How much working capital do you need to start an e-commerce business?

An e-commerce business can be an excellent alternative to selling products in a brick and mortar store. But even with lower startup and overhead costs, you still need to be realistic with your working capital estimates. Here are a few strategies to successfully start your e-commerce business without needing a ton of up-front working capital.

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Determine The Right Business Model

You can structure an e-commerce business in a few different ways. The method you choose can greatly impact how much up-front capital you need to finance your inventory. The first option requires the most capital and entails carrying your own inventory. Not only do you pay the manufacturer for the inventory, but you also need to store the product somewhere, whether you run a small operation out of your garage or a large operation out of a warehouse.

Another option is to sell made-to-order products. This minimizes your up-front costs because you get paid before ordering or creating your product. Finally, you can consider drop-shipping your inventory. This lets you do the selling, but the manufacturing and shipping are taken care of by the vendor. It’s a great way to minimize your up-front costs, especially if you want to sell private label goods and focus on marketing and selling.

Pick Your Marketing Strategy

The other major expense that can eat up your working capital when launching an e-commerce business is marketing. Selling directly through a third-party website like Amazon requires low overhead, but you’ll need to conquer optimizing your listings and search rankings within the website.

You can also create your own e-commerce website and take total control over your marketing and growth strategy. It’s easy to find cost-effective website templates and shop themes, or you can opt to spend more on a totally customized look.

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You also need to decide how to market your brand. For a lower cost strategy, you can create your own content and slowly build organic traffic. Alternatively, you can pay as much as you want for online ads and other venues to get faster recognition — and more sales.

The Bottom Line

Whether you want to bootstrap your e-commerce business or finance your working capital for a more aggressive launch, it’s easy to create a financial strategy that works for your needs.