Starting an online business can be relatively simple and affordable, but some expenses are necessary. Depending on the type of business you want to start and how and where you would like to set it all up, your startup costs can vary significantly.
Let's take a deep dive into the typical costs associated with starting an online business.
Business license
To operate a business, you're required to obtain a business license and/or permit. The cost depends on the type of business license you need and the location of your company, since each state has different fees. A business license can cost anywhere from $50 to a few hundred dollars, plus account renewal fees. If you operate in certain industries, such as agriculture and mining, you'll also need a federal business license or permit.
Web hosting
You'll need a top web hosting service and a domain name (your business website's URL). You'll typically pay an initial fee of $50 to $100 for the domain name and then an annual fee of about $20.
Web hosting costs depend on how large your company is and how much traffic you anticipate. If you're expecting a generous amount of traffic to your site every day, you'll need to pay a bit more to have a platform that can host a large number of visitors. You can typically pay annually or monthly, but either way, you can expect a flat fee of a few hundred dollars and then about $100 a month – again, depending on how much traffic you expect to receive.
Web design and responsiveness
Your website needs to be mobile-friendly. Customers must be able to easily access and navigate your website on their phones, and you'll rank higher in Google search results. Make sure your website platform includes mobile responsiveness in the costs.
If you have specific branding standards to follow, you'll also need to pay for custom web design. Hire a professional who uses your brand colors and fonts to design your website's homepage, menu and other content. For these services, you might expect to pay a few hundred dollars, depending on how many hours it takes to refine the design. If you don't adhere to certain brand standards, you can potentially find a free website theme online to add to your site. [If you are looking to design a website, check out the web design software and services we recommend for small businesses.]
E-commerce platform
An e-commerce platform is a software application that helps business owners create an online store, accept payments for products and manage inventory. Many are cloud-based and charge monthly for their services. The cost of e-commerce software can range from $30 to $299 a month, depending on the features and tools you require.
Payment processing
A payment processor makes sure you get paid for your online sales. The amount you'll pay to accept credit and debit cards varies depending on the type of card, the amount of the sale, whether the card is present and which processor you hire. Visa, Mastercard and Discover charge 1.5% to 2.5%, while American Express charges 2.5% to 3.5%. The payment processor then tacks on an additional fee, known as the markup, which varies and can be negotiated.
Inventory
Whether you operate a physical store or sell only online, you'll have to stock inventory. The costs to store it, maintain it and replenish it make up your inventory expenses. Typically, inventory costs are calculated as a percentage of the value of the inventory. Known as the carrying costs, they can represent as much as a third of the value of your inventory. For e-commerce operators, inventory tends to be the most valuable asset and largest cost.
Dropshipping
Business owners who don't want to keep inventory on hand can adopt a dropshipping model. Dropshippers don't have any inventory or don't purchase the products they are selling until they have a sale. But there are still costs associated with this type of selling, and they are dictated by the sales platform you use. Whether it's eBay, Amazon, Walmart or Etsy, you'll have to pay listing fees and a percentage of the sale, and these costs can eat away at your profit.
Marketing
Marketing is one of the most important things you can spend money on, because it has a direct payoff if you do it well. You'll need to budget for things such as search engine optimization (SEO), pay-per-click (PPC) ads, social media and content creation.
Why do you need to pay for SEO? For starters, so that customers know you exist! If you want to ensure that your site ranks highly in search results (organically, rather than via paid ads), you may want to hire an SEO agency to help you build backlinks and further optimize the content on your site. You can expect to pay several thousand dollars to set up your SEO marketing with an agency and then several hundred each month to make sure you continue to get results.
PPC marketing
Many online brands and businesses also choose to employ PPC marketing. With this option, site owners pay a fee based on the keywords they want to rank for and how many clicks they receive to their site. Your ads will appear on potential customers' screens – for example, as a link at the top of the search results page or a small ad in the corner of their Facebook account – and if they click on it, you pay a fee. This is a great way to get customers, and it's not too pricey – expect to pay around $100 a month for PPC marketing.
Web content creation
If you're not an experienced content writer, you should hire a freelancer to take care of your web content creation. Google and other search engines prioritize sites with well-written, quality content. If your homepage is full of spelling errors and doesn't have a great user experience, your search rankings will suffer. It's important to hire a good copywriter to make sure that your homepage, subpages and any blog-style posts have quality content that makes it easy for users to find what they want.
Social media
You should also hire a professional to handle your social media post creation and marketing; just because you have a personal Instagram account doesn't mean you know how to run a business on Instagram. You'll need someone to maintain all of your social media platforms, create content, monitor reviews and comments, and make sure everything is running smoothly. Chances are, you don't have the time or bandwidth to do all of that and run your business. Just hire a freelancer who knows how the world of social media works, and then sit back, relax and watch your follower count grow.
After considering these tips, think about your startup budget and see if you are ready to get started with a website, blog or online business of your own. To see more examples, take a look at how this small business owner calculated all of the costs for getting her online business started over the first year, and what she learned along the way.
Additional reporting by Donna Fuscaldo.