An Online Store Vs A Physical Store: A Breakdown And Comparison Of Costs
On the background of the continuous rise of ecommerce, there has been a lot of debate about the characteristics of online stores vs physical stores over the past decade.
Each type of store has its pros and cons, but one thing is clear and unanimously agreed - ecommerce is here to stay. Many even claim that in a matter of decades all stores will be online.
Although there are many similarities and differences when it comes to the buying experience in the online and offline versions of commerce, one main difference lies in the overall expenses it takes to run each of these stores.
Here is a breakdown.
The Costs Of A Physical Store
The main expenses of a physical store include:
- Monthly Lease/Rent: Physical stores are tied to specific geographical locations. This demands a location for setting up a storefront, which could be very costly. Store owners could spend anywhere between $2000 and $4000 and more for a store in a major city
- Staff: Staff members are necessary for physical shops. Staff need to cover the general retail hours throughout the week, and you cannot stray from the minimum wage set by the government
- Upfront Investment: When you set up a physical shop, you need to do a lot of prep work, including choosing a space, carrying out renovation, buying equipment, hiring staff, and more. It does not end there - you then need to invest in marketing in order to promote your store. All these expenses can easily reach an upfront investment of $50,000 or more for even the tiniest business
The Costs Of An Ecommerce Store
An ecommerce store does not require a physical location, or perhaps staff, but there are costs involved. Here is a breakdown:
- Web Development: The first significant investment that you will be making when starting an ecommerce store is the website. Setting up a custom professional online store will cost around 5,000 USD, while other Saas solutions are available for as little as $29 per month. The cost will depend on the size and scope of the store, but all ecommerce websites need to have functionalities such filtering, search options, shopping cart, integration with social media, reviews from previous customers, rating features, tracking facilities, customer profiles, and more
- Web Hosting: Web hosting can cost anything from a few dollars a month, and up to hundreds of dollars, depending on the size of the data you are handling
- Advertising: Advertising is an essential aspect of online businesses. You can invest a reasonable sum in pay-per-click (PPC) advertisements and improve traffic and conversions. This could cost you an amount of around 500 USD per month, but the results are worth more than that, and an effective campaign should essentially pay for itself. You could choose to carry out the marketing yourself or pay a professional individual or agency
There are additional costs associated with an online store such as order fulfillment, shipments, content for your website, and much more.
Other Things To Consider
Your decision whether to go for a physical store or an online one depends on certain factors like the type of products, the initial investment, and more.
Besides the low startup capital required, one of the biggest pros of ecommerce is that it is straightforward to track your ROI as everything is inherently digitized.
This might not be the case in a standard store, and it may be trickier to know how you are doing.
Overall, the risk ratio involved is smaller in an ecommerce business than in a physical one.
It is important to analyze the type of business you are going to set up and your financial capabilities before deciding what type of store to set up. In any case, analyzing your market sector, demand, and competition is the key to making sure your investment is cost-effective in order to yield higher returns on investment.