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The eCommerce space is full of opportunities, and many entrepreneurs running their businesses from a physical location are clamoring for its financial success.
In the last decade, customer demand and shopping habits have changed, with 2.14 billion people shopping online in 2021. And the money is also rolling, with statistics showing that the average online shoppers spend $2.61 per visit.
But this success does not come cheap. If you want to start and run a successful eCommerce store, you must be willing to pay the price.
I am talking about financial costs. So, how much money do you need to get started in eCommerce? This article has broken down the costs associated with starting an eCommerce store.
Some of these elements are a must-have, while others are nice-to-have. Let’s get started.
You might also enjoy reading: An Step-By-Step Guide on Building a Successful eCommerce Site.
Realistic eCommerce Startup Costs
Unlike a physically located business, it is not hard to start an eCommerce business. The initial capital investment is relatively small, but there are unavoidable costs when starting an online store, including:
- Domain name.
- Hosting.
- Inventory.
- Cost of establishing a payment system.
But you may not incur some of these costs if you want to build your eCommerce store using Amazon, Shopify, Etsy, eBay, or any other third-party marketplace.
These marketplaces will provide you with hosting and domain name, thus significantly reducing your eCommerce startup cost. However, you will pay them part of your sales.
1- Domain Name: $2-$20 Per Year
Your domain name is what you see in your website’s URL.
You will not incur domain name costs if you have an eCommerce store on a third-party marketplace.
However, if you establish your own domain, you can find one with GoDaddy or Namecheap for as low as $0.99 a year. Other hosting platforms also provide domain names at a relatively cheaper price. The new extensions like .app are on the higher side scaling their domain to $20.
The domain name is vital for your brand since it acts like a billboard on which your store hangs. You may confuse your startup visitors if you pick an inappropriate domain name.
The thumb rule is that a domain name should match your business name.
2- A Well-Built Website
If you want a professionally well-built eCommerce site, most developers will charge between $5,000 and $10,000 to build and launch it.
The package may contain basic pages like the home page, about us, FQAs, contact pages, shipping information, return and refund policy, and other staple pages to help visitors know what you deal with.
However, for your eCommerce store to perform well, you will need to publish product-specific content, copy, good product titles and description, and quality product photos. You may have to hire someone to do them for you or do them yourself.
If you have an eCommerce store with third parties, you do not need a website since the site is already built.
3- Hosting: $300 Monthly
Hosting cost differs from one company to the other. SaaS companies often provide free or cheap hosting in their packages. Similarly, web developers also provide a level of free hosting.
However, you do well to check any limits imposed on the standard hosting, such as storage, number of products, traffic, and orders.
SaaS companies start out as cheap for beginners, but as your sales expand and your business grows, they become more expensive.
The plans often range from $20-$250 monthly for SaaS solutions, but if you want to host a custom eCommerce system, the price will likely start from $300 per month.
Let me also mention that you can choose either shared or private hosting.
Shared hosting is often cheaper and can handle around 100,000 visits monthly; however, when your traffic and sales increase, you can upgrade to private hosting for improved speed. The cost starts at $250/month but is more reliable when you have a lot of traffic.
For beginners, I recommend using an eCommerce platform such as BigCommerce, WooCommerce, or Shopify since they have their own secure hosting.
Here are the basic plans for these platforms:
- BigCommerce- $29.95/month
- Shopify- 29/month
- WooCommerce- free on WordPress, but you pay for additional features.
4- Inventory: $0 – $1000
What do you want to sell on your online store? The initial cost varies greatly, depending on the amount of inventory you want.
If your eCommerce store is dropshipping, you don’t need inventory, although some people could choose to stock their goods.
How does dropshipping work? You create an eCommerce store with products, descriptions, and prices but no inventory. You send their order to the supplier whenever a customer buys from your store. The supplier works on the order and ships the product to the customer as if it came from your store.
So, you sell products you do not store, package, or ship, thus allowing you to avoid inventory costs. Nevertheless, dropshipping limits your customization and branding ability since you cannot control the packaging.
5- Branding: $20,000
Any successful business needs branding. Your brand speaks volumes about your identity, values, and audience.
Although some people overlook branding, it is important for entrepreneurs who want to hit the market running.
Don’t wait until it is too late- when your customers feel uncomfortable doing business with you.
You can do some branding yourself, like designing a log and taking product images. However, you will have an advantage over competitors if you can hire the services of a brand design agency. The price could range from $5,000 to $20,000.
Hiring an expert is vital; however, do not go beyond your budget, especially when you are a beginner.
6- Payment Processing: 2-3% Of Sales
Payment processing may not seem like an eCommerce startup cost, but it is good to budget for it in the initial stage if you want to start selling immediately.
Payment processors like Stripe and Shopify charge around 2-3% of your revenue plus $0.3 on every transaction.
Ensure you choose a secure, fast, and reliable eCommerce payment system; otherwise, you will fail even before you begin.
7- Marketing
Marketing starts even before you launch your store to build anticipation. You will have very few customers if you leave your marketing to chance.
You want your eCommerce store to rank higher on search engines, where it can easily be discovered. Therefore marketing is an essential part of your eCommerce startup costs.
How much does it cost? On average, you may invest between 7% and 12% of your total revenue to promote your store.
The marketing budget includes money for email campaigns, social media campaigns, pay-per-click (PPC) ads, and SEO marketing to boost your brand awareness and lead visitors to your site.
You could invest in marketing and list-building tools like optinMonster, Thrive leads, MailChimp, Campaign Monitor, etc., to help you plan and execute an effective marketing campaign.
8- Licenses, Permits, and Insurance
Even if you don’t have a physical store, the government expects you to have certain licenses and permits before you start trading.
Here are some permits and types of insurance you will need to minimize potential risks.
- Business License: This permit allows you to conduct business in your region, county, or state. It also helps government agencies in tracking your business for taxation purposes. Without a business license, your store will not operate legally, and you could incur heavy fines.
- Employer identification number: The employer identification number may not be a license per se but a government tax ID number given by the IRS to help them identify your eCommerce startup as a distinct tax entity.
- You will need an Employer Identification number when hiring employees, opening a business bank account, or incorporating your business as an LLC.
- Seller’s Permit: Every state requires eCommerce startups to acquire a seller’s permit. This permit allows you to sell goods and services and collect tax. The state uses the seller’s permit to identify your business as a sales tax collector.
What are the requirements for this permit? It may differ from state to state, with some states like Alaska, Montana, Delaware, New Hampshire, and Oregon not requiring eCommerce stores to have a seller’s permit.
- Ecommerce Insurance: Insurance will help you protect your business and assets from potential losses. Here are some insurance policies you can buy.
- General liability insurance: covering everything from property damage to bodily injury.
- Commercial property insurance: covering the cost of replacing damaged business items like inventory, fixtures, and properties.
- A data breach or cyber liability insurance: Protects your eCommerce business from potential losses from data breaches or cyberattacks.
Other eCommerce startup costs that you may incur include:
- G suite account- $5 per month
- Website themes- $50-$200
- Warehouse- $4-$7 per square foot monthly.
- Email marketing software- $0-$50 a month.
- SEO plugin extension- $0-$249
Conclusion
Ecommerce global sales are expected to grow at 10.4% in 2023, a significant increase from 2022. Its retail sales are also expected to increase from 19.7% in 2022 to 24% by 2026.
In the U.S, eCommerce sales are projected to increase by 50%, capping at $1.4 trillion in 2025 from $907.9 billion in 2022 (Source: Statista.com)
And with the trend in online store growth not showing signs of slowing down, eCommerce offers ambitious entrepreneurs massive opportunities to grow their wealth.
Therefore starting your eCommerce store can be rewarding, especially if you get things right. You begin by getting your business finances right. Ensure you have broken down your startup costs as accurately as possible to avoid surprises.
P.S
Which eCommerce startup costs have I not included in this article? Share your thoughts in the comment section below.