How Much does it Cost to Build an E-Commerce Startup?
How Much does it Cost to Build an E-Commerce Startup?
The cost of launching an e-commerce startup can be divided into two components: standard costs such as hosting, equipment, website development, marketing, etc. and costs of the implementation of a key business idea, the amount of these costs is hard to count beforehand. We will tell about the first component using specific numbers and give examples of the starting budgets of e-commerce companies.
In this article, we’ll categorize all costs, which you’ll have to bear when launching your new business as standard ones regardless of the chosen field of activities, scope and complexity of the project.
You’ll need to obtain various permits and licenses to open a business. Depending on the location and field of activities, it will take from one day to several weeks. You’ll also have to pay fees of $1 to $1000. Obtainment of licenses will require time and money as well.
Time and cost of business registration broken down by countries:
The cost of an available domain depends on the domain zone. Usually, it’s $10 to $50 per year. There are options that are more expensive; for instance, the name registration in such domain zones as .auto, .car, and .cars costs several thousand dollars per year.
Hosting is a fee you pay to host your website on a hosting provider’s server. Without hosting, your website won’t be connected to the internet and can’t be visited. There are two kinds of hosting: shared hosting and private hosting (aka dedicated server). In the case of virtual hosting, the files of your e-commerce website are stored on the shared drive, which will be used by other websites as well. The cost is $1 to $50 per month. The second option is when you rent a separate server. It’s usually about $200 per month.
Virtual hosting is fine for a new project up until around 100 000 visits per month. Rent of a private server will be necessary when launching websites with more visits; for instance, large marketplaces like Flippa or popular information projects. Besides, private hosting should be used by startups with serious backend; for example, SaaS projects. Usually, they pay several hundred dollars per month for hosting.
If you’re planning to launch an e-commerce startup in the field of production, retail or wholesale trades, you will most likely need a certain amount of materials inventory for the production and / or goods for sale. The cost of these purchases varies greatly depending on the niche, available storage units, and sales forecast right after the launch.
Usually, people buy goods and / or materials for $500-$1000 — this amount is enough to test the concept, and thereat it isn’t big enough to go bankrupt in the case of possible failure. The launch of startups in the field of downshifting or startups that don’t imply selling physical goods doesn’t require money for the procurement of inventory.
All e-commerce startups imply the launch of their website and / or mobile app for sales, provision of online services, presentation of information about the company, feedback, etc. The cost of their development depends on the goals and complexity of a business idea and on the person, who will take this over.
For example, Trevor Chapman spent $200 on the launch of the LDSman marketplace: a domain purchase — $3 per year, a Shopify account — $14 per month, a Facebook advertising budget — $100. After day 92, when the site brought in that first $1 million in sales, Chapman received a buyout offer in the ballpark of $3 million.
Another example is the launch of Rejoiner (a cloud solution for online marketing) cost its creators $0 because they did everything by themselves in their spare time from the main job. If they had outsourced the product development, they would have had to invest $100 thous. in hiring two developers and a product manager at $150 per hour for 40 hours per month, times 6 months.
This is how much the launch of a similar e-commerce startup would cost now:
Apart from the costs of the development of an app or a website, almost all e-commerce projects will also bear the costs, related to monetary transaction processing. It’s usually 2-10% of the revenue that financial service providers receive: banks, PayPal, Stripe, Amazon Pay, and others. If you accept payments in such cryptocurrencies as XRP or Stellar, then the transaction cost can be reduced to thousandths of a cent — $0.000000825 for the Stellar coin at the rate for November 6, 2020.
The article «How to choose and integrate a payment gateway» describes what payment solution providers can be like and how to choose them. Here is the comparison of the most popular payment gateways in the USA and Europe:
Depending on the field of activities, the marketing policy of an e-commerce startup can include both physical advertisement and online promotion. Physical advertisement includes banners, business cards, and advertisement in printed editions. Online promotion consists of contextual advertising, emailing, SEO, SMM, and various PR exercises.
Courtney Barbee, Chief Operating Officer at The Bookkeeper, recommends keeping expenses on marketing under 10% of your budget if the market allows. However, even this amount isn’t always necessary. For example, when Nathan Doctor had launched Qualified, he didn't spend a single cent on advertising. The project team created their MVP over a single weekend and had their first customer right after finishing work on it. Herewith the total cost of the launch of Qualified e-commerce startup was only $1000.
Here’s how much the startups spend on marketing broken down by channels:
Small startups usually consist of one or several development engineers and a product manager. When MVP is ready, a sales manager joins them. The staff in major projects consists of:
Case №2: RVinspiration — $95. A small niche blog about motor homes, where the author is sharing her life experience and selling books and courses on decoration and launch of e-commerce blogs. The cost of this e-commerce startup was $15 per month for hosting, about $60 one time for a WordPress site theme, and about $20 per year for a domain name.
Case №3: Easy Mode Media — $1260. The cost of the launch of this SEO marketing agency was: a domain name — $15, hosting — $220 for two years, a premium WordPress theme — $100, Power Suite Enterprise (SEO software) — $620, QuickBooks — $5 per month, business registration — $250, business name registration — $50.
Case №4: Airbnb — $30 thous. A world-famous platform for listing and renting local homes was created by Brian Chesky and Joe Gebbia in 2008 using money they have raised by selling 500 election-themed boxes of cereal. Chesky and Gebbia created their design and sold them at convention parties for $40 a box. They have raised $30 thous. this way and created the first version of the site, which was called «Airbed & Breakfast» then.
Case №5: Hotjar — €150 thous. The cost of the launch of this e-commerce startup was about €150 thous. in 2014. Most of the money was used for the promotion and to pay the developers. Here’s how the expenses of Hotjar startup were divided according to the company’s CEO – David Darmanin:
#1. Standard costs of the launch of an e-commerce startup
#2. Company registration: $200-800
#3. Domain name: $1 to $3000 per year
#4. Purchase of hosting: $5 to $10000 per month
#5. Inventory: $0 to $1000 to start the sales
#6. Website/App: $0 to $100 thous. at the start
#7. Payment processing: 2-5% of revenue
#8. Marketing: 5% to 10% of the budget
#9. Payroll: on average, 50% of the budget
#10. Initial budgets of e-commerce startups — 5 real cases