Running an online business is the best. So she said! You just run your business with zero expenses. It is income, income, income, and no payments. No rent. No electricity costs. You can sell your goods and enjoy a huge profit margin. What a feeling!
But is this really the true reflection of things?
Unfortunately, this is the impression many people carry around. Running a business online has no costs other than the product or service cost. This is not true. You may have avoided or reduced certain business costs by running your business online, but there are still costs you have to factor into your pricing. In fact there may be some additional cost, peculiar to your online business.
Many people claim to be running an online business, but they have converted one of the rooms in their house into an office for receiving visitors or a warehouse for their goods. This is space that you have to factor into your running costs. You should consider your rent, make an appropriate estimate of what that space should cost monthly or annually, and then add it to your running costs.
If you use gadgets to run your business online (like smartphones, laptops or desktops, power generating sets, refrigerators or freezers, etc.), you should factor in the depreciation costs. If you have a smartphone that costs $240 to purchase and has a useful shelf life of 2 years, your depreciation cost will be about $10 monthly for the next 24 months. In this way, you need not take a loan when you need to replace your gadgets over time.
How about your utilities?
You must be spending something on data, phone calls, follow-up emails, etc. If you are running sponsored ads or promotions online, your running costs should also absorb these costs. These are just a few examples of little expenses here and there that some online business owners ignore when fixing their price and profit margins.
Treat your online business the same way you would do an offline business. Every cost should be noted. Every income should be noted. If your pricing fails to account for these, you may just be shooting yourself in the foot, and it’s only a matter of time before you start asking the question they all ask; “where’s all my money going?”
The cost of raw materials, delivery, and production is easily factored into pricing, even for online businesses. But other costs like the ones we have listed above are mostly ignored, and the narrative behind it is that running a business online does not incur expenses like rents and utilities. Don’t be misguided. There are software and applications that can help small and medium business owners reach proper product pricing. Once you decide on the one to you, you just have to enter the required data, and it will give you a proper price range for your product.
Also, do not forget to factor in your salary among the costs. You invest time, talent, and efforts into the business, and it would be careless to treat it as a hobby without financial rewards. Of course, you may decide not to receive salaries from the company until a certain period elapses. Factor in your salary as a running cost and then reinvest it into the business. It is part of creating structure.
If you want your business to grow and scale at some point, this structure has to come in during the company’s early days. Stop waving off some little costs as insignificant and think you can cater to them from your expenses. As the business grows, you will not be able to keep up, and then you may struggle to factor them into your product pricing.
Get your pricing right, and do it right NOW.