The Internet is, by definition, the largest marketplace in the world. It allows buyers and sellers from halfway around the world to conduct business. If you’re not already selling online, there has never been a better time to start. Affordable options exist that were not available just a few years ago. And, there are customers across the country or even around the world that want to buy from you, so you are no longer limited geographically.
Recently I covered the legal aspects of a website including taxes. While taxes might be considered a financial part of having an ecommerce website, this week I’m going to discuss some other financial considerations. Most articles on this subject focus on how much it cost to design and maintain a website. I will mention those briefly, as they are important, but then cover other factors that are often overlooked.
Understanding the Costs of a Website
When you think of purchasing a home, you often look at the purchase price, but there are actually many other factors to take into consideration. The same is true with a website and I like to compare the two as they are actually quite similar. For example:
- Purchase price (down payment plus monthly mortgage = website design & development)
- Closing costs (= domain registration)
- Utilities (= plugins)
- Taxes & Insurance (= security & ssl)
- Maintenance & Repairs (= webmaster & support)
- HOA fees (= hosting/amenities)
- Appliances / furniture (= training & education)
- Remodeling (= updates)
Of course, when you buy a home, the expenses don’t stop at closing – there are ongoing monthly costs just like there are with running a website business. In addition to the above, you also need to consider transportation costs. If your home is near your work, shopping, and recreation, you may be able to walk everywhere. If not, you may need to take public transportation or get in your car and drive. With a website, it’s actually the reverse as you need to drive the traffic to your site, which of course are your marketing costs.
Let’s look at some of these in more detail.
The cost to develop an ecommerce website ranges from $1,000 to well over $100,000, with the median cost being around $5,000 to $10,000. The reason for such a large variation in cost depends upon a lot of factors, including:
- Market and competitor analysis
- Number of web pages
- Need for website’s product graphics and pictures
- Level of web design customization
- Need for website domain and hosting
- Website interactivity
- Website responsiveness (optimization for use on mobile devices and tablets)
- Amount of materials provided by the client (graphics, content, branded materials)
- Quality assurance, testing, and review
Given these costs, many businesses opt for selling on marketplaces like Amazon, Walmart, and eBay. These marketplaces give you additional ways to reach a large number of customers, but of course mean that you pay a large sales commission when your products are sold. This is something to consider when determining how much it is going to cost you to start selling online. Often, the best practice is to run your own website in conjunction with selling on other people’s platforms for maximum exposure.
After the eCommerce website is released, it still needs continuous investment. Typically, these costs are equal in one year to the initial development cost of the website. For example, if you invested $6,000 to build your website, you should factor in $6,000 over the course of a year for maintenance, support, new features, upgrades, and hosting. In other words, you should budget $500 per month to run your website.
- Website hosting costs
- Domain name (annual expenditure)
- Administration costs
- SSL certificates
- Ongoing development (implementation of new features, website upgrades)
None of this even includes the cost of a person to run your online store, which can range from an additional $53,000 to $100,000 per year. This is why WebStores Ltd. offers our virtual webmaster program at a fraction of this amount. Call us at 877-924-1414 to learn more.
Marketing and advertising costs
Nobody will know your store/website exists unless you go out there and tell them.
The old movie line of “if you build it, they will come,” is a total fallacy when it comes to having a website. Driving traffic to your website is a continuous effort on the part of the website owner, and despite what you might like to believe, it is not your web designer’s responsibility, and more than it is your landlord’s responsibility to bring customers to your brick and mortar store. If you are not prepared to market your website, you will not get any customers.
I cover various aspects of online marketing almost weekly in this blog, so I will not go into detail this week about SEO, SEM, link building, email, texting, social media posting, videos, coupons, popups, word-of-mouth, etc. Instead, I’ll just let you in on a secret: The single best way to sell products online is to build a list of loyal customers that you own and can market to whenever you want. That list might be an email list or a text message list, but it is a list of raving fans that you control. Notice this is not a list of social media followers (those “leads” belong to the social media platform, not you). It is not how many click you get on your website from being on page one, or how many viral views your video gets. It is simply a list of contacts that you build up so you can market to them yourself.
What this means is that ALL of your marketing and advertising efforts should be aimed at a single goal: getting people to opt-in to your list. Don’t try to sell them something with your ads, instead simply try to get them to opt-in to your list. The best way to do this is to create a “lead-magnet” (an irresistible offer) that your ideal customer will want to take advantage of and advertise that instead of your final product. Once they are on your list, you can try to sell to them and it won’t cost you more advertising dollars to do so.
Advertising can be expensive. Online ads perform way better than traditional ads did because you can target who you want to advertise to rather than a shotgun approach. So the cost per click is much more effective, but due to competition, the costs can be significant.
According to the U.S. Small Business Administration, companies should allocate 7-8% of their gross revenue towards marketing and advertising. This comes out to an average of 10-12% of your net revenue. For example, if your business generated $500,000 in revenue, your marketing budget should probably be around $50,000 per year or $4,166 per month. This will be budgeted something like this:
- 22% SEO ($916)
- 35% Paid Search ($1,458)
- 43% Remaining ($1,792) for everything else: Social, display ads, re-targeting, email, text, direct mail, trade shows, affiliate marketing, content marketing, print, TV, video, radio.
As you can see, this doesn’t go very far and you will quickly run out of money. This is why I recommend that small business owners become the recognized go-to expert in their field by writing their own blog posts, having their own podcast, and doing live videos – all of these methods are huge for driving traffic at a very low cost. But the fact is, in order to sell online, you simply MUST advertise (remember we are advertising our lead magnets, not our products).
The answer might be to get outside financing. 7 Figures funding provides a solution for small business owners where they have unsecured loans of up to $250,000 at 0% interest for 12 to 18 months. This money can be used for advertising and growing your business, so this might be something you want to take advantage of. In fact, this money can also be used for creating your ecommerce website, as well as for financing inventory.
As a way of differentiating yourself, custom products are the ideal thing to sell online. When you have a private-label product, or a product that has been custom made just for you, then it eliminates price comparison. This is your product, not the same product being sold by hundreds of other online stores everywhere. sure, a customer can compare brand A to brand B, but your product includes intangibles that make it unique.
Of course, the cost to bring your own product to market can be daunting – manufacturing costs, minimum quantity purchases, freight, packaging, import fees, warehousing, etc. can all add up quickly if you are not prepared for this. As mentioned above, 7 Figures funding provides a way for you to finance your inventory costs at 0% interest.
Shipping is a huge consideration that many new website owners often overlook. Not only do you have to compete with free shipping from places like Amazon Prime and Walmart W+, but you need to factor in the cost of shipping materials (boxes, tape, scales, label printers, delivery, insurance). Shipping consolidators like Cloud 9 might be able to save you some money. Contact WebStores Ltd. to learn more.
Getting paid of course is the reason why you built an ecommerce website in the first place. You’ve spent all this time and money to build your online store, now you need to collect payments. You might offer terms, collect COD, accept checks and other offline payment methods, but we all know that the vast majority of people expect to pay online using a credit card when shopping.
For many people getting started with an online business, they use PayPal and/or Stripe. These are easy to implement, so it makes sense. Plus, some people like to keep a balance in their PayPal accounts so they can use it for online purchases. The only real downside to these payment methods is the cost, typically 2.9% of the purchase amount, plus a 30 cent transaction fee. If you use PayPal Pro, you can also tack on a $30 per month processing fee.
Obviously, as entrepreneurs we’d like to save money here to, which is why I recommend taking a look at PayCron. PayCron offers merchants the ability to take credit cards on their website and pay only 1.99% plus a 10 cent transaction fee. this savings can add up over time as you begin to sell more and more product.
A reliable and secure virtual terminal is essential for e-commerce merchants. If you ever had issues with your shopping cart or other website issues, you need an urgent alternative! An internet virtual terminal is the best option in that case. In addition, a virtual terminal will also allow you to complete the payment process from orders received over the phone or on a trade show floor. PayCron and PayPal both offer this flexibility.
Note: This article may contain affiliate links. this means that at no additional cost to you, if you click on a link and purchase a product or service, I may receive a small commission for my recommendation.