Acquisition costs online vs. offline. How hard it really is to start a business online in 2021.
With the rapid rise of online businesses many ambitious business people are considering starting their own online store. This can undeniably be a lucrative move, yet many drastically underestimate the cost and effort involved with launching an e-commerce store.
Online business has been big news in recent times. In fact, some stats suggest that the global ecommerce market grew from $3.4 billion in 2019 to a massive $4.3 billion in 2020. This trend has undeniably been fueled by the pandemic and the benefits of ecommerce in terms of home delivery and convenience, especially when traditional brick and mortar retail stores have been closed.
In this article, we explore some of the acquisition costs associated with online businesses. We also look at whether pursuing an offline business may, or may not, be a better option. So, read on to discover just what it takes and what it costs to get started.
Set Up Costs
First things first.
Before anything else you will need to get a grip on how much it will cost you to get your online business set up and ready to sell. We will break this into online and offline costs to give you a clear idea of the differences and benefits of each:
Online Set Up Costs
Setting up an online business can be relatively straightforward and cost effective. There are a few things to consider, each of which will have their own associated costs.
Building your website is likely to be one of the first costs you will encounter. Although there are some alternatives to selling online such as marketplaces, the majority of successful online businesses will have their own website.
Starting a website is now easier than ever. For example, website builders such as Shopify and WIX are incredibly straightforward to use and can get your business online in a matter of weeks or days. These platforms also usually offer most of the additional things you need in one price such as domain purchasing, web hosting and technical support.
However, some businesses may decide to go for a bespoke website. There are many benefits to this such as fast load speeds and custom functionality. In these cases websites can cost a considerable amount more.
Even when compared to a bespoke website, getting started with a traditional offline store is usually a bit more expensive than starting an ecommerce store. The big up front investment will cover requirements such as:
- Store fixtures
- Equipment and technology
- Interior decor and aesthetics
- Shop signage
Of course, how much these actually cost will depend on a number of factors including your location, shop size and brand.
It is clear to see that starting an online store is much easier and cheaper than starting a traditional shop. However, online business costs can grow when you depend on specialists such as skilled web developers.
Whether you start an online business and need people to visit your site or you launch a traditional brick and mortar store and you need people to step through the door - you are going to need good marketing in order to be a success.
Good marketing will help you reach those who matter to your business with the right message and at the right time. We explore some of the costs involved in marketing online and offline below:
There are positives and negatives to marketing your store online.
The positive is that there are many methods of marketing which are entirely free, at least in terms of upfront direct investment. For example, it is free to open social media accounts and boost your organic search engine rankings - each of which can help you expose your business to countless customers.
However, due to a massive rise in online business it is also highly competitive. This means that in real terms it can be very expensive. For example, although social media may be free to access, to grow your following you will need to invest a lot of time into creating content that will capture people's interest. Similarly, as there is increased demand for search engine traffic, it now takes more and more to achieve a good ranking.
As paid methods of online marketing such as social media and search engine ads are usually costed based on demand, depending on who you are trying to reach, these can also be an expensive way to target your audience.
Although offline types of marketing used to be the main way to market your business, they are now often an afterthought when compared to online marketing. Yet people's attention is not permanently online, so many businesses miss out on big opportunities to reach their target audience.
The Return On Investment (ROI) of offline can be fantastic. For example, renting a promotional space in Zurich’s main train station costs CHF 5,500 per day - this would get your business in front of around 438,000 daily passengers. Not only is this a good return, but your ad is also competing with a lot less than in the online space.
Return & Retail Costs
Returns cost businesses a lot. Not only are there the obvious implications of refunding customers and losing profit, but there are also a number of associated costs including:
- Labour including warehousing, shipping and restocking
- Damaged and faulty goods
- Reselling the product including quality checks, repackaging and relisting/shelving
To be competitive with traditional stores and other online stores, most ecommerce businesses need to offer free postage and free returns on their products. This can be costly, especially when you consider the fact that they need to absorb these costs whilst still remaining competitively priced.
Not only is it costly for online stores, but it is also more common - in fact some stats suggest that shoppers return just 5% to 10% of what they buy in store, but return a massive 15% to 40% of what they buy online. This is unsurprising when you consider a number of factors:
- It is often easier for customers to return items to an online store (no need to physically go anywhere)
- In physical retail customers can try out, try on and properly inspect items before they buy
- Online stores are less personal and therefore people are more likely to take advantage of favourable return policies
As customers become more accustomed to shopping online they are also likely to continue increasing the rate at which they return items and the speed at which they expect returns to be processed, increasing workload and making ecommerce even more costly.
Online vs Offline: Which is Better?
In this guide we have covered everything you need to know about the cost of offline and offline businesses. But which one is best?
The answer is neither, or indeed both. To be competitive in today's marketplace businesses should seek to leverage the benefits of online and offline stores together - this is especially true when the benefits of one can mitigate the negatives of the other.
For example, using more affordable offline marketing techniques to promote both an online and offline store can help you massively increase the ROI of your marketing budget and reach the audience that matters most to you.
Starting offline first will help you be super targeted geographically and make a big impact.