This article discusses the following:
- Things to consider when starting an e-commerce business
- How much it costs to start an e-commerce business
- What you’ll need to begin your online business
- Ways to fund your e-commerce store
Today, many entrepreneurs seek a lucrative and flexible way to earn money that offers a good work-life balance. For this reason, e-commerce businesses are on the rise. In today’s digital age, an e-commerce business model provides excellent opportunities for large-scale growth that caters to a broad audience. If you’re considering an e-commerce startup, you may be wondering how much it costs to start an e-commerce business.
Well, you’re in the right place to learn all about it, and you’ll gain the knowledge needed to make your e-commerce enterprise successful.
What are the main things to consider when starting an e-commerce business?
According to the Department of Commerce Census Bureau, the e-commerce industry is thriving as more consumers move towards online shopping. Online sales reached $870.8 billion in 2021 and are expected to continue growing. It’s understandable why so many entrepreneurs want to find their pot of gold in the e-commerce market.
When launching your new e-commerce store, you’ll want to consider startup costs for the following:
- The website development and platform of your online store or website
- Your e-commerce store’s inventory, if it’s product-based
- Marketing campaigns to drive brand awareness and customers to your site
- Legal considerations, such as licensing, permits, and insurance
- A good business plan to secure financing to help pay for the startup costs of your e-commerce business
The costs related to your online business will depend on many factors, including the type of merchandise you plan to sell, how many of the startup tasks you initially take on yourself, and whether or not you hire web professionals to get your e-commerce site up and running.
How much does it cost to start an e-commerce business?
It’s hard to put an exact price on starting an e-commerce business. First, you’ll need to determine the scope of your business. Then do some research to find out if any licenses or permits are required to operate.
These might include an e-commerce business license or a seller’s permit. You’ll also need to apply for an EIN for reporting and tax purposes. The fees and costs for these are nominal.
Obtaining a business insurance policy is also a good idea, particularly one that covers cyber attacks, as nearly 32% of all data breaches target e-commerce businesses. Business insurance will cost you up to $1,000 per year.
After that, it becomes more challenging. Let’s break down some of the investments you’ll likely need to make for your online business.
Starting your online store or website
Whether you have an online store that offers products or a service-based website, you’ll need to consider these options for establishing your online presence.
Think of an e-commerce platform or marketplace as the equivalent of a brick-and-mortar store with a physical presence. It’s where potential customers first find you, and the platform you choose will ultimately contribute to the customer experience and whether or not your website’s visitors will browse your online store and purchase something, or navigate away from your website.
Because of this, it’s easy to understand how important it is to choose a scalable platform that will cater to your online business’s long-term growth.
Several large e-commerce platforms have streamlined the online shopping process with e-commerce software. For example, Shopify allows you to choose a design for your store, customize the layout, and manage your inventory. It also provides easy payment processing and has drop-shipping capabilities, which send your product directly from the wholesaler to the customer.
Another popular platform is Magento. The platform gives merchants a flexible shopping cart system and is feature-rich, offering many plugins, search engine optimization, catalog-management tools, and over 50 payment gateways. It’s designed for non-developers, so nearly anyone can use the platform.
Other popular e-commerce solutions include Bigcommerce, WooCommerce, Wix, and Squarespace. Of course, you could always join the millions of sellers who choose to sell on eBay or Amazon.
By researching the many platforms available, you’ll likely find one to fit your business needs.
The average pricing for an e-commerce platform averages anywhere from $1,200 to $3,600 a year.
If you want your online business to succeed, you probably shouldn’t cut too many corners with your website design.
The uniqueness of your brand is what makes it stand out to customers, and there’s no better way to convey your brand identity than through your web design.
Some platforms offer premium design templates at an additional cost. These may work great for you.
If you have experience in web development and are familiar with plugins, search engine optimization, and digital marketing, you’ll be able to save money doing the web design yourself while increasing your profit margins.
Many e-commerce businesses use WordPress to power a fully-customized website. A professional web designer is probably your best bet in this case.
A small to mid-size business will likely pay $5,000 to $25,000 or even more for a custom website design.
Marketing is a vital ingredient to a successful e-commerce business. Consider how many web searches there are every day and how many possible web pages match those search queries. It is often in the thousands.
Search engines like Google use algorithms to rank websites, and if you don’t have an effective marketing campaign, you’ll have a tough time getting found in the web searches. Translation: that means fewer visitors to your e-commerce site, which means lower sales and less revenue for your business.
A good marketing strategy, on the other hand, can boost your web presence and increase your bottom line.
Marketing costs for e-commerce businesses vary significantly, but according to Big Commerce, most small businesses spend between 7% and 12% of their revenue on marketing.
In any case, plan to spend at least a couple of thousand dollars a month at a minimum for marketing your e-commerce business. Your marketing campaign should include pay-per-click advertisements, social media marketing, SEO, and email marketing.
If you really want a stand-out marketing campaign, hire a digital marketing manager or a digital marketing agency.
As with many elements of an e-commerce business, it’s possible to start small with as little as $100 a month and do a lot of your own marketing on a smaller budget. Bear in mind, however, that marketing is everything in the initial stages of your e-commerce business.
The bottom line: marketing your e-commerce business can cost you a minimum of $1,200 a year. But, $15,000 to $20,000 a year will get your site noticed better.
Depending on which e-commerce platform you choose, web hosting may be included as part of the package.
Otherwise, plan on spending about $300 a month for custom hosting. But, if you have an e-commerce site that will drive lots of traffic, you’ll need something more scalable that’s able to keep up with the demand.
In that case, web hosting could wind up costing you $1,000 to $2,000 a month. ‘
You can purchase a web domain through an e-commerce platform, a domain registrar like Namecheap, or a web hosting company like GoDaddy.
Domains are important because they’re typically the name and address of your website and can help people remember what you’re known for.
You should give considerable thought before settling on a domain name. It should be relevant to your brand and utilized as a marketing tool so that when customers search for a business like yours, your domain name is likely to come up in research.
Domains are fairly inexpensive, and you can typically purchase one for as little as $10 to $20 a year. But a top-level domain could potentially cost you much more.
Reliable and secure payment gateways are a must in the e-commerce world so that you can accept credit card payments. Popular payment gateways include Square, PayPal, Stripe, and Paysafe.
The cost for a direct payments processor includes monthly fees that can range from $25 to $30, as well as fees per transaction, which average around 2.9% plus $0.30 per transaction.
SSL stands for “Secure Socket Layer” and refers to an encryption protocol that secures sessions between clients and servers from interception. In other words, it creates a safe browsing experience and protects meaningful information from being stolen by external parties.
By installing an SSL certificate, you’ll see a padlock and HTTPS displayed in the browser. Many consumers look for these secure signs and will only make transactions with businesses or vendors with an SSL certificate. SSL certificates can be purchased from SSL.com, NameCheap, or SSLS.com.
An SSL certificate can cost around $60 on average, but top-of-the-line security can run up to $1,000 a year.
Merchandise and Operational Costs
Your merchandising costs will likely be one of your most considerable, ongoing operating expenses if you sell products. Consider the following:
Your inventory costs aren’t something you can easily put a price on because of the potential size of your inventory and the e-commerce business model you choose in offering products to consumers.
Many e-commerce entrepreneurs choose a dropshipping model. With dropshipping, the wholesaler typically holds on to the product or inventory and ships it out when you make a sale.
Dropshipping is an attractive option on one hand because it negates the need to have a warehouse to store inventory. This can help you start your e-commerce business at a much lower cost. You’d only need to get funding for the website and marketing-related expenses, and a smaller working capital loan could help you get your business off the ground.
The downside is that much of the customer service side of your business would be out of your control. If the wholesaler sends defective merchandise or is late on shipping, it would reflect poorly on you and make it harder to succeed.
On the other hand, if you stock your own products and inventory, it could cost you tens or hundreds of thousands of dollars or more (if your business is successful).
In addition to the inventory costs, you’ll need to spend money on a storage solution for your products, like a small warehouse with a shipping and receiving area. You’ll also need to factor in operational expenses like utilities and packaging supplies for shipping your products out, as well as workers to help fulfill orders. But shipping costs can likely be passed on to your customers.
Still, you may want to take out a business loan so that you can fully stock your e-commerce site.
Depending on the scale of your business, you could choose to wear multiple hats, at least initially. But at some point, you might want to consider hiring a team to fulfill orders, field customer calls, manage your website, write content, and manage social media.
Hiring a team to help you operate your e-commerce store can potentially add tens to hundreds of thousands of dollars a year to the cost of your business.
What are some ways to fund my e-commerce business?
There are different types of loans available to help finance the cost of your e-commerce business.
SBA-guaranteed loans are an option, as are traditional bank loans. But both of these types of loans are hard to qualify for and often stall an entrepreneur’s business plans.
Instead, more e-commerce business owners are turning to online loan marketplaces to fund their online ventures. For instance, a loan marketplace provider like Biz2Credit has a few small business loan options, including term loans, working capital loans, and real estate loans. There’s even a helpful guide to getting an e-commerce loan.
Biz2Credit has more lenient credit criteria than the SBA or traditional banking institutions and can often fund your e-commerce venture within a couple of business days.
The Bottom Line
The initial investment in a new business can be intimidating for entrepreneurs, but you have some control over how much you want to invest at the onset. While the total cost of an e-commerce company can vary greatly, your startup will have upfront costs.
The cost of an e-commerce business can range anywhere from a couple of thousand dollars to $200,000 or more when all is said and done. There’s no fixed answer on how much it will take to get your online business running.
Many entrepreneurs also do a lot of the initial work themselves to get their website off the ground, while others hire a team at the onset to help them get it going.
A business loan from Biz2Credit can help you get a winning start. Just ask Navneet Kalra of The Perfume Store, Inc. about his experiences with Biz2Credit. Navneet needed financing to stock up on merchandise for his wholesale business, which had an e-commerce arm. Biz2Credit was able to immediately arrange financing so Navneet could move forward with his plans.
Whether you bootstrap your business or seek funding is really up to you, what your goals are, and how fast you want to scale your company. But as we’ve shown, if you’re ready to start an e-commerce business, financing shouldn’t be a barrier you have to worry about.