An eCommerce business seems to cost less than the traditional offline ones. However, the specific money that needs to be invested is still a question and varies for many business fields. There are so many budget-related concerns of entrepreneurs who want to start up their businesses on eCommerce platforms.
This article will list out all recurring expenses in the early step of doing eCommerce businesses. Afterwards, we will suggest some solutions to deal with financial problems.
Expenditure At The First-Stage Of New Ecommerce Business
Some Kinds Of Cost
According to a survey from Shopify, new eCommerce businesses spent most on product-related costs in the first year, at about 32%. Product is the backbone of starting and developing online selling businesses, including inputs, manufacturers, inventory, distribution, etc. The starters usually pay nearly 19% of their budget to their employees’ benefits, salaries, and rewards.
Marketing, operation, and offline-related costs accounted for around 11% of their resources, including branding costs, additional software, rent fees, etc. Two other expenses belong to online stores (website construction, design, etc.) and shipping (packaging), which usually make up 10% of the budget.
Besides some fixed costs above, there are some variable costs and additional costs that eCommerce business runners need to pay attention to. Firstly, start-up eCommerce businesses often face shipping-related problems like damaged or returned items or extra charges due to bad weather conditions. Secondly, some unexpected costs like insurance, permits, and licenses will make entrepreneurs surprised. Last but not least, a mistake in order quantity leads to surplus inventory that the company pays some money to correct.
How Much Does It Cost For Each Business Size?
It has been found that an eCommerce business without employees will help you save nearly 70% compared to doing business with employees. In detail, a person who runs the online business by himself usually spends $18,000, while owners who are accompanied by up to four employees spend $60,000 in the first year.
Where Is Financial Source?
It may not be surprising that most financial support comes from owners’ pockets or personal savings, accounting for nearly 70% of all financial capital. Whenever the eCommerce business earns profits from their sales, they will be re-invested in company capital and continue to make profits again. That is why 30% of investment comes from previous revenues. Moreover, new business runners also borrow money or depend on friends on family investment, at equally 20% of total capital.
Our Budget Recommendations
Before going into the recommendations, it’s necessary to go through some facts from reliable research.
Firstly, the more money spent on employees, the more profits the companies can make. Hence, the recommended cost for teams, laborers should range from 14 to 30% of your overall cost. Moreover, automation applications will help you finish some repetitive and product process tasks like order fulfillment quickly and accurately.
Secondly, the more money spent on marketing, the less revenue the companies gain. Over-promotion is a prevalent problem for new businesses, leading to misleading advertisements with overrated product quality. Therefore, new-launched companies should spend 7 to 8% of their total revenues on marketing and promotion.
Thirdly, some suggested costs over total expenses for other business activities. In detail, the operation cost is from 10% to 15%, shipping prices are from 8% to 12%. Besides, charges for online sites are 9% to 10%.
Last but not least, the most significant part of your investment is in products, which is between 28% and 36%. Products play a crucial role in your eCommerce business, so it is difficult to cut down on this expense. However, we have a solution to reduce the cost if you have low capital and inventory. That is Backorder. With Backorder, you can allow customers to purchase products at pre-order status without any items in your warehouses. Therefore, you do not need any money to buy products from suppliers or wholesalers to make it available before.
We have illustrated some financial issues for new ecommerce businesses. We hope that after reading, you can depict a cost-benefit picture of your business activities and apply some recommended solutions to avoid loss and valueless investment.