Opening an Online Store - Part 1 - Startup Costs

As an internet consultant working with small and micro businesses, I get to see a lot of websites and online businesses that are in their infancy. The most common question I get is “I’ve bought or built this great online store but no-one is buying anything. What do I do now?”

Unfortunately, in lots of cases the question comes too late to avoid either significant losses (time or money) or much frustration. What I find is that many new online store owners think that if they build a great website, or pay to use someone else’s they will magically begin to make money. In the next few posts we’ll take a look at some of the things you should consider before investing in an online business. We’ll start by looking at profitability then consider the viability of the business and finally we’ll explore traffic building considerations.

While many of the barriers to entry of a traditional retail store are removed in the internet space, in the end an online business is still just that, a business. So, fortunately, or unfortunately, many of the business principals that apply in the real world absolutely apply online. Let’s look at one of business considerations that anyone considering an online store should look at BEFORE they invest: profitability.

Ultimately, most new or prospective online store owners have a primary, if not single, goal: Make a net profit. Net profit is basically defined as total revenue (amount customers pay you) minus expenses (whatever it costs you, in resources, time and money, to deliver your services or products). As early as elementary school, we all learned enough business math to know that if you have less revenue than you have expenses you end up with a negative (less than zero) profit. In the business world that is called a net loss. While there are certainly points in a business’s lifecycle where a net loss may be expected or even planned, a business that consistently losses money is not a business. Rather, it is a failure. So, before getting started, you need to make sure you understand what your expenses will be and how much revenue you’ll need to actually create a profit. The first thing to understand is “startup costs.” These are the expenses incurred even before the business opens its virtual doors.

Startup Costs.
You may think that this is not a consideration because everything on the internet is free, Right? Not so fast. There are startup costs for any online business. Some are fixed, tangible expenses, while others are less tangible but just as real. In either case, you aren’t really profitable until you earn enough revenue to cover these types of costs.

• Domain registration.
• Web hosting setup fees.
• Website design. Professional services can be very expensive.
• Inventory. Does your business or service require an in-house inventory before you can begin selling?
• Owner time investment. This is often overlooked, but you have to consider this. The time you spend starting an online business is time you can’t spend in other places. For instance, you may be giving up overtime at your ‘day’ job to spend time on the online store. You’re probably losing time with your family. Some of these may not work very well in a spreadsheet, you should at least account for them as startup costs.
• Any other resources you need to spend to get your online business off the ground.

These are just some of the startup costs you should consider. As you plan your online store think about any ‘out of pocket’ things you will need for your unique business. As we said earlier, net profit is the revenue you make minus the costs you incur. Before you business can become truly profitable you have to generate more revenue than your startup costs. As a start up business you’ll only be able to make an educated guess as to what your revenue will be, but you should be able to pretty accurately determine your startup expenses.

Up next we’ll look at additional expenses you have to consider once your online store is open for business.