What costs to expect when starting an e-commerce business
By 2021, total ecommerce sales across the world are estimated to total an incredible $4.5 trillion and that figure has quadrupled in the last six years.
But, starting your own ecommerce business can be a daunting experience - and if you’re not careful, costs can spiral while setting up your online store.
Let’s start with the costs you CAN’T avoid
If you’re venturing into the ecommerce market, there are four elements you need: a domain name, hosting, inventory and a system to process payments. The biggest resource to your startup will be your website. Depending on what you require from it, its speed and ease of use, will determine what you pay. Unfortunately, there are no shortcuts here - you get the quality that you’re prepared to pay for. Professionally built websites can range from $4,000 and $10,000 but, thankfully, there are cheaper ways too.
A domain name, which is the URL of your website, will cost between $1 and $20 each year and you can pick them up cheap using sites such as GoDaddy or Cheap Domains. If possible, try and get a ‘.com’ domain because even though it may cost a bit more, internet users’ still choose .com as their default go-to URL when searching online.
Now, hosting. You can expect this to set you back anywhere from $5 to $500 a month. This is the part where you get the quality for what you decide to pay for. You need hosting because without it, your site won’t be online, people can’t see it and you’ll not sell any goods.
There are two types of hosting, though - shared and private. This is a case-by-case basis choice, depending on the size of your ecommerce business and goals. Shared hosting is cheaper because you’re using the same server with other businesses/people and it’s suitable for up to around 100,000 visits to your website every month.
If your site will surpass that, you should look towards private hosting for guaranteed performance. The only drawback with private hosting is that it costs much more - starting at around $200 a month. However, a speedy website is more likely to leave customers with a good experience and promotes return visitors/buyers, so it could in-turn pay for itself.
Another alternative is to work with a bigger ecommerce platform, such as Shopify ($29 a month) or BigCommerce ($29.95 a month), as they have their own hosting service. If you’re looking to do this on the cheap, use a third party to sell products because you won’t need the domain name or hosting facility. But, you’ll be losing a percentage of all sales in fees to the third party, which may be Amazon or eBay.
This will be the biggest initial cost to your startup because without inventory, you can’t sell.
Consider the drop shipping method, which reduces warehouse and storage costs, because when a customer buys a product from you, you forward that to your supplier, and they ship or post that to the buyer as if it came from you. It’s a great way to sell without big overhead costs. There is one drawback with drop shipping, though. You don’t have a primary element of control, so you can’t choose the packaging of the product or any personalized touches which can add a nice customization. You’re also at the mercy of your supplier, so if they run out of inventory so do you and the customers will still complain to you.
The alternative, as briefly mentioned, is that you stock your own inventory with 100% control of stock, customization and shipping - but it comes with a cost. A good rule of thumb with inventory is to invest $100 in a supplier if they are local to where you are based, and $1,000 if they are abroad. Check minimum order amounts, how long it takes to process an order and when customers can expect purchases.
So, you’ve got your website URL, it’s live on the internet thanks to a hosting service, you’ve got inventory and now you need to find a way to get paid. There are costs attached to this because all payment processors, including PayPal and Shopify, will charge you transaction fees of around 2-3% and extras for currency changes and overseas payments. So, keep in mind these outgoings when you set your pricing, otherwise you’ll find that your margins are not what was initially planned.
These should be seen as luxury items. You could get a website designer to create a swanky website, but it’ll cost $300 to $3,000, logo branding costs between $30 and $300, and a website theme ranges from $50 to $200.
If you’re not a whizz on your finances, you can look for professional advice through a tax advisor or LegalZoom ($300) or a business lawyer ($500 to $800).
Finally, marketing. You can do it for free yourself using Instagram and Facebook, or slightly more expensive doing your own social media marketing and paid adverts, or you can pay an expert where costs could spiral into the thousands.
If you want to find more about this topic, log in ecomConnect, the online community for e-commerce entrepreneurs. You will have access to a worldwide network of entrepreneurs, MSMEs, start-ups and business experts and plenty of free online resources, such as online courses, tools, webinars, success stories and latest articles on e-commerce. Join ecomConnect!