diff --git a/README.md b/README.md
index cf59c56..7a57125 100644
--- a/README.md
+++ b/README.md
@@ -44,12 +44,15 @@ A RESTful API for an e-commerce application built with FastAPI and SQLite.
    pip install -r requirements.txt
    ```
 
-3. **Run database migrations**:
+3. **Database Setup**:
+   The application uses SQLite as the database, which is stored in `../storage/db/db.sqlite` (outside the project root directory). This directory will be created automatically when the application runs.
+
+4. **Run database migrations**:
    ```bash
    alembic upgrade head
    ```
 
-4. **Start the API server**:
+5. **Start the API server**:
    ```bash
    uvicorn main:app --host 0.0.0.0 --port 8000 --reload
    ```