Are you considering starting a business? If you are, there’s an extremely good chance that you’re strongly considering doing something in the e-commerce field. The lure of e-commerce is very strong because on the surface, the potential profits seem incredibly high in relation to the expenses. Running an online business, after all, means that you don’t have to worry about leasing a storefront or paying for the utilities and other expenses in relation to maintaining a brick-and-mortar presence. When you run an online business, you can also wait to hire employees until your business becomes so large that you’re no longer able to do everything yourself.
There’s just one problem: Running an online business isn’t nearly as inexpensive as it may seem on the surface. The truth is that operating in the e-commerce industry involves quite a few unexpected expenses that you may not even know about until you’ve already gotten started. Web hosting companies might like you to believe that hosting, inventory and shipping costs are the only expenses involved with running an e-commerce business, but there’s a lot more that goes into it.
In addition, running an online business means that you’re not just competing with other businesses in your city – you’re competing with every other business in the world that sells the same types of products as you. That means you’ll need to find a way to pay for your expenses while still maintaining rock-bottom prices.
So, are you sure that you’ve got a rock-solid business plan and that it’s only a matter of time before you’re wealthy beyond your wildest dreams? Before you start counting your anticipated riches, you need to be sure that you truly understand what you’re getting into. These are the five hidden costs that you’ll need to prepare for if you’re going to run an online business.
Website Development
When you see advertisements for hosting companies on TV or online, those advertisements are going to give you the impression that an e-commerce package includes everything you need in order to start selling products online. That’s technically true, but have you spent any time looking at your competitors’ websites? It’s very likely that you’re not going to see a single site using a stock off-the-shelf design from Shopify or GoDaddy.
If you want to compete with those sites, you’ll have to establish a similarly high level of branding, trust and professionalism. In other words, it’s very likely that the stock website theme included with your hosting package isn’t going to cut it. If you want to establish your own unique identity, you should be prepared to incur some website development expenses. Thankfully, there are so many freelance developers in the world that this expense usually isn’t too great.
Payment Processing
Another thing you’ll learn in the process of launching an online business is that payment processing isn’t free. In order to accept credit card payments, you’ll need to work with a payment processor – and that company will take a few percent out of every transaction that it processes. You’ll need to consider this expense when setting your prices.
Some hosting companies include payment processing in their hosting packages. That’s convenient for you because it eliminates the need to have a separate merchant account and also means that you’ll have no trouble adding a checkout system to your website. You should bear in mind, though, that the hosting company expects to earn money by offering this service. You’ll probably pay lower fees if you sign up for your own merchant account instead.
Shipping Materials
The need to purchase shipping materials is one of the biggest hidden expenses of running an online business because things like boxes and padded envelopes will add to the cost of every single order that you ship. These expenses – along with the costs of other supplies like blank labels, packaging tape and protective materials – can add up very quickly even if you buy your shipping materials in bulk.
It’s difficult to build the costs of your packaging materials into the shipping fees that you charge. Customers don’t like to see unusually large shipping fees during the checkout process –unexpected fees cause potential buyers to abandon their carts. Instead, you’ll need to find a way to build the costs of your shipping materials into your base prices while still being competitive.
Insurance
If you’re under the impression that you won’t need to maintain an insurance policy for your business because you don’t have a brick-and-mortar storefront, you’re wrong. Although you’re not leasing a storefront, your business will still require a physical presence of some kind because you’ll have to store your inventory somewhere. Even if you’re storing your inventory in your home while your business is still in its early stages, you’ll still need to have some protection against loss and liability. Buying inventory requires a considerable investment on your part. What would you do if there was a fire, or someone broke into your home? You could lose your entire business and have nothing to show for it.
If you already have homeowner’s insurance, you shouldn’t assume that your policy covers business losses unless the policy explicitly states that. In most cases, you’ll probably need to purchase a separate home business insurance policy or add your business’s inventory as a rider on your existing policy. This will most likely increase your premium.
Marketing
As much as your web hosting company might like you to believe that customers will come and beat down your door as soon as you launch your website, it doesn’t actually work that way in practice because there is no e-commerce niche in which there isn’t already plenty of competition. There are already many other companies selling whatever you’re planning to sell, and those companies are older and better established than you are. This is true regardless of whether you’re planning to sell clothes, food, pet supplies or vape juice online. You’ll have to carve out a share of the market for yourself, and that’s going to cost money.
If you don’t know anything about online marketing, it’s possible to hire freelancers who can do the work for you – but that’s not cheap. Online marketers are often more expensive than other types of freelancers because there aren’t many people who can do the job well. On the other hand, there’s nothing stopping you from learning the ins and outs of online marketing yourself. That takes you away from the task of running your business, though, and your time has value. Whether you’re paying for it with your time or your money, online marketing has a cost – and if you don’t pay that cost, your potential customers will never find you.
E-Commerce Can Be Profitable, But You Must Prepare for the Hidden Costs
Hopefully, this discussion of the hidden costs of running an online business hasn’t dissuaded you from dipping your toes into the world of e-commerce. For those who are successful, running an online business has the potential to generate a truly transformative level of wealth. Achieving success online isn’t easy, though – and one of the biggest reasons why online businesses fail is because the owners of those businesses aren’t prepared for all of the unexpected expenses of selling online. Now that you have a better idea of what running an online business truly costs, you should be closer to knowing whether your plan will truly work.
