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The Cost of Starting an Online Business
So what is the cost of starting an online business? According to many independent business surveys the average capital it takes to start any business today is roughly $8,000. An online business however is an exception to this broader average. Online retail businesses are a popular option today for entrepreneurs because of the minimal capital it takes to get them started.
Moreover, an online retail business is extremely conducive to run as a home based business, as a solo-preneur, parent or part-time entrepreneur. It can also be a great way to showcase your creative abilities, whether a talent or hobby. So…how much does it really cost to get started? The answer of course is that it depends…
If you effectively leverage all the free resources you have available today at your disposal, starting an online retail business will take a relatively small amount of capital for you. You need to pay particular attention to your budget as costs can get out of control without the proper knowledge of what tools you need and how much to pay for them.
That is the main reason this website was created. To inform you as much as possible about succeeding online with your own website and providing you with the information on the free and cost efficient resources that are available to you.
The main components of a successful online retail business (also referred to as ecommerce) are: creating a good quality and well functioning website, selling a product that is in demand and marketing your website effectively. In my opinion, to be successful, your product needs to fit one of the two profiles: either you provide something that is a brand new concept which addresses a screaming market need, or you provide an existing product or service that is in demand for a lower price. The later is almost mandatory if you are selling a commodity type product online. In either case it is very important to understand who your constituency is.
Who is your main audience? Who are you marketing your product to? Make sure you understand your competitive advantage. What is so unique about your product or service? Is it just the price advantage? Competition online is rough and you need to make sure you have something in your favor that can place you ahead of everyone else, or at least right there with them. Some other things to consider are what are the barriers to entry? What’s stopping someone else from doing the same and taking away from your market share? How scaleable is your idea? Can you meet the demand once it sky rockets? Proceed reading if you have compelling answers to the preceding questions ?
Since starting up an online retail business is relatively cheap compared to most other businesses (very cheap if you ask me personally and if you do it the “right way”), many online entrepreneurs have “bootstrapped” their way into business. Bootstrapping is gathering as many funds as you can from your own pockets and your personal network. Some examples of sources are: revolving line of credit, personal savings, credit cards, friends and family, home equity loans, etc. No matter where and how you acquire the funds, they will all need to be focused on the 3 main components mentioned above. Let’s discuss these in detail below:
Building a good looking and well functioning websiteIf you are serious about your success online as a retailer, you need to create a good looking website that welcomes your visitors and immediately gives them a sense of confidence in shopping with you. Just imagine if you were starting up a local retail store in your city. Now ask yourself how much time and money you would spend on your storefront? That is exactly why an appealing website is important to your success online. It is your identity. It is your storefront in the city we know as the Internet. You want your website to look sharp, credible and communicate your message to your visitor as early as possible.
For example, if you are selling discounted widgets, make sure your visitor knows this as soon as possible when they reach your website. To accomplish all this, your costs will involve a web designer’s hourly fees (to design the website) unless you do it yourself, web hosting costs, domain-name registration, and the purchase of a shopping-cart function that will allow you to accept online orders and credit card payments. Almost no one pays sin checks anymore – online at least. The amount you pay for each of these services will depend on how much research you have done to recognize how much you should be paying for a good product or service.
You may also consider purchasing additional domain names for domain forwarding purposes. Other additional optional expenses to be considered are purchasing additional email accounts (especially if your host doesn’t provide you with one for free) and a secured sockets layer (“SSL”) security certificate. I spent close to $12,000 on my first ecommerce project. I have friends and other colleagues who have spent between $20,000-$35,000 on their ecommerce websites. I also know someone who has built one on a budget under $4,000.
As you can see these ranges are quite wide. Someone that spent $35,000 on their website probably has a feature here and there that is better than someone who spent $4,000 but not necessarily. In fact, the two websites can be extremely similar in both look and functionality. However, the person who spent $35,000 may not have had an idea of how to create a website in the most cost efficient manner. The point I am trying to make is that the quality of your website will not depend on the money you spend. It will mainly depend on how knowledgeable you are about websites, which will help you determine what to spend on and how much to spend.
My cost in developing this website was under $300. This website performs much better than my first website. The results I have achieved with this website in a short time period has been beyond my imagination. All of this has been possible through the use of SBI. I have to admit that I never looked at website building and marketing the same way again after I was introduced to SBI.
I cannot stress enough how good this tool is and how easy it makes everything for you as an entrepreneur. SBI will hold your hand and take you from beginning to end in your quest to financial success online. If you are seriously considering creating wealth either as a full time or part time online entrepreneur, you should definitely read this section.
Your productOnce you have a website you are comfortable with and are confident in, you will need a product to sell. At this step of the game you have to decide if you want to manufacture your own product or source the product you will be selling from elsewhere. This goes back to my earlier point. In order to be a successful online retailer, you need to offer a product that is either new and has a market need or offer a commodity type product that is already in circulation at a much lower price.
Excelling on the customer service side of the business will NOT give you the advantage when you are competing on price. Not as much as you think anyway. Rather good customer service is an expectation all your customers will have from you. The nature of online business is so impersonal to begin with so please don’t think that you can justify your higher price by offering stellar customer service online. Instead, focus your energy on lowering your product costs.
In either case your knowledge and passion about the product you will be selling will play a vital role in your success. Make sure you pick something you are passionate about. Even if you don’t know much about the product except that it can be very profitable for you, your passion for it will naturally enable you to learn as much as you can about it.
Just a tip if you are considering sourcing your product – DO not deal with wholesalers, jobbers and drop shippers. Though there is a slight possibility that you may still profit well by going this route, it usually almost never works out in the long run. If it does then I bet you will have to sell a ton in quantity due to the squeezed profit margins to justify the venture as worthwhile.
All these folks are nothing but middlemen and when you are dealing with them, they all must get paid. They need to eat! Always deal directly with the manufacturer. It’s a bit tougher to build a business relationship with a manufacturer but this is truly the best and sometimes the only way of doing business to make it worth your time. If you need warehousing space for your product inventory, try to arrange an agreement with a warehouse that allows you to pay for just the space that you will be using. Do not go buying warehouses with your bootstrapped funds and incurring all those fixed sunk costs or you won’t be eating yourself!!!
Other costs to consider in conjunction with your product costs are shipping and handling costs, employee costs (if you hire help), liability insurance (rare for an online business but some carry this regardless), etc. Your business will also need a physical address and if that address is not your home address then consider spending some money on an office (not recommended, at least in the beginning) or a P.O. Box. You will need some place for your customers to send back items for returns and exchanges. It is best to work from home initially and see where your business takes you from there.
Basically when it comes to product related costs, you want to work in a capacity where the more volume you produce or source, the lower it makes your cost per item or unit. Limit your fixed expenses as much as possible and run a lean operation. All in all it is hard to put a price tag on this piece of the puzzle.
Manufacturing will obviously be the more expensive option. Research and weigh out your options and always look for the most cost efficient route. Make this an ongoing process even when you have already engaged someone to provide you with their products and services. There is always someone better out there you can team up with, it’s just a matter of time before you find them.
Marketing your websiteMy mantra throughout this website has been that a website is no good unless and until it is effectively marketed to get it the exposure it needs to be successful. I cannot emphasize how important it is to understand this simple statement. To succeed in marketing it is very important to know your target audience. If you know who to sell to you can market your product better and target your niche customers.
Many business owners conduct professional surveys through online companies. They hire companies that pay people like us for surveys we take and sell the research results to customers like you (website owners). I am sure you have received an email asking you to fill out a survey in exchange for a small payment? The results of such surveys help many business owners narrow in on their target customers.
There are many avenues of online marketing and advertising that you can consider. Each varies widely in its cost. Generally, online marketing and advertising services are not cheap at all. Thus it is very important to know your audience and determine the best way to reach them through your independent research and market surveys if you choose to pay for such services.
The instant way to bring in business would be through the use of pay per click (“PPC”) advertising. Google Adwords, Yahoo Overtures (based on views rather than clicks) and MSN Ads (Microsoft Digital Advertising) are the three most popular and effective PPC campaigns available out there. This option allows you to immediately attract targeted visitors that are looking for your product by paying search engines to advertise on your behalf.
You may also consider posting up banner ads on certain popular websites that has a visitor population that might be interested in your product. There are also various search engine marketing (“SEM”) and search engine optimization (“SEO”) firms that you can hire (make this a link and provide extreme caution) that will work on promoting your website online. Press releases are also quite popular. They are a great way for you to mass communicate any company information you want media outlets to broadcast to their audience.
You can also pay a professional article writer to write expert articles on your or your website’s behalf and submit it to article banks. The quality of your article will build credibility in your business and attract more visitors as .these articles will likely contain rich keywords and phrases related to your website that will be picked up by search engine robots. All these services cost time and money. Like your product, it is hard to put a price tag on what it will cost you to market your website. However, I can tell you that your advertising and marketing expense will be your biggest expense providing that you keep your website creation expenses minimal - as you should.
Offline marketingAn often neglected avenue of advertising websites is offline media. Granted that online advertising and marketing campaigns are likely most effective, do not scratch off offline advertising media. Traditional advertising media like newspapers and magazines can not only be more cost efficient at times, but may generate more traffic than you anticipate. Print media is also permanent in the sense that its on a physical piece of paper. Your ad travels wherever the paper goes and may be seen by the many individuals that come across it during its travels.
Another effective marketing strategy is grass roots marketing and research. Consider starting at the very basic level – your own town, city, state. See if you can establish your brand and credibility locally first. Try inviting friends and family over by offering them free samples of your product or cooking them a nice dinner in exchange for them providing their input and preference regarding the product(s) you might be contemplating or are already selling. Your research will also show you how much to charge for your product. A price too high initially may not bring in the sales you were hoping for and you may find yourself working very hard to make little profits by pricing your product too low.
Marketing through trade shows is another effective offline idea. This strategy works better if you create your product rather than source it, unless your sourcing arrangement is such that you have a better price advantage than most your competition. Trade shows are very expensive to enter into and often involve a lot of preparation beforehand that will take up a lot of your time. Each tradeshow can cost a couple to a few thousand dollars.
You will also likely spend on airfare and hotel accommodations to get to where to trade show is. However, the rewards can be phenomenal. Imagine landing a deal with a big buyer like Walmart during your trade show exhibition? That’s all you might need to secure your multi-million dollar retirement at a young age. That being said tradeshows are often a good idea if you plan on doing wholesale as well. It is a way to get large wholesale orders that will expose your product to the mass public. Once people are familiar with your product they can reach out to you themselves through your website the next time they would like to purchase your product.
eBayIf you already have a top quality product or service and want to test the market before spending the money and fully delving into launching your business website, consider eBay as an option. eBay provides you with an established market platform where you can test the demand for your product. eBay can also help you set the right price for your product or service through the nature of how bidding and transactions are conducted on the website.
Before I knew any better, I spent a lot of money on Google Adwords, banner advertising, link exchange services and hiring press release, SEO and SEM firms for my first website. All these initiatives took me a lot of time and money for success to become somewhat apparent. I spent way too much for mediocre results. Using SBI has eliminated pretty much all of this and has made life so much easier and cheaper for me. It truly reduces the cost of starting an online business.
In conclusion I will mention that although I am a big fan of online retail business, you don’t need to sell a product to have an online “business”. A business is generally defined as activity or group of activities conducted for a profit motive. An alternative to a retail website is an information based website that relies on advertising as its source of revenue.
This is my personal favorite way to create something out of nothing; well nothing but time. It is my belief that anyone with the desire to achieve financial success through an online business can do it with relative ease given the technological advancements we enjoy today at a very low cost. Read more about how so many people are making money from information based websites.
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