You know it! I know it as well. In fact, all of us know that it is very easy to launch an online store today. Free tools are available. Cheap resources are accessible. The only rule for starting a successful online business is having a solid business plan.
If you know what to sell online, you can launch your store right away. Moreover, running an online shop is cheaper than maintaining a physical store.
But like all other ventures, eCommerce startups also need certain upfront investments. We call this as eCommerce startup costs.
But didn’t we just say that you can avail of free eCommerce tools for your store? Yes, we did. But, if you think about your online shop from a long term perspective, you need a definite startup budget.
In this article, I will discuss the basic eCommerce Startup Costs that you should not ignore. Note that I will not calculate any specific amount needed to start your online store. Instead of that, I will walk you through different online business expenses. After reading this guide you will be able to calculate how much does it cost to start an online store.
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eCommerce Startup Costs
Let us go back to where we started this discussion.
I am sure you have often heard that you can start an online store for free. Let me differ and explain you why.
You can indeed start an eCommerce business for free at platforms like Payhip and Gumroad. This is viable only if the online shop is part of a bigger platform. For example, this can work for blog owners selling info products.
But these free platforms are not the correct choice if you want to build a sustainable business.
Tip: Read our reviews on different eCommerce platforms to make an informed decision.
The bottom line is you must be ready to bear several online business expenses for success with your shop. So, let us find out the real start-up costs for an eCommerce business.
How much does it cost to start an eCommerce business?
Before answering the question, let me explain how a new online shop begins its life. This will help you to figure out the correct eCommerce startup budget for your online shop.
A typical eCommerce business needs to focus on the following:
- Build an online shop
- Manage inventories
- Customer acquisition
- Payment Processing
- Customer retention
We will elaborate on each and discuss the related eCommerce cost structures in detail.
eCommerce Startup Costs: Platform
The first thing that a visitor notes when he lands on your store is the shop design. The design of an online shop can make or break the deal.
Focus on the usability of your online store. Think about the fonts and colors you use. Think about the name of your shop. In other words, invest in branding as a whole.
But, whatever you do, start with the name of your shop.
eCommerce startup budget for Domain Name
You need a domain for your online shop.
A domain is the online counterpart of the physical address of a brick and mortar store. As part of your branding process, buy a proper domain. Always target a top-level domain like .com.
Some hosted eCommerce platforms offer free subdomains. Forget that route if you have a long term plan for your online store.
A domain costs only around 10 USD for a .com extension. Unless your eCommerce platform offers a top-level domain in its package, buy one.
Besides owning a suitable domain, you must also keep your registration information hidden. You can do this with a whois guard. If your domain registrar does not offer it free, it is good to buy one.
Cost of eCommerce Hosting
Your online store must live somewhere. In other words, a server must host your eCommerce software and data. While platforms like payhip offers you free hosting, this is not the ideal long term solution.
You must choose one of the major eCommerce platforms like self-hosted WooCommerce. Or, hosted eCommerce platforms like Shopify.
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Note that the hosting expenses are not a one-time affair. In fact, you can start your online business free with trial plans of most eCommerce platforms. But, you must include the hosting expenses in your eCommerce startup budget.
Cost of SSL for eCommerce
Your online business involves money. So, do not forget to install an active SSL certificate for your online store.
These security certificates encrypt the data and keep them safe from hackers. Most hosted eCommerce platforms like Shopify offers free SSL for the paid plans. But if you self host, buy your own SSL certificate.
Never use a free SSL like Let’s Encrypt for your online store.
Cost of eCommerce Theme
When we talk about look and feel, we are also talking about the theme used on your online store. Invest in a proper theme for better results.
You can start with a free theme for your online shop. But if you need better experience – go premium. 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.
Cost of a Logo for online shop
The same is true about your logo. You can go with a DIY approach to create a logo for your online shop. But, chances are you may not have the necessary expertise to create that fabulous design.
So, think of using one of the several solid logo design tools available online. You can also hire freelance designers for something unique.
eCommerce Startup Costs: Inventory
When a visitor lands on your online store, he is actually looking for your inventory. The customer’s initial experience depends on your stock.
So, inventory is the chief USP of any eCommerce business. We can not have a general figure for the cost of inventory. Because this varies with the model of inventory management and the products you sell.
There are two major models of running an online store.
eCommerce Startup Costs in Traditional model of inventory management
In this model, you maintain your own inventory of goods that you sell. Here the cost to run and maintain an inventory is variable and subject to the products that you plan to sell.
eCommerce Startup Costs in Dropshipping
In dropshipping, you do not own your inventory. Instead, you become a middleman between the customer and your supplier. In this model, your cost of inventory is zero.
We are not considering shipping charges here. This is because I am assuming you will cover it with your markup!
eCommerce Startup Costs: Customer Acquisition
Your online store needs customers. I am sure you do not need any explanation for this! But remember that your online store will need time to build its customer base. Unless you are an established brand, customers will not flood in as you open your online store.
On your part, you must be very active in promoting your shop to attract visitors. It is your responsibility to convert interested visitors into customers.
But, how do you attract a visitor in the first place?
Apply established marketing strategies.
In fact, you can even start marketing your online business much ahead of the actual launch. Pre-launch store promotion is a short-run expense and one time in nature.
Pre-Launch store promotion can help to
- build awareness about your store
- gather prospective customers for your online store
But pre-launch promotions are not everything. You must also consider and apply other strategies to promote your shop.
Whatever marketing strategy you may choose, it will have some expenses associated with it. Set aside a budget for these marketing activities in your eCommerce startup costs.
eCommerce Startup Costs: Payment Processing
In all businesses, the customer pays for an item. And the owner fulfills. This basic process of a transaction does not change in an online shop.
But in an eCommerce business transaction of money happens digitally. And to accept online money, you must have an efficient payment processor active in your store.
If you use a hosted eCommerce platform, it is already integrated with a payment processor. For self-hosted eCommerce platforms, you need to opt for a payment processor on your own.
These payment gateways are usually free to start with. But they charge a fee on the transaction amount.
Keep in mind that you should always use a well known and secured payment processor for your online shop. Some of the popular payment processing systems available today are Stripe, Paypal, and Payoneer.
Payment gateway charges do not add to your eCommerce Startup Costs. But, it is good to know that these expenses also exist.
eCommerce Startup Costs: Customer Retention
As a shop owner, you must think about ways to retain your customers. Because repeating customers mean more business.
There are several strategies 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.
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 it to your online business expenses.
eCommerce Startup Costs – Final Thoughts
In this article, we saw some of the major start-up costs needed for an eCommerce business. We did not come up with any fixed costs for starting an online store.
That is because no one has that perfect number that serves all. Instead, we tried to build an online business startup cost list that can serve as a guide.
The costs of setting up your online store vary based on your needs and business model. But, now you know how to calculate startup costs for your online business.
Consider all the expenses applicable to you. Think about the various eCommerce cost structures we mentioned in this article. Using these guides, you must be able to find the eCommerce startup costs for your own shop.
Right? Let us know your comments.
What you need to understand is, launching an online business is not free. While a few of the expenses that I mentioned in this article are optional, most of them are necessary. These are the eCommerce business startup costs that you should never ignore.
The ideal approach to start an eCommerce business is:
- Choose the product to sell.
- Choose the perfect eCommerce platform.
- Carefully design your branding – logo, theme, etc.
- Decide on your inventory.
- Launch a basic functional online store.
- Invest in customer acquisition.
- Taste the water.
- Add advanced eCommerce features to your basic store as your business keeps growing.
- Keep us posted about your success!
If this guide on eCommerce Startup Costs helped you, please feel free to share it with your tribe!
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