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Starting Budget

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The start-up costs are first of all dependent on the software you choose. When you take a SaaS subscription, you have monthly fees starting at 10 USD/GBP. No start-up fees involved!

When you compare the various SaaS providers for the costs, also look what is included (integrated links to comparison website, affiliate networks, payment providers), because this can save you a lot of money as well.

For the more serious providers such as SEOshop or Shopify you have to reserve about 50 USD/30 GBP per month. This gives you an e-commerce solution which allows you to start building a very serious business.

When you choose for a Magento online store you will have the monthly fees for hosting. When you let a company install a standard Magento for you this costs normally about 5500 USD/3500 GBP. Depending on the extra modifications (plug-ins, links, design modifications) you should add to this figure.

Monthly costs of an online store

Besides the “start-up costs” you have monthly costs as well. Below an overview. We will take 75 orders per month with a gross profit of 20 EUR (28 USD/17 GBP) per order for this example. You have a stock of 50 products.

Monthly base fees
Paymentprovider ICEPAY € 39,95
Telephone answering service ContactCare € 19,50
E-Commerce Software SEOshop € 49,00
Fulfilment TNT Free
Monthly variable fees (dependent on volume)
Paymentprovider € 33,75
Telephone answering service 30 calls € 43,50
Fulfilment  TNT € 225,00
Shipping costs  TNT € 393,75
€798,45

In short it costs 798.45 EUR  (currently 1110 USD/660 GBP) to get freedom. You earn 1500 EUR on basis of 75 orders minus 798.45 is 701.55 profit!

I entered only 75 orders per month in this matrix on purpose. This is just 2 orders per day (just slightly more ;-)). I think that every e-commerce entrepreneur can score a minimum of 2 orders per day!

Don’t forget that you will earn those 700 EUR (970 USD/580 GBP) per month also when you are on holiday for a month. If you don’t arrange the fulfilment, telephone answering service and the like you need to close your online store during holidays!

Opportunity Costs

Opportunity Costs are costs you get because you took a decision. Does this make sense to you? Let me explain.

When you start an online store you will have to invest time and energy. You could have invested this time and energy in your current job as well.

If you’d have a salary of 50.000 USD / 30.000 GBP and you decide to work one day less per week. You will use this day to completely focus on your online store. This day costs you 10.000 USD/6.000 GPB per year. It will of course take some time before you will earn that money back with your online store. An online store needs, besides a financial investment, a time investment.

These Opportunity Costs are so important because there are always other and new options possible. The possibilities are often hidden and only pay out afterwards.

You never know for sure whether you should invest your time in a salaried job or in your online store. When you take the decision to invest your time in your online store you never know whether further investments of time will pay off each time – you have so many choices available; invest it in marketing, optimization of the online store, etc… Each choice has its consequences and opportunity costs.

When you have a financially sound plan an online store has more to offer you than your current job. Both in terms of money and (perhap even more important) in terms of freedom!

opportunity-cost-webshop

Bootstrapping

Bootstrapping is the art of building up a business without external financing, such as a loan from a bank or private investors.

Don’t let them fool you that for starting your business you need tons of capital. Especially when starting an e-commerce business that’s definetely not required. By investing your own money only and reinvesting the profit directly you can build up a very successful e-commerce business! I run my online stores fully by self-financing and I will not change this for sure.

By financing everything yourself (bootstrapping) you have 100% control over your company and you don’t have to account for your actions to anyone but yourself. The disadvantage is that you sometimes can’t grow as quickly. By attracting an external financier you can invest much more in stock, or staff, for example.

Don’t let stories in the media withhold you from from bootstrapping: big online stores such as Zalando or Zappos have wholly other aims than you probably have. Making a profit is not important for them in the first few years and they throw millions at acquiring a bigger share of the market. When they have conquered the market they start exploiting their market share and earning a lot of money. It is a business strategy but not a business strategy for the small e-commerce entrepreneur. Think of your freedom!

Try first to pay everything yourself and then look for external financing.

bootstrapping-voor-webshop

Your own money and credit cards

I repeat, first spend you own money before you attract an external investor!

When you don’t have enough money you can use a credit card. Payments with your credit card will be only put on your due balance at the end of the month and is often debited only one or two weeks later. If you plan it right you will have more than a month to earn the money back.

As long as you pay your credit card debt each month you don’t pay interest. If you don’t have enough money in your bank account you will pay quite a big interest over the credit card debt. This is usually about 15 %, but will differ per bank and country.

Do pay attention though: every once in a while (accidentally) paying 15% interest isn’t that much of a problem. But if you have this on a monthly basis you will have a problem! With a standard 15 % interest it is impossible to create a viable e-commerce business. So if you still don’t have enough money, do look for other possibilities!

creditcard-gebruiken-voor-je-bedrijf

What does investing in stock cost?

We already published an interesting post on dropshipping, or starting an online store without stock. Because we are not going to repeat everything here, have a look if you are interested:

Starting your online store with drop shipping

Running an online store without stock? It is possible with drop shipping. This business concept is growing rapidly across the globle. More and more suppliers now offer this great possibility.

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