This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
For anyone running an e-commerce small business, here are tips to consider for managing their cash and handling common 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 running a website 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 online business owners may save on expenses by not having a physical location, 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 could be one of the trickiest e-commerce business expenses to handle, but sales data and analytics, customer feedback, and seasonal and industry trends could all help inform inventory planning — and ease cash flow.
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 scale.
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.
These fees add up when a business scales to sell thousands of items per month but has to wait for profit to clear, potentially affecting cash flow.
6. Software
An online business needs the right business technology to operate smoothly. Automation may 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 charge a fee but could save a lot of money in the long run.
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 might 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. A business budget should allow for salaries that attract talent while also turning a profit and positioning the enterprise 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 could consult a professional to help them determine what insurance coverage may best suit their needs.
12. Taxes
Taxes may be a challenging e-commerce business expense for many business owners to handle. Business owners could consider consulting with or hiring a tax professional to help address their tax situation. They may need to pay local, state, federal, and/or sales taxes, depending on the business's location and type.
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, an online business owner may find it challenging to track of them all. But staying on top of expenses may help reduce cash flow problems and empower a small business to thrive and grow over the long haul.
The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
