The Real Cost of Starting an Online Business
Do you have $371,100 to open a franchise? How about $80,000 to invest in your own restaurant?
Want to listen? There's an audio version below
So, You Want to Open Your Own Shop
Once upon a time, I thought it would be fun to open a restaurant. After all, the franchise model is a popular and proven way to get started in your own business. However, after flipping burgers for a few years and having responsibility for the grease bucket, I decided the food industry wasn't for me.
Though I have nothing against restaurants, fast food or franchises, the costs associated with those types of business opportunities aren't appealing to me.
According to Jamba Juice's website, a new franchise owner must be ready to spend a couple hundred grand to open a store. To open a Firehouse Subs (one of my favorites), in addition to your love and devotion to sandwiches, you've got to have a “minimum of $80k to invest“.
So, You No Longer Want to Open Your Own Shop
If managing rent, warehouses, supply chains, utilities, and overhead don't sound appealing to you, maybe an online business is more your style. Before I purchased my first domain, I had NO idea how much anything would cost. And the more people I talk to, the more people I find who are in the same boat – we just don't know the cost of starting an online business.
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To help demystify the costs and clarify what's needed, I've put together a list of the absolute essentials.
Yes, some of these links are affiliate links, but I only provide links to services I use and recommend myself. And, these links won't cost you anything extra. So dive in!
What You Need
Starting an online business is similar to starting any other business with a physical location or storefront. You need a name, a place where visitors can browse your products and a way to accept payment. Almost everything else just adds to the ambiance and personality of your business.
Things like window dressings, a smiling hostess and knowledgeable staff all help people feel safe about buying from you. Their online equivalents – landing pages, appealing design, and a blog – achieve the same goal of helping people know, like and trust your business and brand.
Every business needs a blog. CLICK HERE to see why.
How Much Money You'll Need
If you signed up for every service I recommend below, you could start an online business for $1,360.94 and have most of your costs covered for multiple years.
Domain … $9.99
Landing Pages … $97.00
Email Marketing Service … $91.80
Premium Theme … $99.95
Legal Work … $800
P.O. Box … $120
Grand Total = $1,360.94
For less than $1400, you could start an online business, sell your products, and own your business from the front door to the back warehouse and not have to pay anyone royalties, fees, or other startup costs (other than maintenance) for years to come.
Will it be easy? Hell no.
Will it be the ride of a lifetime? For sure!
How does this $1361 break down?…
… Let's take a look.
When I started my online business, I bootstrapped as much as possible. You're more than able to do the same thing yourself, but you'll eventually get to the products and services I've listed below. I spent as little as possible on my business until my client Larry called me up and told me I was running my business with a flat tire, and I should fix it.
I won't go into all of the free versions here because this is about starting a high-quality, professional looking online business the right way, not just the fun way that looks like you built it in your mom's basement.
Here's what you'll need…
– $3.95/mo to $142.20
Regardless of what type of online business you want to start, you'll need hosting. Think of web hosting as the place where all of your stuff – blog posts, web pages, pictures, files, PDFs, etc. – are stored.
I used a low-cost, shared hosting for several years before I decided to upgrade to a managed hosting service through WPEngine. I now pay about $29 a month. If you're looking for great hosting, I use and recommend GreenGeeks if you've got less than 1000 visitors per month.
**NOTE: To get the $3.95 price you must sign up for three years in advance (i.e., $142.20). If you don't want to commit, you can pay a little more and get a shorter duration.
Think of your domain like your physical address. Instead of sending a potential customer or client to 123 Main St., you send them to your web address, aka URL, aka domain.
I buy all of my domains from GoDaddy. They always have coupons, and they seem as simple and straight forward as any other domain registrar. After buying a new domain, I forward it over to my hosting account with GreenGeeks. Another popular option to look into is Google's new domain registration service that includes domain privacy that is nice.
While buying a new domain is cheap, sometimes as low as $.99, typical renewals are $14.99 per year.
**NOTE: You do NOT have to buy your domain through Google to use Google Apps.
– $97/ every three years
Think about the cost of professional landing pages like the cost of hiring a professional artist to design all of the signs for your store. That slender model on the poster who's wearing those sexy new jeans? Ya, that's like a landing page for your online business.
Landing pages draw visitors in, show the features and benefits of working with you or buying your products, and brings your visitor to the logical decision of making a purchase. Quality sales and landing pages were an area of weakness for me until I finally bit the bullet and spent the whopping $97 for OptimizePress.
Ya, I shoulda bought OptimizePress earlier, but I didn't know how much business I was losing by having ugly landing pages. In full disclosure, I purchase the ten license pack for $197, but you can still get three licenses (one per WordPress installation) for $97.
Other popular options are Lead Pages, Thrive Themes, and Click Funnels, both of which are significantly more expensive but offer a slightly different solution. OptimizePress is a software plugin you download and install on your site while the other two are hosted solutions.
I included the “every three years” caveat because I'm sure a new version is released every few years, and you'll want to upgrade.
**NOTE – OptimizePress also comes with OptimizeMember included, and you can use that software to power your membership sites.
Email Service Providers
– Free or $9/mo
I did a thorough review of the Top 10 Email Marketing Services here, so I won't go into the details now. But, if you want a professional service, after about six months of intense usage testing, I use and recommend ActiveCampaign.
If you want to know why email is so important to your business, whether it's online or in a physical store, listen to my podcast episode with Ben Krueger (streaming link below). Essentially, you need a way to communicate directly with your clients and customers to provide them with updates, events, coupons and new service offerings.
Other popular options include MailChimp and Benchmark – both of which are free – and GetResponse. There are others, but I've tested each of these and used them personally. To see email service alternatives scored and reviewed, click here.
If you purchase a year of ActiveCampaign, you can reduce the price to approximately $7.65 with this link. I included the yearly price of $91.80 in my startup calculation.
Premium WordPress Theme
– $99.95 every five years
When I started my online business, I used a free theme. Think of your theme as the street appeal of your store. If it looks dark and uninviting, no one will walk in the door.
Premium WordPress themes, like those from StudioPress, will not only look better to visitors, but they'll load faster and perform better. I've tested this, and I saw speed increases of up to 30% over the free theme I was using before. StudioPress themes are mobile responsive, and the newer ones are coded in HTML 5, which is a good thing for your online business.
Another popular option that I've used and admire is Thrive Themes.
**NOTE: A word of caution – be aware of themes that are heavily integrated with shortcodes or use shortcodes to design your entire page or post. It is almost impossible to switch AWAY from these themes if you want to down the road as the shortcodes would no longer work and existing posts and pages would not load properly. StudioPress themes do not rely on shortcodes.
**NOTE: I used the price of $99.95 for a single premium theme from StudioPress in my budget calculation. I added the “every five years” caveat because styles and tastes change over time.
Forming Your Legal Business
– $600 to $1000
Depending on the state or country in which you live, and the type of legal business you decide to form, the costs will change.
I decided the legal protection and advantages of an LLC fit my business the best. I talked about the differences and advantages of an LLC versus a corporation with a fellow entrepreneur, Jessica Rhodes, on my show. You can find that episode here or stream it via the embedded player below.
Texas charges $300 to file the LLC paperwork and approximately $60 a year for a “franchise tax.” Other states may charge more, others less. If you go to an attorney or Legal Zoom, plan for an additional $300-700 for their expertise and effort to get everything taken care of.
– $120+ per year
Part of the joy of starting an online business is that you don't have to pay for a physical location. The downside of that (or the upside depending on your perspective) is your office is in your home. If you don't want the world to know where you live, you should get a Post Office Box.
When I registered my domain, I didn't want everyone knowing my address. As a workaround, I purchased a post office box from my local office and used that address for my domain registration.
Depending on the zip code, boxes can range in price so be sure to shop around. The cheaper box might only be a mile further or in the opposite direction. You can shop at the UPS store or something similar, but I've found their boxes to be almost double in price.
You can use this tool on USPS.com to find a post office box near you.
– based on usage
This one is a wild-card, but the good news is, you only pay if you're bringing in money. I've listed the costs and fees for some of the most popular payment processors below.
But, the fees aren't all that important. What's important is that you get started, that you get your product ready to go, and you ship it. Don't waste precious time and lose momentum in your business because you're debating fractions of a penny.
Services and Fees*
PayPal …. 2.9% + $0.30
Square …. 2.9% + $0.30
Stripe …. 2.9% + $0.30
* These costs and fees are current as of Dec. 2015. They could fluctuate at any time, and they probably will.
It doesn't have to cost an arm and a leg to start an online business. You don't have to take out a second mortgage or go into debt.
Yes, you could start an online business for less than the $1,344.38 I outlined above. And, yes, you could also spend more. However, if you've been waiting to start selling your jewelry, your cards, your training material or your book online, you now know it won't cost as much as you think.
Over to you! Do you agree or disagree with this list? How much did it cost YOU to get your online business going the right way?