cost of sales in business plan

And if (or more likely when ) those goals change over time, you need to regularly communicate those shifts and the strategic adjustments that come with them to your team.

Your sales strategy keeps your sales process productive — it offers the actionable steps your reps can take to deliver on your vision and realize the goals you set. So naturally, you need to communicate it effectively. A sales plan offers a solid resource for that.

For instance, your sales org might notice that your SDRs are posting lackluster cold call conversion rates. In turn, you might want to have them focus primarily on email outreach, or you could experiment with new sales messaging on calls.

Regardless of how you want to approach the situation, a thoughtfully structured sales plan will give both you and your reps a high-level perspective that would inform more cohesive, effective efforts across the team.

An effective sales org is a machine — one where each part has a specific function that serves a specific purpose that needs to be executed in a specific fashion. That's why everyone who comprises that org needs to have a clear understanding of how they specifically play into the company's broader sales strategy.

Outlining roles and responsibilities while sales planning lends itself to more efficient task delegation, improved collaboration, overlap reduction, and increased accountability. All of which amount to more streamlined, smooth, successful sales efforts.

Sales planning can set the framework for gauging how well your team is delivering on your sales strategy. It can inform the benchmarks and milestones reps can use to see how their performance stacks up against your goals and expectations.

It also gives sales leadership a holistic view of how well a sales org is functioning as a whole — giving them the necessary perspective to understand whether they have the right people and tools in place to be as successful as possible.

Sales planning isn‘t (and shouldn’t) be limited to the actual sales plan document it produces. If that document is going to have any substance or practical value, it needs to be the byproduct of a thorough, well-informed, high-level strategy.

When sales planning, you have some key steps you need to cover — including:

• Gather sales data and search for trends.
• Define your objectives.
• Determine metrics for success.
• Assess the current situation.
• Start sales forecasting.
• Identify gaps.
• Ideate new initiatives.
• Involve stakeholders.
• Outline action items.

When putting this list together, I consulted  Zach Drollinger — Senior Director of Sales at edtech provider Coursedog — to ensure the examples detailed below are sound and accurate.

Step 1: Gather sales data and search for trends.

To plan for the present and future, your company needs to look to the past. What did sales look like during the previous year? What about the last five years? Using this information can help you identify trends in your industry. While it's not foolproof, it helps establish a foundation for your sales planning process.

For the sake of example, let‘s say that I’m a new sales director for an edtech company that sells curriculum planning software to higher education institutions. My vertical is community colleges, and my territory is the East Coast.

Once I assume this new role, I‘m going to want to gather as much context as possible about my vertical and how my company has approached it historically. I would pull information about how we’ve sold to this vertical.

How much new business have we closed within it in the past five years? How does that compare to how we perform with other kinds of institutions? Are we seeing significant churn from these customers?

I would also want to get context about the general needs, interests, and pain points of the kinds of institutions I‘m selling to. I’d look for insight into figures like degree velocity, staff retention, and enrollment.

Ultimately, I would get a comprehensive perspective on my sales process — a thorough understanding of where I stand and what my prospects are dealing with. That will ensure that I can deliver on the next step as effectively as possible.

Step 2: Define your objectives.

How do you know your business is doing well if you have no goals? As you can tell from its placement on this list, defining your goals and objectives is one of the first steps you should take in your sales planning process. Once you have them defined, you can move forward with executing them.

To extend the example from the previous step, I would leverage the context I gathered through the research I conducted about both my and my prospect's circumstances. I would start setting both broader goals and more granular operational objectives .

For instance, I might want to set a goal of increasing sales revenue from my vertical. From there, I would start putting together the kind of specific objectives that will facilitate that process — like connecting with administrators from at least 30 community colleges, booking demos with at least 10 schools, and successfully closing at least five institutions.

Obviously, those steps represent a streamlined (and unrealistically straightforward) sales process, but you get the idea — I would set a concrete goal, supplemented by SMART objectives , that will serve as a solid reference point for my org's efforts as the sales process progresses.

Step 3: Determine metrics for success.

Every business is different. One thing we can all agree on is that you need metrics for success. These metrics are key performance indicators (KPIs). What are you going to use to determine if your business is successful? KPIs differ based on your medium, but standard metrics are gross profit margins, return on investment (ROI), daily web traffic users, conversion rate, and more.

I kind of covered this step in the previous example, but it still warrants a bit more elaboration. The “M” in SMART goals (“measurable”) is there for a reason. You can‘t tell if your efforts were successful if you don’t know what “successful” actually means.

The edtech sales example I‘ve been running with revolves mostly around me assuming ownership of an existing vertical and getting more out of it. So it’s fair to assume that sales growth rate — the increase or decrease of sales revenue in a given period, typically expressed as a percentage — would be an effective way to gauge success.

I might want to structure my goals and objectives around a sales growth rate of 20% Y/Y within my vertical. I would make sure my org was familiar with that figure and offer some context about what it would take to reach it — namely, how many institutions we would need to close and retain.

Step 4: Assess the current situation.

How is your business fairing right now? This information is relevant to determining how your current situation holds up to the goals and objectives you set during step two. What are your roadblocks? What are your strengths? Create a list of the obstacles hindering your success. Identify the assets you can use as an advantage. These factors will guide you as you build your sales plan.

Continuing the edtech example, I would use the historical context I gathered and the objectives I set to frame how I look at my current circumstances. I might start by considering my goal of increasing revenue by 20% Y/Y. In that case, I would look at the company's retention figures — ideally, that would give me a sense of whether that needs to be a major area of focus.

I would also try to pin down trends in the colleges that we've already closed — are there any pain points we consistently sell on? I might take a closer look at how we demo to see if we might be glossing over key elements of our value proposition. Maybe, I would use conversation intelligence to get a better sense of how reps are handling their calls.

Ultimately, I would try to identify why we're performing the way we are, the inefficiencies that might be resulting from our current strategy, and how we can best set ourselves up to sell as effectively as possible.

Step 5: Start sales forecasting.

Sales forecasting is an in-depth report that predicts what a salesperson, team, or company will sell weekly, monthly, quarterly, or annually. While it is finicky, it can help your company make better decisions when hiring, budgeting, prospecting, and setting goals.

After the COVID-19 pandemic, economics has become less predictable. Claire Fenton , the owner of StrActGro — a professional training and coaching company — states, “Many economic forecasters won't predict beyond three months at a time.” This makes sales forecasting difficult. However, there are tools at your disposal to create accurate sales forecasts .

In our edtech example, I would approach this step by trying to estimate how my sales org is going to fare with the specific vertical we‘re pursuing in the time window we’ve allotted.

The method I decide to go with will depend on factors like how many concrete opportunities we have lined up — in addition to elements like the kind of historical data we have handy, how the reps working these deals tend to perform, and the degree of insight we have about our potential customers.

Let's say I consider those factors and decide to run something called a multivariable analysis. In that case, I could start by taking stock of the opportunities my reps have lined up. Then, I could look at the reps working those deals, their typical win rates, and the time they have to close — among other factors.

For instance, I might calculate that a rep working with a particularly large institution has a 50% chance of closing within the window we‘ve allotted. Using that insight, we could attribute 50% of the potential deal size to our forecast — we’d repeat that process with all of the opportunities in question and ideally get a solid sense of the revenue we can expect to generate in this window.

Step 6: Identify gaps.

When identifying gaps in your business, consider what your company needs now and what you might need in the future. First, identify the skills you feel your employees need to reach your goal. Second, evaluate the skills of your current employees. Once you have this information, you can train employees or hire new ones to fill the gaps.

Continuing the edtech example, let‘s say my forecast turned up results that weren’t in keeping with what we need to reach our goals. If that were the case, I would take a holistic look at our process, operations, and resources to pin down inefficiencies or areas for improvement.

In my search, I find that our sales content and marketing collateral are dated — with case studies that don‘t cover our product’s newest and most relevant features. I also might see that our reps don‘t seem to have too much trouble booking demos, but the demos themselves aren’t converting due to a lack of training and inconsistent messaging.

And finally, I find that a lack of alignment with marketing has prospects focusing on unrealistic outcomes our sales team can‘t deliver on. Once I’ve identified those gaps, I would start to hone in on ways to remedy those issues and improve those elements.

Step 7: Ideate new initiatives.

Many industry trends are cyclical. They phase in and out of “style.” As you build your sales plan, ideate new initiatives based on opportunities you may have passed on in previous years.

If your business exclusively focused on word-of-mouth and social media marketing in the past, consider adding webinars or special promotions to your plan.

In the edtech example we've been running with, I would likely ideate initiatives based on the gaps I identified in the previous step. I would start a push to ensure that our sales content and marketing collateral are up-to-date and impressive.

I would also consider new training programs to ensure that our coaching infrastructure is prioritizing how to conduct effective demos. Finally, I would start to work on a plan with marketing to ensure our messaging is aligned with theirs — so we can make sure prospects' expectations are realistic and effective.

One way or another, I would take the gaps I found and find concrete, actionable ways to fill them. I would make sure that these initiatives aren't abstract. Just saying, " We're going to be better at demos," isn‘t a plan — it’s a sentiment, and sentiments don't translate to hard sales.

Step 8: Involve stakeholders.

Stakeholders are individuals, groups, or organizations with a vested interest in your company. They are typically investors, employees, or customers and often have deciding power in your business. Towards the end of your sales planning process, involve stakeholders from departments that affect your outcomes, such as marketing and product. It leads to an efficient and actionable sales planning process.

This step is sort of an extension of the previous two — once I‘ve identified the key issues and roadblocks obstructing my edtech startup’s sales org, I would start identifying the right people to fulfill the necessary initiatives I've put together.

In this example, I would tap some stakeholders in charge of our sales content and marketing collateral to produce newer, more relevant case studies and whitepapers we can pass along to the institutions we're working with.

I would also go to middle management and either offer more direction for coaching on demos or bring in a third-party training service to offer more focused, professional insight on the issue.

Finally, I would connect with marketing leadership to align on the benefits and outcomes we generally stress when pitching the schools we sell to. That way, we can ensure that the institutions we're connecting with have realistic expectations of our product or service that we can speak to more clearly and effectively.

Step 9: Outline action items.

Once you have implemented this strategy to create your sales planning process, the final step is outlining your action items. Using your company's capacity and quota numbers, build a list of steps that take you through the sales process. Examples of action items are writing a sales call script, identifying industry competitors, or strategizing new incentives or perks.

In our edtech example, some key action items might be:

• Revamp our prospecting strategy via more involved coaching and re-tooled sales messaging.
• Revamp administrator and college dean buyer personas.
• Conduct new trainings on demoing our software.
• See our new prospecting strategy from ideation to execution.
• Align with our sales enablement stakeholders for new, more relevant case studies and whitepapers.

Obviously, that list isn‘t exhaustive — but those are still the kinds of steps we would need to clarify and take to structure a more effective high-level strategy to produce different (ideally much better) results than we’ve been seeing.

One thing to keep in mind is that sales planning shouldn't end with creating the document.

You‘ll want to reiterate this process every year to maintain your organization's sales excellence.

Now that you‘re committed to the sales planning process, let's dive into the written execution component of sales planning.

Featured Resource: Sales Plan Template

Don't forget to share this post!

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Blog / Small business tips / How to calculate cost of sales (with examples provided)

How to calculate cost of sales (with examples provided)

Cost of sales, or cost of goods sold (COGS), can be daunting when running a business. For your company to be profitable, you must be well-versed in managing cash flow and operating at optimum efficiency. 

While the definition of cost of sales is straightforward to understand, the calculation can be complex depending on your products. The cost of sales formula includes various direct and indirect costs, which can make things more complicated. 

In this article, we’ll have a closer look at these costs and show you how to carry out the cost of sales calculations alongside various other metrics. 

Quick Tip: It’s important that you have a general understanding of small business accounting as a whole. This includes how to open a business bank account , track your expenses , calculate your business tax, and more. To gain a high-level overview, we recommend reading our beginner’s guide to small business accounting .

Table of contents

What to include in your cost of sales, cost of sales formula, examples of cost of sales, what is excluded from cost of sales, other important ratios to consider, manage your cash flow with ease.

Before we look at the cost of sales formula, let’s explore the three values you’ll need to complete the calculation: beginning inventory, ending inventory and additional inventory .

Beginning Inventory: This is the inventory when you start a new accounting period. It includes the products and raw materials left over from the previous period. 

Additional Inventory: This is the inventory purchased during the specified period.

Ending Inventory: This is the inventory the company has left at the end of the specified period, including the products and raw materials that didn’t sell during that time.

Now that you have a deeper understanding of what contributes to your cost of sales, let’s put all of them together into the final formula:

Cost of sales = (Beginning Inventory + New Inventory) – Ending Inventory.

You’ll need to know the inventory cost method that your business or accountant is using. 

Different approaches are used depending on how your company manages its costs, which impacts the value of cost of sales. 

Businesses use the following three inventory cost methods : 

• FIFO (First in, first out)
• LIFO (Last in, first out)
• Average cost method

In this method, the earliest manufactured or purchased goods are sold first. Considering prices rise over time, you sell your least expensive items first. 

Therefore, the value of cost of sales using FIFO will be relatively lower . You can apply this method when selling items with a shorter shelf life. 

This method is the opposite of FIFO, where the most recently manufactured or purchased goods get sold first. During periods of inflation, you will sell your items that came at a higher cost first.

Therefore, the value of cost of sales using LIFO will be relatively higher than when using the FIFO method.

Weighted average cost

In this method, the average cost of all purchased or manufactured inventory is used, regardless of the purchase or production date. 

It prevents inaccurate or extreme values , making it much easier to calculate cost of sales, profitability, and taxes.

To better understand how to calculate cost of sales, we’ve given an example of a fictional business below. These calculations can look different if there’s inflation in inventory, which brings the inventory cost methods into play. 

1. No inventory inflation

Let’s start with calculating cost of sales for TERRA T-shirts, a company that recently began operating.  

Beginning inventory: 0.

Additional inventory: They bought 500 t-shirts from a wholesaler for £5 each at the beginning of the year. Thus, 500 x £5 = £2,500.

Ending inventory: By the end of the year, they had sold 350 t-shirts for £8, leaving 150 unsold. Thus, (500-350) x £5 = £750.

Next, we plug these numbers into the cost of sales formula:  

Cost of sales = Beginning Inventory + Additional Inventory – Ending Inventory

= 0 + £2,500 – £750

2. Inventory inflation included

Now, let’s see how cost of sales is calculated when applying the three inventory cost methods . 

This time, TERRA T-shirts bought 250 t-shirts for £5 in January, then another 250 t-shirts for the inflated price of £7 in February. 

Beginning Inventory: 0.

Additional Inventory:

Ending Inventory: By the end of the year, they had sold 225 t-shirts for £8, leaving 275 unsold. 

Depending on the inventory cost method used, the cost of sales value will differ:

According to the Generally Accepted Accounting Principles (GAAP) , cost of sales is the cost of inventory sold during any given period.

But what about companies that don’t have any inventory at all? These could include:

• SaaS businesses
• Business consultants
• Professional dancers
• Accounting firms

As they have zero cost of sales, this won’t be visible on income statements.

That doesn’t mean they don’t have any expenses. Such companies may still be subject to operating expenses (OpEx) . 

Examples of typical operating expenses for small business owners:

• Office stationery and equipment
• Utility bills

Cost of revenue refers to all expenses involved in delivering a product or service to customers. As such, it extends beyond the manufacturing costs covered by COGS to include marketing and distribution expenses.

Examples of cost of revenue expenses :

•  Direct labour
•  Cost of shipping
• Raw materials

Cost of sales are used in various other metrics and ratios to help you keep the financial health of your business on track. Here are a few ratios where cost of sales is used :

1. Gross Margin 

What is it? The percentage of sales revenue a company retains after incurring all cost of sales.

Formula: Gross margin = (Sales Revenue – Cost of Sales) / Sales Revenue x 100

Example: In 2021, Company X reported their total revenue at £800,000 and cost of sales at £400,000.  

Gross margin = (£800,000 – £400,000) / £800,000 x 100 → 50%

2. Cost of Sales Ratio

What is it? It shows the percentage of sales revenue used to pay for expenses that vary directly with sales.

Formula: Cost of sales ratio = Cost of Sales/ Net Sales x 100

Example: At the end of the year, Company X’s total net sales are £700,000, and their cost of sales is £500,000.

Cost of sales ratio = (£500,000 / £700,000) x 100 → 71.4%

3. Inventory Turnover

What is it? It shows how often a company has sold and replaced inventory during a given period. 

Formula: Inventory turnover = Cost of Sales / Average Inventory

Example: At the beginning of the year, Company X had £350,000 worth of inventory. They bought £500,000 worth of additional inventory. By the end of the year, they had £250,000 worth of inventory left.

Cost of sales = 350,000 + 500,000 – 250,000 → 600,000 Inventory turnover = 600,000/(350,000+250,000/2) → 2

In our adjoining article Cost of sales: what you need to know for your business , we dive deeper into why it’s important to know these costs, and how they can optimise your cash flow.

The formulas and calculations in this article are stellar for figuring out your profit margins , forecasting your cash flow and maintaining profitability. Keeping track of your cost of sales will help you better understand which areas of production are eating up most of your money and where you can increase efficiency. 

At Tide, we automate your small business accounting. 

Our accounting software takes care of bookkeeping and taxes, so you can go back to doing what you love. Access P&L reports, insights and more in real-time, giving you a greater understanding of your business’s financial health.

Photo by Andrea Piacquadio, published on Pexels

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Elevate Pricing with Elasticity

Optimise Pricing with Sensitivity

Blogs & articles, how to write a pricing strategy for my business plan.

In this blog you will learn about the importance of choosing the right pricing strategy for a successful business plan.

Why is a pricing strategy important for a business plan?

A business plan is a written document outlining a company’s core business practices – from products and services offered to marketing, financial planning and budget, but also pricing strategy. This business plan can be very lengthy, outlining every aspect of the business in detail. Or it can be very short and lean for start ups that want to be as agile as possible.

This plan can be used for external investors and relations or for internal purposes. A business plan can be useful for internal purposes because it can make sure that all the decision makers are on the same page about the most important aspects of the business.

A 1% price increase can lead to an 8% increase in profit margin.

A business plan could be very lengthy and detailed or short and lean, but in all instances, it should have a clear vision for how pricing is tackled. A pricing strategy ultimately greatly determines the profit margin of your product or service and how much revenue the company will make. Thorough research of consultancy agencies also show that pricing is very important. McKinsey even argues that a 1% prices increase can lead up to an 8% increase in profits. That is a real example of how small adjustments can have a huge impact!

It is clear that each business plan should have a section about pricing strategies. How detailed and complicated this pricing strategy should be depends for each individual business and challenges in the business environment. However, businesses should at least take some factors into account when thinking about their pricing strategy.

What factors to take into account?

The pricing strategy can best be explained in the marketing section of your business plan. In this section you should describe what price you will charge for your product or service to customers and your argumentation for why you ask this. However, businesses always balance the challenging scale of charging too much or too little. Ideally you want to find the middle, the optimal price point.

The following questions need to be answered for writing a well-structured pricing strategy in your business plan:

What is the cost of your product or service?

Most companies need to be profitable. They need to pay their expenses, their employees and return a reasonable profit. Unless you are a well-funded-winner-takes-all-growth-company such as Uber or Gorillas, you will need to earn more than you spend on your products. In order to be profitable you need to know how much your expenses are, to remain profitable overall.

How does your price compare to other alternatives in the market?

Most companies have competitors for their products or services, only few companies can act as a monopoly. Therefore, you need to know how your price compares to the other prices in the market. Are you one of the cheapest, the most expensive or somewhere in the middle?

Why is your price competitive?

When you know the prices of your competitors, you need to be able to explain why your price is better or different than that of your competitions. Do you offer more value for the same price? Do you offer less, but are you the cheapest? Or does your company offer something so unique that a premium pricing strategy sounds fair to your customer? You need to be able to stand out from the competition and price is an efficient differentiator.

What is the expected ROI (Return On Investment)?

When you set your price, you need to be able to explain how much you are expeciting to make. Will the price you offer attract enough customers to make your business operate profitable? Let’s say your expenses are 10.000 euros per month, what return will your price get you for your expected amount of sales?

Top pricing strategies for a business plan

Now you know why pricing is important for your business plan, “but what strategies are best for me?” you may ask. Well, let’s talk pricing strategies. There are plenty of pricing strategies and which ones are best for which business depends on various factors and the industry. However, here is a list of 9 pricing strategies that you can use for your business plan.

• Cost-plus pricing
• Competitive pricing
• Key-Value item pricing
• Dynamic pricing
• Premium pricing
• Hourly based pricing
• Customer-value based pricing
• Psychological pricing
• Geographical pricing

Most of the time, businesses do not use a single pricing strategy in their business but rather a combination of pricing strategies. Cost-plus pricing or competitor based pricing can be good starting points for pricing, but if you make these dynamic or take geographical regions into account, then your pricing becomes even more advanced!

Pricing strategies should not be left out of your business plan. Having a clear vision on how you are going to price your product(s) and service(s) helps you to achieve the best possible profit margins and revenue. If you are able to answer thoughtfully on the questions asked in this blog then you know that you have a rather clear vision on your pricing strategy.

If there are still some things unclear or vague, then it would be adviceable to learn more about all the possible pricing strategies . You can always look for inspiration to our business cases. Do you want to know more about pricing or about SYMSON? Do not hesitate to contact us!

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

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How to Calculate Business Startup Costs

Starting a business from scratch takes a lot out of you, even before you begin operating—whether it’s about selecting a revenue model, securing startup funding, or estimating startup costs.

I already knew it was challenging for entrepreneurs to calculate the startup costs accurately.

However, when I turned up to my computer, researching this article, I discovered so many challenges new business owners face while estimating startup costs that I had overlooked or didn’t pay much attention to earlier.

Thousands of startups close down every single year. 38% of them fail solely because they underestimated their startup costs and ran out of cash. You can’t ignore something like that, can you?

That said, I’m ready to pour my research into the article to help you calculate your business startup costs .

So, you’re ready to begin? Let’s dive right in.

Key Takeaways

• Startup costs are the expenses a startup must bear in the process of starting a new business, while operational costs are the expenses that are incurred during daily operations.
• Different types of business structures, such as sole proprietorships, partnerships, and corporations, have different costs.
• Business insurance, formation fees, licensing and permits, and marketing are some of the most common business startup costs.
• A modern financial forecasting tool is the most efficient method for calculating startup costs.

How much does it cost to start a business?

Startup costs for a small business depend on various factors like business model, location, industry, and scale of operations. Although it’s tough to estimate precisely, Guidant Financial’s 2023 survey reported that the average cost of starting a small business falls between $50K and $1 million .

You must consider the industry, business category, working capital requirements, and other common expenses associated with the business for the accurate estimation of startup costs.

Let’s kickstart this guide by discussing the common startup expenses to consider while starting a new venture.

Common Business Startup Costs to Consider

It is a typical list of expected business startup costs with rough cost estimates you must plan for while starting a new business. Your actual startup costs will entirely depend on your business category and the industry you serve.

Following are some of the most common startup costs to consider:

1. Equipment and tools

It’s no surprise we’re starting the list with equipment and tools. There’s no way a business can operate without the necessary equipment. The equipment costs may range from $10,000 to $120,000 . However, these costs will entirely depend on the business type and equipment requirements.

For instance, starting a food truck would require financing a food truck and expensive kitchen equipment, while starting a small daycare would only require purchasing a few play area equipment.

Here are the average equipment costs for some of the popular business types:

• Restaurant and food trucks: $24,000 to $120,000+
• Small Bakery: $6,000 to $8,000
• Clothing line: $2,000 to $15,000+
• Construction: $10,000 to $50,000
• Law firm: $5,000 to $25,000+
• Barbershop: $1,000 to $2,000

2. Incorporation fees

The first thing you should do is choose a business entity when you plan to form a new business. The most common and preferred business structure types include sole proprietorship, partnership, corporation, and LLC.

The business incorporation or filing fees can range from $50 to $725 in the United States depending on your industry, the state you operate in, and the business structure you choose.

However, the average incorporation fee is $300 in the majority of the states in the US. You may contact your secretary of state’s website to learn more about the filing fees or process for the articles of incorporation or articles of organization.

3. Business licensing and permits

Operating any small business requires specific licenses and permits depending on the industry compliance and regulations. For instance, a trucking company requires a USDOT number, heavy vehicle use tax, and others, while a restaurant may need licenses like food safety and liquor licenses to operate.

Similar to different filing fees for other business structures, the business licensing and permit fees vary depending on the business industry and regulatory compliance. You can expect to spend between $1,000 to $5,000 for your licensing and permitting requirements.

4. Office or retail space

If you’re starting a small business that can be operated from home like a home bakery or an online clothing store, you may not have to worry about office space costs.

But if it’s not the case, paying for an office or a retail space would make up a sizable portion of your fixed expenses, no matter whether you rent or buy the place.

Based on our research, you should spend around $100 to $1200 per employee monthly on your workspace.

However, the actual office space expense will entirely depend on your location and the type of space you’re using.

5. Legal and professional fees

Professional and legal fees may sound like an additional expense while starting up with limited resources, but it’s essential to ensure compliance with regulations and maintain accurate financial records.

You may choose legal assistance for business licensing, EIN registration, and legal paperwork, a business consultant for market research and strategic planning, and an accountant for bookkeeping and tax planning.

You can hire these professional consultants on an hourly basis; their services typically cost around $40 to $150 per hour.  You should spend around $2,000 to $10,000 per year on professional and legal fees.

6. Inventory

Retail, wholesale, distribution, and manufacturing—if your small business falls under any of the mentioned categories, you need an inventory to operate your business. Finding the ideal inventory size to carry can be challenging when entering a new marketplace.

You want to attract more and more customers and make sales in your early days. However, you can’t also risk having too much inventory since it can increase spoilage.

Consider allocating 15% to 25% of your budget to inventory, depending on your industry. You will eventually learn more about inventory management once your business starts operating and making sales.

7. Marketing and advertising

Although it’s an optional expense, marketing is something worth investing in. Your marketing expenses may include physical materials like sign boards, banners, hoarding, paid social media advertising and search ads, or money paid to marketing agencies or consultants.

It is suggested to keep your advertising and promotion costs under 10% of your budget. If you’re working on a really tight budget, there’s no need to spend big bucks on marketing or hire fancy consultants or agencies.

With social media being a free marketing platform, over 47% of small business owners run their marketing efforts themselves, and you can do it, too.

8. Website development

A business website is like an online office where customers can contact you, learn more about your offerings, and seek assistance.

When building a website, make sure it looks professional, is easy to navigate, and displays the relevant information about your product and service offerings, as well as the contact information.

You can either develop a business website using website builders like Wix and Squarespace or hire a developer to do it for you.

Creating a website can range between $1,000 to $10,000 when you hire a developer, whereas you can do it on your own with website builders by spending around 40 dollars a month.

9. Business Insurance

Like you have a house, car, and health insurance, you need business insurance to ensure your business remains intact in troublesome and inevitable times, be it a natural disaster or a customer filing a lawsuit against your business.

The level of security and type of business insurance your business will require depends entirely on your business, industry, and the number of employees you have. For instance, a big-scale manufacturing company with over a thousand employees would require much stronger insurance compared to a home bakery.

Some of the must-have business insurance types include:

• General liability insurance—for all online, offline, and home-based businesses.
• Worker’s compensation insurance—for businesses with 1 or more employees.
• Professional liability insurance—for businesses offering consulting services.

You must expect to spend approximately $500 to $1500 annually on business insurance.

10. Payroll

Payroll is undoubtedly one of the major business expenses most businesses incur. However, there’s no denying how crucial it is to hire quality employees to make your business thrive.

Of course, payroll expenses are employee salaries, but there’s more to it. Your payroll expenses may also include:

• Incentive or bonus
• Commissions
• Paid time off
• Overtime pay
• Travel allowance
• Other benefits

Most businesses spend around 20% to 50% of their monthly budget on payroll. It can be more or less for your business depending on your business and the number of employees you have.

11. Office furniture and supplies

Those planning to have a traditional nine-to-five corporate workplace, be ready to spend some severe bucks on office furniture and office supplies.

When you operate from a corporate workspace, you need a desk, chair, telephone extension, computer, computer programs like accounting software, and, of course, a coffee machine or two.

The cost of furniture and supplies depends solely on your employee strength and the size of the office. However, it’s recommended to keep your furniture and supply costs to 10% of your total startup costs.

12. Utilities

No matter whether you plan to rent or purchase a workspace, you are bound to pay utility bills that include electricity, gas, water, internet, and phone bills for your office.

Unlike other fixed costs, it’s hard to estimate utility expenses, but the average cost of utilities for commercial buildings is $2.10 per square foot , according to a report by Iota Communications .

Besides the electricity, internet, and phone bills, the utility expenses may also incur the HVAC unit installation costs. This heating and cooling system will add a few additional thousand dollars to your startup expenses.

13. Business taxes

How much you’d spend on business taxes will depend on your business entity, tax-deductible expenses, and revenue. Since it’s hard to predict your revenue, estimating the exact amount to allocate for tax preparation may feel a bit challenging.

Under US federal law, corporations pay a flat 21% corporate income tax . If you’re a pass-through entity(a legal entity that passes all its income on to the owners), the business income or losses will pass through to your personal taxes.

However, you, as a pass-through entity, can claim a 20% deduction on income before paying taxes.

 14. Other expenses

Since you’ve reached this section, you must already have a clear understanding of all the expected startup costs, whether they are one-time or recurring expenses.

Here, we will discuss the other costs most small business owners tend to miss or overlook while estimating the startup costs— research expenses and borrowing costs .

Capital is required for starting a business, and equity financing and debt financing are considered to be the most preferred ways to acquire the initial working capital.

Equity financing, however, does not apply to most small businesses since it requires stock issuance. So, securing a small business loan seems to be the most likely source of debt financing for small business owners.

Research expenses, on the other hand, are the expenses incurred even before you started operating, spent on conducting a careful industry analysis and market research.

When calculating your startup costs, make sure to include these two as well.

Since we have already discussed common business expenses, let’s move on discussing calculating the startup costs.

How to Calculate the Costs of Starting a Business

There are various ways to calculate the cost of starting a business. Still, drafting a business plan remains the best way to estimate startup costs.

The financial forecasting section of your plan provides three to five-year projections of revenue, profit, and expense.

The other resources for estimating startup costs include using Upmetrics’ startup costs worksheet or calculator . These resources will help you estimate the initial investment required and determine how much capital or financing you’ll need.

Know that many of the common business expenses we discussed earlier are recurring, with some of them being one-time expenses.

Be sure to categorize them and calculate the recurring expenses on a monthly, quarterly, and annual basis. In contrast, consider expenses like incorporation fees and equipment financing one-time costs.

Sounds like a lot to digest? Get a business planning software like Upmetrics and calculate startup costs in minutes with AI-powered financial forecasting .

Save hours estimating startup costs with Upmetrics

Estimate costs, forecast financials, and prepare a business plan all in one place

Plans starting from $7/month

Calculating Startup Costs for Your Small Business

Does your business fall under one of these categories? Excellent. We have startup cost guides for all the business categories listed below. Get a cost estimate for starting the business you plan to launch.

How to Reduce Your Business Startup Costs

Starting a business means being prepared to bear some non-negotiable expenses; there’s no other way around. However, sound research and thoughtful planning can help you save on high-ticket purchases—ultimately reducing your startup costs.

For instance, hiring professional business plan writers can be expensive for a business owner on a tight budget to create a business plan, so they can opt for a business planning software like Upmetrics to draft a business plan at a much lesser cost.

It was just an example, here are a few tips to help you reduce your business startup costs.

1. Create a business plan

It doesn’t make sense. Isn’t it another business expense? How will it reduce costs? Some of you must be having this line of questioning in your mind, but let us clear it up for you.

Brainstorming and listing all the important business costs, and estimating your total startup costs is challenging. Missing out on some critical expenses tends to happen. However, creating a comprehensive business plan makes things easier.

An AI-powered tool like Upmetrics makes sure you don’t miss out on any critical information and helps you properly estimate your startup costs.

Remember, accurate estimation of startup costs is your first step to reducing them.

2. Start small

You don’t need everything or a perfect business setup when you are not making any sales, forget about the business profits. Start small with limited resources and grow your business as it grows financially.

For instance, instead of having a big fancy office for your startup, start with a remote team or a co-working space until you raise capital or gather the necessary resources.

One way of doing that would be listing all the major high-ticket expenses and researching competitive alternatives for them.

3. Lease instead of purchasing

Of course, having your own office or a retail space feels good, but not at the cost of more than 70% of your budget for starting a business. Prefer leasing the place instead of purchasing.

It will leave you with enough working capital or cash to efficiently manage your business operations and handle the other non-negotiable costs.

Furthermore, there’s no guarantee your storefront will find success at the very first location; you may have to relocate if things don’t work out. The further process will be more straightforward with leasing, whereas the same won’t be the case when you own the place.

4. Buy used equipment, tools, or furniture

Since you’re looking for ways to reduce costs and save money, there’s no way for you to have brand-new business equipment, tools, and furniture. You can look for used equipment, tools, and furniture on online selling sites like eBay and Etsy.

Be sure to thoroughly check the equipment before purchasing to avoid any future restoration or repair costs.

5. Funding and business credit card

Now that you have a long list of capital expenditures, you will need financing or funding to manage all these costs. You can’t simply do it all on your own, can you?

It won’t reduce the startup costs but will help you get resources to manage them. Your funding options include debt and equity financing. You may apply for a business loan, reach out to angel investors, or apply for business grants to secure the initial investment for your business.

With limited debt financing options, it could be tough to get through. Applying for a business credit card can be a more accessible alternative to a business loan. You can easily qualify for it while also gaining a higher credit limit than your personal credit card.

Make sure you’re not totally relying on it or taking out more than you can repay. This can negatively impact your credit score, making it harder for you to secure business loans in the future.

And, the final section leads us to our conclusion!

And there you have it. We hope now you have a better understanding of startup cost calculation. What’s next? It’s time to estimate the actual costs of starting a business, be it a bakery, restaurant, or hot shot trucking, and start budgeting.

Get your hands on the modern and AI-powered business planning solution, Upmetrics—and create precise startup cost projections in minutes, just like that.

Frequently Asked Questions

What is the average cost to start a small business.

It is a question with a broad scope for the answer since you can start a business with an initial investment of $100, $1,000, and up to a million dollars or even more. However, the startup and first-year operational expenses fall somewhere between $30,000 to $40,000.

How do you calculate startup costs?

The most easy-to-use method to calculate startup costs is to create a business plan. It’s easier than ever to calculate your startup costs using a tool like Upmetrics. 

Simply head to the financial forecasting feature, get AI suggestions to list your startup and organizational costs, add remaining costs, and let it make the automated calculations for you.

What are business startup costs?

Business startup costs are expenses incurred when starting a new business. These can be your marketing costs, payroll expenses, or any other costs involved. These can either be recurring or one-time costs. 

For instance, your advertising costs are recurring, whereas incorporation fees are a one-time expense. Although there can be some common startup expenses, the value or costs for them may not be the same for two different businesses.

What is the difference between startup costs and operational expenses?

Startup costs are the expenses small businesses incur when starting a new business, whereas operational expenses are those incurred during normal day-to-day business operations. 

For instance, equipment financing can be considered a startup cost, whereas inventory or marketing costs can be your operational expenses.

What are the examples of start-up costs?

The following can be considered as a few examples of startup costs:

• Equipment costs
• Inventory expenses
• Business licenses and permits
• Marketing and advertising expenses
• Payroll expenses
• And others.

About the Author

Vinay Kevadiya

Vinay Kevadiya is the founder and CEO of Upmetrics, the #1 business planning software. His ultimate goal with Upmetrics is to revolutionize how entrepreneurs create, manage, and execute their business plans. He enjoys sharing his insights on business planning and other relevant topics through his articles and blog posts. Read more

How to Calculate the Cost of Sales

• Small Business
• Accounting & Bookkeeping
• Calculate Costs
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What Are the Elements of the Gross Profit Ratio?

How to figure sales percentages, what is the difference between sales & production.

• What Is Merchandising Inventory?
• The Advantages of the Gross Profit Method

The cost-of-sales figure is a valuable financial metric for businesses because it measures all the costs to make and sell a product. Business managers analyze and monitor their cost of sales to make sure the expenses are within budgeted estimates, and the company is making a profit. However, for the cost-of-sales figure to be accurate, it must include all purchase and production costs and all indirect costs. Cost of sales is also known as cost of goods sold (COGS).

COGS Production Categories

• Materials used in the manufacture of a product
• Indirect materials used to support the making of product
• Direct labor required to fabricate a product
• Indirect labor needed in manufacturing
• Cost of production facilities

Calculating the Cost of Materials

For a retailer, the material costs are the costs of purchasing products that they intend to resell. A manufacturer, on the other hand, has material costs that include raw materials and parts used to assemble the final products. The formula for determining the material costs for both types is the same:

Material Costs = Beginning Inventory + Purchases- Supplier Discounts - Returns to Suppliers - Ending Inventory

Worked Example

Consider a sample calculation of the cost of sales for Bob's Boot Store, a retailer.

• Beginning Inventory                        $85,000
• Plus Purchases                                  $64,000
• Less Supplier Discounts                    $2,500
• Less Returns to Suppliers                 $1,100
• Less Ending Inventory                    $67,000
• Total Cost of  Sales                           $78,400

The method for calculating the cost of materials for a manufacturer is the same but with a slightly different meaning. The following is a sample calculation of materials costs for Blue Widget Corporation:

• Beginning Inventory of Raw Materials and Parts                           $93,400
• Plus Purchases of Materials and Parts                                               $78,600
• Less Supplier Discounts                                                                               $800
• Less Returns to Suppliers                                                                        $1,700
• Less Ending Inventory of Materials                                                   $88,300
• Total Cost of Materials                                                                           $81,200

Note that neither of these calculations includes any costs for direct labor or other indirect costs.

Valuation Methods

Accountants use one of three methods to determine the value of the inventory:

• First In, First Out – This method assumes that the first products purchased or manufactured are sold first. During a period of rising prices, this method tends to report increasing net income over time.
• Last In, First Out – In this case, the last goods purchased or manufactured are sold first. If prices are rising, this method results in decreasing income over time.
• Average Cost Method – This approach uses the average purchase prices of all of the goods and materials in stock, regardless of the date of purchase

Looking at Labor Costs

In addition to the cost of raw materials, any direct labor used in the manufacture of the products must be included in the cost of sales. However, indirect labor costs used to support the manufacturing process or make it more efficient are also included. Some examples of indirect labor are as follows:

• Production supervisor salaries
• Wages for quality-assurance personnel
• Warehouse administrative staff
• Shipping and receiving employees
• Janitors who clean the production area
• Maintenance mechanics

Looking at Indirect Costs

Indirect costs are those expenses that are not directly related to the production or acquisition of products. Nevertheless, they are essential in the calculation of the total cost of sales. Several examples of indirect costs are below:

• Rent, utilities and insurance for warehouse and manufacturing facilities
• Depreciation of buildings and equipment
• Lease payments on production and transportation equipment
• Parts for equipment maintenance and repairs
• Supplies used to support equipment and production machines
• Costs for small tools
• Property taxes on manufacturing and storage facilities

Business owners must know the profitability of their businesses to identify nonperforming areas that need improvement. Calculating the cost of sales is an important tool that provides data on the efficiency of a company's production process. Keeping track of the cost of goods sold yields information about which products are profitable and should be promoted and which products should be eliminated.

• Investopedia: Cost of Goods (COGS)
• Accounting Tools: How to Calculate the Cost of Goods Sold
• Fit Small Business: What Is Cost of Goods Sold (COGS) & How to Calculate It
• Corporate Finance Institute: Cost of Goods Sold (COGS)

James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.

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How to create a sales plan in 7 Steps

A sales plan is the first step toward defining your sales strategy , sales goals and how you’ll reach them.

A refined sales plan is a go-to resource for your reps. It helps them better understand their role, responsibilities, targets, tactics and methods. When done right, it gives your reps all the information they need to perform at their highest level.

In this article, we outline what a sales plan is and why it’s important to create one. We also offer a step-by-step guide on how to make a sales plan with examples of each step.

What is a sales plan and why create one?

Your sales plan is a roadmap that outlines how you’ll hit your revenue targets, who your target market is, the activities needed to achieve your goals and any roadblocks you may need to overcome.

Many business leaders see their sales plan as an extension of the traditional business plan. The business plan contains strategic and revenue goals across the organization, while the sales plan lays out how to achieve them.

The benefits of a sales plan

A successful sales plan will keep all your reps focused on the right activities and ensure they’re working toward the same outcome. It will also address your company's specific needs. For example, you might choose to write a 30- , 60- or 90-day sales plan depending on your current goals and the nature of your business.

Say your ultimate goal for the next quarter is $250,000 in new business. A sales plan will outline the objective, the strategies that will help you get there and how you’ll execute and measure those strategies. It will allow your whole team to collaborate and ensure you achieve it together.

Many salespeople are driven by action and sometimes long-term sales planning gets neglected in favor of short-term results.

While this may help them hit their quota, the downside is the lack of systems in place. Instead, treat sales processes as a system with steps you can improve. If reps are doing wildly different things, it’s hard to uncover what’s working and what’s not. A strategic sales plan can optimize your team’s performance and keep them on track using repeatable systems.

With this in mind, let’s explore the seven components of an effective sales plan

1. Company mission and positioning

To work toward the same company goals, everyone in your organization must understand what your organization is trying to achieve and where in the market you position yourself.

To help define your mission and positioning, involve your sales leaders in all areas of the business strategy. Collaborating and working toward the same goals is impossible if those goals are determined by only a select group of stakeholders.

Recommended reading

How to set sales goals that improve team performance (with examples)

To get a handle on the company’s mission and positioning, take the following steps:

Collaborate with marketing: Your marketing teams live and breathe the positioning of your company. Take the time to talk to each function within the department, from demand generation to performance marketing to learn what they know.

Interview customer success teams: Customer support reps speak with your existing customers every day. Interview them to find common questions and pain points.

Talk to your customers: Customer insights are a foundational part of any positioning strategy. Speak directly with existing and new customers to find out what they love about your product or service.

Read your company blog: Those in charge of content production have a strong understanding of customer needs. Check out blog articles and ebooks to familiarize yourself with customer language and common themes.

Look for mentions around the web: How are other people talking about your organization? Look for press mentions, social media posts, articles and features that mention your products and services.

These insights can provide context around how your company is currently positioned in the market.

Finally, speak with the team in charge of defining the company’s positioning. Have a list of questions and use the time to find out why they made certain decisions. Here are some examples:

What important insights from the original target audience research made you create our positioning statement?

What competitor research led us to position ourselves in this way? Does this significantly differentiate us from the crowd? How?

What core ideals and values drove us to make these promises in our positioning statement? Have they shifted in any way since we launched? If so, what motivates these promises now?

How to communicate mission and positioning

In this section of the sales plan, include the following information:

Company mission : Why your company exists and the value you’re determined to bring to the market.

Competition: Who your direct competitors (those who offer similar products and services) and indirect competitors (brands who solve the same problem in different ways) are.

Value propositions: The features, benefits and solutions your product delivers.

What is brand positioning: The ultimate guide with 4 examples

2. Goals and targets

Define your revenue goals and the other targets sales are responsible for.

As mentioned earlier, sales goals are usually aligned with business goals. Your boardroom members typically establish the company’s revenue goals and it’s your job to achieve them.

Revenue goals will shape your sales strategy. Use them to reverse engineer quotas, sales activity and the staff you need to execute them.

Break your big-picture revenue goal down further into sales targets and activity targets for your team. Activities are the specific actions you and your reps can control, while sales targets are the results provided by those activities.

9 steps to creating the perfect sales strategy (with free template)

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10 predictable revenue hacks to grow your sales

Use data on sales activity and performance from previous years to calculate sales targets. You should break this down by pipeline stage and activity conducted by reps across all functions.

For example, how many cold emails does it take to generate a deal? What is the average lifetime value (LTV) of your customer?

Breaking down these numbers allows you to accurately forecast what it will take to achieve your new revenue goal.

This part of your sales plan might include setting goals like the following:

200 total cold emails sent per day

200 total cold calls made per day

25 demos conducted per day

5 new sales appointments made a day

100 follow-up emails sent per day

Breaking down your goals into specific activities will also reveal the expertise needed for each activity and any required changes to your organizational structure, which will come into play in the next step.

How to communicate goals and targets

Within this section of the sales plan, include the following information:

Revenue goals : Reverse engineer the boardroom revenue goals to identify achievable sales goals and the number of staff needed to reach them. Sales targets : Use data on sales activity and past performance to define quotas and metrics for each stage of the sales pipeline.

Expertise needed for each activity: What qualities and attributes do your staff need to achieve these predefined activities? How much experience do they need vs. what can be learned on the job?

3. Sales organization and team structure

Identify the talent and expertise you need to achieve your goals.

For example, a marketing agency that depends on strong relationships will benefit more from a business development executive than a sales development representative (SDR) .

Use the targets established in the previous section to identify who you need to hire for your team. For example, if the average sales development rep can send 20 cold emails a day and you need to send 200 to achieve your goals, you’ll need around ten reps to hit your targets.

Include the information for each team member in a table in your sales plan. Here is an example.

Visualizing each role helps all stakeholders understand who they’re hiring and the people they’re responsible for. It allows them to collaborate on the plan and identify the critical responsibilities and qualities of their ideal candidates.

You want to avoid micromanaging , but now is a good time to ask your existing teams to report on the time spent on certain activities. Keeping a timesheet will give you an accurate forecast of how long certain activities take and the capacity of each rep.

How to communicate your sales organization and team structure

Team structure: These are the functions that make up your overall sales organization. The roles of SDR, business development and account teams must be well-defined.

Roles and responsibilities: These are the roles you need to hire, along with the tasks they’re responsible for. This will help you produce job descriptions that attract great talent.

Salary and compensation: How will the company remunerate your teams? Having competitive salaries, compensation schemes and sales incentives will attract top performers and keep them motivated.

Timeline: Attempting to hire dozens of people at once is tough. Prioritize hiring based on how critical each role is for executing your plan. Take a phased hiring approach to onboard new reps with the attention they deserve.

Building a sales team: How to set your group up for success

4. Target audience and customer segments

A sales plan is useless without knowing who to sell to. Having clearly defined customer personas and ideal customer profiles will help you tailor your selling techniques to companies and buyers.

Whether you’re looking to break into a new market or expand your reach in your current one, start by clearly defining which companies you’re looking to attract. Include the following criteria:

Industries: Which markets and niches do you serve? Are there certain sub-segments of those industries that you specialize in?

Headcount: How many employees do your best accounts have within their organization?

Funding: Have they secured one or several rounds of funding?

Find out as much as you can about their organizational challenges. This may include growth hurdles, hiring bottlenecks and even barriers created by legislation.

Learn about your buyers within those target accounts, learn about your buyers. Understanding your buyers and personalizing your sales tactics for them will help you strengthen your customer relationships.

These insights will change as your business grows. Enterprise companies may wish to revisit their personas as they move upmarket. For small businesses and startups, your target audience will evolve as you find product-market fit.

It’s important to constantly revisit this part of your sales plan. Even if your goals and methodologies are the same, always have your finger on the pulse of your customer’s priorities.

How to communicate target audience and customer segments

Profile: Include basic information about their role, what their career journey looks like and the common priorities within their personal lives.

Demographics : Add more information about their age, income and living situation. Demographic information can help tailor your message to align with the language used across different generations.

Attributes: Assess their personality. Are they calm or assertive? Do they handle direct communication themselves or have an assistant? Use these identifying attributes to communicate effectively.

Challenges: Think about the hurdles this persona is trying to overcome. How does it affect their work and what’s the impact on them personally?

Goals: Analyze how these challenges are preventing them from achieving their goals. Why are these goals important to them?

Support: Use this insight to define how your product or service will help these people overcome challenges and achieve their goals.

Behavioral segmentation: What is it and how can it drive engagement and loyalty

5. Sales strategies and methodologies

Define your sales approach. This includes the strategies, techniques and methodologies you’ll use to get your offering out to market.

This part of your sales plan may end up being the largest. It will outline every practical area of your sales strategy: your sales stages, methodologies and playbooks.

Start by mapping out each stage of your sales process. What are the steps needed to guide a prospect through your deal flow?

9 essential sales stages

Traditionally, a sales process has nine sales stages :

Prospecting and lead generation : Your marketing strategy should deliver leads, but sales reps should boost this volume with their own prospecting efforts.

Qualification: Measure those leads against your target account criteria and customer personas. Ensure they’re a good fit, prioritizing your time on high-value relationships.

Reaching out to new leads : Initiate emails to your target customers to guide new leads into the sales funnel. This outreach activity includes cold calling and direct mail.

Appointment setting: Schedule a demo, discovery call or consultation.

Defining needs: After the initial meeting, you’ll understand your prospect’s problems and how your product or service can solve them.

Presentation: Reveal the solution. This can be in the form of a proposal, custom service packages or a face-to-face sales pitch .

Negotiation: Dedicate this stage to overcoming any objections your prospect may have.

Winning the deal: Turn your prospects into customers by closing deals and signing contracts.

Referrals : Fostering loyalty is an organization-wide activity. Delight your customers and encourage them to refer their friends.

Not all of these stages will be relevant to your organization. For example, a SaaS company that relies on inbound leads may do much of the heavy lifting during the initial meeting and sales demo . On the other hand, an exclusive club whose members must meet certain criteria (say, a minimum net worth) would focus much of their sales activity on referrals.

Map out your sales process to identify the stages you use. Your sales process should look something like this:

To determine your sales methodologies, break each sales stage down into separate activities, along with the stakeholder responsible for them.

With your sales activities laid out, you can do in-depth research into the techniques and methodologies you need to execute them. For example, if you sell a complex product with lengthy sales cycles , you could adopt a SPIN selling methodology to identify pain points and craft the best solution for leads.

Finally, use these stages and methodologies to form your sales playbooks . This will help you structure your sales training plan and create playbooks your reps can go back to for guidance.

How to communicate sales strategies and methodologies

Within this section of the sales plan, include the following:

Sales stages: The different steps required to convert prospects into paying customers.

Sales methodologies: The different practices and approaches you’ll adopt to shape your sales strategy.

Sales playbooks: The tactics, techniques and sales strategy templates needed to guide contacts throughout each stage of the sales process.

6. Sales action plan

You have the “who” and the “what”. Now you must figure out “when” to execute your sales plan.

A well-structured sales action plan communicates when the team will achieve key milestones. It outlines timeframes for when they’ll complete certain projects and activities, as well as the recruitment timelines for each quarter.

The order in which you implement your sales action plan depends on your priorities. Many sales organizations prefer to front-load the activity that will make a bigger impact on the bottom line.

For example, when analyzing your current sales process and strategy, you may find your existing customers are a rich source of qualified leads . Therefore, it would make sense to nurture more of these relationships using a structured referral program.

You must also consider how recruitment will affect the workload in your team. Hire too quickly and you may end up spending more time training new reps and neglecting your existing team. However, taking too long to recruit could overload your existing team. Either can make a big impact on culture and deal flow.

To complete your sales action plan, get all stakeholders involved in deciding timelines. When applying this to your sales plan, use GANTT charts and tables to visualize projects and key milestones.

A GANTT chart shows you the main activities, their completion dates and if there are any overlaps. Here is an example:

By prioritizing each activity and goal, you can create a plan that balances short-term results with long-term investment.

How to communicate your sales action plan

Key milestones : When do you aim to complete your projects, activities and recruitment efforts? You can map them out by week, month, quarter or all of the above. Let your revenue goals and priorities lead your schedule.

Short- and long-term goal schedules: With a high-level schedule mapped out, you can see when you will achieve your goals. From here, you can shape your schedule so that it balances both short- and long-term goals.

7. Performance and results measurement

Finally, your plan must detail how you measure performance. Outline your most important sales metrics and activities, how you’ll track them and what technology you’ll need to track them.

Structure this part of your plan by breaking down each sales stage. Within these sections, list out the metrics you’ll need to ensure you’re running a healthy sales pipeline.

Performance metrics can indicate the effectiveness of your entire sales process. Your chosen metrics typically fall into two categories:

Primary metrics act as your “true north” guide. This is commonly new business revenue generated.

Secondary metrics are those that indicate how well specific areas of your sales process are performing. These include lead response time and average purchase value.

The metrics you select must closely align with your goals and sales activities. For example, at the appointment setting stage, you might measure the number of demos conducted.

Each team also needs its own sales dashboard to ensure reps are hitting their targets. Sales development reps will have different priorities from account executives, so it’s critical they have the sales tools to focus on what’s important to them.

Finally, research and evaluate the technology you’ll need to accurately measure these metrics. Good CRM software is the best system to use for bringing your data together.

How to communicate sales performance metrics

Sales stage metrics : Identify the metrics for each specific sales stage and make sure they align with your KPIs.

Chosen sales dashboard: Explain why you chose your sales dashboard technology and exactly how it works.

Performance measurement: Outline exactly how and what tech you will use to measure your team’s activities and metrics.

How to track, measure and improve your team’s sales performance

Developing a sales plan involves conducting market research, assessing current sales performance , identifying sales opportunities and challenges, setting measurable goals, creating a sales strategy, allocating resources and establishing a monitoring and evaluation framework.

To write a sales business plan, include:

An executive summary

A company overview

A market analysis

A target market description

Sales strategies and tactics

Financial projections

A budget and timeline

Make sure that you clearly articulate your value proposition, competitive advantage and growth strategies.

Final thoughts

An effective sales plan is an invaluable asset for your sales team . Although you now know how to create a sales plan, you should remember to make one that works for your team. Writing one helps with your sales strategy planning and aids you in defining targets, metrics and processes. Distributing the sales plan helps your reps understand what you expect of them and how they can reach their goals.

Providing supportive, comprehensive resources is the best way to motivate your team and inspire hard work. When you do the work to build a solid foundation, you equip your reps with everything they need to succeed.

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What is cost of sales in a small business?

Table of Contents

What cost of sales is

What to include in a cost of sales calculation, beginning inventory for the year, ending inventory, how to calculate your cost of sales, what else you need to know about cost of sales, how to manage your costs easily with countingup.

Understanding how money moves in and out of your business (your cash flow ) is essential to staying on top of your company’s financial health. Cost of sales is an important part of your cash flow and one of the key aspects you need to keep track of.

This guide will help you understand cost of sales by exploring:

• What to include in your cost of sales calculation

Also referred to as the cost of goods sold (COGS), cost of sales refers to the direct costs related to manufacturing the products or services you sell to your customers. Cost of sales focuses only on these expenses, ignoring the selling, general and administrative (SG&A) expenses and interest expenses (charges for borrowing money). 

In short, cost of sales tracks your ability to produce or deliver goods and services at a reasonable cost.

A point where people often get stuck when it comes to the cost of sales calculation is what expenses they need to include. It’s like this:

If you could still manufacture your product or deliver your service without paying for a certain expense, then you leave that expense out of your calculation. However, if you fail to pay a cost and your entire production stops because of it, you’ll need to include it. 

Some expenses you may need to include are:

• Software licensing
• Raw materials or supplies needed for production
• Cost of packaging for products
• Cost of storing products or materials

Essential costs vary depending on your business and the sort of products you make. Still, we’ve listed a few items that don’t directly link to production, meaning you shouldn’t include them in your calculations. For example:

• Customer success costs (helping customers achieve their goals with the product or service)
• Costs related to upselling (encouraging customers to buy a better, more expensive product/service)
• Cost of specific overheads (ongoing operational expenses)
• Cost of product development (creating a new product or improving an existing one for customers)

Aside from these costs, there are two key factors to consider when calculating your costs of sales, which are as follows:

Your beginning inventory refers to products you have when you start a new accounting period,  usually at the beginning of a new tax year. This inventory is a cash amount that matches what that inventory is worth.  

You need to include purchases, including the new products you produce or buy to add to your inventory throughout the year.

Beginning inventory covers several items, including:

• Inventory left over from the previous year (products that didn’t sell)
• Raw materials used to make the products
• Related supplies (packaging, etc.)

How do you establish a starting point for your cost of sales calculation? First, you’ll need the value of your beginning inventory for that accounting period. Use your accounting records (where you log and track your financial transactions) to calculate this number and include it in your beginning inventory calculation.

On the other side of the equation, your ending inventory is the total value of products you have in stock at the end of the accounting period. You typically determine this number by taking a physical count of your inventory.

While it may seem complicated, calculating your cost of sales is relatively straightforward. There’s a simple formula you can use:

Cost of Sales = Beginning Inventory + Purchases – Ending Inventory

How does this formula work in practice?

Let’s say a company has £5,000 worth of inventory at the beginning of the month and spent £1,000 on raw materials and delivery. If that same company has an ending inventory of £3,000, you use that to calculate the cost of sales for that month:

Cost of Sales = £5,000 + £1,000 – £3,000 = £3,000

This means that the total cost of sales for that month was £3,000.

Now that you understand what cost of sales is and how to calculate it, we’d like to cover a few aspects to consider when it comes to cost of sales in general. 

Firstly, you only need to track cost of sales if you sell physical products, such as clothing , baked goods or accessories. If you run a service-based business and don’t carry inventory, you don’t need to track cost of sales. Examples of service-based jobs could be personal trainers, contractors, tutors or engineers.

Additionally, if your business hasn’t made any sales during a specific time period, you can’t deduct money from your cost of sales. This applies even when you’ve manufactured or bought products to sell.

Don’t forget to factor in facility costs when valuing the cost of your inventory. Facility costs refer to expenses relating to the facility (building) where you make your products, including rent and utility bills. It’s important to account for these costs to make sure your ROI (return on investment) is positive, meaning you make enough money selling your goods for the cost to be worth it.

As your business grows, cost of sales calculations can be challenging to handle. You may want to consult with an accountant or bookkeeper to double-check your calculations or have them calculate them for you.

The Countingup business current account makes it simpler to manage your business finances. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. You can access real-time insights into your business’ finances, profit and loss reports, tax estimates and invoices. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!

Download the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a selfie. Find out more here .

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Home > Financial Projections > Cost Structure in a Business Plan

Cost Structure in a Business Plan

What is cost structure.

Financial projections need to take account of the cost structure of a business. Cost structure simply refers to the split between variable costs and fixed costs, but can have a significant impact on whether a new start up business is successful or not.

Fixed and Variable Costs

First a few definitions. A variable cost is a cost which changes in direct proportion to any production or selling activity, examples include, direct materials and labor used in manufacture, product cost, and sales commissions. On the other hand, a fixed cost is a cost which will occur whether or not a business has any production or selling activity. Fixed costs are a function of the passage of time, examples include rent, salaries, and insurance.

Low Fixed Cost Structure or High Fixed Cost Structure?

Although the cost structure of a business is to some extent fixed by the nature of the business and the type of industry in which it operates, decisions can be taken to directly influence the split between fixed and variable costs. It is important to understand that a business can have the same sales, total costs and therefore profit, but a completely different costs structure, as seen in the diagrams below.

Both businesses have the same sales, total costs, and profit, however, the first business has a high fixed cost structure compared to the low fixed cost structure of the second business.

Business Plan Cost Structure and Break Even

Consider as an example the two start up businesses shown in the table below. The financial projections of the first business show a high fixed cost structure. the business plans to start by investing heavily in production facilities, machinery and equipment to manufacture and distribute its own product. The consequence of this decision is high fixed costs but lower variable costs.

The second business proposes a lean start up. It plans to have the manufacture and distribution outsourced to a third party, its needs smaller premises and less investment in machinery and equipment and therefore has lower fixed costs but correspondingly higher variable costs, as payments need to be made to the third parties for manufacture and distribution.

Effect of Cost Structure on Break Even Calculations

In each case, the number of units sold (6,000), selling price (12,00), total costs (65,000), and profits (7,000) are identical. Using this information and the break even formula, the break even point can be calculated for each of the start up businesses.

The break even formula is:

and the break even units are given by the formula:

The results of the calculations using the formulas are summarized in the table below.

We can see that even though everything else is the same, the financial structure of the business has resulted in a completely different break even position.

For the low fixed cost structure business, only 3,083 units need to be sold at 12.00 to reach break even as shown in the diagram below.

In contrast for the high fixed cost business 5,028 units need to be sold to reach break even as indicated in the diagram below.

In order to break even, the high fixed cost business needs to sell 1,945 (63%) more units than the low fixed cost business.

The conclusion is that when producing financial projections for a start up business, in order to reduce the break even point to an acceptable level, the cost structure should aim to keep the fixed costs as low as possible.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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How Much Does it Cost to Start a Business?

8 min. read

Updated April 25, 2024

What will it cost to start your business? This is a key question for anyone thinking about starting out on their own. You’ll want to spend some time figuring this out so you know how much money you need to raise and whether you can afford to get your business off the ground.

Most importantly, you’ll want to figure out how much cash you’re going to need in the bank to keep your business afloat as you grow your sales during the early days of your business. 

Typical startup costs can vary depending on whether you’re operating a  brick-and-mortar store, online store, or service operation . However, a common theme is that launching a successful business requires preparation.

And while you may not know exactly what those expenses will be, you can and should begin researching and estimating what it will cost to start your business.

• How to determine your startup costs

Like when developing your  business plan , or  forecasting  your initial sales, it’s a mixture of  market research ,  testing , and informed guessing. Looking at your competitors is a good starting point. Once you feel your initial estimates are in the ballpark, you can start to get more specific by making these three simple lists.

1. Startup expenses

These are expenses that happen before you launch and start bringing in any revenue. Here are some examples:

• Permits and Licenses: Every business needs a license to operate, just like a driver needs one to drive. Costs vary depending on industry and location.
• Legal Fees: Getting your business structure set up (sole proprietorship, LLC, etc.) might involve consulting a lawyer and at least will involve the basic business formation fees.
• Insurance: Accidents happen, and insurance protects your business from unforeseen bumps.
• Marketing and Branding: The ways to spread the word about your product or service. They could involve creating a website, creating business cards, or promoting social media.
• Office Supplies : Pens, paperclips, that all-important stapler – the essentials to keep your business humming.
• Rent/Lease: If you need to rent space for your business before you start selling, include those expenses in your list as well.

2. Startup assets

Next, calculate the total you need to spend on assets to get your business off the ground. Assets are larger purchases that have long-term value. They’re typically significant items that you could resell later if you needed or wanted to.

Here are a few examples:

• Equipment:  Think ovens for a bakery, cameras for a photography business, or computers for a tech startup.
• Inventory:  If you’re selling products, you’ll need to stock up before opening your doors (or your online store).
• Furniture and Decorations:  Desks, chairs, that comfy couch in the waiting room – creating a functional and inviting workspace might involve some upfront investment.
• Vehicles: If your business requires a vehicle to deliver your product or service, be sure to account for that purchase here.

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Why separate assets and expenses?

There’s a reason that you should separate costs into assets and expenses. Expenses are deductible against income, so they reduce taxable income. Assets, on the other hand, are not deductible against income.

By initially separating the two, you potentially save yourself money on taxes. Additionally, by accurately accounting for expenses, you can avoid overstating your assets on the balance sheet. While typically having more assets is a better look, having assets that are useless or unfounded only bloats your books and potentially makes them inaccurate. 

Listing these out separately is good practice when  starting a business  and leads into the final piece to consider when determining startup costs. 

3. Operating Expenses

Finally, figure out what it’s going to cost to keep your doors open until sales can cover expenses. Create a list that estimates monthly expenses, such as:

• Payroll (including your own salary)
• Marketing and advertising
• Loan payments
• Insurance premiums
• Office supplies
• Professional services
• Travel costs
• Shipping and distribution

Then, based on your revenue forecasts , calculate how many months it will take before your sales can cover all those monthly expenses. Multiply that number of months by your monthly operating expenses to determine how much you’re going to need to cover operating expenses as your business starts.

This number is often called “ cash runway ” and is a critical number – you need enough cash to fund those early red ink months. This number is how much cash you need to have in your checking account when you open your doors for business.

Calculating how much startup cash you need

To figure out how much money you need to start your business, add the asset purchases, startup expenses, and operating expenses over your cash runway period. This is your total startup costs, and it’s better to overestimate than underestimate these costs.

It often makes sense to invest the time to build a slightly more detailed starting costs calculation. Assuming you start making some sales and those sales grow over time, your revenue will be able to help pay for some of your operating expenses. Ideally, your sales contribute more and more over time until you become profitable.

To do a more detailed calculation, you’ll want to invest the time in a detailed financial forecast where you can experiment with different scenarios. If you do this, you’ll be able to see how much it will cost to start your business with different revenue growth rates. You’ll also be able to experiment with different funding scenarios and what your business would look like with different types of loans.

• Funding Starting Costs

You can cover starting costs on your own, or through a combination of loans and investments.

Many entrepreneurs decide they want to raise more cash than they need so they’ll have money left over for contingencies. While that makes good sense when you can do it, it is difficult to explain that to investors. Outside investors don’t want to give you more money than you need, because it’s their money.

You may see experts who recommend having anywhere from six months to a year’s worth of expenses covered, with your starting cash. That’s nice in concept and would be great for peace of mind, but it’s rarely practical. And it interferes with your estimates and dilutes their value.

Of course, startup financing isn’t technically part of the starting costs estimate. But in the real world, to get started, you need to estimate the starting costs and determine what startup financing will be necessary to cover them. The type of financing you pursue may alter your startup or ongoing costs in a given period, so it’s important to consider this upfront.

Here are common financing options to consider:

• Investment : What you or someone else puts into the company. It ends up as paid-in capital in the  balance sheet . This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later.
• Accounts payable : Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. This number becomes the starting balance of your balance sheet.
• Current borrowing : Standard debt, borrowing from banks,  Small Business Administration , or other current borrowing.
• Other current liabilities : Additional liabilities that don’t have interest charges. This is where you put loans from founders, family members, or friends. We aren’t recommending interest-free loans for financing, by the way, but when they happen, this is where they go.
• Long-term liabilities : Long-term debt or long-term loans.
• Other considerations for estimating startup costs

Pre-launch versus normal operations

With our definition of starting costs, the launch date is the defining point. Rent and payroll expenses before launch are considered startup expenses. The same expenses after launch are considered operating or ongoing expenses.

Many companies also incur some payroll expenses before launch because they need to hire people to train before launch, develop their website, stock shelves, and so forth.

Further Reading: How to calculate the hourly cost of an employee

The same defining point affects assets as well. For example, amounts in inventory purchased before launch and available at launch are included in starting assets. Inventory purchased after launch will affect  cash flow , and the balance sheet; but isn’t considered part of the starting costs.

So, be sure to accurately define the cutoff for startup costs and operating expenses. Again, by outlining everything within specific categories, this transition should be simple and easy to keep track of.

Your launch month will likely be the start of your business’s fiscal year

The establishment of a standard fiscal year plays a role in your analysis. U.S. tax code allows most businesses to manage taxes based on a fiscal year, which can be any series of 12 months, not necessarily January through December.

It can be convenient to establish the fiscal year as starting the same month that the business launches. In this case, the startup costs and startup funding match the fiscal year—and they happen in the time before the launch and beginning of the first operational fiscal year. The pre-launch transactions are reported as a separate tax year, even if they occur in just a few months, or even one month. So the last month of the pre-launch period is also the last month of the fiscal year.

• Aim for long-term success by estimating startup costs

Make sure you’ve considered every aspect of your business and included related costs. You’ll have a better chance at securing loans, attracting investors, estimating profits, and understanding the cash runway of your business.

The more accurately you layout startup costs and make adjustments as you incur them, the more accurate vision you’ll have for the immediate future of your business. 

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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How Much Does a Business Plan Cost?

A complete business plan helps you to identify your business goals and how you plan on reaching them. Whether you are a new business owner or an experienced entrepreneur, writing a comprehensive business plan can help you start, grow, and/or attract investors to fund your business.  

How Much Does It Cost to Write a Business Plan ?

Business plan pricing depends on what route you take to create it. However, there are a few essential elements that are common to all business plans:

• Executive Summary
• Business Description
• Market Analysis
• Customer Analysis
• Competitive Analysis
• Marketing Strategy
• Operations Plan
• Management Team
• Financial Plan

There are several ways to approach writing a successful business plan, but the cost of each way varies widely. The cost of a business plan can be a significant investment, but it’s an essential tool for any business. Below we provide some tips for what to consider and the costs for the various methods of completing your own business plan.  

Considerations When Writing Your Own Business Plans

There are several things to consider when writing your own plan. Depending on whether you’re in need of funding and how much, the costs for your business plan will be different.

Take into account:

• How long will your business plan be?
• How many hours does it take to complete the business plan?
• What kind of language is used in the business plan?
• Who will use the business plan?
• Who will fund your business?
• How much are you looking to raise or if you need funding at all?

According to our business consultants’ surveys of investor requirements, a 15- to 25-page business plan is the ideal length. Adding more pages may cause your time-constrained investor to skim portions of the plan, even if they are interested, which might result in important information being overlooked. However, fewer pages may lead potential investors to believe that the firm has not been thoroughly thought out or simply doesn’t have enough information for them to make an investment decision.  

Business Plan Template Costs

There are a variety of business plan templates online that you can purchase for a one-time fee. These templates range in price but usually start at around $100. Remember, a bargain business plan template may not include all the information that you need, so it’s important to understand what is included with the template you purchase.

Many of these templates also come with instructions to help you fill in the template and make changes as needed. However, if there is something you want to be changed on the template, it may take time and money to have it done.

Be sure to do your research and find the right template for your business. The wrong template could set you back even further and change the face of your business entirely. If you purchase a professional business plan template, make sure it’s from a reputable business plan company with business plan writing skills   in a variety of industries.

The business plan template should be easily editable and customized for your specific business needs and industry trends.

If you do not want to pay for a template, there are companies that will charge by the page and some that offer free resources . However, these templates may not have been professional business plans written for your exact type of business.  

Experienced Consultants & Business Plan Writers Cost

Hiring a business plan writer or professional writing service will help you get a comprehensive business plan written just for your business. A professional business plan consultant will help you identify your goals and how your company will reach these goals. A business plan consultant fee usually costs more but can be worth it if you do not have the time or resources to complete the business plan yourself.

A business plan writer can be found through online directories, but be sure to do your research prior to engaging in business with them. Be sure to ask for references and read reviews before hiring a business plan writing service.

If you choose to hire a business plan consultant, the complexity and length of the plan will determine how much is a business plan. Generally, a consulting firm or private consultants charge between $1,000 and $5,000 to have a comprehensive business plan written . However, a lengthy and complex plan can easily start at a few thousand dollars and stretch into the tens of thousands of dollars based on the needs of the business.

Some experienced business plan writing services also offer package deals that include additional services, such as market research, a marketing plan, and realistic financial projections.

Business Plan Software Costs

There are business plan software applications that can be used for free or have a monthly subscription cost, which may work better for your needs depending on what you need in a business plan. These apps provide templates and make writing a business plan and business planning easier. They help organize the information you enter into the app and will sometimes offer advice on how to do things like financial projections for your business plan .

The information that you put into the application can be used for several different types of business plan needs. These apps are great for startups and small businesses looking to raise capital or secure funding.

Each app or software varies in what it offers. Some are more customizable than others, some have more options for presenting your business plan, and some even offer investment opportunities. With just your business idea, the business planning software can help you write your own business plan quickly and easily. 

Write Your Own Business Plan from Scratch

If you do not want to purchase a template or use software, the easiest and most cost-effective way is to write a business plan from scratch. This route takes time and effort to complete but can be done by anyone willing to put in the work.

When writing your business plan documents, remember that they should be as detailed as possible. This document is your guide to starting and running your business. The more complete it is, the better off you’ll be.

There are a variety of free resources available online to help you write a business plan, including articles, templates, and even video courses.

When writing a business plan from scratch, it’s important to consider all of your business aspects. This includes your business concept or business model , management, production, market research , sales strategies , customer service, operations, human resources, financial projections , and more.

Try to be as thorough as possible when writing the plan. While the task may seem daunting at first, you’ll find that putting together a business plan is not so bad once you get started. After all, if you can dream it, you can write it.

The cost of writing a b usiness plan is dependent on the purpose, type, and length of the business plan. The amount of time it takes to complete a  business plan , the language used, and who will be using the document also play a factor in the cost. You can find templates for a one-time fee or pay by the page, hire a business plan writing service or a business plan writer , contact a consulting firm , or use software/apps to create your business plan. Whichever option you choose, make sure you do your research, conduct an in-depth business plan review, and find the best resource to meet the goals for your business.  

• Business Planning
• Venture Funding

How To Start An Online Boutique (2024 Guide)

Published: Jun 25, 2024, 2:53pm

Reviewed By

Table of Contents

Step 1. decide on a niche, step 2. set up your legal entity, step 3. make a business plan, step 4. source suppliers and/or materials, step 5. create an online store, step 6. market your online boutique, frequently asked questions (faqs).

eCommerce sales in India will reach INR 4,416.68 billion in 2024. With more people buying online than ever, starting a boutique is a great side hustle or full-time business idea. Getting started is easy, but having all the pieces in place for a successful store takes time. In this guide, we’ll walk you through how to start an online boutique so you can quickly launch your new business.

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A niche is a specific type of product you focus on. When starting an online boutique , choosing a niche is important so you can stand out in the enormous sea of e-commerce businesses. Research and figure out what type of products you want to sell. Consider your interests, what’s popular in the market, and which gap you can fill.

Some niche ideas include:

• Cashmere clothing and gifts
• Vintage-style costume jewelry
• Children’s wall art
• Plants and gardening tools
• High-end stationery
• Ship and boat model kits
• Custom-fitted shapewear

One of the entrepreneurs’ biggest mistakes when deciding on a niche is chasing saturated markets. The niche you choose needs a captive audience, but yours must have an edge to compete in a dominant category. How will your products differentiate from the hoard of the same products sold by other boutiques?

Before choosing a name, checking to see if the domain is available is best. You can do this using a site such as GoDaddy. Otherwise, you can check its availability but wait to purchase the name in step five through your e-commerce platform.

The name you choose must be easy to spell, memorable, and catchy. While you can choose a domain name ending in something other than .com, it’s easier for customers to remember your site when using .com instead of .biz or .info.

Setting up your legal entity will determine how you’re taxed and your liability as the online boutique owner. Small businesses’ most common legal entities are sole proprietorships and limited liability companies (LLCs) .

Sole Proprietorship: As the name suggests, this is a business owned by a single person. No paperwork is required to set up a sole proprietorship, but you must register your business with the state and get a tax ID. This is the simplest way to set up a business, but you’re personally liable for any debts the business accumulates.

LLC: An LLC offers some liability protection for the owner, and it’s easier to get bank loans and other funding as an LLC than as a sole proprietorship. To set up an LLC, you must file Articles of Organization with your state and get an employer identification number (EIN) from the IRS. Most states offer this ability 100% online with little wait time to incorporate. You can also use an online business filing company, such as BetterLegal or Inc Authority, to do the filing.

Many small business owners skip the step of creating a business plan. While not required, it’s a good idea to have one in place to track your progress, determine the feasibility of your boutique, understand both your customer and competition, pivot and secure financing.

Your business plan can include sections such as:

• Executive Summary
• Business Description
• Products and Services
• Market Analysis
• Target Market
• Marketing Plan
• Financial Plan
• Business Structure and Ownership
• Legal Requirements
• Operations and Management

Finding reliable product suppliers for a price you can afford is half the battle of running an online boutique. Find a supplier or wholesaler who offers quality products, on-time delivery, and excellent customer service.

To find suppliers, search for terms such as “wholesale” or “product supplier” and include the type of product you’re looking for, such as “clothing supplier.” You can also attend trade shows in your industry to meet with suppliers and get product ideas.

Sources for products include:

DHgate can be a great source of wholesale goods for your boutique.

To establish your store, you first need an e-commerce platform. You can either use a hosted platform, a turnkey solution that includes everything you need to launch and maintain your store, or an open-source platform requiring a bit more technical know-how to set up and maintain. Open-source platforms provide far more customization options than what you’d find with a hosted platform.

The platform you choose will determine the features and functionality of your store, so it’s essential to choose one that offers the features you need to run your business. Read our e-commerce platform guide for recommendations.

We’ll show you how to set up a Shopify boutique for ease. It offers a free 14-day trial.

• Go to Shopify.com and create an account
• Install product apps (e.g., print-on-demand apps)
• Select a theme and customize it with your branding
• Add products
• Add, delete and customize web pages
• Organize your menu
• Set up a custom domain name
• Set up shipping
• Create a test order
• Choose a plan and publish

Please note that while creating an online boutique with Shopify’s free 14-day trial is free, you will need a plan for your site to be professional, with its own custom domain name and ad-free hosting. This is the case for every quality e-commerce site builder, including Weebly, Wix, Squarespace, and WordPress.

Now that your online store is up and running, it’s time to start marketing it. There are several ways to market an online store, and the best approach depends on your budget, target market, and goals.

Typical marketing strategies for online stores include:

• Search engine optimization (SEO)
• Paid advertising (Google Ads, Facebook Ads, etc.)
• Social media marketing
• Content marketing
• Email marketing
• Affiliate programs
• Influencer marketing
• Loyalty programs (create buzz through existing clients)
• Trade shows
• Press coverage

How much does it cost to start an online boutique?

The cost of starting an online boutique varies depending on the type of business structure you choose, your product, the platform you use for your store, and the marketing strategies you employ.

How long does it take to start an online boutique?

Getting your online store up and running typically takes about four to six weeks. However, this time frame can vary depending on the platform you choose and your level of technical expertise. If you’re dropshipping, you can have your site live in as little as a weekend.

What are some ways to drive traffic to my online boutique?

Some ways that you can ensure that your online boutique gets seen by the customers that you want to attract include using the right keywords to keep your store at or near the top of the search engine results pages keeping a constant presence on social media outlets, work with social media influencers, create or pay for relevant, helpful content that draws customers to your pages and keep up with your current customer with emails and promotional deals.

Can I run a business from my home?

Yes, you can run a business from your home. Many small businesses start this way. But remember that you may need to comply with local zoning laws and regulations, so be sure to check with your city or county about any restrictions before you get started.

How can I start a clothing business with no money?

One option for starting a clothing business with no money is to dropship products. Dropshipping is a type of e-commerce in which you don’t keep any inventory on hand but instead order products from a supplier as orders come in. When a customer places an order, you simply contact your supplier to have the product shipped directly to the customer. This eliminates the need for any upfront investment in inventory.

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Kathy Haan, MBA is a former financial advisor-turned-writer and business coach. For over a decade, she’s helped small business owners make money online. When she’s not trying out the latest tech or travel blogging with her family, you can find her curling up with a good novel.

Kelly is an SMB Editor specializing in starting and marketing new ventures. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Additionally, she manages a column at Inc. Magazine.

Rob is an SMB writer and editor based in New Jersey. Before joining Forbes Advisor, he was a content producer at Fit Small Business. In that role, he was responsible for writing, editing, and strategizing content geared toward small business owners. Before that, he worked at PCMag as a business analyst.

In accordance with international sanctions, the Semrush platform is no longer accessible to businesses registered or based in Russia. We’re sorry for the inconvenience and if you believe there is a mistake, please send us an email to [email protected] so our team can review.

Top things to know about Copilot+ PCs from Microsoft Surface, available today at Microsoft.com

• Microsoft Store Team

Available today, the all-new Copilot+ PCs from Microsoft Surface – Surface Laptop and Surface Pro – are thin, light and beautiful devices that help you do more of what you love. Whether it’s starting a new creative project, connecting with friends and family or pursuing a new business venture, these devices are designed to support your journey.

The new Surface Laptop and Surface Pro are Copilot+ PCs, which are the fastest, most intelligent Windows PCs on the market. They are available in four color options at an incredible value, beginning at $999 Estimated Retail Price (ERP) USD on Microsoft.com or at a Microsoft Experience Center .

Exclusively on Microsoft.com, customers can purchase Copilot+ PCs from Microsoft Surface with 64GB memory (RAM) configurations which offer more performance and multi-tasking:

• Surface Laptop (7 th Edition) , starting at $2,399.99 ERP USD in Black with a 13.8-inch Display, Snapdragon® X Elite (12 Core) Processor and 1TB SSD Storage.
• Surface Laptop (7 th Edition) , starting at $2,499.99 ERP in Black with a 15-inch Display, Snapdragon® X Elite (12 Core) Processor and 1TB SSD Storage.
• Surface Pro Essentials Bundle , starting at $1,144 ERP, get the most out of your Surface Pro with this bundle, saving on a Microsoft 365 subscription and Microsoft Complete Protection Plan. Plus, when purchasing the Essential Bundle, customers can take advantage of 20% off accessories including the new Surface Pro Flex Keyboard.

Read on for everything you need to know about the new Copilot+ PCs from Microsoft Surface.

Our three favorite things about the new Copilot+ PCs from Microsoft Surface: 1 – Designed for your everyday work and play

• Power through your day without a worry. The new Surface Laptop and Surface Pro are more powerful than ever with Snapdragon X Series Processors, providing faster performance and all-day battery life with a powerful Neural Processing Unit (NPU) for all-new AI experiences.
• Sleek design and colors that match your aesthetic. Thoughtfully designed with your everyday in mind, the thin, lightweight and ultraportable devices feature premium finishes. They come in four stunning colors – perfect for any style: classic Black, timeless Platinum, bold Sapphire, and the new and refreshing Dune [i] .
• Brighter, more immersive displays for ultimate viewing. We’re introducing a new OLED with HDR [ii] display to the new Surface Pro for a cinematic experience, and the Surface Laptop has a new HDR touchscreen display with razor-thin bezels. No matter what you watch or view, your content is going to look stunning.
• Everyday AI companion with the Copilot key. The Copilot app is just a click away with the Copilot key – one of the newest additions to Windows 11 keyboards on Copilot+ PCs.

2 – Exclusive AI experiences designed to empower creativity and productivity  

• Express your creativity with Cocreator [iii] . Whether a seasoned artist or new to design, Cocreator simplifies image creation and photo editing with easy text prompts and natural inking using a Slim Pen [iv] on Surface Pro or touch on Surface Laptop. Exclusive to Copilot+ PCs, Cocreator lets you bring your ideas to life, and it works alongside you to iteratively update the image in real time. Cocreator is available in Paint – the app you’ve grown to know and love.
• No matter where you are, Live Captions keeps you better connected [v] . Available on Windows, Live Captions can quickly translate any live or prerecorded audio into English – and in real time. Connecting with friends, family and colleagues just got easier, and you’ll never miss a beat when watching your favorite international movies or TV shows.
• New and enhanced audio and video effects bring new meaning to ”camera ready.” Both device cameras are powered by new features to Windows Studio Effects. Powered by an industry-leading NPU, they help improve lighting, ensure you appear clear and crisp on video, reduce background noise and offer creative filters so you can express yourself on camera. Built to automatically improve video calls, it’s like having a studio ring light and microphone right on your Windows PC! And the Surface Pro’s ultrawide field-of-view camera keeps you, or the whole family, in focus, even as you move around your space.
• Recall (preview) coming soon: For the solo-preneur who has too many working files and emails to maintain organization, Recall helps you quickly find things you have seen on your PC, keeping all documents, images, websites, instant messages, emails and apps right at your fingertips. This experience comes with built-in privacy and security controls.

Learn how to unlock the best of the new AI-powered features on your Copilot+ PC .

3 – The all-new Surface Pro Flex Keyboard [vi] unlocks new levels of flexibility  

Alongside the new Surface Pro, we are introducing the Surface Pro Flex Keyboard , unlocking powerful new levels of flexibility to effortlessly adapt to your work and play routines. Ready to attach to your Pro for the ultimate laptop set-up or detach for more flexibility and to support your creative workflows. It is built with extra carbon fiber layers for stability and has a larger, customizable haptic touchpad. With integrated pen storage, your Slim Pen is secure, charged and ready to go. Accessibility remains core to our approach, so we designed the new Surface Pro Flex Keyboard with a bold keyset option to reduce eye strain and assist people with low vision.

Discover, learn and buy with Microsoft Store

Shopping at Microsoft Store is all about ease and convenience. Whether the new Copilot+ PCs from Microsoft Surface, Copilot Pro, Xbox consoles and games, apps, movies and TV shows, we’ve got you covered. Don’t miss our top deals on your favorite TV shows like Rick & Morty: Seasons 1-7, Buffy The Vampire Slayer Complete Series, Sons of Anarchy: The Complete Box Set and so much more – available for up to 50% off for a limited time .

• Flexible payment options : Find a payment plan that works for you with options like PayPal Pay Later and Citizens Pay Line of Credit [vii] . It’s budgeting made easy.
• Online Trade-in Program : For a limited time, buy a new Copilot+ PC from Microsoft Surface and get extra cash back when you trade in an eligible device.
• Free and fast shipping with 60-day returns : Get your items quickly with 2–3-day shipping at no extra cost or minimum purchase required and enjoy the flexibility of 60-day returns on almost any physical product.
• 60-day price protection : Shop with confidence knowing you have 60 days of price protection from your delivery date. If the price drops or you find a lower price elsewhere, we’ll honor a one-time price adjustment.

You can also bet on Microsoft Store offering lots of great deals throughout the upcoming back-to-school season. Be sure to keep an eye on the deals page !

Available alongside Microsoft Surface today, are brand new Copilot+ PCs from the biggest brands: Acer , ASUS , Dell , HP , Lenovo and Samsung . Learn more from major PC manufacturers or visit leading retailers, including Best Buy .

[i] Colors available on selected models only. Available colors, sizes, finishes and processors may vary by store, market and configuration. 

[ii] HDR requires HDR content and enabling HDR in device settings.

[iii] Microsoft account required.

[iv] Surface Slim Pen sold separately.

[v] Currently supports translation for video and audio subtitles into English from 40+ languages. See  https://aka.ms/copilotpluspcs . 

[vi] Surface Pro Flex Keyboard sold separately.

[vii] With approval of Citizens Pay Line of Credit at 0% APR and 12- or 18-month term. Subject to individual credit approval. See the Citizens Pay Line of Credit Agreement  for full terms and conditions. Citizens Pay Line of Credit Account offered by Citizens Bank, N.A. ​