How much does it cost to start an online business?

account_circle Web.com Team
A female small business owner smiles at the camera as she is working on her laptop.

 

Key takeaways:

  • Decide whether you want an eCommerce site or a third party site like eBay, or even on both, to showcase your products and/or services.

  • Consider the add-on services of your eCommerce site, e.g. SSL certificates, hosting fees, when making a monthly or yearly budget.

  • Think about how you will handle product sourcing and inventory management as options for these, i.e. DIY or outsourcing, will incur costs.

  • Invest in accounting software, significant branded materials, and other marketing strategies to grow your business.

One of the first things to think about when starting your own online business is how much it will cost.  While determining an exact cost can be difficult, understanding startup expenses is important to have a successful business launch. 

 

Essentials for starting your online business

If you've started your research, then you have noticed that there are many options available with different features, add-ons, and price points. Here are some things to keep in mind to help determine how much capital you’ll need up front to start your eCommerce site

Picking a platform

First, you’ll need to think about what site or platform will host your business. Then, knowing the monthly fees and transaction rate on the site of your choosing will help you better price your products to make a profit. 

It will cost some money to create your own brand with the help of a platform like Web.com. However, these professional services tend to give you more flexibility to run your business the way you want, including setting your own customer service and return policy. 

If a larger investment seems intimidating, consider opting for an established platform, like eBay or Amazon. While these sites typically have their own customer service and rules for returns, they have fewer upfront costs to worry about. 

Read more: The Beginners Guide to Selling on Amazon for Small Businesses

Site fees and other expenses 

While some site fees are mandatory, other add-ons will likely be available if you choose to pay for them. Here are three to note: 

  • Customizations: Custom domain names and site designs are available on some platforms at additional cost. 

  • Hosting: Content management systems (like WordPress) require payment for hosting independently from the site itself. 

  • SSL Certificate: Required for the encryption of data like credit card numbers. Some sites provide SSL certificates for free, while others may charge. 

Read more: How to Make Sure Your eCommerce Works Best for Your Customers

Product sourcing 

Next, you’ll need to determine how to source your inventory. There are many options for acquiring inventory, including dropshipping, wholesale acquisition, and reaching out to manufacturers directly. Costs will vary considerably depending on the product sourcing model you utilize. Dropshipping has the lowest cost upfront because you don’t have to buy a whole inventory of products to get started; you only pay for the products you sell. 

Read more: What is Product Sourcing?

Branding

Proper branding helps customers connect your products to your business. Be sure to set aside part of your budget for that purpose. There are many different branding options, but developing an eye-catching logo is vital. Other  suggestions include branded packaging and delivery boxes. Standing out is important when working in the eCommerce sector, so taking advantage of these additional branding opportunities can set your products apart from the competition. 

If you don’t have a logo for your business yet, there are website design services who offer logo design as part of its web builder or hosting package. When you sign up for a DIY website builder, you will be able to design your own logo on the website builder itself. You may also opt for a professionally made one with a custom designed website.

Product images and videos 

When it comes to selling products online, having accurate images or video representations of what you’re selling is critical. You’re asking customers to buy products they cannot interact with in person, so you must have detailed images that sufficiently show products, allowing customers to see exactly what they’ll get. While professional photos can get expensive, there are cheaper solutions for product photography. 

Read more: How to Take The Best Product Photos for Your eCommerce Website

A man packs an order in a box while looking at his laptop.

 

Product storage/inventory management 

Depending on the amount of inventory you plan on holding, product storage and inventory management may be one of the higher costs to your business. You’ll also need to pay any warehouse staff your business requires. As a result, many eCommerce businesses opt for partnering with a 3PL (third-party logistics company), who store inventory for a fee. 

Read more: How to choose your eCommerce business model

Fulfillment

Factoring shipping costs into your budget is a necessity for most businesses. Free shipping is no longer a luxury and is expected by most customers. Offering free shipping will often increase the number of sales you make, which can help offset any shipping costs to your business. 

Read more: How should you handle eCommerce fulfillment: DIY or outsource?

Returns 

While dealing with returns is less than ideal, a certain number of product returns should be expected for any business, and therefore must be included when coming up with a budget. There are a number of reasons you may receive returns (items arrived broken, not working, or the customer simply ordered the wrong item), and though a few returns here and there are nothing to worry about, quality control is important when it comes to keeping your customers satisfied. 

Read more: 5 Ways to Reduce E-commerce Returns

eCommerce software 

Using the right eCommerce software can be a serious asset to your business. There are numerous solutions available (accounting, logistics, analytics, marketing , and even all-in-one services), which can cut down on your need for staff, saving you money in the long run. Look for a solution that automates time-consuming tasks so you can concentrate on other important aspects of your business.

 

Small business owners are working on accounting tasks together.

Marketing

One of the final things you’ll need to consider when budgeting an online business is marketing. Your marketing strategy is likely to change depending on your audience, so pay special attention to how your target customers interact with your brand. There are many marketing options to consider (social media, email services, PPC , etc.), and a mix typically yields the best results. Your budget should cover the cost of creating any marketing content (advertising, blog pages, social posts). Getting your marketing strategy right is important because, without marketing, potential customers won’t know your company exists. 

Read more: Making Every Step Count: Efficient Online Business Strategies

Remember: Cost varies

The most important thing to remember when creating a budget for your online business is that no two budgets will look the same. There isn’t an exact number for how much it will cost to start your own business. Instead, your budget is dependent on an entire list of factors, including your business model, the types of products you’ll sell, the customers you target, and the level of your branding. It’s finding what works best for your business that will set you apart from the competition. 

Also, don't forget to take renewal costs into account when creating your budget. Knowing when and how much your services will renew for will keep any unexpected expenses from hurting your bottom line.

Read more: Net Worth: Implementing a New eCommerce Strategy

Final thoughts 

At the end of the day, coming up with the cost of starting your eCommerce business means considering various aspects and evaluating your business needs. This may take some trial and error, but finding the budget that gets you what you need and allows for profit can lead to long-term success in the eCommerce industry. 

Image Credits: Shutterstock