Startup Business Costs: How Much They Are and How To Calculate

Starting a business can cost anywhere from nothing to millions, depending on its type, size, and location. Here’s a breakdown to help you plan your expenses.

Many entrepreneurs start a business with little more than a dream and a shoestring budget.

In fact, some business models require very little upfront costs, and at Shopify, we’ve personally witnessed the success of countless entrepreneurs with humble beginnings. 

We wanted to understand: How much does it cost to run a business—really. Do aspiring entrepreneurs have any misconceptions about what those costs will look like in their first year of business? And is it possible to start a business on a budget?

This guide shares the latest research on how much it costs to start a business, with common startup expenses and operating costs to be aware of in your foray into entrepreneurship.

How much it costs to start a business

Starting a business can cost nothing for home-based operations, while larger physical storefronts may require tens of thousands of dollars. Businesses in some industries may need millions for a complete launch. The overall cost can vary significantly based on the business type, size, and location.

Understanding potential costs before starting a business can set you up for success in the long term.

“I’m not a financial wizard, but I know how to read a balance sheet and a profit and loss sheet,” says Bill Bachand, founder of Renu Therapy. “And I know where different charges get coded too so it all lines up. Because if you have good financials, then you can make good decisions.”

Typical startup costs for a small business

Here’s a breakdown of what various startup expenses look like in 2025. 

Startup expense	Average cost
Cost of incorporation	Between $480 and $1,150 for an S corp or between $480 and $1,180 for an LLC, depending on your state.
General liability insurance	Around $42 per month or $500 per year.
Personal income tax	From 10% to 37%, depending on taxable income.
Accounting software	Between $0 and $70 per month.
Business taxes	Flat rate of 21% corporation tax, plus 7.65% for Social Security and Medicare for any employees. Sales tax rates vary from 0% to 7.25%, depending on your state.
Business loan repayments	Between 7.85% and 8.79% APR for a bank loan, though this depends on your credit score, loan type, and repayment terms.
Ecommerce platform and website hosting	From $5 per month with Shopify.
Domain costs	Between $10 and $20 per year.
Product development and inventory	Varies by industry.
Packaging costs	Between 10¢ and $2 for unbranded shipping boxes. Branded options can cost between $2 and $25 per box.
Package shipping costs	From $9.65, though costs depend on the shipping origin, designation, weight, dimension, and delivery speed.
Real estate	Roughly $21.85 per square foot.
Advertising and marketing	7.7% of annual revenue.
Staffing	$32.25 per hour for each employer’s wage or salary, plus $14.59 in benefits.

Key small business cost statistics

Before you dive into figuring out how much it will cost to start your own business, let’s take a look at the small business landscape.

Common statistics to know

• Almost two-thirds of small business owners tap into their personal or family savings to start a business. Some 16% of entrepreneurs sought a business loan to start their company.
• Large banks are the most popular financial service providers for entrepreneurs.
• In 2024, 93% of small businesses said they’d experienced financial challenges, up from 66% in 2019.
• The most popular reason for entrepreneurs to seek financing was to expand their business, followed by meeting operating expenses and the need for available credit to use in the future.
• Some 71% of small business owners had outstanding debt in 2023, which was down from 79% in 2020. 
• Small businesses created 20.2 million net new jobs in 2024—they’ve accounted for 61% of new job creation since 1995. Yet 90% of new businesses with employees will need startup capital. 
• The top financial challenges for startups that don’t employ people are increased costs of goods, uneven cash flow, and operating expenses. Some 77% of startups used personal funds in response to these challenges.

Trends in small business expenses

Artificial intelligence to reduce costs

Artificial intelligence gives new entrepreneurs a way to scale their startup without hiring staff. Many small businesses are embracing AI to automate their manual tasks, and even analyze large data sets to help make key decisions. The Small Business Administration (SBA) found that between March 2023 and February 2024, 4.6% of all businesses used AI. 

If you’ve built your business on Shopify, you already have access to world class AI tools within the ecommerce platform. Shopify Magic can assist with time-intensive (and costly) marketing tasks like:

• Removing product image backgrounds
• Writing product descriptions
• Answering FAQs
• Crafting email marketing campaigns

Financial management goes in-house

Not all entrepreneurs start their businesses with strong financial skills. It’s tempting to outsource this aspect of your business to an expert. However, some small business owners say they wished they’d learned financial management from the start—or at least hired an employee to handle it in house. 

“My biggest regret is not doing the CFO services in house and learning it myself or having somebody on my team to be running the financials,” says Aliyah Marandiz, founder of Sugardoh in an interview with Shopify Masters.

“Instead, we hired fractional CFOs, which every time we hired a fractional CFO, they weren’t involved enough in the business to make a difference or to see the hurdles that were coming up.”

For entrepreneurs who are new to business finances or operations, Aliyah recommends your first staff member being an expert in these fields.

Calculate your business startup costs before you launch

It can be easy to jump straight into launching your business, but having a clear sense of your costs can help set you up for long term success.

Steps to estimate your initial startup costs

A business plan is a formal document that outlines the future of your business. It details your vision, what the business will look like, and a roadmap of how to get there—including any startup expenses you’ll incur along the way.

Here’s how to complete the financial plan section of your business plan:

1. List potential expenses

Break down the initial and recurring expenses you’ll need to get your business running. Include any one-off costs, such as corporation filing fees. 

2. Conduct market research

Use the research above or contact vendors that offer the services you need for a personalized quote. Don’t be afraid to negotiate. Take advantage of any introductory discounts and free trials before you commit to software, tools, or services. 

3. Estimate typical costs

Add the figures you’ve researched to your financial plan. Categorize these by type so you can see where you’ll be spending the most.

Overwhelmed with a long list of potential expenses? You don’t have to have this money upfront. You can reinvest money you’ve made as you go. 

It’s a strategy used by Jacob Winter, founder of home décor brand Mush Studios. 

“Every dollar I put into buying the resources for the tufting gun and for the fabric and the yarn and the board,” he says in an interview with Shopify Masters. “It took many weeks to save up for it, and then honestly, after every rug sale that I received after that, I put the money straight into the business.”

Tools and resources for cost calculation

Here are some tools to assist the cost estimation process:

• Free business plan template: Document the roadmap of your new business, complete with key components of a business plan: company overview, financial summary, competitive analysis, marketing strategy, and logistics plan included.

Identify your startup expenses

While it can easily feel like you need a large nest egg (or loan) to get started, many successful businesses launch with less than $1,000.

Take the hydration brand Waterboy, for example. With just $700, the founders built a thriving brand by focusing on one platform, with a plan to capture customer interest.

Only after gaining traction on TikTok did Waterboy launch a presale campaign to fund the production of its electrolyte drink mix.

Every business begins differently, and understanding what you need to get started is an important step towards making your first sale.

One-time vs. recurring expenses

Break down your startup costs into two categories—one-time versus recurring expenses—to help with financial planning over your first year. You can plot these on a calendar to avoid any unexpected costs creeping up on you.

For example, you’ll only pay once to file patents and have a lawyer help with company formation documents. Expenses like rent, salaries, and software subscriptions are ongoing costs.

Essential vs. discretionary expenses 

Before budgeting for an expense, ask yourself: Is it absolutely critical and something the business fundamentally needs? Advertising, for example, can help you grow fast—but it’s not essential. Plenty of businesses have grown using free advertising.

Common expenses entrepreneurs tend to overestimate the importance of include:

• New equipment (versus leased or preowned)
• Large office space
• Excessive inventory 
• Branded stationery, such as letterheads or business cards
• Custom website design—plenty of free themes exist

Some expenses may appear necessary, but depending on your skill set, you may be able to do some tasks yourself. When Ann McFerran started the beauty brand Glametic, her focus was on keeping costs low, which included learning how to take product photos.

“If you want a professional photoshoot, prices can get really high, which is why I just learned how to do it by myself,” she says in an interview with Shopify Masters.

Estimate how much your expenses will be

Sometimes estimating a cost is not as simple as contacting vendors to get a quote for the service you’re looking for. With some expenses, the sky’s the limit—you can, in theory, spend as much as you can afford on marketing. But what does that figure actually look like?

Methods for cost estimation

Here are three cost estimation methods to anticipate startup costs:

Comparable analysis

This method uses data from other businesses to estimate costs. You can use industry reports, get guidance from your mentors, or chat with other small business owners to ask how much you should expect to pay for each expense.

Rule of thumb method

This cost estimation method uses general guidelines to predict costs. For example, the SBA says that businesses tend to spend 7.7% of their annual revenue on marketing. This acts as a benchmark for your own financial plan. 

Phased cost estimation

It’s common for new entrepreneurs to spend different amounts at each stage of their business. You might spend more upfront buying inventory, and less on marketing once you’ve got a stable customer base. The phased cost estimation breaks startup costs into different phases or milestones—for example, development, marketing, launch, and scaling.

Factors affecting expense estimates

It’s difficult to estimate how much you’ll spend when starting a business because there are a plethora of variables at play:

Location

If you have a nexus in a state with high sales tax rate (such as 7.25% in California), this will account for a larger portion of your operating expenses. Similarly, if you’re opening a retail store alongside your ecommerce website, you’ll pay more per square foot to open stores in populous cities such as New York.

Business model

It’s cheaper to start a dropshipping business than manufacturing your own inventory. That’s because you’ll only pay for a single product when you receive a customer order (as opposed to buying in bulk upfront). 

Financing option

Friends and family might not charge interest on any loans or grants—but financial institutions will. Interest rates vary depending on your funding source, your credit history, the type of loan you get, and the lender’s repayment terms. 

Danny Buck, co-founder of CRAFTD, suggests starting slowly to understand the market and gain a clear sense of what your business expenses are.

“I went full on and tried to aim for the highest revenue,” says Danny in an interview with Shopify Masters. “And the big mistake with that is if you get it wrong, you end up in debt, and then you need financing and you’re apologizing to people that you can’t pay anymore. It’s just not particularly peaceful. It’s quite stressful.”

Types of costs for your small business

Understanding the types of business expenses and how stable or unstable they are, can help avoid financial strain.

Fixed costs vs. variable costs

Even if your startup costs are ongoing, the price might change from month to month. Utility bills and loan repayments, for example, might stay consistent, whereas production expenses are variable costs that fluctuate depending on how in-demand your products are.

Variable costs are harder to forecast and can change based on customer demand, financing options, and supply chain disruption. 

Examples include:

• Packaging and shipping costs
• Raw material costs 
• Office supplies
• Credit card fees
• Loan interest payments (if you’re on a variable rate)

Direct costs vs. indirect costs

Direct costs are directly related to the production of a product. Examples include the cost of raw materials, shipping, transaction fees, and inventory storage costs. These are necessary to generate revenue from product sales.

Indirect costs, however, are general fixed overheads you’ll pay for, such as web hosting costs, salaries, office supplies, and insurance. These operating costs generally stay the same regardless of how much you sell. 

Neither direct or indirect costs are more important than the other. 

Both serve their own purpose:

• Direct costs let you calculate a product’s retail price. If the cost of goods sold is $5 and you’re aiming for a 40% profit margin, for example, list the item for sale at $7. 
• Indirect costs let you calculate your commitments and formulate a plan to cover them. If it costs $250 per month to keep your online business running, for example, work backward to calculate how much gross profit you need to make to cover those operating expenses.

Hidden costs to consider when starting a business

It’s easy for hidden costs to creep up on you as a new entrepreneur, especially if this is your first time starting a business. As the saying goes, “You don’t know what you don’t know.”

Thorough research and talking with other small business owners can help uncover any financial obstacles that throw your financial plan off course. 

Common overlooked expenses

Amongst the most common culprits for startup companies are:

Licenses and permits

Most businesses require legal compliance to operate. The cost of these licenses and permits is much higher in regulated industries. For example, if you’re selling alcohol, you’ll need FDA approval and a liquor license—which can cost anywhere from $50 to over $300,000.

Shipping costs

Shipping costs get expensive when you’re shipping large or heavy items. Overseas deliveries also cost extra. And if you’re processing a large volume of returns, these costs multiply. One way to combat these costs is to charge customers for shipping.

Staffing costs

There’s the obvious cost of wages, but also consider any additional expenses you’ll encounter when growing a team. This includes taxes, health insurance coverage, and employer’s liability insurance.

Professional services

If you’re filing a patent to protect your intellectual property, for example, legal fees can extend into the thousands. Attorneys charge between $150 and $1,500 per hour, depending on their experience and specialty.

How to prepare for unexpected costs

What happens if an unexpected event (e.g., a pandemic, a recession, or both) throws off your financial projections? It’s always a good idea to do some contingency planning and set aside a cash reserve, just in case.

Startup expenses are necessary to generate revenue, so the return on your investment will likely be greater than the upfront costs.

“I was so scared to invest in myself, but it ultimately comes back to you,” says Etienne Ortega, founder of beauty brand ORTEGA, in an interview with Shopify Masters. “Anything you can do to invest in yourself, whether it’s your kit, your education, or your well-being, doing good things will always come back.”

Options to get money to start a business and supplement your initial investment include:

Personal savings

Do you have money saved from previous jobs, businesses, or a house sale? Savings are the most popular way to secure funding for a new online business.

Financial support from friends and family

If you’re lucky enough to have friends and family who want to support your new business, take a loan from them to cover your first year’s expenses. 

Personal loans

Banks offer small business loans to help entrepreneurs start their own. Just be cautious that if you can’t repay the bank loan for any reason, you’re personally liable. 

Merchant cash advance

This type of business loan helps you secure startup funding that you’ll pay back as a percentage of sales. Shopify Capital, for example, lets you keep ownership of your company and automatically repay the loan when you generate new sales.

Crowdfunding

Crowdfunding platforms help you raise money from investors without having to pay back the loan. However, crowdfunding is a complex and time-consuming process. It can take months to launch a successful campaign.

Venture capital

If you have a unique product, want to grow fast, and you don’t mind giving away equity, venture capital firms can invest in your small business. This usually comes with higher commitments and aggressive growth. But it can give you access to experts alongside cash to get started. 

Business credit cards

A business credit card can help cover initial costs like equipment or office supplies. Some also offer rewards or cashback on purchases, which can help offset business expenses. One drawback to credit cards is that you can easily accumulate high-interest debt that becomes unmanageable over time. 

Importance of financial projections for startups

Remember: Starting a successful business is a marathon, not a sprint. Don’t measure the success of your new business by your first-year profitability. Give yourself a runway of 18 to 24 months to get off the ground. 

Accepting that your first year of business may not be very profitable is important for both financial planning and mental preparation. Many founders are the last to be paid in their first year, as the company’s revenue goes back into the business. That’s perfectly normal—as is not feeling totally confident in your financial planning abilities. 

“Money is a learned skill, just like anything else, and you’re going to be bad at it,” says Tori Dunlap, founder of Her First $100K. “It’s going to be uncomfortable and feel very vulnerable to get better at, but give yourself grace and understand that you’re learning this skill and, like anything else, it takes time.”

Spend the first year opening your online store, testing, reiterating, and reinvesting your sales back into your business using the above budget guidelines.

How much does it cost to start a business FAQ

What is the average cost to start a business?

The average business cost depends on multiple factors, including the business type, industry, size, and location. Certain business models have lower startup costs—like dropshipping, for example, where you’ll only buy inventory when you make a sale.

Is $10,000 enough to start a business?

There are many business ideas with low total startup costs. You can start one for less than $10,000. These include dropshipping companies, becoming a freelancer, and selling your crafts.

How much money is needed to start a small business?

Entrepreneurs can create a simple ecommerce business with just a few hundred dollars. If your startup budget is limited, there are ways to cut startup costs. Check for free trials of any software, ask for introductory discounts, and get help from friends and family.