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How Should a Small Business Set an eCommerce Website Budget?

How Should a Small Business Set an eCommerce Website Budget?

Perhaps one of the most important, yet most confusing, elements of building a new eCommerce website is setting the budget.  Unfortunately, there is no “one size fits all” answer for setting an eCommerce website budget. After years of assisting businesses with plans for new eCommerce websites, I have a few tips.  For this article, I am going to focus on Small Businesses in particular.

First, you may be wondering why every developer or agency you talk to keeps asking you about budget.  Isn’t it rude to ask about money?  I agree this is awkward for all (including that person taking your call) but it is absolutely necessary for a few reasons:

  • Every developer/agency works best within different budget ranges.  So in order for you to determine if you should spend time talking with this agency, you need to be upfront. Don’t waste your own time talking with someone who has little or no experience in your budget range. No one can truly accommodate ‘all budgets’ well.
  • Setting a budget shows that you are serious about building a new site, and the agency will then be more likely to spend time assisting you. Agencies have limited developer and architect resources to spend giving out advice for ‘free’, and must choose to spend this time wisely. By setting a budget in advance, you are going to receive higher-quality assistance.
  • There is no way for you to make a decision on if you are going to include particular features or hire a particular agency if you do not have a budget set.
  • You wouldn’t go to buy a car or house without knowing what budget you can afford.  This is an important investment. Don’t fall in love with the million dollar mansion, when that cute condo meets your needs and budget just fine.

There are a multitude of ways to go about setting budgets, and there are many formalized methodologies written by business experts far more experienced than I am.  But for a small business, setting an eCommerce website budget often comes down to just a few things:

  1. What do I truly need?
  2. What kind of cash/credit/resources do I have available?
  3. What are my priorities?

Start by deciding on your “must-have” features, otherwise known as Business Requirements.  Write/type these clearly. It’s impossible to build the site of your dreams, if you aren’t clear about what those dreams are. Spend some time doing research, or possibly even hiring a consultant who has done this many times before. If you need a starting point, try looking at the Magento Features included, and writing down the things you know you’ll use in the first 1-2 years. Having clear business requirements can also help prevent Scope Creep later. Don’t get bogged down in the technical requirements or how to make something work – you just need a list of things your business must have to survive. When I am consulting, I tell my clients “Tell me the actual business requirement, such as ‘I need a way to import my orders into Quickbooks so that I can have accurate accounting of revenue and inventory.’ This is much more useful for me to design the perfect solution that meets your needs exactly, which very well could be an existing extension, or not. That’s what I’m here for.”

Then assess what kind of resources you have at the moment. This number will give you some kind of “maximum” to work with. I do not recommend that you automatically make your budget your maximum in any circumstance, but it gives you a firm upper limit.  If this upper limit feels too low to achieve your Business Requirements, I’d recommend stopping here to wait until you have more available.  Half of a website, or a terrible quality website, will not make you any money. It is much better to know you can definitely afford your requirements, than go into a project hoping for the best. Remember that “resources” also includes if you (or someone on your team) can handle some of the site in-house.  Even data-entry tasks like adding the products yourself can cut the budget needed considerably. A company that has lots of resources can usually have a smaller budget, and the opposite is also true.  At Creatuity we have fully-managed eCommerce services where literally everything is handled for you, but these are not the lowest budget option. Which brings me to the next task….

Lastly, I recommend setting some priorities.  For many small businesses, initial investment (i.e. the money you pay for the site today) is very important.  Are you fine with rebuilding or enhancing the site in 1-2 years once more cash is coming in? Or are you wanting something more long-term? Is a quick launch to market the most important factor, or do you prefer to have every feature your competitors have the first day you launch?  Everyone has different priorities here, so make sure you know yours, and that you communicate these clearly to everyone working on your project. This includes the agencies/developers you are interviewing (See here for some great questions to ask them too!).

Once you have these 3 things, it is time to do your market research.  I highly recommend looking through the Internet Retailer 2nd 500 Guide to see what your competitors are making in online revenue, allocating to marketing, etc.  MarketSherpa has an excellent eCommerce Benchmark Study as well. You need to have some realistic projections before you can make an informed budget decision. It is important to understand the correlation of return on investment with size of spend.  When a small business is first starting out, you cannot expect the same results as a large-budget retailer might be receiving. They have the research/experience/resources to ensure their results are optimal. This should not discourage you, but rather make you think carefully about expenses you can realistically afford in Year 1. On the flip side, Small Businesses can be more nimble, provide more personalized service, and address changes in the market quickly.

My last bit of advice is to determine your “risk comfort zone”.  How comfortable are you with going “all in” on a new site, and dealing with the fact that it might not be profitable?  What if it takes 1-2 years to make back your initial investment?  Your overall happiness/health/ability to buy groceries is important, too!  Sometimes this will lower your budget a bit, or push back your timeline until you have more of a cushion to cover your personal finances. It is true that you must take risks in business, but every individual approaches risks differently.  This is an important decision, and not one that should be made lightly.

Please let me know if you have any eCommerce website budget questions that I can assist with further.  And good luck with building your new eCommerce website!

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