What will your business cost to setup and run? After putting together your business plan, you should have a good idea of the expenses you expect to have when running this business and therefore the amount of capital required. Broadly, these will fall into the following four categories:
1. Cost of development
This will vary greatly depending on your chosen business and product/service. Are you designing and manufacturing a physical product, or reselling an existing product, or selling a service which requires very little development? Building your site and getting all of the pieces put together so that you are ready to sell should be included in this number.
2. Cost of marketing
Once your product/service offer is ready, you will need to acquire customers. Most online businesses use Search Engine Marketing (SEM) or Social Media Marketing (SMM) on a Cost Per Click (CPC) basis to drive targeted traffic to their site. As a basic example, if you want to have sales revenue of $100,000, when your average product sells for $50, and your estimated CPC is $0.20, you will need to attract 2,000 paying customers. If your conversion rate is 2% of web traffic, your marketing budget will be $20,000. Scaling these numbers up or down will determine the amount of revenue your business will expect to achieve, and how much marketing budget will be required.
3. Operational costs
What will your day-to-day expenses be? These operational costs will hopefully be covered by the revenue of the business in future, but in the first 6-12 months you should budget the cash for these, including: rent, staff, office equipment, web hosting, software, accounting expenses, and insurance.
4. Your salary
Will you pay yourself a salary in the beginning? Most business owners will choose to put as much money back into the business as possible in the first year or two. If you can afford to not pay yourself, or pay yourself only a small amount, it will help the overall health and growth of the business. If you do need to live off a salary from this business, you will need to factor this into your numbers.
What will your business cost to setup and run? By now you should have a clearer picture of each of the 4 main costs above; take the time to budget out each of these before starting your business, and you’ll be better poised to see business success!
