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How Much Does It Cost To Start An Online Business?

August 23 2021 04:44
Winnie

Starting an online business can be difficult and expensive or easy and cheap, depending on your chosen model. In most cases, online businesses are affordable, and their cost varies according to the eCommerce platform you will use. Online businesses have been booming since the covid-19 pandemic entered due to strict regulations that affect physical contact. With the curfews in place, the time of doing business has reduced to few hours a day compared to online businesses that operate in 24hrs a day for the whole week. Businesspersons have decided to grasp the opportunity of long hours in online business by setting up online stores. The biggest question has been, how much does it cost to start an online business? But, at the end of this article, you will get insights into the various costs you will incur when opening a business to get prepared. 

Main costs that may need to start an online business

 To answer the question of how much it costs to start an online business, below are the main costs you will incur. At the end of it, you will do the mathematics of opening an online business from wherever you live. 

1.     Licenses and permits

Just like the brick-and-mortar businesses, you will need licenses and permits before you start doing business. These may include registration for tax, professional license, occupational license, weights and measures license, general business license, etc. However, charges for licensing and giving permits differ from one state to the other. 

2.     Equipment purchase and maintenance fee

Equipment is among the high initial costs that you will incur before your business runs. Depending on your model, you will need various sets of equipment to enhance business operation. It is a must to have a laptop and router to do your online business. Others may include the production equipment if it is in your business model. This equipment will require some money for maintenance and service. 

3.     Web hosting and design

Owning a domain and business email is a prerequisite for an online business. After settling on a particular design, you will look for someone to host it. It would be best to focus on the advanced hosting plans for posterity since the basic one may shock you when you scale your business. Hosting requires some money. In addition, you will pay for a good website design that will give the users ease of access both from their computers and mobile phones. 

4.     Ecommerce Platforms and software costs

Merchants who may not know how to create online stores will require the services of an eCommerce platform for the same. These services come with a cost in terms of subscriptions to get a particular solution. Moreover, you will need to purchase other software like the team communication software and the accounting software for effectiveness and accountability. Payments for the eCommerce platform can be monthly or annually. 

5.     Utility and access expenses

Wherever you will be working from, home or office, you will need to pay for electricity and internet services. Apart from having them in place, you may also need to have a backup plan for the two at times when they are down. You cannot ignore these costs. 

6.     Advertising and marketing fees

No business will command a new following if it does not invest in popularizing its brand. Every merchant needs to allocate some dollars to advertise and market their business. Though implementing some marketing strategies may be expensive, we have affordable, like content creating. The bottom line is that there must be some money to build your brand by making it popular. 

7.     Transaction costs

Transactional costs come up when you pay for each order through credit cards. These costs may appear negligible but will scoop part of your profits. If you do not account for it, its amount may shock you in the long run. 

8.     Taxes

You should have a proper plan to pay all taxes. Identify the kinds of taxes you should pay, like income tax, sales tax, and property tax, and make the payments accordingly. Let tax payments not come to you as a surprise. 

9.     Insurance

Those businesses that do not operate in physical offices may ignore many insurance policies, but, at some point, they will need to assign some amount for some policies like business interruption insurance, general insurance, and product liability insurance. The charges may cost you some dollars, depending on your business model. 

10.  Shipping and delivery costs

Whenever a customer places an order, you will incur some cost of transporting the item to them. New merchants may not have gotten reliable shipping suppliers, which will force them to sell products at high prices to cater to the shipping and delivery costs. Always remember to calculate these costs online. 

11.  Professional charges

Some tasks in the business will require an expert to perform. Therefore, the businessperson will move and pay the professions to assist in accomplishing such work. These jobs include filing complex tax returns, drafting a contract, among others. Other professionals may consist of freelance writers for content creation and social media marketers to do social media marketing. 

12.  Employees and contractors.

As your business grows, also you will need to employ some permanent staff to work for you. Sometimes the work can overwhelm a merchant who hires employees or contractors to handle the extra work. So, you need to plan and accommodate that provision. 

13.  Inventory shrinkage

One may worry about where the cost comes from, yet they are doing online business. A product may disappear in the process of delivery. Due to fraud, miscounting, theft or damage: this calls for the merchant to account for it. You must pay for this product. 

14.  Refunds and returns

The customer may return an item that will force the seller to bear its cost when restocking or disposing of it. This practice is common in all online businesses. 

15.  Cybersecurity

All online businesses are prone to cyber-attacks. Merchants should create a provision in the budget that will deal with security bearing in mind that hacking or malware infection may cripple the business altogether. 

Save expenses and make money by opting for the dropshipping business model.

If you evaluate the main costs you may need to start an online business, any business person will settle for the dropshipping online business model. This business model is the cheapest of all and easy to create. May merchants incline to since it has minimal hassles to complete an order and earn money. Once a client has placed an order, the supplier will process the order and deliver it. The profit will come in when you subtract the wholesale price of the goods and their dropshipping fee from the selling price. 

What does it cost to begin the dropshipping business? 

The cost of starting a dropshipping cost is relatively low, but one can also drag it down depending on their skills and expertise. If you understand web design and other tasks, your prices will significantly drop to save you a lot of money. High costs that you will incur are:

  • Domain registration: This will take few dollars of about $10, which is cheap. Depending on your web host, some give free domains. Let your domain name be easy, memorable, and unique. 

  • Choose a shopping cart: For a startup, go for online stores like WooCommerce that have free open source carts and cheap hosts like Bluehost. You will realize that your expense here is below $3 if you are tech-savvy. Those who are not will spend more to pay for a fully hosted shopping cart that does not require much control. 

  • Acquire an SSL Certificate: Unlike in the olden days when people used to pay for the SSL certificate, the certificate is free unless you want an extended validation. The extended validation of the SSL certificate is for established companies. 

  • Freely sign up for credit card processing: choose between Stripe, PayPal, and      Authorize.net for online payments. These methods do not charge any monthly, but you will pay a processing fee per order in the percentage of 2.9%. Assess the three ways exhaustively before settling for one. Let their advantages and disadvantages assist you in getting one. 

  • Buy a shopping cart template: This is optional and costs between $20 and $200. 

  • Have a logo design: You can either choose to have a logo or not. If you have some money, invest in a logo design that will prosper your business. However, when there is no money, use free tools to design the logo. 

If you add the total cost of starting the dropshipping business, it will range between $3 and $438. That is how easy you can to create your dropshipping business with only $3. Is it not cheap?

Wrap up

Online businesses have taken root in the whole world. Any person anywhere can open the business either from their comfort zone or have an office. Although, you should acknowledge that the business comes with some cost, depending on your chosen model. Dropshipping eCommerce online business is the cheapest model for both the starters and experts. Start your business today.