Setting up a brand new e-commerce business is no easy feat. There are many factors to consider when initially starting up, such as products, staff and your website itself.
However, for those new to the industry, there are many hidden costs that are typically left out of business plans.
So, rather than leaving you to find out the hard way, as most businesses currently do, we thought we would let you in on the most common hidden costs that you should know about before starting an e-commerce business.
Once you’ve bought your stock, you’re going to need to pay to look after it until it’s sold. Stock takes up space and that costs money. Do you have enough space for your stock and have you considered the cost of staff in the warehouse to organise it?
It’s important to also consider the costs of utility bills, insurance and taxes, all of which can add up to a rather considerable amount. The least considered cost of stockholding though is normally the cost of financing it.
If you’ve borrowed from the bank to buy stock, there’s interest to pay until it’s sold and your debt is cleared. Make sure you budget for all of these things.
In a similar vein to the first point, the value of stock doesn’t always go up from year to year. For example, if you bought a lot of selfie-sticks in 2014, any left in your warehouse would have been worth much more then than they are now as the craze has passed.
The difference in value is a hidden cost your business would need to absorb. Buying too much stock that you can’t move can end up destroying all your profit.
3. PCI compliance costs
If your site accepts card payments of any kind, you’ll need to ensure that you are Payment Card Industry (PCI) compliant.
The cost of this can vary hugely and is dependent upon factors such as how you take payments, the number of transactions you process per year and the goods that you sell.
4. Paid for marketing
Having an active social media presence is a great start to promoting your business, but it won’t necessarily bring you the traffic and sales that paid marketing will. You may find that outsourcing your marketing to a team of dedicated experts is far more cost-effective.
5. Customer services
Online sales may be ever-growing, but, according to HubSpot, one in every three sales are still made over the phone, which means your company will need the time and resource to take these calls and action them.
You will also need customer service teams for all pre and post sale enquiries, whether that be via email, on the phone or on social media.
6. Customer returns
Without the ability to try before you buy, it’s inevitable customers will return products in exchange for a refund. It’s also becoming increasingly popular for customers to buy multiple sizes and styles so they can make their decision when they arrive.
For example, a customer might buy two pairs of shoes and want to try both on but is only ever committed to buying a single pair and will have always planned to return one pair. This cost needs to be built in from the very beginning, factoring in processing times, postage costs, customer service time, etc.
7. Brand ambassadors and bloggers
If you’re selling a product, one of the best ways to boost brand awareness and improve sales is by working with celebrities, influencers and bloggers for promotion purposes.
Not only can these relationships be difficult to arrange and secure, but they can also be costly, too. Make sure to build the cost of this into your budget to allow yourself scope to promote your products effectively.
8. Site updates
Popular e-commerce websites such as Magento have regular security updates with which you need to patch your site to ensure it isn’t hacked and your customer data stolen.
Installing these updates takes development time and will cost you something. You should also consider that your site will probably need to be refreshed every 3-4 years to make sure you continue to provide an up-to-date experience for your customers.
9. Bug Fixes
On top of site updates, you’ll also need a team on-hand to fix the odd glitch that will, inevitably, occur from time to time. From security updates and problems with search functionality to bug fixes, the faster they are fixed, the better.
So, now you know all of the possible hidden costs of starting and running an e-commerce business, you can factor them into your business plan from the very start, ensuring that no nasty surprises leave you in an unwanted predicament.
About the author
Mindy Gofton is the head of Marketing Strategy and Innovation at I-COM, an award-winning online marketing agency.