Your business needs money – and a steady stream of it – to grow big and strong.
As with other types of businesses, e-commerce businesses also need consistent cash flow otherwise their engine will quickly run out of the fuel it requires to keep itself chugging along.
But it’s not quite that simple.
Cash flow gets split up to maintain multiple parts of your business, each of which will demand more or less money at different stages of your business’s development.
Being ill-prepared for e-commerce expenses, or completely losing track of how your e-commerce costs shift and change, can spell real disaster for even the most well-established online sellers.
Here, we’ll dive into what you can expect the cost to start an e-commerce business should be, what ongoing e-commerce business expenses you can anticipate, the importance of a balanced e-commerce budget, and much more.
E-commerce startup costs
How much does it cost to start an e-commerce business? Good question!
Depending on whether you’re starting new or taking your small business online, what your business model is, and what goods or services you’ll be offering, the e-commerce startup costs you’ll need to cover may vary. For example, some beginner online sellers will choose to utilize certain marketing techniques like high-quality video ads right away while others will decide to stick to the simpler stuff like SEO at the outset.
It’s important that you are aware of differences in e-commerce costs because, of course, those choices can impact your e-commerce budget. Best to be prepared!
If you have a Shopify store, make sure to take advantage of apps to track your profit and expenses – so you always know where you stand!
It’s not all about the choices you the option to make though – some start-up costs for e-commerce business are going to be essential in order to get started off on the right foot. Below we cover the e-commerce business expenses that apply nearly universally for all beginner online sellers.
1. Website development – $25 minimum
- E-commerce platform/Hosting
- Domain name
- Web design
2. Website plugins – Per sale basis (will vary)
3. Legal certificates – $300 minimum
- Business licensing
- Business insurance
- SSL certification
4. Manufacturing – $0 minimum
- This is irrelevant if you’re dropshipping, in which case inventory will replace this part of your e-commerce startup budget
5. Logistics – Per sale basis (will vary)
- E-commerce shipping costs/Transportation
6. Marketing – $10 per day minimum
Ongoing e-commerce business expenses
Once you’ve figured out how to cover the cost to start an e-commerce business, you’ll want to work on ensuring that you’ll be able to handle the ongoing expenses in your e-commerce budget.
As your business grows you’ll likely want to improve on certain aspects, which can require that you utilize more advanced plans for certain tools that might be more beneficial to your business but also come at an extra cost.
The following e-commerce business expenses should be considered once you’ve reached a steady flow of sales and you become ready to increase profits. It’s important that you research these e-commerce costs beforehand, since some will be more relevant to your business than others. Spending money on an improvement that doesn’t pay off can wind up weighing down on your e-commerce budget!
Website – $150+ per month
- Visitor tracking software
- Content management system (CMS)
- Other non-essential plugins/optimizations
- Cyber security
Logistics – $300+ per month
- Inventory management
- Profit calculator
- Returns and refunds
- Researching new products
- Entering new markets
Marketing – $1,500+ per month
- Google Ads
- Google Shopping Campaign
- YouTube Ads
- Pay Per Click (PPC)
Note: It’s crucial to remember that it’s not all about your costs, but also about how much money you’re earning. One huge factor that you shouldn’t forget about is the pricing strategy that you choose to employ. Be sure to look at how different business pricing strategies may work better (or worse) for you specifically.
E-commerce shipping and logistics expenses
44% of online shoppers say they abandoned their online shopping carts because they felt that the e-commerce shipping and logistics costs were too high for them. If you don’t invest enough into your e-commerce shipping budget, you’ll likely see a decline in your returning customers. On the other hand, if you invest too much, your e-commerce shipping costs can start taking a bite out of your profits.
What’s the right answer when it comes to e-commerce shipping and logistics expenses?
There’s no real one-size-fits-all answer to this question, but there are tactics you can employ to keep your e-commerce budget in good shape and keep your customers coming back to spend more.
1. Free shipping
Customers love anything free, even if they have to pay a little extra! Try offering free shipping for orders of more than ‘x’ quantity of items or for total costs of over a certain dollar amount. This can result in larger order sizes and higher profit margins, allowing you to reinvest in better shipping and logistics practices.
2. Flat rates
This e-commerce shipping tactic may be a bit more difficult to prepare at the outset, but you’ll save yourself the trouble of setting various e-commerce shipping costs. Flat rates for shipping could be applied for every package you ship or for certain ranges of package weight or order totals. Test out those different approaches to see which works best for your e-commerce shipping costs.
3. Breaking even
The third alternative for e-commerce shipping costs would be to charge your customers exactly what you’re being charged on a per-order basis. While it’s not quite as attractive as offering free shipping, it still gives your customers the knowledge that you’re not overcharging them. Plus it’ll help you stay on top of your e-commerce budget so that you don’t end up spending too much or too little on shipping.
Offline e-commerce expenses
Even if the overwhelming majority of your business’s operations will be conducted online, you’ll still have some offline e-commerce expenses to handle. Many of those expenses aren’t unique to the nature of running an online business, but can be handled more efficiently by using the power of online technology.
Examples of offline e-commerce costs:
1. Manufacturing or product costs
IoT, AR/VR, and machine learning are just some of the manufacturing tech trends introduced in recent years that are helping lower e-commerce costs. These high-tech solutions are having significant impacts on the manufacturing process by:
- making it easier to identify and solve problems
- reducing the amount of energy, resources, and time invested in data analysis
- providing manufacturers with deep-level insights into their productivity
You can start adopting some new tech trends if you’re manufacturing your own goods, or search for a manufacturer who is embracing the new wave of technology so you can keep your e-commerce budget healthy.
2. Employee salaries
Most businesses have employees, but working in the e-commerce industry means you have more opportunities to work with part-time helpers. Freelancers and agencies can be hired to do work for your e-commerce business regardless of where they are located geographically. Being able to hire people to complete specific short-term assignments or projects means you have the ability to cut down on your e-commerce costs of salaries and social benefits.
3. Storage and stock
Similarly to having the ability to hire talent from all over the world, you can also help keep your e-commerce expenses lower by choosing foreign locations to store your products. Warehouse rates in other countries can be much cheaper than storing your products at a local warehouse or, dare we say it, at home.
Be prepared for unexpected
Having ‘unexpected’ e-commerce expenses doesn’t mean you have to be caught off-guard. You can still prepare for the more frequently encountered ‘surprise’ e-commerce expenses that tend to pop up for online sellers.
Unexpected e-commerce budget costs include:
- Returns and refunds
- Quality issues
- Lost packages
- Equipment maintenance
Several unexpected e-commerce budget expenses can be mitigated by paying for insurance that covers those circumstances (e.g. damaged goods, lost packages, cyberattacks, etc.). Keep in mind that the insurance will come at its own cost, so you’ll want to consider carefully whether it’s worth adding into your e-commerce budget.
While it might not be possible to tell exactly what (and when) surprise e-commerce costs may arise, having an e-commerce business line of credit can help every online seller cover those ‘out-of-the-blue’ e-commerce expenses. Other types of e-commerce business loans can be more useful when you reach stages where you’d like to start scaling up your business.
Not all e-commerce expenses are equal
As you’ve seen, there are plenty of e-commerce business expenses that you’ll need to be prepared to handle – even some that are unpredictable. There’s no question that the economy will also go through its ups and downs and with it your business’s cash flow.
That’s why it’s critical that you do more than simply calculate your e-commerce expenses. You’ll need to think critically about what those expenses do, how essential they are, what value they bring to your business, and so on. This guide will help you do just that – keep it bookmarked for your future reference and share it with other e-commerce business owners!