The number of internet users who made online purchases in the UK increased exponentially and reached 87% in 2020. The COVID-19 pandemic also drives people to shop online more than before because of its convenience.
That said, online businesses can be a promising source of income, given that it is also more accessible than building a brick-and-mortar business. Furthermore, managing an online business can be done from anywhere, with the possibility of reaching a global audience.
Nevertheless, just like a physical store, you need to prepare the startup costs when building an online business. This article will walk you through what is required to start an online business idea from scratch and the initial startup costs.
What Starting an Online Business from Scratch Means
Before calculating the costs, think of the possible business ideas first. Knowing what you want to sell online and creating a business model blueprint are essential steps to take.
You can start small by selling products that match your hobby or mastered skills. Then, conduct market research to check if it can meet demand and generate revenue. This process will also help you gain insights into the newest trends and identify competitors.
Nowadays, you can also implement product sourcing by enlisting the help of a third party. With this approach, you only have to take care of your online store's marketing strategy and customer service.
The next aspect to determine is your eCommerce business plan and target audience. Consider your overall goals and objectives and imagine what your digital store will look like. Does it provide services like online courses or consulting, or is it an online store where you sell physical products?
Creating a detailed plan helps project any risks so you can prepare backup plans to keep your business afloat. Keep in mind that starting an online business doesn’t only involve startup costs, but also ongoing maintenance and other variable costs.
Average Online Store Costs
This section will break down the typical costs you’ll encounter when starting an online store from scratch.
Web and Domain Name Hosting
Your business website functions as a place to connect with your customers and display your products.
To create a website and make it available online, you’ll need to subscribe to a web hosting plan. Depending on the hosting type, prices start from £0.99 per month for a basic plan. Make sure to learn more about the hosting plan’s features before you decide.
Additionally, you’ll need a domain name, which is the address of your store on the internet. Many web hosting plans include a domain name upon sign-up, but you can also purchase it via a domain registrar. However, note that the initial price you pay may differ from the renewal costs.
At this stage, also consider registering for a business license before launching to avoid any issues. Check out the latest regulations in your region and make sure you fully understand them before offering your products or services.
Website Building Costs
There are several ways to build your eCommerce platform, such as by using a content management system (CMS) or a website builder. Both are user-friendly software for those with limited to no experience in website programming.
A website builder is a convenient option as there are many web design templates to choose from with a straightforward drag-and-drop interface. Many also offer a hands-on customer support team to help you troubleshoot problems.
Not only that, there are tailored website builders for eCommerce. Store management features include built-in accounting software, payment processors, and marketing analytic tools. Note that you’ll need to pay tens to hundreds of pounds per month to get these full features in a website builder.
On the other hand, CMSs have lower startup costs and are more customizable than website builders. However, to save up some costs, you must be willing to develop some technical skills as CMSs have a steeper learning curve. The site owner usually handles website configuration and resource management.
Alternatively, you can set aside a budget for hiring a professional freelance web designer or developer, but note that it might cost you thousands of pounds per month.
Production, Sales, and Marketing Costs
Nowadays, you can maintain low startup costs by outsourcing or importing products. For example, there are many dropshipping options to choose from, so you can compare and pick the most convenient one.
If you prefer self-producing your goods, production costs will be higher, especially when you don’t yet have many orders coming in. As a solution, consider applying a pre-order system to avoid a pile-up of raw materials and warehousing costs.
Other important aspects are marketing and sales costs. With the emergence of digital marketing, these costs can be reduced or even be free. For example, convert an audience into customers by applying search engine optimization (SEO) to your website and creating quality content.
However, this can take a long time to show significant results. Therefore, consider setting aside some funds to boost your content with paid ads. Use Google ads, Twitter ads, or Facebook ads to display advertisements on popular websites or posts to gain brand awareness.
But, don’t worry about spending too much on advertising media as you can choose a pay per click advertising system.
Every advertising platform has a different rate per click, but it generally ranges from £1 to £1.5 per click. You can also set a budget limit so the advertising platform can stop charging you once it is reached.
Ways to Fund Your Online Store
After knowing the financial costs of starting an online store, let’s find out how you can fund it.
1. Self-Fund
Self-funding an online enterprise means the business owner provides all the startup costs from personal funding, assets, or loans. The most common way to self-fund a business is by saving up money to cover business expenses.
If you choose to save money to build a business, make sure that you completely detach personal and business finances to keep operations streamlined and separate.
2. Aim for Venture Capital
This type of funding means you receive a capital investment from another party. Usually, venture capital investors look for small business owners that they believe will develop a valuable product in the long run.
Venture capitalists can be individual investors, investment banks, or financial institutions. Sometimes, they also offer business advice and managerial expertise.
3. Apply for a Loan
Another way to fund your business is by applying for a bank loan for enterprises. You have to fulfill the requirements before qualifying for the loan.
Generally, the bank will do a background check about you and your debt history, if any. Then, you need to provide a detailed business plan and update it regularly as your online business runs and grows. Additionally, you’ll need to report your annual income and list some collateral.
A bank loan can provide you with money upfront, but make sure that you can pay back the debt. Also, note that the application process for a bank loan might be time-consuming.
Conclusion
Building an online store can be a promising way to make money online. However, the cost of starting an online business involves financial and non-financial aspects.
Here’s a short recap of the essential costs to build an online business:
- Web and domain name hosting.
- Website building costs.
- Production, marketing, and sale costs.
You can use personal savings to fund your business, look for a capital venture investor, or apply for an enterprise bank loan. Note that online businesses require relatively lower costs than a physical store, so a bank loan might not be necessary.
Keep in mind to weigh each funding source’s strong and weak points and choose the most suitable one for you. We wish you good luck with your online business-building journey!
