- Passionate Income
- Posts
- Internet Biz Startup Costs - Part I
Internet Biz Startup Costs - Part I
Here's how much it costs to start a business online.
991 Words | 4 min 09 Sec Read
Welcome to another issue of Passionate Income.
In Part I of our newest Three Part Series, we’ll be discussing how much it costs to start an Internet business.
In particular, we'll cover e-commerce stores, drop shipping, coaching, freelancing, affiliate marketing, Amazon KDP and media companies (e.g. faceless Pages).
Let’s dive in.
This issue is sponsored by us - Passionate Income!
Want to build a business that doesn’t involve cold outreach, slaving away for clients, or having to import products from China?
With a Faceless Instagram Page, you answer to no one. No clients. No customers. No calls or complaints.
Just create content, sell shout-outs, and bank checks.
I should know: I built a 1M+ follower page that generates $1,000+ per day!
Want to see how I did it?
^ And yes, it's 100% FREE ☝️
It's been said: "It takes money to make money."
While plenty of people have launched on a $0 budget, your life will be easier if you have a bit of startup capital to get things off the ground.
So in today's issue, we'll break down how much it costs to start an e-commerce store and drop-shipping business. We'll also cover what your main expenses will be as you get ready to launch.
Then in Part II and III, we'll cover the other models listed above.
#1 - E-commerce Store
Inventory: $500 to $50,000+ Tech Stack: $19+ Advertising: $1,500+ VAs / Staff: $200+ Cost Savings Hacks: Launch to an existing audience Overall Costs: $$$$
For better or worse, e-commerce is not a beginner-friendly business model.
First, eCom in 2024 is almost dependent on advertising. Meaning, even if you can source and import a product for cheap, you're going to have to spend money to advertise it.
On top of that, most ads fail. In fact, most experts recommend having 90 days of ad spend you can "burn" for the sake of buying data (which allows you to figure out what works).
Further, if you can source a product super cheap, so can your competitors.
And because of that, if your 'thing' starts selling well, it's likely someone with better funding (and a deeper understanding of marketing) will come in and steal your idea/business.
With that said, unlike the other models we'll be covering in future issues, ecommerce sites can be sold as part of an exit. In fact, that's precisely how most of the 8-figure net worth entrepreneurs I know built their wealth.
So, if you have the funding and skills, eCom is an incredible model. But if you're just starting, you're better off learning paid advertising somewhere else (as an employee) before diving in.
#2 - Drop-Shipping Store
Inventory: $0 Tech Stack: $19+ Advertising: $1,500+ Cost Savings Hacks: Launch to an existing audience Overall Costs: $$
For those of you who don't know, drop-shipping is a hybrid form of e-commerce. Without getting into specifics, it involves selling other companies' products on a website you own (while allowing them to handle inventory, manufacturing, logistics and shipping, etc).
Why would a company allow you to sell their products on your website?
Because it brings them sales they wouldn't have gotten otherwise.
Unlike pure eCom, where you have to source/manufacture products on your own, drop-shipping is a pure marketing play. You handle the marketing and selling, they handle product and shipping.
The upside of this model is that, because you don't have to manufacture or source products, your startup costs are way lower. To the point all you have to pay for is a Shopify store and advertising.
The downside is that you still have to pay the source company for the product.
Meaning your profit is limited to how much you can sell their product for minus the core cost of the product (MSRP) and your ad costs.
Let's illustrate with a basic example:
Kooks sells surfboards for $200 MSRP
You become a drop-shipper for Kooks
You advertise their boards on your website for $250
You spend $25 on ads to make one surfboard sale
For every $250 sale you make, you have to pay Kooks $200 for the board and Facebook (or whoever) $25 for advertising costs. Not to mention losing 3% in payment processing fees to Stripe.
Meaning, after all is said and done, you would keep $17.50.
Which is a mere 7% profit on your $250 sale.
On the surface, this doesn't sound like much.
However, the reason drop-shippers make so little (from a Profit Margin perspective) is because they don't have to deal with the headaches involved in manufacturing products, importing them, logistics and shipping, etc.
Further, the above example assumes you're selling a $250 item. But if you can find a way to sell something for $2,500 - or even $25,000 - leftover profit becomes a lot more interesting.
Not to mention, it's not like you have to deal with shipping or logistics. And because of that, once you get something working, your one and only goal is to scale the shit out of it (by running more ads).
💡 Takeaway: While eCom brands are expensive to start, they're much more valuable from an acquisition perspective. At the same time, most people just want to make $10,000 per month with a lifestyle business. If that's you, drop-shipping could be a much better fit.
I'll leave you with this quote…
“A big business starts small.”
What'd you think of today's edition?(this helps us make the next one a better edition) |