You can start a company online with an internet connection, computer, and a few desirable products or services. But e-commerce businesses incur expenses just like those in other industries, and some costs sneak up on you or go unnoticed altogether. As a result, your product pricing and budget will be less accurate.
These missing figures may skew financial forecasts and affect decisions about operating and marketing spend. Track these five expenses to avoid unexpected bills and understand the true cost of doing business online.
Customer acquisition and retention costs
Your customer acquisition cost (CAC) is the total price of your marketing divided by the total number of new purchases. CAC is an important key performance indicator (KPI) and reflects money spent on advertising, sales and marketing staff or contractors, and technology. You should also factor in how much time you spend actively wooing new clients.
According to Manifest’s 2019 Small Business Advertising survey, 37% of respondents “spend less than $10,000 on advertising,” and 20% spend $10,000 to $50,000 annually. Additionally, it typically costs more to get new customers than to retain your existing ones. But you may have to budget for loyalty programs, valued customer discounts, and time allocated to relationship-building endeavors.
[Read more: What Is ‘Customer Stickiness’ and How Can it Benefit Your Business?]
Shipping and returns
No doubt you’ve already looked at the costs of shipping items and researched the best (and cheapest) ways to get purchases to customers. But don’t forget about hidden costs, such as packaging, printing invoices, and handling customer refunds. According to the National Retail Federation (NRF), “online returns in 2021 [were] in line with recent years at an average of 20.8%.”
The costs of returns include the administrative and physical labor needed to process the return, issue a refund, and prepare the returned item for sale or, if it’s damaged, a write-off. Since the NRF reported that more than 10% of online returns are “deemed fraudulent,” it’s also essential to review your methods to prevent losing money to scams.
Do you set aside funds for anti-virus programs, password managers, and firewalls? According to the National Security Alliance’s 2021 Business Aftermath Report, “58% of small businesses have been impacted by at least one security breach, data breach, or both.”
The cost of professional services
Professional services range from tax preparation to tech support. While you may budget for some of these expenses, there’s a good chance one or more will catch you off-guard. For example, your in-house staff may handle the process of adding new products to your e-commerce store seasonally.
But what happens when your key team member has an unexpected, extended absence while you need 20 new product descriptions and photos? Get ahead of potential problems by estimating your costs for various services and identifying possible reasons you’d need them. Set aside a reasonable amount to afford to hire a freelancer or ask for legal advice when you need it.
Types of professional services include:
- Bookkeeping.
- Tax preparation.
- Website technical support.
- Legal advice.
- Virtual assistant.
Transaction and referral fees
Credit card processing can take a bite out of your revenue, and it varies widely by platform. If you build an e-commerce Square website, you have to use Square as your credit card payment processor. You’ll pay 2.9% plus $0.30 per online transaction or $3.20 for each $100 purchase.
However, WooCommerce users can choose from several payment gateways, such as Eway, which offers 1.9% plus $0.25 per transaction or $2.15 per $100 purchase. Switching to a less expensive processor can save you thousands of dollars per year.
Don’t forget to read the fine print when selling on third-party platforms or marketplaces. You’ll pay Etsy $0.20 plus 6.5% per transaction, including the price of the item, shipping charge, and gift wrapping fee. If you earn under $10,000 per year and don’t opt out of the offsite ad program, you could pay an extra 15% when a shopper clicks on an ad and makes a purchase.
[Read more: How to Choose the Best E-Commerce Platform for Your Business]
Cybersecurity expenses
Do you set aside funds for anti-virus programs, password managers, and firewalls? According to the National Security Alliance’s 2021 Business Aftermath Report, “58% of small businesses have been impacted by at least one security breach, data breach, or both.” Of those that reported costs related to cyber incidents, 35% went into debt to cover the expenses, 34% used cash reserves, and 15% reduced staffing levels. Be proactive with free resources from CyberSecure My Business.
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