13 Online Business Expenses to Consider

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Many online businesses can make the mistake of not remaining cash flow positive. Owners can spend more than they make or time their spending poorly and find themselves coming up short for essential expenses or profitable opportunities.

Anyone running an e-commerce small business should understand how to manage their cash and deal with typical online business expenses.

Common e-commerce business expenses

Online business owners have a variety of expenses they need to consider. When running or building an online store, e-commerce businesses should consider these 13 expenses to maintain cash flow:

1. Website/platform hosting fees

The cost of keeping a website up is one of the standard operating expenses for an online business. Once a website is built, it needs to stay online and accessible to customers for the business to succeed.

Once a business owner chooses the perfect domain name for their business, they’ll need to make sure it’s available and identify a domain registrar that offers it. Annual prices for domain names vary. Online business owners will also need to budget for a service to host their website data on servers and keep their site running. Hosting costs vary depending on the type of servers and individual storage and speed needs.

2. Licensing and permits

Licensing and permits are not just for businesses with physical locations. Depending on where the business is located, e-commerce business expenses may include fees to meet various legal requirements. Consult an attorney for more information about applicable licenses and fees.

3. Utilities

While it’s true that online business owners may cut costs by not having a physical location to maintain, keeping the business online requires staying on top of utility payments. And the demands of an online business may require a more expensive internet service package.

4. Inventory management

Inventory management can be one of the trickiest e-commerce business expenses to handle, but when done well, it may help facilitate cash flow. Sales data and analytics, customer feedback, and seasonal and industry trends could all help inform inventory planning.

Owners will need to account for factors like the costs associated with item sourcing, shrinkage, and storage. Inventory management software may help avoid stocking too much product and other costly pitfalls, especially as a business scales.

5. Platform fees

Every major e-commerce platform has fees. Pricing must take these fees into consideration to maximize profits. Platform fees may include monthly subscriptions, costs for adding additional features, and referral fees.

While they may not seem too expensive at first, when a business sells thousands of items per month and has to wait for profit to clear, fees could add up and may negatively affect cash flow.

6. Software

An online business may need the right business technology to operate smoothly. Automation can be beneficial to have in e-commerce. Software can help source products, handle inventory management problems, and print shipping labels.

Many crucial types of software aren’t free, but it’s an e-commerce business expense that could save a lot of money in the long run. The more a small business owner can reduce their expenses, the better their cash flow will be.

7. Purchasing and maintaining equipment

Running an online business still requires equipment, just like businesses with physical locations. Common equipment costs include computers, phones, cameras, and lighting and audio equipment.

Like a brick-and-mortar business, many e-commerce businesses will require office equipment and furniture. Machinery can be a major expense for an online business that manufactures products or offers certain specialized services.

8. Shipping

Shipping costs are a fact of life when running an e-commerce business. Some stores charge for shipping, while others offer it for free. The goal is to bake those shipping costs into the price of the product.

Small business owners need to allocate for the online business expenses of shipping supplies, like boxes, box stuffing, tape, and shipping labels. And even if everything is done correctly, sometimes a courier will lose or destroy a shipment. If this occurs, customers will likely expect a replacement, which is an extra e-commerce business expense.

9. Returns and refunds

No matter how well an owner or employee packages and ships something, accidents will happen, and shipments will get lost. Frustrated customers will contact the business looking for refunds on their credit cards. Customers will also return items that are broken, the wrong size, or they just don’t like.

Refunds and returns can weigh heavily on profit margins.

10. Salaries and other employee expenses

Salaries are core operating expenses for online businesses, whether for a one- person operation or a team of 50. Beyond the actual salaries and benefits, a business owner needs to account for additional employee costs, such as recruiting, hiring, training, and payroll.

How much an online business owner should spend on salaries depends on their industry. It’s wise for business owners to create a budget that allows for salaries that attract talent while also turning a profit and positioning the business for growth.

11. Insurance

To keep a business covered in case of unforeseen circumstances, business owners may want to consider available insurance options, such as general and product liability insurance or business interruption insurance. Business owners should consult a professional to help them determine what insurance coverage may best suit their needs.

12. Taxes

Taxes can be a difficult e-commerce business expense for many business owners to handle. Business owners should consider consulting or hiring a tax professional to help address all the complexities. They may need to pay taxes such as local, state, federal, and sales, depending on where the business is located and the specifics of the individual business.

13. Professional services

Online business owners may need help from outside professionals, like attorneys and accountants. Although the costs of these services may seem daunting at first, they may help to save the business money in the long run.

Handling common online business expenses

With more than a dozen types of expenses to consider, it may be challenging for an online business owner to keep track of them all. But staying on top of expenses can help reduce cash flow problems and empower a small business to thrive and grow over the long haul.

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