With no end to Covid in sight, the coming year might be the perfect time to launch an eCommerce business. Some experts have asked whether or not eCommerce could continue to outpace traditional retail. If you’re considering starting your eCommerce business in 2022 you’ll first need to consider what the real costs are.
There are many factors to consider when estimating costs, but in this article, we are going to outline some tips for estimating your start-up costs and how long it will take before your new eCommerce business starts making you money.
How to Get Started With Estimating eCommerce Costs
Why should you even start an eCommerce business? And why is estimating your costs so important? Believe it or not, but 21% of Americans aren’t saving any money at all. Starting an eCommerce business can be a great way to help bolster your savings, but that’s only if you’re able to properly manage your income and expenses. Using free tools like Google Sheets to track these can be a great way to minimize recurring bills.
You may have already taken other measures to help increase your savings. You may have chosen a limited liability company (LLC) structure for your online business because it's affordable. LLCs are popular among modern entrepreneurs because of the flexibilty they offer and their easy startup process.
Maybe you are already using online tools that can help you save more money or you try to stay on budget to avoid overspending.
But if you have no proper expense management strategy and an expense policy builder, these efforts can go to waste. This is why it is crucial to estimate the cost of your eCommerce business.
Using free tools like Google Sheets to track these can be a great way to minimize recurring bills.
Setting up an eCommerce can be broken down into five main segments: design, functionality, fulfillment, marketing, and maintenance.
Design: Starting with a Website
The first step, design, involves creating a website. Websites can cost anywhere from free to thousands of dollars depending on the features you want. Fiverr.com and Upwork allow you to hire independent contractors who can design a website for you.
When designing your website you can use a free template, a premium template (usually $100-$200), or a custom template ($1000+). Hiring a web designer will considerably raise your costs depending on the features you desire.
However, when you start out in eCommerce it’s best to keep things simple and stick to free services. Many websites allow you to start a website for free, but then charge for more premium services.
One good way to minimize these costs is by using pre-built tools from websites POWR. By using pre-built services and platforms you can avoid the costs of paying someone else to build an entire website for you. Another option is to consider using social media as your primary platform.
Functionality: Make Sure You Get Paid
After you’ve got your website design selected, the next step is setting up the website’s functionality. The website’s functionality means incorporating different plugins or tools that make it work. Some functions you might want to consider include things like social media integration, image galleries, or product reviews.
Many website-building tools come with plugins already. But, more sophisticated tools can add to your costs. Some plugins can be as little as $25, and others can be upwards of $100.
One of the most important functions to include on your website though is payment processing. This may sound obvious, but it’s crucial to make sure that you’re getting paid. In fact, 22% of all digital invoices were overdue in 2021.
One way you can avoid this common pitfall is to utilize digital payment services, like PayPal, and place a payment button directly on your website. Thankfully, depending on the service and plugin you choose, many of these are free.
Fulfillment: Get Your Products Moving
Fulfillment is the process of getting your products out to your customers. There are many ways to do fulfillment. One way is to handle it yourself. If you choose this option then you’ll be responsible for packaging and shipping products.
This means you will need to calculate your packaging costs, i.e. packing filler, the boxes themselves, and the shipping. Shipping is usually based on weight and how fast you choose to ship the product. Once you know these factors you will have a general idea of how much your fulfillment costs will be.
Some entrepreneurs choose to outsource fulfillment using additional website plugins. This is an optional part of your website’s functionality, but it can make a huge difference in how your products are delivered to your customers. Some services, like Shopify, offer automated fulfillment integration.
This means that when a customer places an order on your website, that order is automatically routed to your supplier who begins the process of producing the order and then shipping it out. These types of services, while beneficial, are often available only for certain types of products, or can be costly.
Sometimes these services come with an upfront cost and also come with a fee for every order to compensate for shipping costs. Either way, understanding fulfillment is an essential part of estimating your eCommerce costs.
Marketing: Going Digital is your Friend
The next area to consider is marketing. Many eCommerce businesses struggle to get off the ground without any customers. The best way to resolve this is by using digital marketing.
Digital marketing campaign costs usually start at $500 and can be as much as $5,000, depending on the size of your website. Remember, picking the right marketing strategy can be critical to making sure that your message reaches your audience.
Digital marketing is great because it is highly scalable. You can target specific demographics using different types of ad tools. One special technique, known as geo-fencing, allows you to target a single geographic area.
For example, you can target a specific area of a city or community. This can be especially beneficial for eCommerce because it prevents you from wasting money advertising to people who will never buy your product. If you choose to run a brief, highly-targeted ad campaign, you can sometimes spend less than $100.
Overall, the flexibility of digital marketing, its ability to scale with your needs, and its ability to target specific demographics are all going to need to be accounted for when estimating how much marketing will cost you.
Maintenance: Keep Your Business Running
After everything is set up and your customers are flocking to your store, you’ll still have to maintain your website. Maintenance is all of the costs associated with keeping your business going.
The main cost associated with maintenance is web hosting. Usually, there is the upfront cost of the domain name (as little as $10, or in the thousands for unique and memorable names), and then the monthly cost for hosting and bandwidth.
Domain name registrations usually renew on a yearly basis, which is why they are included here. The amount you pay for your monthly web hosting service, like other aspects of eCommerce, is scalable. Therefore, you should make sure you consider how much bandwidth you’ll need.
Earlier we discussed plugins and website functionality; sometimes these services renew on a monthly basis because they are service-based. This is another area you will need to account for as part of your business’s ongoing maintenance.
These five main areas are by no means comprehensive. Different types of eCommerce businesses may have different needs, but thinking about design, functionality, fulfillment, marketing, and maintenance costs will get you started in estimating the cost of starting your business.
Overall, eCommerce has exploded during the pandemic and shows no sign of slowing down during the next year. Calculating your costs is the first step in figuring out how to build an alternative source of income for yourself.
Remember, all of your options are scalable. Depending on how big you want to go you can begin making money with as little as a few hundred dollars, or as much as several thousand.