5 Hidden Costs Related to E-commerce Businesses

E-commerce, or electronic commerce, is trading goods and services online. It has become increasingly popular over the last decade as internet speeds have gotten faster and more people have access to the internet. The importance of e-commerce can be seen in the number of people who can now shop online from the comfort of their homes. This type of commerce has also allowed businesses to reach a wider audience, as well as create new opportunities for entrepreneurs.

Despite the many advantages of e-commerce, there are also some hidden costs that can be associated with this type of business. For example, setting up an e-commerce website can be expensive, and you may also need to pay for hosting, domain registration, and SSL certificates. Secondly, there are transaction fees charged by credit card companies for each online purchase. These fees can add up quickly if you do a lot of online business. Finally, there is the risk of fraud. Because you cannot see or touch the product you are buying online, there is a greater risk that it could be defective or not as described. All these costs can add up and affect your e-commerce accounting, so it is important to be aware of them before starting your e-commerce business. In this blog, we will uncover 5 hidden costs related to e-commerce businesses. But before diving deeper into our topic, let us learn a bit more about e-commerce in general.

What is E-commerce?

E-commerce is the buying and selling of goods and services or the transmitting of funds or data over the internet. The term “e-commerce” was coined in the early 1990s when merchants first began conducting transactions online. These business transactions occur either as business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), or consumer-to-business (C2B).

Today, e-commerce is still growing, evolving, and becoming more accessible than ever, and so is the need for e-commerce accounting and e-commerce accountants. However, if you are an e-commerce business owner and still unaware of the countless benefits provided by e-commerce accountants, you can check out our blog on “Top 8 things that an e-commerce accountant can do for you”.

Though starting an online store can be cheaper than opening a brick-and-mortar storefront, there are still some significant costs to consider before taking the plunge into e-commerce. So, if you are curious to discover the hidden costs associated with running an e-commerce business, let us get started.

1. Technology costs– One of the most significant costs associated with starting an e-commerce business is the cost of technology. In order to build a successful online store, you will need to invest in a good e-commerce platform and ensure your website is optimised for search engine ranking. Being an e-commerce business owner, you also need to invest in good e-commerce accounting practices as well as additional software or plugins to help run your e-commerce organisation effectively. Here are some of the main technology costs that you will encounter in the course of your business.
   • Web hosting fees– Whether you opt for a shared, virtual private server (VPS), or dedicated server, you will need to pay web hosting fees. Depending on your business needs, these can range from a few pounds per month to hundreds of pounds.
   • Domain name registration– The basic cost for a new domain name is approximately £100 plus VAT for the first 2 years; after that, the renewal fee every 2 years is £50 plus VAT. As an e-commerce business owner, you may need to factor in an additional charge from your registrar, dependent upon the service offered.
   • Shopping cart software– If you want to sell products online, you will need to invest in shopping cart software. There are many options available, both free and paid, so shop around to find the best solution for your e-commerce business. Depending on the features and functionality you need, prices can range from a few pounds per month to several hundred pounds.
   • SSL certificate- If you want customers to feel confident that their personal and financial data is safe when shopping on your website, you will need to purchase an SSL certificate. An SSL (Secure sockets layer) certificate verifies the identity of a website and allows for the secure transmission of data using encryption.
2. Shipping and returns– In e-commerce businesses, shipping can be a very expensive proposition, especially if you are selling physical goods. When pricing your products, you will need to factor in the cost of packaging, shipping labels, and postage. Moreover, even returns can be costly, as you will need to pay for return shipping and often give the customer a refund as well. To avoid these high costs, it is better to consider using a fulfilment service like Amazon Fulfilment. These companies will handle all the logistics for you, including shipping and returns, so you can focus on growing and expanding your e-commerce business.
3. Taxes and fees– Another hidden cost include the various taxes and fees associated with starting and running an e-commerce business. Federal, state, and local governments collect taxes on businesses, which can vary depending on the type of business, location, and products or services sold. Depending on your product type, you may need to collect VAT from your customers. As a business owner, you may also have to pay fees for things like licenses and permits, which can vary depending on the type of business and location. These costs can add up quickly, so it is important to be aware of them when budgeting for your e-commerce business. The best way to find out what taxes and fees apply to your business is to consult an e-commerce accountant or hire online accounting services for your e-commerce business. Such experts can help you understand your specific business’s requirements and ensure you comply with all the applicable laws.
4. Marketing costs– Another biggest expense you will incur as an e-commerce business owner is marketing costs. Even if you have a great product or service, you will need to spend money on marketing and advertising to get people to your website. In order to keep your marketing costs under control, it is important to track your progress and results carefully. This way, you can figure out which techniques are working well and adjust your budget accordingly. With careful planning and execution, you can minimise your marketing costs and maximise your chances of success with your e-commerce business.
5. Customer service costs– Customer service is one of the most essential and often overlooked aspects of starting an e-commerce business. Good customer service can distinguish between a successful business and a failed one. There are a few ways to provide customer service for your e-commerce business. The most common is through email or live chat support. You can also provide support over the phone, but this can be more expensive. However, whichever method you choose, you will need to factor in the cost of customer service when calculating the start-up costs of your e-commerce business. For example, you may need to pay for customer service software and staff to answer questions or resolve customer issues. You may also need to cover the cost of returns, refunds, or warranty services. Ultimately, the cost of customer service depends on the complexity and size of your e-commerce business.

Setting up an e-commerce business can be a lucrative and rewarding venture. However, what many aspiring entrepreneurs do not anticipate are the hidden costs that come along with running an online store. So far, we have highlighted the 5 hidden costs associated with running an e-commerce business. Now, let us have a glimpse at some tips to minimise such costs altogether.

• Use low-cost or free hosting options. Many hosts offer affordable plans for small e-commerce businesses. As an e-commerce business owner, you must conduct your research and shop around to find the best option for you. When choosing hosting for your e-commerce business, you should consider the best.
• While starting off with your e-commerce business, you can make use of open-source software and tools whenever possible. Instead of spending money on pricey software, it is cost-effective to look for free or low-cost alternatives that will do the job just as well. Even in accounting and bookkeeping, you can consider online accounting services as a reliable and cost-effective alternative.
• Another way is to avoid unnecessary extras and bells & whistles. When first starting, it is best to keep things simple and focused on the core essentials. As a business owner, you know that you can always add more features and functionality as your e-commerce business grows and expands.
• Using cost-effective marketing channels is another method to minimise costs. You can market your e-commerce business without breaking the bank. Methods like social media, email marketing, and search engine optimisation are all great options that can be very effective but will not cost much money.

Final Words

In conclusion, starting an e-commerce business is a great way to make money. Still, it is equally important to take into account various expenses and costs, including hidden costs. From legal fees and taxes to marketing and website hosting expenses, these extra costs can add up quickly. Knowing these up-front costs can help you plan ahead and budget correctly for any additional spending that may come along during your journey as an entrepreneur. It is also wise to research before making any large financial investments or consulting an e-commerce accountant. With this knowledge, you will have a greater chance of success when starting or expanding your e-commerce business! If you are ready to start an e-commerce business, remember that planning ahead can save you from unexpected financial hits down the road!