The most difficult task in creating an ecommerce business is planning and estimating how you’ll spend your money. It’s best to plan costs in advance of business operations to be prepared for more to appear. The first year will be hardest to estimate, but will provide a basis for future budgeting.
We’ve compiled areas for a first-year budget including building costs, inventory expenses, fees and taxes, shipping and returns, licensing and permits, advertising and marketing, tech and software, staff and the website.
Our guide will provide a basis for your estimated expenses to allow you to eliminate stress.
If you want, you can also check out this guide on how much Amazon fba costs.
1. Calculate your website costs
A website is the hub for an ecommerce business. This is how customers will engage with a business. There are free ways to develop a website, but a quality site will have ongoing costs after initial set-up. Common costs include design, hosting and domain name, but having a store included can come with its own costs, including an SSL certificate to keep your site and customer information secure.
2. Consider your tech and software costs
Any additional technology needed to run your ecommerce business is going to add a hefty amount to your costs. Anything from additional internet connection to a stronger computer will assist in maintaining power across your business. Also consider any software that may be needed for bookkeeping, marketing, inventory management or for employees and their respective positions.
Make an organized list and research options available to find the most economic choices.
3. Figure out your inventory expenses
Procurement or production costs on inventory will eat into your profits once you add together materials, labor and overhead. Holding inventory for too long if paying for storage will also sneak into your costs.
4. Consider your workforce needs
If you have a large site that needs more manpower than you have alone, hiring employees for additional help will have hiring and wage/salary expenses to consider. They may also need to be trained either by you or software that can increase costs.
5. Consider your building needs
If you have a small-scale business, operating from within your home may be feasible. Otherwise, you’ll have to research costs for either renting or building additional space. This can also introduce additional maintenance and repair expenses.
6. Determine the permits and licenses you need
Most legal hurdles exist within your residence municipality, but others apply when running an ecommerce business. Review steps to take here.
7. Factor in shipping and returns
Though there are benefits to running an ecommerce business, one downfall is having to ship your products. You can cover the cost yourself, but if you leave shipping costs to your customers they’re less likely to follow through with purchases.
If you provide a return policy on your products, you’ll have additional risk for lost or stolen packages. Anticipate return costs as the majority of customers expect free returns even if they haven’t returned it in good condition.
8. Create a plan for marketing and advertising
You may have a great site, but if your customers aren’t easily able to find it you won’t see the sales you’re expecting. Combining search engine optimization (SEO), social media marketing, pay-per-click (PPC) advertising, email marketing and content marketing are some of the key ways to increase traffic on your site and increase revenue overall. Some tactics may work better for you than others. If you don’t know how to plan these out, you can hire marketing consultants or agencies to assist in planning.
9. Don’t forget taxes, fees, and loan interest
If you need additional capital once completing your budget, consider a small business loan. In this case, you’ll need to factor interest into budget and ensure you’re still funding your company with some of your own capital.
Applications used to run your site and sales may charge fees along the way. These usually average around 3%.
10. Add another 20% to your total
Always anticipate error. Include a 20% cushion in your budget to make room for error and to be prepared for it.
Good Ecommerce Planning Leads to Success
If you’re able to produce a budget and solid plan from the beginning of your operations, you have a higher chance for success and a lower chance for aggravating surprises.