How much money do you need to launch an online business?

tl;dr

Split the budget into three categories;

• The First is the product which consists of Software Development, User Interface, User Experience and hosting;
• The second is marketing and advertising;
• The third is operational costs.

When people hear the word "budget" they get very excited because everybody wants to learn and everybody wants to know how much money other people invest into the business or how much money they have to prepare to create a product.

Please note that the numbers I reveal are applying to my situation only. I'm creating a software cost estimation tool. If you create something else, and probably you do, then these numbers won't apply to you directly. The next thing I'd like to highlight is that if you learn from this video that you don't have enough money to launch a product, then I'll advise working on your budget more. Either work on your savings or start working on finding an investor. If you start creating a product with insufficient funds then after a few months you'll see that you're not where you want it to be you, you'll see that things are not running so smoothly as you've expected. You will be stressed, worn out, and eventually, you'll quit.

If you think about running this business seriously and you don't want to lose the money that you have already saved, then I would advise working on the budget. Depending on how much money you have already saved, you have different options. I've covered all of these cases in the article "What is the best thing to do with your savings?".

There is one thing that most people have in common when they come to me and ask me to build a product. We speak about their product idea, and eventually, they reveal that they have a budget of two to five thousand dollars. I've been thinking from where these people have this impression that this little money will allow them to build a product. My conclusion is that it's because of the low cost of the entry-level.

Let's assume that you have this idea of your product you go to godaddy.com and you purchase this crazy domain name for your product for $10. Then you buy hosting, and you install WordPress for free. Hosting costs you, let's say $10. Then eventually you'll go to the themeforest.com, and you purchase a beautiful theme for your landing page for $30. Your costs are closing in at $50. You may have this impression that if you have five thousand dollars which is 100 times more than $50, which you have already spent on your landing page, then you have the right budget. The truth is that it's not that cheap and it's not that easy.

Cost of software development

I've decided to split the budget into three categories of expenses. The first category is the product. To build a product software service, you need to hire an agency or software developer. You may find people on Fiverr on Upwork that are willing to create your product for two to five thousand dollars. From my experience, a person who creates such products daily, I think I'll need something between fifteen to thirty thousand dollars for software development. I will focus on the core of the product. I want to build it reliable and stable, the way that I can modify it. I'll get the feedback from my early adapters, and, for sure, I have to make some adjustments. I don't want to have stress, and I don't want to wake up at night because something breaks for my customers when they are using it. I think this budget will help me to achieve the goal.

UI and UX

Another thing that combines into a product is the User Interface (UI). There are many options here. I think I'll go with a free, open-source UI template because at the beginning I want to focus the product more rather than on colours or how the edges and the borders are looking like.

Another option would be to purchase an off-the-shelf admin theme. You might find these excellent admin themes on Theme Forest. However, there is a catch. If you are purchasing the regular license of the admin theme on Theme Forest, then you can apply it only for the products where people don't have to pay for it. If your customers have to pay to use your product, then you have to buy an advanced license which is something between 800 to 1000 dollars. It is still a nice, budget effective solution.

The last option would be a bespoke, custom-made UI design made by a designer or a studio. It is something that will cost something between two to five thousand dollars. However, it gives the best results.

Another thing to have in mind when you plan a budget for your product is User Experience. I would focus on this even more than on UI because if your user has poor User Experience at the very beginning, they won't convert. To increase the chances of conversion and make the onboarding process more accessible, I think investing in UX design is worth considering. UX design will cost something between two to five thousand dollars. It can cost even more if you decide to test the UX design. Some companies are specializing in this area, and I think this is something worth considering if you have the right budget.

Cost of hosting for Software-as-a-Service

Last but not least. Hosting is the thing to have in mind when planning a budget for the product. We are creating Software-as-a-Service, something that people are using in the cloud rather than installing on their computers. Hosting here is a core operation. There are two options to manage the hosting. First, which I think is the most budget-effective in the long run, is a dedicated server. The cost of a dedicated server for a medium-sized project is 50 to 100 dollars per month. However, it's a bare-metal- you have to hire a specialist, maybe a DevOps expert or system administrator that will configure it for you. Then, over time, you will probably need to ask this person to expand the features of the server.

On the other hand, there is a cloud-based hosting like AWS or Google Cloud. Initially, these are very cheap to use, and the cost of these are almost zero. However, in time, once you have higher traffic, the price will be more significant. It will be even more expensive than using a dedicated server.

How much to spend on Marketing and Ads?

The second category of budget expenses is marketing and ads. When it comes to marketing, it's something you can do without spending a penny. Especially if you feel confident in writing blog posts, managing social media, and you're well-known in an environment. In such a situation, I think the marketing costs can be meagre. I think I'll spend between two to five thousand dollars on marketing for the first six months. I don't want to rely on luck- I can hire the best software developers that will create the best product, but without the marketing, nobody will use it because people won't know it exists. I think that the budget I plan is enough.

It is a little bit different when it comes to ads because you cannot advertise for free. There are many channels you may want to cover, like Google, Facebook, LinkedIn or Instagram. Depending on your product, you may use different channels. Also, the budget will vary on how much aggressively you want to enter such a channel. I think I'll play a bit with LinkedIn advertising and maybe I'll spend something around two hundred dollars per month for six months. There are two groups of people: one group will say that you don't need ads and you should spend money on marketing rather than ads because your growth should be organic. The second group are people who are saying that you cannot grow without the proper advertisement. Depending on you, depending on how aggressively you want to enter and cover the channels, the budget will vary.

Easily forgotten - operational expenses

The third category of budget expenses is operational costs. What I mean here is everything except building a product and running marketing and ads. This is every tool your purchase which will aid your business. This is every meeting you go, this is every coffee will buy. Of course, in current times you may lower these expenses because you don't have to go anywhere and you'll do the online meetings (or it's better if you don't go anywhere). However, you will still have some unexpected expenses. Have this in mind because you cannot be in a situation where you cannot move your business forward because you're missing a little money. Always plan a little cash for your operations. It's not your salary but money that will keep you going. I think, in my case, I will need something around $1,000 for one year. I'm going to use a lot of free tools, of course, but there are some tools that I'll purchase because these are worth the money. I think $1,000 for one year is enough to cover the operational costs.

Summary

The product will cost me between fifteen to fourteen thousand dollars plus hosting. The marketing will cost me between two to five thousand dollars for the first six months and the advertisement or cost me $1,200 for the first six months. I'll have about $1,000 in operational costs. So here it is - a budget I have to secure to launch a business which is Software-as-a-Service.

The good thing about the budget is that it's not a one-time event. I won't spend this money one day. The budget is something that is expanded across moths so in the next entry I'm going to show you how I'm going to plan the expenses, how I'm going to forecast the income, and how I'm going to estimate after what time my product will make a revenue.