The $10K Millionaire
One of the more attractive perceptions of online business is that an online business has a much lower overhead than a typical brick and mortar retail store.
This is generally true. But with the exception of very unique niche products, the internet is also far more price-point competitive than brick-and-mortar retail, often with much lower gross margins on products sold than retailers are accustomed to.
While your cost of doing business may be less - your margins will likely be smaller too.
In the dot-com bubble era, online retailers regularly went public within a few years of startup and overnight millionaires were created on a regular basis. This for many entrepreneurs led to the perception that online businesses could be started with trivial capital investments and were no-brainer ventures to grow.
Any entrepreneur with online retail aspirations can find a hungry web designer who will build a very basic retail website for a few thousand bucks.
Websites can be hosted for as little as a few dollars per month.
Shopping cart programs are advertised all over the internet, available at negligible prices.
All of this has led to the idea that you can launch an online retail venture for next to nothing, and then just sit back and wait for the sales ticker to start rolling. If you had that idea, you're not alone. There are tens of thousands of online retail websites owned by Americans, launched within the past five years...and more than 90% of them do less than $10K per year in total business.
If you have a retail site, then you're probably painfully aware by now that the perception of cheap startup and big returns is not reflective of the real world. Just as in any business, it takes a reasonable investment to get a reasonable return.
Powerful, flexible online retail software that's necessary to build a very successful venture isn't cheap. High quality website design isn't cheap.
And once you've got your website launched - the real investment phase is just beginning. In a realistic launch plan, often times developing and launching the site only accounts for about 10-20% of the first year costs. Now that you have a retail site, you've got to market it. You've got to regularly come up with new promotion ideas, and have graphic designers create collateral for your promotions, and get them implemented on your site. You've got to analyze it regularly and make changes to it to constantly improve and optimize its shopper conversions.
Further, in most cases you will not get a substantially profitable return on your marketing dollars right away. Over time, your search engine ranking improves, your brand awareness improves, more 3rd party websites link to you and send traffic, and you build up a customer database that you can re-market to inexpensively. It takes time for your marketing investment to become effective, and you've got to be prepared to keep investing in your marketing over the long haul, until the site's momentum makes it self-sustaining.
So how much *should* it cost for you to bring your retail venture to profitability?
It's different for every retailer. If you're launching into an already highly competitive market, or marketing a product that is conceptually so new you'll have to educate consumers about it's existence then your costs will be higher compared to marketing a high demand niche product that's difficult to find. Basic supply and demand rules have a big role in figuring that out.
However, I can tell you based on my experience working with more than 100 online retailers in my career that the average small startup online retailer that makes it to profitability within 12 months spends somewhere between $65 - $100K to get there. Most of the startups that are willing to invest less than $50K in the first year fail.
If you'd like to get a better grip on just how much you should be prepared to invest, and understand why - contact my team and we'll do an analysis of your specific situation and provide you with our rough estimation of how much cash investment it will require.