Grab a calculator (just kidding) and let us share more of our Happy Tees® journey restarting and relaunching our Shopify store, by providing you a breakdown of the costs involved in actually running it day to day. If you are considering starting an online store of your own, then understanding the economics behind running it (not the fantasy optimistic version from "influencers" on social media) is crucial for your success. Let's dive into the key factors that impact the financial side of your e-commerce business.

Cost of Subscriptions

A subscription fee for tools you need use (such as Shopify) is a fixed monthly expense that you should factor into your budget. Here is a brief list of tools we have to pay monthly:

• $105 for Shopify Grow Plan - this is the platform we use to setup the store
• $0 for Shopify apps - we've been using the free plan option for a few apps, but soon we plan to upgrade one or two of them (so zero dollars for now)
• $29 for our printing service - lots of options here but we selected a printer to produce and ship the products listed in our store
• $15 for Canva - we use this software for graphic designs
• $45 for MyFonts - licensing typefaces and fonts
• $183 for administrative - this includes our office building, mail and email, etc

Subtotal is about $377 per month that we count as our overhead costs. This has to be paid even without the sales of our products. You may have heard the phrase "Sales cures all" on the Shark Tank television show. Our objective is to not only cover these costs, but to continue growing and increasing sales so we can expand our business and do more in the future.

Various Fees for Transactions and Processing

Be aware that in addition to the monthly subscription fee, Shopify charges a transaction fee for each sale made through your store. See the following screenshot from shopify.com/pricing to show the different options based on the plan you are in, from columns left to right: Basic, Grow, and Advanced.

The transaction fee varies based on your pricing plan. These fees can add up, especially as your sales volume increases. Using data from our test purchase we fell into the second row (refer to the screenshot) for online premium card rates because the order was paid with an American Express card, and in the second column for the Grow Plan, resulting in 3.3% + 30 cents per transaction. Below are our notes from testing:

• $29.99 was our test transaction total (includes the $5 tip during checkout)
• subtract $0.99 or 3.3% was the first fee from Shopify
• subtract $0.30 or 1% was the second fee from Shopify
• subtotal fees $1.29 or 4.3% of the entire test transaction was the fee subtotal
• $28.70 was the payout from Shopify

This payout is not profit. We also have to pay for the cost of goods sold (COGS). For us, that means we have to pay our printing service for production of the product selected in our test purchase.

Marketing and Advertising Costs

It's essential to allocate a budget for marketing to attract customers, drive traffic from your target market into your store, and generate sales. How large of a budget? One industry estimate is to dedicate 12% of your projected total revenue to marketing. We are particularly interested in how effective our marketing efforts are to bring in new sales. Measuring for this effectiveness is called return on advertising spend (ROAS), which means you take the revenue from ads and divide by the cost of those ads. A higher ROAS percentage indicates that a marketing campaign was more profitable.

As we start out and ramp up for our first marketing campaign, we've decided to ease into it, by attempting to conduct free marketing and advertising activities. However, when we do put together a better marketing budget, here are some of the areas we will consider:

• social media ads, such as paid advertising through Google, Facebook, and similar
• user generated content (UGC) from customers or through sponsorships
• search engine optimization (SEO), ongoing improvements and paying for various tools

Product Costs and Profit Margins

Following up on the earlier comment about COGS, let's show the shipping and fulfillment expenses to produce a product from our test purchase.

• $24.99 was the sale price (the $5 tip does not show up here for the printer, only on the Shopify store checkout page)
• $8.29 or 33.2% of the sale price was used for printing, quality control, production
• $4.75 or 19% was our cost to provide free standard shipping to the customer
• $0.10 or 0.4% was used for branding to insert a thank you postcard (we are probably going to remove this in favor of sending an email with a discount code)
• $1.43 or 5.7% was for taxes
• $14.57 or 58.3% was the COGS subtotal as a billing invoice from our printing service that we need to pay

In reality the billing invoice back to us happened right away. That meant we are required to pay COGS upfront while waiting on the payout from Shopify. There was a delay of several days before we received any money as income to our store. It's an important point to plan ahead for these types of expenses.

Putting it all together now, this is what we end up with by accounting for COGS plus the Shopify fees. Our test transaction was for a Gildan 64000 t-shirt. See the following screenshot from a spreadsheet we typed up for tracking.

In the spreadsheet, rows 2-8 are from the printer (yes row 3 is hidden because it was not needed), and rows 10-18 are from Shopify. Below are my notes on rows 10-18:

• $24.99 was the sale price
• $5.00 was me adding a tip during checkout
• $29.99 was the total sale on Shopify
• $1.29 or 4.3% of the total sale was Shopify transaction fees
• $14.57 or 48.6% of the total sale was COGS
• $14.13 or 47.1% was the remaining profit

All of this data to calculate a 47% profit margin was based on our testing. In the future, we intent to make some adjustments such as:

• removing the branding insert postcard (saves $0.10 per order)
• possibly adding an express shipping option for customers to pick instead of our free shipping option (saves about 20% from COGS if we a different shipping option is paid by the customer)
• and making changes to the sale price based on what we are seeing on other stores so we can remain competitive (we're running the numbers to determine pricing)

Oh and reality check! We know that our real sales price $24.99 will probably not include anyone adding a tip (but we would say thank you if you do add a tip), so our $14.13 or 47% profit margin drops by $5.00 to a lower amount of $9.30 or 37% profit margin.

This leads to our next question. If we raise or lower the sales price, how many sales do we need to sustain the store? Divide the overhead cost of $377 mentioned earlier by the more realistic profit margin of $9.30 to figure out our "breakeven point" will happen after 41 sales (of this one product). We actually have an inventory of several different types of products, all with their own calculations. This is exactly what you need to know in order to run your store efficiently, and hopefully, with a profit.

Inventory Management

One point we wanted to say about inventory is to constantly review what is selling and what is not selling in your store. Focus on the winners, and consider discounting or delisting the products that are not attracting customers.

We mention this in our Refund Policy, but all of our products are unique and printed only once they are ordered. So we do not incur a lot of extra overhead costs that are usually associated with stocking physical inventory in person. The real cost is time. The time it takes to create each product listing, mockups, descriptions, categories, and later adjusting specific details on all products across the entire store.

Customer Acquisition and Retention

Acquiring new customers and retaining existing ones are vital for the success of your Shopify store. You have to consider the cost of acquiring a customer (also called CAC or customer acquisition cost) through various channels, such as paid ads, email marketing, or content creation. Additionally, implementing strategies to retain customers, such as loyalty programs or personalized recommendations, can drive repeat purchases and increase customer lifetime value. These are all areas we are interested in exploring for our store.

By understanding the economics of running a Shopify store and carefully managing your expenses and revenue streams, you can build a profitable e-commerce business. Keep a close eye on your financial metrics, analyze your performance regularly, and make data-driven decisions to optimize your store's profitability. More to come . . .