The difference between a risk and a calculated risk is the calculations. While that may seem obvious, you’d be surprised at how many people dive into ecommerce head first without a plan. If it’s your first time, you may not know how to allot your budget or even how much capital you’ll need. And starting a new ecommerce endeavor is hard enough without all the mystery.
In this beginner’s guide, we outline all the different expenses and costs you can expect to pay when starting out. But first, an important caveat about why you can’t copy other people’s homework when it comes to an ecommerce budget.
Why Every Ecommerce Budget Is Different
If you’re looking for someone to tell you how much to spend in each category — be careful! There’s no “one right way” to budget an ecommerce startup, so what spells success for one company might mean disaster for another.
Rather, your ecommerce budget is determined by a combination of your unique:
- business model
- product range
- target customers
- branding identity
For example, dropshipping companies spend nothing on storage and fulfillment, but must put extra into marketing and outreach. And depending on their target customers, that marketing money might go strictly to email, or social media ads, or search engine PPC ads — it’s different for every company.
There are too many variables at play to present a definitive “spend X amount on this but no more than X on that.” It all depends on the unique factors that set your business apart from the rest.
With that in mind, we’ll break down the main areas of an ecommerce budget and explain why they’re useful and what to expect. That way, you can go through each and determine how essential they are to your specific business, and budget accordingly.
Channel and/or Site Platform
The cost of your channel and/or site platform is a good place to start. Not only does it determine your monthly subscription or membership fee (most of the time), but it often determines your transaction rate as well. This is crucial to figure out early on so you can more precisely plan your markups.
If you’re less interested in building a business and just want to focus on selling, you can use an existing channel like Amazon, eBay, Walmart, etc. These have a built-in customer base and have less up-front fees than building your own site.
If you do want to invest in creating a brand, you can build your own site using a platform like Shopify, Magento, or WooCommerce (which requires WordPress). These have additional fees (see below), but give you more freedom in how you run your business, including areas like returns policies and customer service.
Additional Site Fees
While some platforms cover some of the basics for you, others do not. Here’s a quick checklist of essentials — see if your preferred platform offers them, or if you have to pay for them on your own.
- Custom domain — Custom domain names perform better for SEO and brand awareness.
- Hosting — Content management systems (CMS) like WordPress require you to pay for hosting independently.
- SSL certificate — Mandatory for ecommerce, these allow encryption for transferring sensitive data like credit card numbers — luckily, most platforms provide this for free, but not all!
- Custom design — If you want a site to look a particular way, you can hire a web designer to build it for you; your site design can influence shoppers and increase conversions, but custom designs aren’t cheap.
- Add-ons and paid themes — Even if you’re using a DIY site designer, certain features only available with paid add-ons, and certain themes cost money to license.
Before signing up with your new platform, make a list of all the features you’d like. Then, browse their theme and add-on stores to calculate how much they’ll cost (and if you can find them cheaper on another platform).
Unless you use a dropshipping model, you’ll need to acquire your products before selling them. There are countless approaches to sourcing products, with much more variety than merely “contact a manufacturer.” Read our free guide to product sourcing to see which approach suits you and your particular range of products best.
Nowadays, free shipping is expected. If you’re not offering free shipping, you’ll lose a lot of customers to competitors that are. That’s why you should factor in the cost of shipping to your budget, so you can cut expenses elsewhere to make up for it.
Read our guide to learn how to reduce costs and afford free shipping. One tip is to strategically choose the location of your storage facilities, which brings us to our next point…
Storage and Inventory Management
Warehouses add a lot to your overhead costs, as does the staff. If you’re running a small business from your home, you can always store things in a spare room, but at some point, that’s no longer scalable.
If you have high ambitions, you may want to partner with a third-party logistics (3PL) company. They can store your goods for you, and you can even choose the optimal geographic locations close to your main customers, which cuts shipping costs.
Product Photography and Videos
Ecommerce success is tied to your product photography and video — the better quality they are, the more likely customers are to purchase. The good news is that you can do ecommerce photography for cheap, but you’ll still need some basic supplies, like a camera and maybe a white background.
Especially for small businesses, ecommerce software is the next best thing to hiring new staff if you’re on a tight budget. You can use ecommerce software for areas like accounting, managing shipping logistics, collecting data analytics, and automation.
Your best bet is to use an all-in-one ecommerce software, like our own ecomdash. In particular, ecomdash lets you track shipments and manage all your inventory in one dashboard. It even automatically updates all your stock levels, so you can sell on multiple channels without worrying about overselling. It also aggregates your sales data so you can make informed decisions on which products to promote and which to discontinue.
If you’re building a brand from scratch, you’ll need to allocate some funds specifically for branding. This includes, first and foremost, a professionally designed logo, but you can also go the extra mile with branded product packaging or branded delivery boxes. While these areas are largely optional, for certain business models like white labels and private labels, they’re quite critical.
Last but not least, you need a marketing plan — no matter how good your online store is, no one will shop there if they don’t know about it.
Your marketing budget covers any advertising, content creation (i.e., blogs, infographics, etc.), social media strategy, and email services. Different types of brands will prioritize different methods: if you’re targeting younger audiences, you might spend more on social media advertising, whereas if you’re more of a formal B2B company, email marketing might serve you better.
If you’re new to ecommerce, don’t be discouraged! There’s a lot to learn, sure, but there’s also a lot to gain. When it comes to running an ecommerce business, you should always be looking for creative ways to reduce operating costs. Eventually, with the right budget, you’ll be running an efficient and profitable online store.
Check out our blog for more helpful guides aimed at beginners, and feel free to ask us any questions you have in the comments section.