store requires a domain name to set up its online presence. The business owner registers a domain name with a registrar and links it to the online store. The domain name is a store’s online identify.

Dedicated IP Address

An online store’s web server has an IP address that allows the user to connect to the server. In turn, an online store encrypts the data that flows between a browser and web server using the SSL protocol to protect customer data. A private SSL certificate ensures customers the website is secure.

Shopping Cart Software

Shopping cart software, or e-commerce software, powers an online site. The software supports the online store catalog and order processing. You can purchase this software through various vendors or hire a developer to create a shopping cart for you.

Merchant Interface

A shopping cart interfaces with a merchant account with a financial institution that’s required to process a credit card payment over the Internet in real-time. You obtain the merchant account needed for your payment system from a bank. The payment system can integrate with the billing system.

Product Catalog

The product catalog is a virtual gateway that provides customers a listing of available products and their descriptions, their classification as well as a retrieval function. It consists of category pages and product listing pages. Using the product catalog, the customer can order goods, make payments, access customer service, provide feedback and perform other functions.

Online Payment Processor

An online payment processor allows an online store to accept credit card payments. A payment gateway validates the credit card data and then processes the transaction. After decreasing the payment amount by the processing fee, the gateway deposits the remainder into the online store’s bank account.

Shipping Costs Calculator

Shipping costs can be calculated after the customer places an item in a shopping cart. After or before the order is finalized, the calculator then determines the shipping fee based on the criteria entered by the online store customer. For example, shipping costs may be calculated on the basis of weight, destination and other criteria.

Tax Calculation

An online sale is not complete until taxes have been calculated. The online store site manager updates the tax rates on a periodic basis. You can also purchase software that automatically updates the tax rates. Some shipping companies provide software to merchants to ensure the rates are current.

About the Author

Billie Nordmeyer works as a consultant advising small businesses and Fortune 500 companies on performance improvement initiatives, as well as SAP software selection and implementation. During her career, she has published business and technology-based articles and texts. Nordmeyer holds a Bachelor of Science in accounting, a Master of Arts in international management and a Master of Business Administration in finance.

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