Launching an online business may seem like an easy way to make profits. However, while e-commerce can open many doors for entrepreneurs, it doesn't come without its costs. Aside from the major overheads like inventory and managing returns, less apparent expenses can also quickly mount over time. This article addresses some of these hidden costs so you can keep future shocks to a minimum.
Compared to a brick and mortar store, running an online business is relatively economical. Not only do you save on expenses like rent, utilities and payroll, your operational costs are also likely to be much lower than your offline competitors. However, while less capital is required to maintain e-commerce stores, business owners shouldn’t become complacent. Online trading can still set you back, and not only because of obvious costs like inventory, delivery and returns.
From network security to liability insurance, there are several unforeseen expenses e-commerce entrepreneurs need to be aware of before it's too late. By noting these expenditures early, business owners can manage their cash flow and avoid nasty surprises down the road. What's more, understanding the costs of e-commerce trading ahead of time gives them longer to shop around for the most cost-effective options.
If you're curious about what these hidden costs may be and how much they could impact your business, read on to find out more.
1. SOFTWARE UPDATES
Software is the backend of every e-commerce business. Not only does it allow business owners to create a functioning website, but it also facilitates every step of the selling process, from payment to fulfilment. To improve the user experience for their customers, business owners need to regularly update their software to make it as effective and secure as possible. While many of these software updates are free, sometimes you may need to pay for updates to keep your site up to date.
A common example of software that will require regular updates is the e-commerce shopping cart. Shopping carts make the buying process seamless by allowing customers to add, remove and manage products and services from your site. When shopping cart software is working effectively, it improves both the consumer experience and the company's bottom line. This is why business owners need to keep it up to date.
Depending on which software you need to update and the supplier you use, the price of software maintenance can vary. To keep on top of these payments, business owners should consider the cost and consistency of these upgrades before moving forward with a supplier. This will keep unwelcome surprises to a minimum.
2. E-COMMERCE INSURANCE
For small businesses, the only certain thing is uncertainty. This is especially the case for online businesses. From manufacturing defects to cyber attacks, no business owner can be certain what tomorrow holds. While there's no way to prevent these events from occurring, e-commerce insurance allows you to mitigate these common risks so they will have less of an impact on your company.
When it comes to securing e-commerce insurance, there are many different types available. However, three of the most common options are public liability insurance, general liability insurance and product liability insurance.
- Public liability insurance Public liability insurance exclusively covers public injuries and property loss on your business premises. In the case of e-commerce businesses, this would likely cover incidents that occurred on the factory floor or in fulfilment centres. The price of this cover varies, but it can be secured for as little as £5 per month.
- General liability insurance Unlike public liability insurance, this type of insurance covers a range of claims from public and staff injuries to property damage. For e-commerce businesses looking to cover all bases, this type of insurance may be suitable for you. However, this type of insurance often comes at a higher premium due to its scope.
- Product liability insurance As the name suggests, product liability insurance covers any damage created by a product your company manufactures. For example, it could cover incidents that emerge from manufacturing defects, design flaws or inaccurate warnings. Since products lie at the heart of most e-commerce ventures, this insurance is often necessary. Businesses can obtain this insurance for around £5 a month.
3. SSL CERTIFICATES
Secure Sockets Layer (SSL) is a protocol that authenticates the identity of a website. If a website has an SSL certificate, any information passing through it will remain encrypted and secure. By keeping this connection secure, cybercriminals and untrustworthy third parties will be blocked from accessing and modifying sensitive information. Not only will this protect the customer and your business by keeping important information classified, but it will also make it much more likely for consumers to trust your site. This is why every e-commerce business needs an SSL certificate before going public.
When sourcing an SSL certificate, there are three main types available: Extended Validation (EV SSL), Organisation Validated (OV SSL) and Domain Validated (DV SSL). All three certificates offer the same level of encryption. However, websites need to go through different vetting and verification processes to obtain each one. Therefore, it’s important to do your research before deciding which type of SSL will be the best for your e-commerce site.
Encrypting your website’s information doesn’t have to cost the world. Businesses can secure an SSL certificate for as little as £5 a year. However, most e-commerce sites end up paying around £50 annually. And if you run a large business if you’re serious about taking your security to the next level, prices could be considerably higher.
4. CYBERSECURITY
When it comes to shopping online, customers value security over anything else. Online business owners need to take this matter seriously if they want trust to remain high. Unfortunately, when it comes to safeguarding your e-commerce site from cyber threats, purchasing an SSL certificate isn’t always enough. In fact, to keep the risks of cybercrime as low as possible, online business owners should invest in a multi-pronged approach to protect their business on all fronts. While this will look different for every organisation, we believe that e-commerce sites should rely on a mixture of cybersecurity products and services.
Cybersecurity products refer to physical devices, and software companies and individuals can use to keep their data protected. Examples of cybersecurity products include two-factor authentication, email protection, firewalls, antivirus software and endpoint security. Cyber security services are the professional services that help your business ward off threats. They include monitoring services, penetration testing, vulnerability assessments and compliance auditing, to name a few.
The cost of keeping your site cyber-secure can vary. For instance, if your business is large, has an extensive web presence, or handles sensitive data, it may be sensible to invest in more products and services. Alternatively, if you’re e-commerce isn’t handling classified data, fortifying your security can be much more affordable.
5. WEBSITE MAINTENANCE
If you’re looking to launch a professional e-commerce website, you can expect to pay anything from £200 to £10,000. Unfortunately, the expenses don’t stop there. E-commerce websites feature many moving parts. So, to make sure these parts remain working, business owners need to fork out regularly to maintain them.
Depending on the function of your company and how you choose to maintain your website, these maintenance costs will differ. But here is a rough outline of some common expenses to look out for.
- Domain name Unfortunately, businesses aren’t able to purchase domain names outright. Instead, businesses need to continuously renew the registration after their specific term lapses. Depending on the popularity of your chosen name, this renewal can cost anywhere between £1- £20 per year.
- Web hosting If you want to launch an online site, you need to "rent out" webspace from a hosting provider. The price depends on the web hosting provider and the type of plan, but costs rarely exceed £75 a month.
- Website optimisation A well-designed website keeps customers on your site; this is why user experience (UX) is a priority. Depending on the service you choose to use, and how regularly you decide to use it, website optimisation services can cost anything from £50 –£10,000 a year.
6. SHIPPING AND FULFILMENT
Getting customers to buy your product is only half the battle. After a purchase has been made, your business needs to ensure the product is delivered quickly and safely to the buyer. While this is less of a hidden cost and more of an upfront expense, packing up goods and sending them out for delivery is a necessary expenditure that can add up over time. And if business owners don't prepare for these costs ahead of time, they could encounter serious cash flow challenges in the long run.
Whether your business relies on third-party fulfilment companies or sends out goods via the local post office, it's wise to calculate these costs ahead of time to avoid future fallout. As a general rule of thumb, shipping and fulfilment often comprise around 20% of a company's net sales. However, since each e-commerce company is unique, it's important to factor in your packages' average size and shipping and fulfilment method before arriving at a figure.
SOLVE YOUR CASH FLOW ISSUES WITH KRIYA
E-commerce allows entrepreneurial businesses to sell products and services relatively inexpensively. However, if business owners aren't aware of the full costs of selling online, their venture's survival could hang in the balance. By taking note of these six hidden costs, we hope your e-commerce business can avoid encountering unpleasant surprises down the road.
If your business doesn’t have the capital on hand to deal with these hidden costs, MarketFinanceKriya might be able to help. We offer a range of flexible funding solutions that have been designed to help you remove your cash flow barriers. For more information on our solutions, you can visit our site here.
FREQUENTLY ASKED QUESTIONS (FAQS)
What are the hidden costs for e-commerce businesses? Compared to running a physical store, maintaining an online business can be extremely cost-effective. However, aside from the well-known expenses, some hidden costs include updating company software, paying for insurance, purchasing SSL certificates, maintaining the website and shipping the products to consumers.
What are the main types of e-commerce insurance? When it comes to securing e-commerce insurance, there are many different types available. However, three of the most common options are public liability insurance, general liability insurance and product liability insurance.
What are SSL certificates? Secure Sockets Layer (SSL) is a protocol that authenticates the identity of a website. If a website has an SSL certificate, any information passing through it will remain encrypted and secure. By keeping this connection secure, cybercriminals and untrustworthy third parties will be blocked from accessing and modifying sensitive information.
What are the main types of SSL certificates? When it comes to sourcing an SSL certificate, there are three main types available: Extended Validation (EV SSL), Organisation Validated (OV SSL) and Domain Validated (DV SSL). All three certificates offer the same level of encryption. However, websites need to go through different vetting and verification processes to obtain each one.
How much do shipping and fulfilment cost e-commerce businesses? As a general rule of thumb, shipping and fulfilment often comprise around 20% of a company's net sales. However, since each e-commerce company is unique, it's important to factor in your packages' average size and shipping and fulfilment method before arriving at a figure.
