Globally online business is currently the biggest growth enabler of every business and is about to reach a trillion-dollar market capital very soon.
You can see more and more traditional brick and mortar stores are embracing eCommerce in a very rapid way. In addition, several new niche online shops are emerging every day and finding success.
Think of any well-known online business and closely study its trajectory of growth. You will be surprised by its rate of success and return on investment. Just to give you a perspective – amazon was founded in 1994, which is not even three decades back!
Naturally, it is a rational thought to embrace this emerging business trend and grow the success rate of your business and brand. The more you delay in launching an online business, you need to face stiffer competition.
Of course, every business is unique and does not need to mimic amazon’s size. You can even start a very small online business catering to a very niche audience and still succeed.
But whatever be the size of your online business, there are a few startup expenses that you must bear to launch an online business. Your upfront investment can vary widely based on your initial choices of eCommerce platform, software, and tools.
In short, running an online shop is cheaper than maintaining a physical store.
In this article, we will help you to calculate your online business startup budget.
Table of Contents
- Online Business Startup Costs – Overview
- eCommerce Startup Costs – Detailed Analysis
- eCommerce Startup Costs – FAQ
- Wrapping Up
Online Business Startup Costs – Overview
We know that a picture is worth a thousand words. So, here is an infographic that you can refer to for a quick idea of the various expenses involved to launch an online business.
This will give you an overview of the eCommerce cost structure covered in the remaining article.
eCommerce Startup Costs – Detailed Analysis
Let us now dig into the detailed analysis of the various online business startup expenses mentioned above.
As you can understand from the infographic above, you need to account for the various startup expenses against the following heads:
|Technology and Branding||$-$$$|
In general, a typical online business needs to spend money on each of the above recurrently. Needless to mention – you must include these in your eCommerce startup budget as well.
Technology and Branding
When you plan to start your online business, the first thing you need is an online presence. Think of it as an internet equivalent of a brick-and-mortar store.
To build this online storefront, you need the help of technology. While the sky is the limit when it comes to eCommerce software, services, and tools you can use – there are a few costs that are almost mandatory to run any successful online business.
In this article, we are going to discuss these mandatory expenses for an online business.
Most online store builders give you a free subdomain. If you choose to go, with any of these subdomains – you do not need to spend a dime for your domain.
But, if you think about branding your online business – owning a suitable top-level domain name is a must. And I highly recommend you to buy one.
You must buy a top-level domain name (preferably a .com) because of the following reasons:
- Domain names are cheap. It costs only around $10 per year.
- A top-level domain name creates a unique brand value for your online business.
Always remember that the branding of your online store starts with the name of your shop aka domain. So, do not hesitate in securing a brandable top-level domain for your online business right when you launch. A domain cannot wait for the future!
Namecheap is our preferred domain registrar. It often runs promotional campaigns wherein you can buy a domain at a cheaper price. To sweeten the deal, it also includes a free Whois Guard in its offering. Check out the latest Namecheap deals today.
The largest chunk of your online business expense will go towards renting or owning your storefront. This is because, you need a robust, reliable and powerful eCommerce platform to run your online business.
Apart from the front end of your storefront, the eCommerce platform is also responsible for storing all transactional information.
In general, there are two different flavours of eCommerce platforms that you can choose.
Hosted eCommerce Platform
The advantage here is you need not worry about maintaining the hardware, security, and upgrades. All of these are taken care of by the service providers and you can focus on your core business.
However, your options to customize and extend your online store will be limited in this option. You may only use supported apps and themes to customize and extend your online shop. Mind that, most of the time this demands an additional expense.
Shopify is our recommended product if you want to build your online store using a hosted eCommerce platform. The availability of third-party apps and themes for Shopify sheerly outnumbers its competition.
If you are looking for a free online store builder, you can check the features of Payhip. You can think of Payhip as a stripped-down free alternative to Shopify.
But remember that these free alternatives are never as powerful as Shopify or Sellfy.
Self-hosted eCommerce Platform
On the other hand of the spectrum, you have self-hosted eCommerce solutions like WooCommerce and Magento.
When you use self-hosted eCommerce platforms, you are responsible for owning the server resources, periodic backups and upgrading the software.
If you use a platform like WooCommerce, your abilities to customize your storefront is practically unlimited.
The Woo commerce (or Magento) platform is itself free. However, you need to pay for your server.
Servers are available in different flavours.
With managed servers, you are not responsible for managing the hardware of your server. In lieu of a monthly or annual fee, the hosting provider manages the server resources. Hands down, this is the best option for the not-so-tech-savvy entrepreneur.
Note that as the name suggests, shared servers are shared with multiple users. In other words, the server resources are typically shared with different tenants simultaneously. This may infrequently impact the performance and availability of server resources.
Managed shared servers are often available for less than $5 per month. But note that these are the cheaper options in the spectrum. Premium managed servers are costlier. But of course, you get better performance and support here.
If you are looking for cheap yet reliable managed shared hosting for WooCommerce, you can check Bluehost. You can grab a free domain along with SSL with this deal from Bluehost.
Virtual Private Servers or VPS
If you are tech-savvy and can manage your servers, VPS is the best option. It gives improved performance, more flexibility and better pricing. With VPS your resources are practically reserved for you, and not shared with other tenants.
This results in more optimal server performance and a better user experience.
A VPS is usually available for $5 a month and upwards.
Upcloud is our choice of VPS if you want to own one. If you are looking for some freebies, signup for Upcloud here and grab $25 worth of free credit.
Moreover, while there are several free themes and plugins that you can use on your WooCommerce store – chances are you may need extra features which are often premium.
Your cost of running an online shop will vary based on your choice of platform and the features you want to avail yourself.
SSL or Secure Sockets Layer provides a secure channel between two machines or devices operating over the internet or an internal network. In short, SSL is a security technology that is commonly used to secure server to browser transactions.
This generally includes securing any information passed by a browser (e.g. customer’s credit card details or password) to a web server (such as an online store or online banking application).
As you can understand, SSL is an absolute must for any online shop. These security certificates encrypt the data and keep them safe from hackers.
In fact, it is less likely that a prospective customer will ever continue with the transaction if your storefront is missing an active SSL.
But you must arrange for your own SSL certificate when self-hosting your storefront using eCommerce platforms like WooCommerce or Magento.
There are different vendors offering SSL in different price ranges. Typically, you can buy SSL for a monthly fee of around $5 per month.
You can check the different deals offered by Namecheap. We found the pricing and options are competitive here. The frequent promotional deals can make your SSL less expensive. Find out the latest Namecheap deals currently available.
If an eCommerce platform decides the backend capability of your online shop, the theme decides the frontend. In simple words, the theme determines the look and feel of your shop.
Apart from the cosmetic aspects, the theme also controls the SEO (search engine optimization) of your online shop. This means a better-coded theme can help your products rank higher in search engines.
A conversion optimised theme can also improve user experience and boost conversions.
Most premium eCommerce platforms (think Shopify or WooCommerce) let you choose and install a theme of your choice. So, if you care about user experience and conversion – you must also invest in a proper premium theme for better results.
Of course, you can start an online business with any of the free themes available for these platforms. However, you may need to switch to a premium/paid theme for a more unique look and feel and higher conversions.
If you are using Shopify and looking for an amazing free Shopify theme, check out Debutify.
A ready-made premium theme can range anything between 60 to 200 USD. As an alternative, you may hire freelancers to create a more personalized experience.
Also note that, unlike the other expenses we discussed above, the expense for your eCommerce theme is usually a one-time cost.
Where to find the best premium eCommerce themes?
- Debutify – Free option available
- Template Monster – Free themes available
- PixelUnion – Get a 10% discount with the coupon STOREPROSE10
- Out Of The Sandbox – Get a 10% discount with the coupon STOREPROSE10
A logo is a unique brand asset. A great logo can endure the test of time and can stand for your brand for a long time.
Think of any established brand like Coco-Cola, amazon, or apple. You can immediately associate these names with their unique brand identity – their logo.
If you invest time or bear a one time expense towards designing your logo – it can be true for your online shop as well.
Designing a unique and brandable logo needs a vision as well as design skills. If you have the necessary skills you can do it yourself (DIY). But if you lack either, I will advise you to hire a designer to create your logo.
But the recommended middle path is to use one of the many tools available to create a logo using easy drag-and-drop utilities and professional logo templates.
DesignEvo is one such tool. You can use DesignEvo to create a great looking logo even for free.
When you plan to start an online business, you need to make provisions for accepting payments digitally. To accept online money, you must have an efficient payment processor active in your store.
All hosted eCommerce platforms like Shopify or Sellfy have an in-built mechanism to accept online payments. This is equally true for free hosted platforms like Payhip.
But for self-hosted eCommerce platforms like WooCommerce or Magento, you need to integrate a suitable payment processor.
You have multiple options when you think of payment processors. For example, you have
Usually, these payment gateways are free to start with. But usually they charge a percentage of the transaction amount as fees. This means you start incurring expenses only after you start selling.
As such, you need not have a budget for a Payment Processor in your eCommerce startup costs.
The basic premise of starting an online shop is to sell products. In addition, the USP of any online business is its diverse product catalogue.
Your inventory is the place where you stock the products to sell.
When you think of launching your eCommerce business, you must have an advanced plan to procure, produce, and stock the products you want to sell.
There are two different options to manage your inventory and procure products.
When you use traditional inventory for your online business, you stock up the goods in a physical warehouse similar to a brick-and-mortar store.
This is a more practical approach for existing physical shops that are looking to extend their global reach with eCommerce.
If you are going to employ the traditional model of maintaining inventory, chalk out the cost of products and space to maintain your inventory. Mind that this is an important component of your upfront eCommerce startup costs.
Contrary to the traditional model that we discussed above, you do not maintain any physical inventory with dropshipping.
Or, you are not expected to do so.
When you dropship – you do not stock products in your own inventory. Instead, you connect your online shop with a suitable supplier, who takes care of the fulfilment.
Fortunately, you do not have to integrate with individual suppliers today. There are dedicated services that have a pool of suppliers you can connect with easily. These services remove all hassles and serve as the intermediary automating the end to end supply chain and fulfilment.
As you can understand, the cost of managing inventory is zero in a dropshipping business. However, keep in mind that usually, you have to pay a flat monthly fee to these dropshipping platforms, if you use any.
While we are discussing dropshipping platforms, it is good to know that there are two different types of platforms available today.
- Print-on-demand – If you plan to sell products built on custom designs, print-on-demand platforms like Printful can be a blessing. These platforms can help you to produce a variety of print-on-demand goods based on custom designs.
- Readymade Products – If you plan to sell readymade products instead of print-on-demand, platforms like Spocket and Oberlo can be very useful.
Spocket is our recommended dropshipping platform if you intend to sell quality readymade products. You can even start exploring Spocket without any upfront expense.
No business can survive without customers. In other words, your online store also needs customers. But unless you are an established offline brand, customers will not flood in as you launch your online store.
To overcome this, you must actively promote your shop and attract customers. You can employ a combination of any of the following strategies to attract customers to your newly launched online store.
Social Networks like Facebook, Twitter, and Pinterest are usually the least expensive (if not free) way to spread the word about your online business.
Needless to mention these social networks have millions of regular users across the globe and are capable of sending traffic to your store. Many of these visitors may turn into impulse buyers.
It is your duty to turn them into loyal customers.
Advertising the launch of your online business is a tried and proven way to attract visitors to your store. However, unlike social networks – this mode of customer acquisition is a paid option.
You can choose any advertising networks like Google and Microsoft to bid for targeted keywords. There are even other niche marketplaces like BuySellAds which you can explore.
If you plan to run advertisement campaigns for your store, you must check the Adzooma platform. It is an award-winning Ad platform that can help you to optimize Google, Microsoft and Facebook Ads in one place.
To make it more impressive, you can create your Adzooma account for free. Moreover, new users also get $125 credit in Microsoft ads when you spend $25 initially.
Another good strategy for attracting traffic to your store is to implement a referral program. A lucrative and efficient affiliate program can drive huge referral traffic to your store, which you can easily convert.
ReferralCandy is one such effective service to help spread word-of-mouth marketing. Platforms like ReferralCandy can make affiliate management very easy and effective.
Whatever promotional strategies you may choose, it will have some expenses associated with it. Set aside a budget for this.
Impulse buyers are good. But loyal customers are a blessing.
As a shop owner, it is your responsibility to convert impulse buyers into loyal customers. In other words, you must think about strategies to retain your customers.
There are several ways to build loyal customers.
For example, you can create an attractive loyalty program for your online store. Or, you can offer solid discounts to your returning customers.
Even a simple strategy to include impressive eCommerce packaging inserts can actually work like a charm.
It may be too early to invest in customer retention when you start your store. But if you want to include these right from launch, add them to your online business expenses.
Legal and Permits
Although you do not run a physical store in eCommerce, still you may need several licenses and legal permits to sell goods online. These can include:
- Business License
- Employer Identification Number
- Professional licenses specific to your industry
- Adherence to local laws
In most cases, you’ll need to pay a legal fee to obtain the necessary paperwork.
Please note that the above list is indicative and varies based on geography and legislation. You are strongly advised to consult a competent legal advisor for all guidance and related formalities.
eCommerce Startup Costs – FAQ
Let us answer a few FAQ on the online business startup costs. If you have any other query, feel free to drop me a note.
What do you mean by eCommerce Startup Costs?
eCommerce Startup Costs or Online Business Startup Costs refer to the minimum upfront investment you must make to launch an online business.
Can you launch an online business for free?
You can. Not all online businesses need an upfront investment. For example, you can start an niche, small online shop selling info-products without any startup expenses using platforms like Payhip.
Can you run a robust online shop for free?
While you can launch an online shop for free, it is not the best option to run a robust and brandable online business. If you plan to build and own one, you must choose more flexible eCommerce platforms and tools. This in turn needs a definite startup budget.
What is the minimum cost to launch an online business?
There is no magic figure that fits all. The minimum cost needed to launch an online business depends on you choice of platform, software, services, and tools.
What are eCommerce startup costs examples?
Typically your eCommerce startup costs include costs incurred for Technology, Inventory Management, Customer Acquisition, Customer Retention, and Legal Permits. Some of these are one time expenses.
I hope that I have successfully explained how much does it cost to start an online store. Let us summarize these online business startup costs for ready reference.
The pie chart below gives you a bird-eye view of the distribution of approximate expenses for launching an eCommerce business.
In short, the startup costs for an online business are variable and will depend on your choice of options and the business model you employ.
But, I am sure you are now aware of the different expenses you have to bear for starting your eCommerce business.