So the scenario goes…
You want to make more money, so you start to study ways to make more money and you hear about starting an online business. You start coming up with business ideas and doing your research, and you figure out that there’s lots of things you COULD buy, but you want to know what you NEED to buy in order to make a profitable online business.
Sound about right?
Many people experience the scenario I’ve disclosed above. Some people have lots more hiccups along the way because they try trusting advisors, buying courses, or buying software only to rack up lots of money in unnecessary expenditures–that’s why I’m writing this article.
Over the last two years, I’ve been able to start an online business that makes money and is fulfilling. I bumped my head many times along the way when I trusted people and bought unnecessary things, but thru all of that, I’ve been able to streamline a list of things that are necessary to start an online business and how costs may vary. I wanted to share my experience and knowledge with you, so you can successfully start your online business without many of the obstacles that exist with other business owners.
Your Personal Finances and Your Business
Like the illustration above shows, many people looking to start an online business are in some sort of financial distress. You may be able to relate. You might have growing expenses because you’ve went thru a life transition. Maybe you:
- Decided to get out of debt
- Decided to take control of your finances
- Have growing kids
- Just had a baby
- You’ve just been fired or laid off
- You’re not where you wanted to be in terms of retirement or you’re looking for ways to supplement your retirement income plans
- You’ve gotten a raise and you want to get the highest possible returns with your money
- You’ve gotten married or divorced
- You’ve moved
- You’ve adopted a child or loved one
- You’re taking care of a parent
- Or, you want to improve your standard of living
When I’m interacting with startup entrepreneurs who are interested in starting an online business, these are common situations I’ve seen. They’re transitioning and looking for a way to make a better future for themselves. Unfortunately, some situations are more difficult than others to start a business from.
Some people start with a personal finance situation that’s crying out in distress. For example, they might be starting with:
- High housing costs
- High debt repayment costs
- Insufficient income for their expenses
- High (or growing) medical costs
- High lifestyle costs
- and, overall an extensive list of bills
You don’t want to start the business “robbing Peter to pay Paul”. Hahaha. In other words, you don’t want to start the business unable to pay for your basic necessities.
Business takes awhile to build revenue. It can be really stressful to have insufficient income to pay for basic necessities, and to take money away from your basic necessities to make the business work.
Jobs are much more predictable income sources than a startup business. With a startup business, you don’t KNOW how much you’ll be paid and when. You can forecast and speculate, but you have no concrete answers.
You can be optimistic based on the results of others or based on milestones you’ve met, but there’s still no concrete answer to when you’ll start to make money. It depends on your skill level, how much money you’re investing, what the market demand and supply is, how the market resonates with your brand and offering, and so much more. Business comes with risks.
I recommend starting a business on the side and replacing your primary income with the business as it grows–this will give you the most stability along the way. You’ll be able to learn how to run your business without the stress and desperation of trying to cover your next meal or mortgage payment.
As you’re building your business on the side, you should also be incorporating habits like budgeting because this habit and your ability to exhibit self-control will transfer over to your business and make you more likely to thrive.
- How to do a Business Budget with Everydollar
- Or Check out the software and free video courses at You Need a Budget (YNAB)
“Normal Online Business Expenses?”
If you look at income reports that share income and expenses, you’ll notice successful entrepreneurs have a pattern with the expenses that are normally needed. You’ll see expenses like:
- Cost of goods/Product Development
- Business space
- Business travel
- Business food
- Paying themselves
- Paying contractors
- Paying employees
- Business Events
- Networking groups or Masterminds
All of the prices of these expenses will vary dependent on what vendors you decide to use for each line item, but this is a general breakdown of what the costs are to start and run an online business. You don’t have to start with everything upfront. If your personal finances don’t allow you to invest that much startup capital into your business, then you may want to start with a more streamlined list.
How much does it Cost to Start an Online Business?
The list was just a basic overview of the line items you’d likely have in your online business. You may have more. I don’t want to leave you there though. Hahaha.
You probably want to know the numbers. What is the actual cost, so lets dive deeper to discuss the numbers…
Education is one of the expenses that seems to vary the most for online business. You can find some course creators who charge $19 to teach you how to optimize your website for SEO and you’ll find some who charge $997–there’s quite a range. Of course, the more expensive courses will have a longer argument for why their course is worth more, but at the end of the day, you have some people who pay lower for their education and some people who pay 100 times the price.
The online business education platform that I recommend for startup entrepreneurs costs $359/yr. They include education (live and recorded), 1-on-1 coaching, and the software tools (hosting, domain registration, networking, and other things that’ll be on your list of must-have tools to run your business. After doing hundreds of reviews, I think they have the best price for the quality offered, which is why I still continue telling people about them. You can learn more about them here.
Advertising (Optional until Revenue is Generated)
Advertising is a normal cost for running an online business. Organic search engine optimization and organic social media marketing are becoming more and more popular. As a result, there’s more competition for the same audience, and it’s necessary to find a leg up at some point.
Online business owners are having a tougher and tougher time trying to rank and build an audience for free (regardless of where they try). Facebook doesn’t show organic posts to as many people as they did before. Google has much more content to choose from when they create their first-page listing, Youtube has a growing number of creators, and the competition is growing more and more fierce.
It’s not just a matter of slapping together an article anymore. At one point, quality didn’t matter. You could write the same words over and over, and get a ranking. Now, the artificial intelligence is too smart for the “old school” games.
You have to have content that’s better than others to rank better, and the competition is becoming more and more skilled. You have to stay at the forefront of content creators by being agile and willing to outwork, outthink, and outsmart your competition. Sometimes, outthinking means paying for ads. Advertising platforms like Facebook, Google, Youtube and others are great places to attract an audience from.
The costs for advertising will range. I recommend you advertise with a percentage of your startup capital if your startup budget can cover more than one year of business expenses (with ad costs). If you don’t have a large startup budget, I recommend you focus on organic methods and build an advertising budget from your revenue.
Unfortunately, for advertising, there is no dollar amount, but it’s typically more than the $5/day you’ll see people talking about.
It’s all about trial and error. You can look at the spending of others in your niche by using a tool like Spyfu or SEMRush. You can analyze the cost-per-click on the keywords you want to bid for or the cost-per-impression, but at the end of the day, advertising is going to take some trial-and-error.
For the sake of estimating, let’s say, you’ll be using $500/mo for 10 months = $5000 for advertising.
Cost of Goods/Product Development
There are so many different business models online! You can start with e-commerce, affiliate marketing, selling services, hand-making products, outsourcing product development, and the list goes on.
Your decision for how you’re going to solve a market problem will come with costs. For me, I started three of the most inexpensive methods of starting an online business: freelancing, affiliate marketing, and self-publishing books. They each had different costs.
For freelance digital marketing, I needed:
- Market research tools
- Credits for freelance sites/platforms
- Accounting software for invoicing
- Networking fees
- I paid for lunches and coffees to build rapport with clients
- and there were more costs.
When I was self-publishing books, I needed:
- Graphic designers
- Social media automation tools
- and more…
While I’m running my affiliate marketing business, I prefer to have:
- Video equipment
- SEO/Market research software
- Web hosting
- Web design tools
- and more…
You can see a full list of tools I think are needed for an affiliate marketing business here.
Each business model is going to be different and each entrepreneurs’ skills are going to be different also. You may feel comfortable designing your own book covers and writing your own content, and another entrepreneur would absolutely dread it. A business model that may be very cheap for one person won’t be for another. The costs of goods is going to vary based on your skill, your business model, the tools and vendors you feel comfortable using, the amount you need to outsource, the volume you buy, and more.
For this budget, let’s say you start out as an affiliate marketer so you don’t have products. Instead, your service is to generate leads for your affiliate partners in exchange for a commission. The startup costs are very low. You’d only need web hosting, a domain name, knowledge of what you’re doing, support for when you have questions, and possibly web design stuff to make a nice user experience.
I’d say the costs to build a niche site that delivers referrals to affiliate partners is going to be $359.
Business Space (Optional until Revenue is Generated)
You’re probably thinking, “I plan to work from home so why do I need to pay for business space?”, but at some point, you may want to consider this expense. Even if you work from home, you may not always want to use your home address on things like email marketing, business cards, with clients, or on your website.
For the sake of privacy, you may want a P.O. box or a working space. You can choose an inexpensive mailbox at the post office, you can choose a virtual mailbox, or you can choose to rent office space. Some people rent business space for the networking, some for the privacy, and others do it to protect their focus from distractions.
For this startup budget, let’s say you decide to grow an email list and you don’t want to put your address on your emails, so you get a P.O. Box. A PO box costs somewhere around $200/yr here, so let’s use that and modify that number with your feedback.
Business Travel ( Optional until Revenue is Generated )
The online entrepreneur life that’s shown on youtube is a luxurious life with constant travel and blah, blah, blah. In reality, many online entrepreneurs like to live stationary and travel locally to meet up with potential joint venture partners or collaborators–the scope can vary quite a bit.
If your goal is to run a business where you’d travel alot to handle business affairs, obviously, this line item would be bigger. For me, I travel only small amounts. I may attend a business event and travel there. I’ve also traveled to meet with clients I may do services for. My travel expenses are minimal right now.
Maybe in future years where I’m going to seminars in other states (or overseas), then the travel expenses would go up. For the sake of budgeting this startup, I’d say the travel expenses would be $100 or less.
Business Food ( Optional until Revenue is Generated )
With some business models, you may need to build rapport with clients, and taking them for lunch or coffee may be ideal. This isn’t saying that while you’re working from home, you are ordering pizza everyday and taking the money from the business startup budget. Hahaha.
Depending on the business model you choose, you may or may not need to pay for food as a business expense. For most startups, food costs are going to be $0. More established businesses will likely have more costs (including food).
Odds are, as a startup, you don’t know all the ins and outs of legal, accounting, bookkeeping, or marketing. There may be even more things you’re not 100% confident about, but are required to run a business–this is where consultants come in. You can go to an accountant to discuss various business finance matters (including what normal online business costs may be).
I hired consultants to start my business and it was a good cost. I spent about $2000 on consultants and I started paying consultants from my personal budget, but it’s up to you to decide if this is a necessary cost for you. I’d say you should spend $1000-$2000 on consultants starting out. This will help you to form your business properly, understand bookkeeping, accounting, legal, and a sound marketing plan tailored to you.
Paying Yourself (Usually once Revenue is Generated)
Many startup entrepreneurs make the mistake of thinking that they don’t cost something. They’ll say “I’m going to be working in the business, so there’s really no labor cost”, but don’t they need groceries, water, shelter, transportation, and electricity? If they will need to pay bills eventually, then you have to know there’s labor costs even if you do the work yourself.
Of course, in most instances, the business won’t be able to start from day one paying the owners. Instead, on day one, the owner usually has to fund the business. They rely on a job, family, friends, loans, equity deals, and fundraisers to get money for the business, then when the business is generating revenue, they can begin to pay themselves.
In the beginning, the cost of paying you may not be covered, which means another income source will be needed to cover your expenses. Paying yourself will likely be a $0 starting out.
Paying Contractors (Usually once Revenue is Generated and You’re Paying yourself reasonably)
I know many books talk about systems and leverage, but most of them aren’t talking about startups when they mention that. You have to learn how the business works before you can lead others.
If you start a business that leverages all of your skills and you don’t need to hire contractors or employees right away, you’ll have much less overhead. From when I started How to Entrepreneur up until now, I haven’t hired very many contractors at all. I’ve done my own content writing, graphic design, web design, and other things. I’ve hired contractors for small services like I hired a contractor on Fiverr when I couldn’t figure out how to make an edit in Elementor, but that costed me $5.
I’d say paying contractors as a startup is going to be optional. It depends on the model you choose and whether you have the skills to “wear all of the hats”.
Paying Employees (Usually once Revenue is Generated, You’re Paying yourself reasonably, and your Working Capital Account can sustain 3-6 months wages even if sales Dropped)
Paying employees is going to work similar to contractors. It’s an optional cost that is usually only incurred if there’s lots of startup capital or if there’s not sufficient skills to build the business without help.
Employees are different than contractors. They’re looking for stability, consistency, benefits, and something predictable. Contractors may want something similar, but they’re entrepreneurs so they’re okay with selling and replacing you.
When you hire employees, you want to make sure you’re stable enough to offer stability to them. I recommend you have 3-6 months of savings stashed away so if the worse case scenario happens and sales drops, you can still pay them predictably until you figure things out.
Insurance is to protect you. Some businesses like medical practices and construction companies need lots of protection because the risk level is high: online or offline.
Other businesses may have lots of assets that they want to protect. Insurance is a necessary cost once you have something you want to protect.
With an online business, you will likely need a computer, a smart phone, cameras, and other tools. You might also need software, backdrops, lighting, and more. Tools and equipment is going to vary ALOT.
There are so many different video marketing set ups, different blogging set ups, and lots of ways to be comfortable running an online business. For this budget, I’ll say tools and equipment $1000-$2000.
Business Events (Optional)
In my first year, I went to all kinds of business events to map out my direction better. I attended Chamber of Commerce events, business meetups, and lots of classes at place like LaunchSA.
They helped me to build my confidence, get ideas from other entrepreneurs, and build my network. Business events are optional expenses. They worked well for me, but if you’re trying to decide if you NEED to attend business events to start an online business, I’d say “no”.
At some point, you’ll want to budget for business events.
Networking Groups and Masterminds
Even though I say business events are optional, I believe networking isn’t optional. Regardless of what you’re trying to be successful at (parenting, marriage, or business), it’s important to become a part of a community of like-minded people. Starting an online business isn’t something that you should try doing alone and unsupported. It can take you a long time troubleshooting when you attempt to build a business without help.
I tried piecing information together to run an online business, and I feel that slowed my progress. Once I joined a community of online business owners, things took off much faster.
Some communities require monthly or annual dues for participation. Others will have discounts and other perks along with participation. My #1 recommended online community has discounts, perks, software, and participation with a 2 million member online entrepreneur community.
Let’s Add it All Up
After listing everything, let’s add it all up. The costs that aren’t optional include:
- Education $400 – $10,000 ($359 from Wealthy Affiliate)
- Costs of Service Delivery or Product Development $359-$3000 ($0 if you get your education from Wealthy Affiliate because it’s included)
- Consulting (legal, accounting, and marketing) $1000-$2000 (Can be postponed until revenue is generated)
- Tools and Equipment $1000-$2000 (Can be postponed until revenue is generated)
- Networking groups or Masterminds $400 – $2000 ($0 if you get your education from Wealthy Affiliate because it’s included)
Adding it all together, you’d pay something like $2400 for a low-cost startup and $19,000 for a higher cost startup. The cool thing about starting a business is that whether you want to be a mom and pop type of business or whether you want to be the next Google or Microsoft, you can start with a small budget and grow it with sales, hard work, and good strategy.
You don’t have to start with all of the money up front, but if you can budget to invest in the business over time, it can still grow. Let’s say you decide to acquire all that’s necessary for the $2400 startup over one year, you’d likely start out taking $200-$400 out of your personal income, then over time, the business would generate revenue and cover its own expenses!
If you need to start your business with less than $200/month, then you’d have to bargain shop more, and find inexpensive options for education, service delivery/product development, tools and equipment and networking groups. Start with what you have. You may need to hold off on things like consulting and be selective with the tools you acquire.
Don’t let this list deter you from starting. These are all approximations. I’ve seen people inside of Wealthy Affiliate start their online businesses with domain registration, the hosting that’s included there, and the training that’s included there. They’ve been able to start their businesses for $49/mo or $359/year and buy all of the other things over time by investing from their personal finances and business revenue–it’s possible!
Hopefully, this list gave you a ballpark of what types of expenses to expect and ranges of what to expect it’ll cost you. There are so many variations with this. If you have questions or concerns about this, don’t hesitate to ask below.
Thanks for stopping by and reading!