As briefly mentioned in our previous capitilisation post, we are going to go into some detail about operating costs. After working through the post, we realised it was getting rather long, so it’s now broken into two parts. This is the first part, arbitrarily named the hard costs.
Operating expenses for an online board games store comes in a variety of ways, most of them pretty common to most businesses but some that are specifically unique to the industry. I’ll cover most of the big ticket expenses here. All the figures provided here are figures based on professional quotes, but with some personal connections and favors, could potentially be lowered.
The Hard Costs
All these costs are fixed costs and are related to physical aspects of the business, whether it is your rental space or storage boxes or server bandwidth.
Rental cost is obviously going to be dependent on the size of your business and how much stock you carry. Currently, warehouse space in Vancouver is about $1.50 per square foot and office space between $1.50 to $5. As a comparison, retail space can go from $3 to $10. Above estimates all include taxes and other gross expenses such as heating and electricity.
However, it is quite unlikely that you would find a warehouse for less than 1,000 sq ft, while you could easily find office space of 300 to 500 sq ft.
Hosting & Domain Name Purchase
This is another form of rent for an online business, in this case for your site. Purchasing a domain name is really cheap, as GoDaddy has happily advertised – as low as $2.00. Of course, the better domain names are already taken, and you probably don’t want a .biz or .net domain name, so you are looking at about $20 a year for domain name purchase. Minimal.
Hosting varies, with starter hosting packages from $5 to 20. For a more dedicated site, you are looking at about $50 – 100 which is what you will need for a site of any size. Again, this can also depend on how you code the site – heavy database and image based sites will require more dedicated hosting than others.
Shipping & Packaging
Firstly, there is the cost of shipping games to your customers which can be a significant cost due to reshipments for missed games, mistakes on the costing of shipping during order processing and free shipping costs. If you are wondering, no, we don’t actually make any money on shipping -the cost quoted on the site is our cost (plus box cost), give or take a dollar or so. Sometimes we lose, sometimes we gain as the software isn’t 100% accurate.
On top of the actual shipping cost with your carrier; you have the cost of boxes, packing materials and tape. Most cardboard boxes will cost you between $1 to 3 depending on size and stock, while packing materials can generally be purchased on the cheap. In fact, if you save up the packing material you get sent yourself and all your junk mail, packing material costs can be negligible.
In addition, you have shipping costs to you from your distributor. Unlike the US where some of the distributors will provide shipping for free after a certain order size, Canadian distributors do not offer this. Generally, shipping cost from distributors within Canada is about 4 – 7% of the cost of goods. Note that due to our location in Vancouver we mostly have orders shipped across the country so Eastern stores are actually better off.
If you are shipping up from the US, which is a possibility as not all the Canadian distributors will have what you want, shipping cost is much more significant and can be from 8 – 12%. This does not include brokerage costs, which is another 1 to 2% generally speaking.
You can see why we prefer to just pick up our games ourselves from the US rather than pay all the shipping costs. Admittedly, there is a hidden time cost here, but one of the advantages of an online business is that you can work at 2am and still get sales.