What is Channel Decision Score?
A sell online vs physical store analysis compares startup costs, ongoing overheads, customer reach, and profitability for each sales channel.
The Formula
Formula
Online TCO = Platform + Marketing + Fulfillment Physical TCO = Rent + Build-out + Staff + Utilities
Worked Example
Worked example
A retail business: online store costs $500/month total, physical shop costs $3,500/month.
- 01Online Year 1: $6K + $12K marketing = $18K, revenue $80K
- 02Physical Year 1: $42K rent/costs + $24K staff = $66K, revenue $150K
- 03Online margin: $62K (78%)
- 04Physical margin: $84K (56%)
- 05Online profit per $ invested: $3.44 vs Physical: $1.27
Result
Online delivers 2.7x better return on investment. Physical generates more total revenue but at much higher cost.
Why This Matters
Capital efficiency
Online stores require 70-80% less startup capital. Lower risk enables faster testing and iteration. NRF data shows that the average cost to launch a functional ecommerce store is $3,000-15,000, compared to $50,000-250,000 to open a physical retail location in a US metro area, a risk differential that is especially significant for first-time retailers.
Market reach
Physical stores serve a 5-mile radius. Online reaches the entire country with the same fixed costs. Digital Commerce 360 reports that US ecommerce sales exceeded $1.1 trillion in 2023, with the average online retailer reaching customers across 28 states compared to a single-location physical store serving fewer than 50,000 potential customers within driving distance.
Scalability
Scaling online means increasing marketing spend. Scaling physical means opening new locations at $50K+ each. NRF survey data shows that an ecommerce business doubling revenue typically requires a 30-40% increase in operational costs, while a physical retailer doubling revenue by opening a second location incurs 80-120% additional fixed overhead.
Common Mistakes
Online means no costs
Online marketing costs $1,000-5,000+ monthly to generate traffic. Free traffic from SEO takes 6-12 months to build. Digital Commerce 360 data shows that the average US ecommerce business spends 20-30% of revenue on customer acquisition in years 1-2 before organic channels provide meaningful traffic.
Ignoring the omnichannel option
The best strategy is often both: physical for experience and trust, online for reach and convenience. NRF research shows that omnichannel retailers generate 30% more revenue per customer than single-channel businesses, and customers who shop both online and in-store have a 30% higher lifetime value.
Underestimating fulfillment
Online shipping, returns, and customer service can consume 15-25% of revenue. Factor these into your margins. The NRF reports that US ecommerce return rates average 20-30% for apparel and 8-12% for electronics, with processing a return costing retailers $20-40 per item in labor, restocking, and shipping.
Industry Benchmarks
Source: National Retail Federation US Market Report 2025