In-person, online, and hybrid – a structured cost comparison by size category
What are retail distribution costs?
Selling expenses include all costs directly associated with the sale of goods to end customers. In brick-and-mortar retail, they represent one of the largest expense categories on the income statement – and are often underestimated in their entirety by many retailers. Anyone who wants to run their business efficiently must understand which cost items are included in this term, how they are broken down, and how they differ between a purely brick-and-mortar business and one with an online presence.Typical Components of Selling Expenses
A retailer's selling expenses can be broken down into the following main categories:- Personnel costs in sales: salaries and wages of sales staff, training costs, and the imputed owner's compensation.
- Store-related costs: Rent and utilities for retail space, store fixtures, point-of-sale systems, and energy costs for lighting and air conditioning.
- Marketing and Advertising: Advertising campaigns, brochures, window displays, point-of-sale materials, and – for online presence – online marketing, social media, websites, and online stores.
- Logistics and Product Distribution: Transporting goods to customers, warehousing (internal and external), packaging costs, and returns logistics.
- Payment processing: Fees charged by payment providers, particularly for online payment methods such as PayPal or Klarna.
- Other sales-related costs: IT systems for sales, insurance for retail spaces and merchandise, legal and compliance costs (e.g., updating terms and conditions, protection against cease-and-desist letters).
Sales Costs: Brick-and-Mortar vs. Online Presence – A Comparison of Income Statements
The shift to online sales fundamentally changes a retailer's cost structure. Some cost items decrease, while others are added—and overall, the sales-to-cost ratio increases. The following table shows a standardized comparison based on model assumptions:| Cost item | In-Store only | In-Store + Online | Explanation |
|---|---|---|---|
| Sales personnel costs | 16.0 % | 10.0 % | Fewer sales staff are needed, but more fulfillment staff are required |
| Store rent / utilities | 8.0 % | 6.0 % | The store may be smaller, as the product selection is also available online |
| Traditional marketing (flyers, store windows) | 2.0 % | – | Not applicable if the business is consistently focused on online operations |
| Online marketing (SEA, SEO, social ads) | – | 4,5 % | An additional, often significant cost factor |
| Logistics/Shipping (Customer Delivery) | – | 5.0 % | Parcel Shipping, Packaging, Returns Logistics |
| Warehousing/Fulfillment | 1.5 % | 3.0 % | Additional warehouse for online inventory; fulfillment service provider, if necessary |
| Payment processing (payment provider) | 0.3 % | 1.0 % | More payment options online, higher transaction fees |
| Content Management (Product Photos/Descriptions) | – | 1.5 % | Maintenance of the digital product lineup |
| Legal/Compliance ongoing | 0.1 % | 0.3 % | Maintenance of terms and conditions, protection against warning letters, GDPR compliance |
| Other selling costs | 0.3 % | 0.3 % | Other sales-related expenses |
| Total Selling Expenses | 28.2 % | 31.6 % | An increase of approximately 3.4 percentage points |
Note: All figures are standardized model assumptions intended to illustrate structural differences. Actual figures vary significantly by industry, location, product range, and the maturity of the online business.
Cost Comparison by Size Category: Brick-and-Mortar vs. Online
Absolute sales costs vary considerably depending on the size of the business. The following analysis is based on three standardized size categories, whose annual brick-and-mortar sales are derived from retail space and industry-typical sales per square foot:- Small specialty retailer: 50–100 m² Retail space, typical annual revenue approx. 260,000 €
- Medium sized retailer: 150–300 m² Retail space, typical annual revenue approx. 785,000 €
- Larger specialty retailer: 300–600 m² Retail space, typical annual revenue approx. 1,950,000 €
| Cost item | RT small in (€) | RT small web (€) | RT medium in (€) | RT medium web (€) | RT large in (€) | RT large web (€) |
|---|---|---|---|---|---|---|
| Sales personnel costs | 42,000 | 28,533 | 126,000 | 85,598 | 312,000 | 211,957 |
| Store rent / utilities | 21,000 | 17,120 | 63,000 | 51,359 | 156,000 | 127,174 |
| Online marketing (SEA, SEO, social ads) | – | 12,840 | – | 38,519 | – | 95,380 |
| Logistics / Shipping | – | 14,266 | – | 42,799 | – | 105,978 |
| Warehousing / Fulfillment | 3,938 | 8,560 | 11,813 | 25,679 | 29,250 | 63,587 |
| Payment processing | 788 | 2,853 | 2,363 | 8,560 | 5,850 | 21,196 |
| Content maintenance | – | 4,280 | – | 12,840 | – | 31,793 |
| Legal/Compliance ongoing | 263 | 856 | 788 | 2,568 | 1,950 | 6,359 |
| Other selling costs | 788 | 856 | 2,363 | 2,568 | 5,850 | 6,359 |
| Total Selling Expenses | 74,025 | 90,163 | 222,075 | 270,489 | 549,900 | 669,783 |
| Additional costs associated with a website | + 16,138 € (+ 21.8 %) |
+ 48,414 € (+ 21.8 %) |
+ 119,883 € (+ 21.8 %) |
What the size comparison shows
The percentage increase in costs resulting from an online presence is similar across all size categories – in this typical example, sales costs are approximately 21 to 22 percent higher compared to a purely brick-and-mortar operation. The key difference, however, lies in the absolute amount and the sustainability of these additional costs:- A small specialty retailer incurs additional costs of approximately €16,000 per year – with total revenue of around €260,000. This represents a significant relative burden that is virtually impossible to cover through day-to-day operations.
- A medium-sized specialty retailer bears approximately €48,000 in additional costs – with sales of about €785,000, this is a significant burden, but it can be financed with a clear growth strategy.
- Although a larger specialty retailer has the highest absolute additional costs (approximately €120,000), it has significantly more flexibility due to economies of scale, better purchasing terms, and access to debt financing.
One-time investment costs for the online store
In addition to ongoing operating costs, setting up an online store involves one-time investment costs that vary significantly depending on the implementation model:| Model | Minimum investment (€) | Maximum investment (€) | Average (€) | Typical for |
|---|---|---|---|---|
| Modular system/DIY (Shopify, WIX, Gambio) | 500 | 3,000 | 1,750 | Small retailers, limited product selection |
| Professional shop (Shopware/WooCommerce, web agency) | 8,000 | 20,000 | 14,000 | Medium-sized retailers with a unique product line or brand |
| Personal development | 20,000 | 50,000 | 35,000 | Larger retailers, complex requirements (ERP, multichannel, B2B) |
In addition, there are other one-time costs: Legal documents (terms and conditions, cancellation policy, privacy policy) cost approximately €500 to €2,000, and the initial upload of product photos and descriptions costs another €500 to €3,000 – an effort that is often underestimated and depends heavily on the number of items.
If the investment is spread over a four-year useful life, the resulting monthly depreciation expense is as follows: For the modular model, it is approximately €36 per month; for the professional store, approximately €292; and for custom development, approximately €729 per month. This depreciation is added to the ongoing operating sales expenses and must be taken into account in the overall calculation. This one-time investment does not end after four years; rather, due to changing customer needs, technological advancements, and requirements, a new investment will be necessary after some time.
The structural problem facing small retailers: a lack of a growth strategy and limited sources of financing
The numbers paint a clear picture – but behind the percentages lies a structural challenge that weighs particularly heavily on small retailers: While larger retailers can plan and finance the development of an online channel as a strategic investment, small businesses often lack both – a growth strategy and a financial foundation.In many cases, small specialty retailers run their businesses to maintain their current operations rather than to grow. Their focus is on day-to-day operations, providing on-site customer service, and securing their livelihood. In this context, a multi-year investment plan for setting up an online store – including start-up losses, a marketing budget, and technical infrastructure – is often simply not part of the equation.
Added to this are the limited financing options: Small retailers generally do not have access to venture capital or growth financing. Bank loans for digital investments are difficult to justify when expected online revenue is low during the start-up phase and the EBIT of the overall business is initially under pressure due to the additional costs of the online channel. The model calculation shows that a small specialty retailer setting up an online store incurs additional costs of over €16,000 per year during the start-up phase – with total revenue of around €285,000 in a hybrid business model. This represents a financial burden that is virtually impossible to bear without equity reserves or government grants.
The situation is different for medium-sized and larger retailers: They can take advantage of economies of scale, have a broader equity base, and generally have access to bank financing or subsidy programs. For them, the online channel is a predictable growth opportunity – for small specialty retailers, however, it is primarily a cost risk at first.
Conclusion: Understand sales costs – and calculate them realistically
Sales costs are not an abstract business concept, but rather the key factor in determining the profitability of a retail business. Anyone planning to expand into online sales should have a thorough understanding of the cost structures of both channels: The ongoing additional costs associated with online marketing, logistics, fulfillment, and content management quickly add up to 20% or more above the brick-and-mortar level. On top of that, there are one-time investment costs ranging from €1,750 to €35,000, depending on the implementation model.There is a special caveat for small retailers: The online channel is only profitable if it is strategically planned, adequately funded, and consistently developed. Those who treat it as a side project risk bearing the costs without realizing its revenue potential. A realistic estimate – based on your company’s size, product line, and financing options – is therefore the first and most important step.
Unless – and this is the more realistic scenario – brick-and-mortar retailers take advantage of the cost-effective opportunity to use Sortiment.Online to digitize their product assortment and the underlying processes quickly and easily.
Learn more ...