How much does an online store cost?
by Andrew on 03/12/08 at 10:01 pm
7 comments
I was asked by a magazine to answer the question of “Is it more cost effective to start an online business rather than launching a physical store, and could you give me an estimate of how much it could cost to start an online store compared to a retail business?”
I’m not sure how much of my answer they’re going to publish and I didn’t want to waste what I wrote, so here it is:
The main cost-savings for an online store are not having to lay out capital for stock (which is anywhere from R100,000 to R1 million for a physical store) and not having to sign expensive leases and rental deposits (starting at R30,000 a month for a small store at a major shopping centre).
Setting up the website for an e-commerce store can cost from R5,000 for an “off-the-shelf” generic system to over R150,000 for a customised site. However, it is important not to underestimate the marketing expenses needed for an online store. Unlike in a physical shopping centre, there is no passing foot-traffic on the day you open your digital doors. Every visitor to your website has to be won through advertising of some sort, and in South Africa e-commerce marketers face the sometimes tough task of convincing potential customers to embrace online shopping.
The relatively low barrier to entry of setting up an e-commerce store presents a wonderful opportunity for entrepreneurs to start their own retail business with a small amount of capital, but there are many challenges to overcome to avoid being one of the countless South African online businesses who close shop every year. Along with the effort and money involved in attracting customers, e-commerce merchants face unique struggles with fraudsters, logistics (don’t bother using the post office!), technological advances and suppliers who don’t understand this new business model.
However, all of that seems worth tackling in order to get involved in an industry that is growing at around 30% per year in this country. Three million online South Africans is an exciting target market to try and reach!
Stay tuned for exciting news about Live Alchemy’s 2009 plans for e-commerce upliftment in South Africa.
Andrew Smith is the pedantic systems guy behind Live Alchemy, a SA e-commerce company. Andrew writes for Ideate in an attempt to make the world a more efficient place. View more articles by Andrew.
Tags: advertising, e - commerce
Naeem
Dec 3rd, 2008
developers in SA are crazy.
I know they are in business and have overheads, but i often get the feeling that i’m their ‘ticket’ to easy living.
That said, i’m delving into magento to see how that goes. I have graphic experience, plenty of online shopping experience.
I’d like to think the store i launch soon will be a success. Either way, within a a few months i will give the reigns to my sister (its for her anyway
Big adverts and huge adwords accounts is not a must have (they are important and have their place) but this could work too:
– build up a trust with key figures in your niche
– offer some sort of free service for them, not everything is about $$$
– give them freebies to blog about
I figure, if you give 10 blogs products worth R200. And each blog has a readership of about 100. You do the math, you can easily cover that costs in sales and more importantly boost your reputation.
Andrew
Dec 3rd, 2008
@Naeem Thanks for the comments. There are definitely sharks out there to make a quick buck off unsuspecting victims. But, I do know that a professional e-commerce site takes a huge amount of planning, implementing and tweaking. We’ve been working on Yuppiechef pretty solidly for 2 years, and we still want to do so much more. It’s definitely not a once-off process.
I used the term “advertising” rather loosely. Your idea of targeting bloggers is a form of marketing that requires effort and some money. And next month you’ll have to keep going with the next marketing idea. A shopping mall will give you guaranteed traffic every month. That was my point.
Antilogic
Dec 4th, 2008
I have been involved in some of the biggest South African online stores and I have to say that there are quite a lot of hidden costs that people don’t consider.
The payments, gateways, security and penetration testing, ssl certificates and a whole lot more.
In the end, I don’t think the “physical” store itself is that expensive, but all the other things definitely boost the price.
Jacques
Dec 9th, 2008
> Setting up the website for an e-commerce
> store can cost from R5,000
If you’re paying R5000 for a very basic e-commerce site, your paying too much! Try R300-R600: http://www.shopify.com . You have to get your own payment gateway though.
Brett
Dec 10th, 2008
And the cost of “plugging” in that South African gateway? http://www.shopify.com does not support any SA gateway’s so along come the developers? Naeem’s favourite..
Elemental
Dec 18th, 2008
Thanks for this article I found it quite interesting and I agree that in most cases it requires alot of planning and development hours to produce something that is really what the client wanted.
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