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How much does it cost to start an online business?

How much does it cost to start an online business?

Jun 09 2023

“You only have to do a few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

The idea of right and wrong is a construct, of course, and it might feel overly simplistic to suggest that making the right choices will smooth the path forward. But the famous investor is noting with this business quote that avoiding a wrong decision is just as important as making the right one. Avoiding bad decisions is supported by careful planning. And cost management plays a major part in that careful planning.

An online business eliminates many costly aspects of operating a physical storefront. But it does have a set of costs and fees differentiating from business category to category. According to your business plan, some of the costs included here may not affect you and some might be missing as we are writing in general. In this article, we will explore the most important costs of online selling that every budding entrepreneur should know and you will be able to have an estimate of the costs your business will be needing to avoid losses or surprise expenses.

Platform Fees

Platform fees are charges that online marketplaces impose on sellers for the use of their services. These fees can vary from platform to platform and can include charges for listing items, referral fees, and subscription fees. Referral fees are the most common type of platform fee and are typically a percentage of the sale price. For example, Amazon charges a referral fee of 8%-15% for most categories, while eBay charges between 2% and 12% depending on the category. Subscription fees are another type of platform fee, which sellers pay for the privilege of using the marketplace or managing the stores. For example, Amazon charges a monthly subscription fee of $39.99 for professional sellers. ShopOnCloud offers 2 different monthly subscriptions and a Customizable option as well.

Shipping or Delivery Costs

Another significant cost associated with online selling is shipping or delivery costs based on the customer’s location you sell for. These costs can vary depending on the size, weight, and destination of the package. It's important to factor in these costs when pricing your products, or you may end up losing money on every sale. Some online marketplaces like Etsy and eBay offer discounted shipping rates for their sellers, so it's essential to check if such discounts are available and under what conditions. There is another option where you can find specific shipping services that ship to specific countries. Make sure the service you pick has good reviews and check if it's not a scam site.

Packaging Costs

Packaging costs refer to the materials used to pack and protect the product during shipping. These costs may include boxes, Thank you cards, envelopes, tape, bubble wrap, and other protective materials. Packaging costs can add up quickly, especially if you are shipping products frequently. As a seller, you need to factor in these costs when setting prices and find ways to reduce them, such as buying in bulk or using recycled materials.

Payment processing fees

Payment processing fees are charges that payment processors impose on sellers for processing payments made through their platforms. These fees are typically a percentage of the sale price plus a fixed fee per transaction. For example, PayPal charges 2.9% + fixed fee per domestic transaction, while Stripe charges 2.9% + $0.30 per transaction, and card-present transactions all cost a flat 2.7% + $0.05 each. Some payment processors may offer lower fees for high-volume sellers or those with certain business models. Multi ePay is an example of such a payment collecting platform.

Marketing and advertising costs

To be successful in online selling, you need to reach a broad audience, and that requires marketing and advertising. Whether it is paid advertising on social media or email marketing campaigns, these activities require a budget. It doesn’t matter from which platform you make your store. Your store will not magically appear in front of potential customers without proper marketing and advertising. You need to factor in these costs when planning your business and decide how much you are willing to spend on marketing and advertising.

Time and effort costs

While these are not direct monetary costs, time and effort are significant costs associated with online selling. Running an online business requires time and effort, from creating listings and managing orders to responding to customer inquiries and handling returns…etc. A YouTuber may explain his/her success story in 10 minutes. But in reality, as a seller, you need to be prepared to invest time and effort into your business if you want it to succeed. And when you plan it right and work accordingly, the time you need to struggle will lessen and the time to enjoy the success will escalate fast.

Online selling can be a lucrative business venture, but it's essential to understand the costs associated with it. By factoring in these costs and finding ways to reduce them, you can ensure that your business is profitable and sustainable. Remember, running an online business requires dedication and hard work, but the rewards are significant.

“Success usually comes to those who are too busy to be looking for it.” – Henry David Thoreau

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