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Small Business

An Online Business for $3,000

Smart Answers frequently gets communications from readers asking about how to start selling products or services online. With barriers to entry falling dramatically over the past decade, becoming an online retailer or service provider has become an attractive option. Startup costs can be as low as $3,000, and the business can be set up in a home office and attended to at nights and on weekends, allowing new entrepreneurs to keep their day jobs. Today's column is the first in a two-part series about starting and running an online firm. First, an expert checklist that covers the major tasks—and costs—involved in setting up an online business.

1. Business plan. Even if you'll be selling your product or service exclusively online, you still need a business plan. This document defines exactly what you're selling, where you'll source product, what you'll charge, when you'll break even, and—crucially—who will buy your product or use your service and why they should get it from you. This last bit is especially important, says Dmitri Krakovsky, vice-president of product for Sunnyvale (Calif.)-based Yahoo! Small Business (YHOO), which hosts more than 40,000 e-commerce sites.

"Merchants are sometimes unclear about why people will buy products from their online store as opposed to buying from another online or offline vendor, and this is where they fail," Krakovsky says. "You have to present a clear value in order to attract customers. It might be your prices, your unique products, your excellent service—but you must start with a hypothesis." Business planning tools and templates abound online, and many are free or low-cost. Start with the U.S. Small Business Administration, which offers step-by-step guidelines for writing a business plan:

2. Online storefront. The easiest, fastest, and cheapest way to get started is through a merchant storefront provider such as Yahoo! Stores, FreeMerchant, or LiteCommerce. Even a novice can establish a site in about an hour for a $50 setup fee (often waived during special promotions) and $40 a month. (Prices go up to $300 monthly for larger, more complicated sites.) It won't be sophisticated or unique, but it will be functional. "It's not going to look like, but you will get a set of software tools, Web site templates, a shopping cart, and a payment interface so if you want to get a merchant account, you can accept credit-card payments, or if not, you can use Paypal," Krakovsky says.

3. Catalog and content. If you're selling products, you'll need nice pictures and good descriptions of each item. If you're offering a service, you want copy that's engaging, persuasive, and professional. Prominently list your telephone number and e-mail address. If you can staff it, setting up an 800 number can convert wary prospects into sales.

Make it easy for customers to pay for their transactions online by establishing a merchant account and signing up with Paypal (EBAY) and Verisign (VRSN), or another credit-card processing company. Be aware that these companies charge per-transaction fees, and that most storefront providers also charge their own per-transaction fees. At Yahoo!, the transaction fee is 1.5% for new stores just beginning to bring in orders and 0.75% once sales volume climbs.

4. Professional Web site. If you're an established business that's just venturing online, or a startup company with some capital saved up, consider hiring a Web developer to help launch your online venture with unique branding and a higher-quality look and feel than you'll be able to get from standard templates. It's become increasingly common for companies to hire tech-savvy consultants to walk them through this process, says Michael Weiss, CEO of Imagistic, an Internet software and services company based in Westlake Village, Calif.

The consultant, who is likely to charge $95 to $165 an hour, can help you decide what you want from a Web site, circulate a request for proposals, choose a designer, photograph your products, and then shepherd the process through to completion. If you can't afford a consultant, you'll have to go it alone. "An independent designer with tech chops may work for $40 to $60 an hour and could put together a simple site for $5,000," Weiss estimates. "A firm like ours charges $165 an hour and could get you something really nice for $10,000 to $25,000. A complex, high-class company offering 100 products and shipping them all over the country might pay $50,000." Ask about Web hosting, which your designer should either do for you for a monthly fee or arrange to outsource for you.

5. Order fulfillment. Once you've got an online storefront and ordering capability, how will you get products to your customers? If you're selling jewelry, you may decide to store inventory in your spare bedroom and ship orders yourself via the U.S. Postal Service. If you're selling furniture, you'll almost surely want to arrange for the manufacturer to "drop-ship" items, saving you the cash-flow demands and the hassle of building inventory, warehousing it, packing orders, and sending them out through UPS (UPS). You can find manufacturers that offer drop-shipping through Web sites such as WholesaleCentral.

6. Marketing. How will your customers find your store? If you have an existing offline store, use it to promote its online counterpart by putting your Web address on your bags, cards, and brochures. Send e-mails to your customers offering them special deals if they make a purchase online. If you're a brand-new business, you'll have to work harder. Buy search-engine ads at places like Google,, then analyze the customer data they send you to determine where your leads come from and which leads convert to sales. Use that information to inform your next set of ad buys, Krakovsky says.

"You can also buy ads at the shopping search engines, such as, Yahoo! Shopping, and PriceGrabbers," he says. "Experiment by buying $50 worth of ads and seeing which ones work." Affiliate programs, which involve your products being promoted and sold on other Web sites in exchange for a fee or percentage of the sale, can also be useful. And finally, search engine optimization (SEO) can do wonders for niche businesses, particularly those selling within specific industries (see, 7/6/06, "How SEO Upped the Revenues"). You can learn how to optimize your site (see Microsoft tips here: or you can hire an SEO professional. Here's a hint: If an SEO firm's Web site shows up on the first results page when you Google "search engine optimization," that's a pretty good recommendation.

Next time: You've got an online company. Now you're wondering how new business models and products can help boost your traffic and sales. We'll go over them with you, as well as tell you how you can capitalize on your best sellers and jettison poorly performing items or services.

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