Launching an e-commerce site is akin to starting a business. It is essential to carefully plan your project and test it. For this, the e-commerce business plan stage is crucial. What is its role? In short, to test the financial viability of your e-commerce project. In other words, the e-commerce business plan must answer a simple question: will your e-commerce site allow you to generate profits? Here is an article to successfully create your business plan and to gain a clearer understanding of your e-commerce project's budget.
What is the cost of a sale?
An undeniable axiom of commerce: selling a product should not cost more than it brings in. Quite obvious, isn't it?! But do you actually know how much a sale costs you? In other words, do you know what your profit margin is for a sale? To determine this, you need to list the expenses related to a sale. This includes costs related to your product (purchase price, shipping cost, etc.) and costs related to setting up and managing your e-commerce site. For example, if you have a product that you sell for €100 and you purchase it for €50, you know you will have a margin of €50 from which you need to deduct the cost of your e-commerce platform, advertising, etc.
What is the cost of your e-commerce platform?
To calculate your profit margin for a sale, you need to consider the cost of your e-commerce site. To calculate this cost, here are the elements to consider:
- The cost of designing your website: consulting, graphic design, and development.
- The duration of designing your e-commerce site: the period during which your site will not generate any income. Therefore, you need to have cash reserves to pay yourself.
- The marketing budget necessary for launching your site: having a site is one thing, but it needs visitors. You need to plan the necessary operations to increase its visibility (advertising, SEO, affiliation, etc.).
Once you have determined these various costs, you can set objectives to reach your break-even point.
What are the objectives of your online store?
Once you have defined the upcoming costs, you can determine what profitability objectives are. If the objectives seem too ambitious compared to your market, you will need to cut back on your budgets, such as those allocated to the site or advertising. Conversely, if you see that you have some leeway, you can freely invest in advertising.
Returning to the example mentioned earlier: you plan to sell 5 products per day, resulting in an expected revenue of €15,000 per month (5 x €100 x 30 days).
From this €15,000, you have a margin of €7,500.
From this €7,500, you need to deduct your salary + expenses (let's say €4,000), leaving you with €3,500. What to do with this amount?
First, consider the return on investment of your e-commerce site. Let's imagine it cost you €10,000 and you wish to "repay it over a year." In this case, allocate €834 per month for the site (rounding up :) ). This leaves €2,666.
In this budget, you must also consider marketing (SEO, community management, Adwords, etc.). Let's allocate a budget of €1,000/month. You then have €1,666 remaining.
You can save this as cash flow and reinvest it later to add new features to your site, etc. Being able to plan the evolution of your site is an advantage of the e-commerce business plan.
To summarize…
Monthly Expenses: Everything you will invest
- Cost of purchasing products: €7,500
- Cost of a salary + charges: €4,000
- Prorated cost of the site: €834
- Marketing cost: €1,000
TOTAL: €13,334
Monthly Revenue: What it will bring you
- Site revenue: €15,000
TOTAL: €15,000
Of course, your site might only cost you €5,000 and your store might only generate €3,000 in revenue per month, but regardless, this reflection is still necessary. The purpose of this e-commerce business plan is to test the viability of your project and to mentally prepare yourself to carry your project forward.
Beyond the Business Plan…
Finally, you need to estimate the time required to manage your site: handling orders, creating promotional activities, recruiting customers… Not to mention managing your own motivation to successfully carry out the project. Launching an online store is a fantastic adventure, but it truly begins once the site is live, as that's when you'll need to put all your efforts into making your store thrive and enhancing its reputation.