The Unexpected Costs of Starting an E-Commerce Business
Written by Ethan Rotberg
Monday, December 20th, 2021
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Are you thinking of starting an e-commerce business, either on the side or as a new career? You might be dreaming of trying something new, but are you prepared for the unexpected costs?
Last spring, CPA Sara Feldstein was working at an accounting firm in Toronto. But the combination of increased work demands during the pandemic, tax season and working from home with two small children took a toll on her mental health. Months after resigning, she launched Barumba Play, an e-commerce company selling play couches for kids.
Feldstein's accounting experience gave her unique insights into the costs of running a business.
“I've done people's financial statements for the past 10 years," she says. “So I already know a lot about these different costs."
As prepared as she was, there were still some surprises. She shares some unexpected expenses and a few ways she's managed to keep costs down.
1. Shipping costs
For many e-commerce businesses, shipping can be one of the most unpredictable expenses, especially since shipping costs have spiked during the pandemic.
“In my projections, I figured I'd have a lot more Toronto and local sales. But I've been getting so many sales from the east coast, west coast, even Yukon. So I had to bump up my shipping calculation."
2. The website
Feldstein hired a developer to create a website as stylish and eye-catching as the product itself. But it requires extra expenses every time she wants to make an adjustment.
“For every little thing, you either pay a coder a couple hundred dollars or you need an app that costs $10 a month. I just thought in 2021 a website would come with all these things."
3. Payment plan apps
It's become an expectation to include buy now, pay later payment plan apps on your website, Feldstein says.
“I didn't think they were so popular, so I didn't account for them in my margin, which was a mistake. But they can take six per cent of the sale price. I pay $40 per sale when someone uses it."
4. Extra insurance
Feldstein knew about business liability insurance. But other insurance costs were unexpected, she says, even if they weren't big amounts.
“I did not realize I had to pay separate insurance to protect me if my goods fell off a ship and separate warehouse insurance for when my goods are at their warehouse," she says.
Running an E-Commerce Business: Expect the Unexpected
Feldstein has been able to weather unexpected costs by building a buffer into her margin.
“I prepared a spreadsheet of my expected expenses, and I made a line for $10,000 of 'Unknown,'" she says. Budgeting for the unknown has helped, especially as costs can change rapidly and substantially during a pandemic.
Feldstein is also discovering ways to run the business more efficiently after joining an online community where e-commerce entrepreneurs share tips. “You can kind of make incremental improvements through sharing best practices," she says.
She's also taught herself some aspects of entrepreneurship that were entirely new to her, such as social media strategy.
“I see people not knowing what to do, so they outsource it. But no job is beneath you when you run a business."