Some experts have asked whether or not eCommerce could continue to outpace traditional retail post-Covid. If you’re considering starting your eCommerce business in 2023, you’ll first need to consider the real costs.
There are many factors to consider when estimating costs. This article will outline some tips for estimating your start-up costs and how long it will take before you start making money in eCommerce.
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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, 21% of Americans aren’t saving money.
Starting an eCommerce business can be a great way to help bolster your savings, but that’s only if you can manage your income and expenses properly.
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, such as choosing a limited liability company (LLC) structure for your online business because it's affordable and provides valuable asset protection.
LLCs are popular among modern entrepreneurs because of their flexibility, easy startup process.
Maybe you are already using online tools that can help you save more money, or you are trying to stay on budget to avoid overspending.
But these efforts can go to waste without a proper expense management strategy and an expense policy builder. This is why estimating your eCommerce business's cost is crucial.
Using free tools like Google Sheets to track these can be a great way to minimize recurring bills.
5 Main Segments of an eCommerce Business
Setting up an eCommerce business can be broken down into five main segments:
- Design
- Functionality
- Fulfillment
- Marketing
- Maintenance
Let's look at each of these 5 segments in more detail.
1. 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 your desired features.
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 your desired features.
However, starting in eCommerce is 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 way to minimize these costs is using pre-built apps from websites like 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.
2. Functionality: Make sure you get paid
After selecting your website design, 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 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, while others can be over $100.
Payment processing is one of the most important functions to include on your website. This may sound obvious, but ensuring you’re getting paid is crucial. In fact, 22% of all digital invoices were overdue in 2021.
One way to avoid this common pitfall is to utilize digital payment services like Stripe and place a payment button directly on your website. Many of these are free, depending on your chosen service and plugin.
3. Fulfillment: Get your products moving
Fulfillment is the process of getting your ecommerce products out to your customers.
There are many ways to do fulfillment. One way is to handle it yourself. If you choose this option, you’ll be responsible for packaging and shipping products.
This means you must calculate your packaging costs, i.e., packing filler, the boxes, and the shipping. Shipping is usually based on weight and how fast you ship the product.
Additionally, for example, if you were forming and operating an LLC in New York, you would also need to consider the costs associated with shipping in-state or out-of-state.
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.
When a customer orders on your website, it is automatically routed to your supplier, who begins producing the order and then shipping it out. While beneficial, these services are often available only for certain products or can be costly.
Sometimes these services come with an upfront cost and a fee for every order to compensate for shipping costs. Either way, understanding fulfillment is essential to estimating your eCommerce costs.
4. Marketing: 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 ensure 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, 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 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 will all need to be accounted for when estimating how much marketing will cost you.
5. Maintenance: Keep your business running
After everything is set up and your customers flock 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.
Like other aspects of eCommerce, the amount you pay for your monthly web hosting service is scalable. Therefore, you should 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. You must account for this in your business’s ongoing maintenance.
Conclusion
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.
It's also worthwhile, and never too early, to start developing sales strategies and techniques for your eCommerce store.
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.
