Building an online store is an exciting proposition. But how much capital one requires to jump into e-commerce can be a tricky question to answer. So how much does it cost to start an online store? What are the costs? And how do we figure all this out? Not to worry, we’ve got the answers right here.
The average cost of starting an online store ranges from $700 to over $127,700. These costs are highly variable, depending upon several factors such as hosting type, product type and inventory, business structure, industry expectations, and even location.
Online Store List of Startup Costs
Note: Many of these items are variable and may not be required, depending on the store type.
- Equipment $200 – $4,000
- Products – $0 – $60,000
- Licensing $0 – $1,500
- Domain – $50 – $15,000
- Hosting – $250 – $2,500
- Theme – $0 – $200
- Plugins – $0 – $1,000
- Site Design/Setup – $0 – $15,000
- Photography – $0 – $10,000
- Marketing – $0 – $20,000
- Insurance – $200 – $1,500
Let’s take a look at each of these items. And we’ll get into why the numbers are so variable with each.
Does an online store need equipment? Well, yeah, if one wants to go online, one generally needs a computer to do so. And since this is your livelihood we’re talking about, you will likely want a half-decent computer with security features installed.
The cost of a bare-bones computer with little more capabilities than surfing the internet is about $200. It would be the bare minimum recommended, and the price just goes up depending on the features you want to have with your computer.
If you intend to do most of the graphics, photography, marketing, and content yourself, you will need a computer to handle things.
The more you want to do yourself with your online store, the bigger and better a computer you will need.
A decent computer will likely cost you more like $1,000 to $3,000, and an additional tablet or laptop for on-the-go work will run you another $1,000 to $2,000.
If success is your intention, then you need to have stable equipment. Even if you outsource most of the process, you need to have a secure setting to check on your store’s financials. Keep in mind that hackers are everywhere online trying to steal your hard-earned money, so keep it safe.
Now, this is a variable cost. If your online store sells downloadable digital products, then there is zero inventory. However, maybe you are an inventor of a product, and you’ve got a physical product to sell that will need shipping. See where I’m going with this?
If you are selling intangible goods like digital products, as you can see, there is no initial cost unless you pay someone to make the digital product for you.
If you are selling a physical product, then you may need substantial funding to cover the cost of your product(s), packaging, delivery, and any other variables that may be involved and require a solution at a price.
Dropshipping is a sort of half-way point between having physical products or digital products. If you are drop shipping, you are selling someone else’s products, and they are handling the shipping. It is similar to affiliate marketing, except there are a more personalized relationship and agreement between your business and the manufacturer or dropshipping distributor.
The difference here is that with dropshipping, there is often the opportunity for re-branding of manufactured products to appear to have come from your company. In truth, the product comes directly from the manufacturer or dropshipping distributor ‘on your behalf.’
With affiliate marketing, it is not the case, and one is merely recommending someone else’s product. IT is not an online store, however, so we won’t go into further detail.
To summarize, the cost of products for your online store will depend upon the type of products you have and the market you intend to satisfy. The stock you intend to carry should reflect the projected sales. In other words, start with smaller market size and work your way up to more considerable market exposure if you want your inventory costs to begin small.
A small business with average cost inventory might have a startup cost of up to $50,000 or more, depending on the type of product.
Licensing is a given in most states. In each state, business licensing is managed at the city or state level, usually by the state’s secretary. However, depending on what type of products you intend to sell, there may be further licensing required.
For example, perhaps you want to sell pet products online. And maybe you saw a great spot to get some gravel to bag and sell for fish tanks. However, this is selling aggregates which often require an exclusive license.
As you can see, there are sometimes licenses required for products that one did not expect to require licensing. The best thing to do before you get your store setup is to make sure that special licensing is needed to sell the products you are interested in selling, that you check to make sure you are on the right side of the law.
There may also be other permit expenses if you have a physical product that you need to store before shipping. Certain products and specific zoning requirements must have special permits or requirements met. Be sure to check with your local authorities about what and where you intend to store products.
If licensing will include the fees to set up an LLP or corporation, one may need to consider a budget of up to $2,000. Charges will vary depending on the type of business and location. Take a look at our article about starting a business here (for entrepreneurs).
Moving into the less physically tangible side of an online store, we have the initial domain costs. Now, one can get a ‘cheap’ domain, often free with a web hosting plan (we will talk about that next).
If it’s a premium dot com domain name you want, you might be looking at thousands of dollars. It isn’t uncommon to see a $10,000 domain name sale. If you don’t mind being on a dot net or another extension, you might be able to find a great domain that will work well for you and your customers.
Pro Tip – Keep the domain as short and as simple as possible. Don’t use misspellings, and always make sure you aren’t infringing on someone’s copyright.
Hosting will vary, depending on which platform you decide to use. There are many different ways in which you can host an online store. Those are a) self-hosting, b) shared hosting, c) dedicated hosting, d) dedicated/managed platform.
If one were so inclined, one could set up a server and their online store with minimal money. It would require the server and an internet connection that could handle decent two-way traffic.
However, there would require some coding skills involved. It is assuming that someone going this route would be using a Linux system with some form of free server platform.
It gets very technical from here. For the rest of us, self-hosting is not an option.
This online store would be based on a content management system and hosted with a budget grade hosting company. The average cost per year for this type of hosting would be around $200 – $300.
The downside to shared hosting is that fluctuations of other web traffic can cause issues with your website due to the server handling multiple sites. It is also less secure than other forms of hosting.
As well, you will need to set up your site yourself. It can take hours and even days. Depending on how many rabbit holes you fall into in the process, it can also take weeks.
Dedicated hosting is just a particular virtual or physical server somewhere you rent, and it is ‘dedicated’ to your use. It is not a system that slows down from its specifications, typically speaking.
The cost will be more than that of shared hosting. But, the online store’s performance online will be much better than that of a shared hosting platform. Again, you will need to set up the store yourself, especially if you are using a platform like WordPress.
A Dedicated & Managed Selling Platform
The preferred solution by most is to utilize an online store platform that is predisposed to setting up online stores. This sort of online platform does more than just host a site; many have easy to use building features that make it easy and almost fun to set up your online store.
Platforms like Shopify, Lightspeed, Square with Weebly, and others are the most popular solutions, and some of the easiest to use and set up.
Annual expenses will range from $180 to as much as $1,000 for basic plans. The advanced and professional plans range from $1,000 to $3,600 annually.
These platforms design is specific for online stores. That’s why they are not only the easiest to use, but the intent is for selling success, making them the most popular solution.
If you are a platform where there is no free included theme, such as a WordPress store or even a self-hosted theme, you may choose to purchase a particular theme for your web store.
Themes generally run between $50 and $250 per year.
Similar to themes, if you are running anything other than a dedicated and managed site on a platform like Shopify, for example, then you will likely need add-ons called plugins.
Plugins are additional software add-ons that you use for various purposes in an online store. For example, Woocommerce is a very popular store plugin for WordPress website owners to use. Other plugins might include security and malware protection and other security features like 2-factor authentication.
Depending on the function, level, and how many you decide you need, Plugins can run anywhere from a few hundred dollars to upwards of $1,000 per year.
The trick is to balance cost with security. When you are handling other people’s money, it’s best to keep it as secure.
That’s another reason why a big platform like Shopify is a good idea. They handle the majority of the security, so you don’t have to. These sorts of platforms do not require you to buy additional plugins like a WordPress based site would either. Another reason their popularity has grown.
Designing a website and setting up a website are similar tasks. Both require a certain sense of design. Depending on whether you are using a platform that comes pre-designed, you may need to set aside some time or money to either pay someone to design the online store, or to do the design yourself.
The addition of products will need to be completed after the design work is done. This step can take an extremely long time if you have many products, and it is the first time cataloging them into an online store.
Paying someone to input hundreds of products can be a very costly venture. It is because the person needs to be an expert at whatever platform is hosting your store.
The expense can be anywhere from a lot of your time to ten or even fifteen thousand dollars. The cost will depend on the extent of the design work required and the number of products you have.
When you’re first starting a store, it will be the easiest, to begin with, a small focus on a group of products rather than try to start with everything. That is unless you have the budget to have many products implemented from the beginning.
With anything you want to sell, you need high images in your store. If the product is tangible, you are going to need product images. Depending on what type of product, you may or may not have luck getting images from the manufacturer or distributor.
When you are selling anything you make or package yourself, you need photos.
Pro-Tip: The most crucial factor in selling products is the images attached to the product sale. Whether it’s images to invoke emotion to entice a conversion, or images to display the product itself, pictures are what sell products.
If you take the pictures yourself, you will need a decent computer, a decent camera, and likely some adequate lighting. It is one of the factors that determines your initial expense for a computer under the Equipment heading.
If you pay a photographer for professional product images, get ready to take your checkbook. These sorts of photos do not come cheap. And they aren’t as easy to take as you might think.
A budget of zero is required if you don’t need to take pictures. If you need to pay a photographer, a budget of $10,000 would be an excellent place to start, depending on how many images, products, and other variables.
Pro Tip – If you know you will need a bunch of product images, try to find a great up-and-coming photographer and see if they will make you a long term price offer. Sometimes, this method gets some stunning results at a fraction of a fully established photo studio cost.
The marketing budget you need to get things started can vary as widely as your photography expenses. It isn’t something to waste money on, but it is also something not to overlook.
Marketing can cost much money if the targeting isn’t done right. Letting an ad agency handle things can work out well, but it will require much money.
For smaller startups and entrepreneurs, finding freelance marketers is a great option. Not nearly as expensive as ad agencies, an established social media freelancer can sometimes be more effective than targeted ads.
The best thing to do for your online business is to look at your successful competition. What is the competition doing that is working for them? If your market has many people on social media, then social media is where you want your business to have a face.
Targeting where you direct your marketing budget and doing your initial research can help your business get clients, but it will help grow your brand for future sales. And a successful first launch is always a good thing.
The marketing budget for an initial launch can be grass-roots for a less impactful start, or you can dedicate tens of thousands to helping boost things from day one. Just remember to reflect your marketing reach in proportion to your product availability. Keep in mind that it’s all a numbers game, so make sure the math works for you.
We leave insurance for last because most people don’t get happy feelings when they look at the word insurance. The word itself provokes fear of the risk of some sort. And no one likes the anxiety of fear.
But in this case, insurance will be the blanket that keeps your business warm and safe at night. Whenever you sell a product, you should always have basic insurance to cover any potential losses.
Unfortunately, out there in the world, there is always someone looking to take your hard-earned money. Insurance is about protecting yourself and your business from someone trying to take yours.
If you sell a product and a fluke accident happens where a person is injured or worse, and you can expect a letter from a lawyer becoming you to a courtroom. It is more the case when dealing with any products that come into direct contact with people. These are products like makeup or food and drugs. Any item which can be ingested has the potential for a fluke situation where someone gets injured.
To protect yourself, general or even specialized liability insurance is essential to any online business. The higher the potential for injury, the greater the risk to your company and hence the greater protection you should have.
Insurance coverage may cost as little as $100 or as much as $1,000 per year (or more), depending on coverage required. Consult your preferred insurance broker for the exact specifics of your business situation.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.