How Much It Costs To Start An Online Store And Should I Dropship Or Carry Inventory

If you want to start the next Facebook or the next Google, you’ll probably need a large amount of upfront cash to jumpstart your business. If you want to start the next Amazon.com, you’ll probably need to invest a large amount of money to hire engineers and web developers.

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But if all you want to do is make enough money to quit your job and start a “lifestyle” business, you don’t need much money at all!

In fact, depending on what your end goal is, you can get started with an online business for as low as $4.95 a month.

The other day, a reader who signed up for my free 6 day mini course asked me the following question.

Your free course is pretty extensive and exhausting to read through. Can you give me some kind of idea in one simple sentence how much this would cost me to start up? It seems there’s a lot of money to put into this before you even start earning anything! Frankly, I don’t have any money to start this up, that’s why I need to begin earning the money first!

Unfortunately, not everything can be summed up neatly into a single sentence!

The Amount Of Upfront Investment Depends On Your Goal

When it comes to starting an online business, your startup costs will depend on several factors! Here’s a list of some of the other things you need to consider as well.

  • Revenue Velocity – How long after launch do you expect to make significant money?
  • Barriers To Entry – How hard do you want it to be for someone to copy your business?
  • Portability – Do you want to be able to run your business from anywhere?
  • Scalability – Do you want the business to scale easily once it grows?


Today, I’m going to provide you with an assessment of the 2 most popular online store business models along with the startup costs involved.

Starting A Dropshipped Online Store

Dropshipping is by far the cheapest and easiest way to sell goods online which is why it tends to be the business model that most new entrepreneurs gravitate towards. Without going into too much depth, dropshipping is when the online business owner sacrifices some amount of profit in order to avoid having to carry any inventory.

When a customer places an order, the shop owner then places an identical order with their vendor and the vendor ships the product to the end customer. The amount of profit made is the selling price minus the cost of goods sold and a small dropshipping fee.

Related: Dropshipping Vs Affiliate Marketing: Which Online Business Will Make You More Money?

Here’s the bare minimum investment that you need in order to start a dropshipped online store.

If you tally everything up above, that comes out to between $36.45 and $76.45. $36.45 doesn’t sound like a whole lot of money does it? While dropshipping costs much less to start than the other online store business models, there are several disadvantages which I will outline below.

Revenue Velocity

For one thing, the revenue velocity of a dropshipped online store is much lower compared to a store that carries inventory. After all, not having to worry about inventory or fulfillment costs comes at a price.

When it comes to dropshipping, your wholesale price will be higher than if you store your own inventory. In addition, most dropshippers also charge a small fee whenever a dropship order is processed. All of these costs add up and the end result is that your profit margins will be much smaller.

Barriers To Entry

In addition, the barriers to entry will be lower. Because of the low upfront investment involved and the ease of putting up a website, it can be relatively easy for someone else to copy and replicate your exact same shop. While they still have to discover who your vendors are, sometimes finding out can be as easy as making a purchase from your store and looking at where the package came from.

Portability/Scalability

But the beauty of running a dropshipped store is that your business will be truly portable and scalable. Since you don’t have to worry about inventory, you can run your business from anywhere there’s an Internet connection. This means that you could be at a coffee shop or in a foreign country and it wouldn’t matter.

Because you don’t have to worry about inventory, your business is also extremely scalable. With a computer server taking and managing orders, you will only have to hire additional help as your customer support volume rises.

Starting An Online Store With Inventory

Starting an online store the traditional way with inventory carries all of the same costs as starting a dropshipped store except that you also need to set aside money for your initial cost of goods.

Depending on what you plan on selling, this could range from hundreds of dollars to thousands of dollars depending on the minimum purchase amount that your vendor requires. There are many ways to mitigate the risk and be more intelligent about your inventory management which I may discuss in a future article but the bottom line is that you will have to put out more money upfront if you want to carry inventory.

Revenue Velocity

The main advantage of carrying inventory over dropshipping is that you will make a significant amount of money much faster. As with everything in life, more risk carries more reward which is why my wife and I decided to carry our own inventory when we first started out.

Despite having to risk more money(about $630), we were able to make over $100,000 in profit after only a year of being in business. And unlike dropshipping, the profit margins are much higher and you are in more control over your shipping costs and delivery times.

Barriers To Entry

Carrying your own inventory has other advantages as well. Because you have to secure vendors in order to source your goods and you have to purchase in bulk, the barriers to entry are much higher than dropshipping.

Since you are in control over your shipping and branding, it’s much harder to copy your online store idea. Not only would they have to copy your website but they would also have to find your vendors (much harder since you are shipping products yourself) and be willing to shell out more money upfront. I’m not saying that it would be impossible to copy your business idea, but in general it’s much less likely due to the increased upfront risk involved.

Scalability/Portability

Of course the downside is that you have to find a place to store your goods and you have to take care of shipping your product. While there are ways around doing this, such as hiring a fulfillment company like Amazon or Shipwire, you will most likely be shipping and storing your own products in the beginning until your business gets off its feet.

As a result, you have to weigh how valuable the future scalability of your business is compared to the increase in profit. In my opinion, business scalability and portability becomes less of a factor once the money starts rolling in.

At a certain point in your business, you should be able to afford to hire additional staff in order to allow your business to run without you being present. Of course, taking on additional staff carries its own headaches as well. If you want your business growth to be seamless, then dropshipping may be a better choice.

Decisions, Decisions

When it comes to starting an online store, there’s more to consider than just how much it costs to start. You also have to consider your end goals and how much you are willing to risk in order make money sooner rather than later.

In addition to the 2 business models above, you can also elect to design your own product from scratch and sell it online as well which obviously carries the largest upfront cost for the most possible gain.

After running an online store with inventory, creating my own product for sale online and helping many others start their own dropshipping stores, I can honestly say that there are many pros and cons to each option.

What’s important is understanding what you want out of it, your tolerance for risk, and what you want your end game to be especially if your goal is to improve your lifestyle.

Want To Learn More?

Create  A Profitable Online StoreDid you enjoy this article? If so, there’s more where that came from if you sign up for my full blown course on how to create a profitable online store.

My course offers over 35+ hours of video and includes live office hours where you can ask me questions directly.

If you want to learn everything there is to know about ecommerce, be sure to check it out!

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17 thoughts on “How Much It Costs To Start An Online Store And Should I Dropship Or Carry Inventory”

  1. Mark says:

    I hate to sound bad but this question kind of bugged me. I mean what do you expect, something for nothing? No wait, some people do expect this.

    You have to invest a little bit to get started, that’s just being realistic. If you don’t have money to put into it, get a job, or a second job and quit buying a few “wants” and put the money into your business to get it going.

    I wouldn’t spend money willy-nilly without any thought of course but with wise spending it wouldn’t cost much to get going as this article points out. If you’re not even willing to go this far, then maybe you really don’t want to work hard enough to make this happen in the first place.

    On the dropship/stock inventory topic, we have always done both. We started with a very small inventory and have built this up over the years with our own branded products, and we continue to dropship where it works for us.

    1. Hey Mark
      These questions sometimes bug me as well but I’ve found that people who are new to starting businesses all tend to have similar fears. And a lot of times, it’s just a matter of providing a little reassurance to nudge them over the edge. Most people have enough money, they just want a sure thing which is never the case.

      BTW, completely agree with your strategy of combining dropshipping with inventory. In a way, it provides the best of both worlds. Stock up on what makes you the most profit and use dropshipping to fill out your shop. THanks for the comment.

      1. Mark says:

        Hi Steve,

        Well you’re a patient and understanding person:) You’re right though, if we all waited for the full guarantee or sure thing, nothing much would get accomplished. Sometimes you just have to take the leap of faith and see where it leads. Ideally without spending a lot of money to find out.

  2. I didn’t know really that much about drop shipping before. Thank you for the comparisons. I like the above idea of using both especially at the start.

  3. Awesome article and site Mark. I have been making money from blogs and ppc traffic for awhile now and am now expanding into an ecommerce store. Your articles have helped me big time! For me Drop-shipping is definitely the way to go.

    1. Mark says:

      I think you mean Steve, he’s written most of what’s here…for me, just few comments but they were no doubt, inspiring:)

  4. Mandy says:

    Thanks for sharing your experiences – I’m in the process of setting up my online business. Some costs I’m facing weren’t addressed in your article – registering my business ($500 + 250 yearly in Illinois), quickbooks accounting software, accountant advising, etc. I guess some of the more legal/dry costs caught me off guard, and I wondered why I don’t see them mentioned often when it comes to starting an online business. Did you just start as a sole proprietorship and use free accounting software? Thanks again for sharing!

    1. Manny says:

      Too many people focus too much on the accounting, logo and legalities of a business upfront then after all that effort they find no one wants their product they have no sales and they give up. They wasted too much time and enrgy on the wrong things at he start.

      Your best to start lean & focus your energies on what matters early on ie the market, competitors, potential traffic, marketing etc Set the company up as basic as you can and forget accounting its not an issue until you actually sell something ! You can get the best accounting package in the world but without sales its a waste of money.

      The hardest part of starting an online store is not the legals and accounting its choosing the right products, knowing how to market, knowing how to structure your website for sales, doing social media, writing for your blog if you plan on doing this.These will make or break your business not accounting or legal.

      1. Oh, Manny, I couldn’t agree with you MORE! I fell into the trap Mandy is obviously in…I wanted to make sure I did things RIGHT and that cost me a lot more money and I’m still not generating revenue.

        I even paid to have my company name trademarked through a fancy-schmancy law firm. Grrr, it makes me crazy to think about it. I did most of the work and found errors they made that cost me additional time and money.

        Great advice I wish I would have had/followed when I started!

    2. @Mandy wow, that is really, really high at $500 + $250 yearly. The thing is you have to have at very least a Tax Resale number to even be considered by real dropshippers and suppliers.

      Don’t give up, have a read below:

      This is the most important thing you need to deal with a Dropshipper and/or Wholesaler to source your products to sale and that is the Resale Tax ID here:
      “Register for applicable business taxes with the Illinois Department of Revenue. All business owners are required to register at tax.illinois.gov/Businesses/register. After registering your business and filling out tax schedules, you will receive a tax ID and a certificate of registration.” – source: http://www.wikihow.com/Set-up-a-Sole-Proprietorship-in-Illinois

      That link is broken an you need to go here: https://mytax.illinois.gov/_/#2
      Click the link to Individuals then Register my business (Form REG-1 for Sole Proprietorship)

      I could not find the cost(s) however which is odd they aren’t showing that up front.

      And agreed with the rest to keep costs down to bare minimum even as you make profit.

  5. Steve, good basic article to get started. That is the main point -Get Started!
    Don’t get bogged down with making it all perfect -all the details. You can
    work on that after you are up and running making some money. Just get going -quit making excuses.

  6. Steve,

    Which drop ship company would you recommend. I am thinking of going with Dropship Design.

  7. Christiane says:

    I have found that carrying inventory is way more expensive on the back end of my business than using a drop shipper. With inventory, I have shipping expenses that include supplies, time and have to do additional inventory accounting at the end of the year, which also takes time and money. With drop shipping, I don’t to worry about shipping costs or supplies. Drop ship fees are expensed on the back end at tax time, making account a lot easier. If something doesn’t sell, I just delete that item from my product mix. I am also able to add newer products quicker to my product mix since my money is not tied up in inventory. So for my jewelry and accessory business, drop shipping works very well. The idea is, you have to find drop ship suppliers that you can trust and quality made products.

    Best Regards,

    Christiane

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