As with the understanding of the economy, people tend to shift from jobs to starting a business in 2024. Some may want to have a side hustle or others dream of making a profit from their passion. It may be the services to offer a new idea to be launched or simply trading or scaling of existing essentials.

An overwhelming niche to explore as a new entrepreneur, but there’s one thing common – cost. So, how much does it cost to start a small business in 2024?

Content

• Key Small Business Cost Statistics
• How Much Does It Cost To Start A Business?
• The Average Cost Allocated For Initial Business Expenses
• Different Businesses Start With Different Cost
• Average Small Business Cost By Industry

Key Small Business Cost Statistics

• Starting most small businesses costs about $3,000, while home-based franchises range from $2,000 to $5,000.
• In the first year of operation, the average cost small business owners spend is $40,000.
• 31.6% of product cost is taken from small business’s expenses account which is almost one-third.
• Oklahoma, Texas, and Kentucky are the three cheapest states to run a business.
• The average non-government employee expense is $41.03 to $43.26 per hour
• Industry-wise, the average cost of a Food and restaurant startup is $375,000.

How Much Does It Cost To Run A Micro Business?

U.S. Small Business Administration proposed that most small businesses can start from $3,000, while the cost of starting a home-based franchise involves around $2,000 to $5,000.

Launching a small business requires an initial investment. Some aspiring entrepreneurs may have misconceptions about the costs will spend in their very first year of business. Let’s clear this, as the cheapest businesses may cost as little as $12,000 to start, while most other businesses involve initial costs of around $400,000.

Besides this, the average spent cost in the first year of small business owners varies depending on many factors, including your chosen industry, mode of the business, the size of your team, your cost of goods sold, operating expenses, and so forth.

Source: Business News Daily

The Average Cost Allocated For Initial Business Expenses

Let’s drill back to the first-year records of micro-businesses and find how much finance they apportioned to business expenses as a percentage of their total budget.

Following are the functions and cost categories to note down for budgeting the starting a new online business:

1. Product costs
2. Operating costs
3. Online store costs
4. Shipping costs
5. Offline costs
6. Staff costs
7. Marketing costs
8. Unexpected costs

1. Product costs

Expenses related to products are the topmost part of running any business, especially an e-commerce one. You can only start selling when you spend money on raw materials, inventory, suppliers, manufacturing processes, or patents. According to a survey conducted by Shopify, we found that the product costs of a small business’s expenses account for almost one-third (31.6%) in the first year of trading.

2. Operating costs

Operating costs involve day-to-day running costs to keep your business functioning. An average of 11% operating cost of small businesses is spent from their budget. Additionally, in the qualitative component of their survey, it is repeatedly mentioned by startup owners that legalities are very difficult and worth hiring professional help from business plan writing companies.

3. Online store costs

Aspiring entrepreneurs overestimated their online budget and expected to spend 12% on online costs in the first year, but they spent only 9% of their budget.

Aspiring Entrepreneurs	Business Owners
12%	9%

Further, Shopify shared a survey of 300 business owners. This proposed that Shopify clients spent an average of $38,000 in the first year of their business, compared to non-Shopify owners, who spent an average of $41,000.

4. Shipping costs

Every e-commerce company needs to know that the product has to be sent to the customer by shipping. Irrespective of shipping inventory from using drop shipping suppliers or your warehouse, you have to add around 8.7% of your annual expenses from the budget will be spent on shipping. Shipping costs also include labels, packaging, and shipping insurance costs.

5. Offline costs

Supplementing your online store with in-person sales also includes expenses associated with selling offline. This cost comprised fuel to travel to the location, stall or table fees, office space, and rent.

An online business that promotes at the occasional craft market will have much lower offline expenses compared to a permanent brick-and-mortar store. As an estimation, the average business keeps aside 10.5% of its budget on offline expenses in its first year.

6. Staff costs

Of course, spending on employees increases overall expenses. If you go as a solo owner route, you can spend less than one-third of having business with the team. But in this case, you’ll lack expertise with your limited skills and resources.

While researchers, in such cases, conclude that many business owners have boosted their expertise when they bear the financial costs of hiring a team with the time costs of managing by themselves.

The average small business spends 18.8% on staffing costs like salaries, benefits, perks, and allowances in their first year. Although, higher revenue companies spent significantly more on team costs in their first operating year which is almost one-third of their total budget.

The relationship between revenue and team costs is directly proportional. The more you pay to hire the more money you make. Increasing team members also drives revenue growth.

7. Marketing costs

Marketing is a delicate art of selling. Spending a slight little won’t get your brand noticed in front of buyers, whereas spending a little much hits your break-even point.

The findings by experts from the US Small Business Administration proposed that a small business keep its marketing budget between 7% and 12% of revenue. It includes cover logo, ads, branding, and printed materials costs.

The relationship found between marketing spend and revenue is inversely proportional. The more spent on marketing, the lesser will be the profit.

8. Unexpected Costs

Some most-cited unexpected costs become a great burden for startups with low sales volumes.

Most businesses claim that 21% costs of their inventory testing and receiving and returning defective ones, surplus inventory as well, notch up bills.

Additionally, these also include the 23% incorporation cost of legal fees, accounting software, and services.

Businesses allude 34% to packaging costs, damaged or returned items, and general shipping fees as unexpected costs.

Source: Shopify

Different Types Start With Different Costs

Funding needs for small businesses depend on many factors, for instance, the products or services, industry, or the store location. The best way to determine the startup cost is to create a well thought strategic business plans.

A general idea can be taken by understanding industry averages of the expected amount to spend for a startup. You are required to make strategic decisions about lowering costs as your business grows.

The biggest returns on your investment are achieved by cutting costs from business products and services.

Your actual costs will vary depending on:

• Cost of inventory needed
• Cost of goods manufactured, such as labor and raw materials
• Size of your business
• Number of employees
• Physical or online location

Online Business Vs. Brick-And-Mortar Stores

A physical location or only an online presence will play a noteworthy role in the small business overhead costs. Based on Shopify Data, “To build an online store you cost around $2,000 to $20,000”. This range includes the estimated cost of designing and hosting a custom e-commerce website.

Bankrate Insight

Small business location can also influence its cost. According to The 2021 Business Cost Index by Approve, “Oklahoma, Texas, and Kentucky are the three cheapest states to run a business. Whereas, the most expensive ones are New Jersey, California, and Vermont.”

Employee Payroll Or Contractor Services

Indeed, employees bring expertise to the cause but these are another big expenditure. The Bureau of Labor Statistics proposed that the average non-government employee expense is $41.03 to $43.26 per hour.

Based on the Bureau of Labor Statistics wage, “The average employee may cost you roughly $85,000 to $90,000, for 2,080 working hours in a year. So if you have 5 employees, you’ll have to project costs for $425,000 to $450,000.

According to the Small Business Administration, “The estimated employee costs have to be around 1.25 to 1.4 times their salary.” It is another way to calculate total employee costs with the budget for salary, allowances, and taxes. By this means, an employee with a $50,000 annual salary would cost between $62,500 and $70,000 for expenses.

Source: Small Business Administration, Bureau of Labor Statistics

Average Small Business Cost By Industry

The average startup costs greatly depend on the field or industry aspiring entrepreneurs hope to tap into. The chosen industry for a business determines the entire business model, inventory needs, marketing strategy and costs of goods or services sold manufactured.

A closer breakdown of industry averages follows:

Industry	Averages
Food and Restaurants	$375,000
Construction	$37,390
Retail	$39,210
Arts	$32,960
Entertainment	$12,272

Source: Restaurant Owner, Starter Story

Sum Up

In a final analysis, small business can manage their startup costs by paring back business expenses to earn extra revenue.

Some business models require very little upfront costs in other states. Countless aspiring entrepreneurs with humble beginnings succeed in the U.S. just because of their immigration business plan.

Think through cutting down overhead to save on start-up costs. Initiating with online business to reduce office space and insurance costs can aid in managing finance.

For more statistical articles, check out ‘Average Small Business Revenue,’ ‘How Many Small Businesses Fail Each Year,’ and ‘Number of Small Businesses in the US.’