A Beginner's Guide To Online Business Profitability

A Beginner’s Guide To Online Business Profitability

This week we have another guest article from Kayleigh Alexandra of Micro Startups!

From a practicality standpoint, running an online-only business is significantly easier than handling a brick-and-mortar premise. There’s no property to rent, no desks to be staffed, and no commuting to be navigated. Plus you have the great advantage of flexibility — you’re not tied down to any one area or product/service type. You can quickly adapt with the times if needed.

But that doesn’t mean that the online business world is easy, because it’s far from it. It brings a unique set of challenges, and we’re going to look at the following two in this article: determining the viability of your business model, and maximizing your profitability in the hotly-competitive challenging digital marketplace. So let’s get to it.

How do add up your outgoings

What many budding entrepreneurs don’t realise about the online business world is that it contains countless unclear costs. Some digital service providers are as quick to state the word “FREE!” as they are to discourage you from investigating what the real cost of a system is once you’ve moved away from trials and started trying to use the full package in a real-world scenario. Partly in response to this, and partly due to a move towards transparency encouraged by GDPR, other online companies try to be as clear as possible about what they offer. But doing thorough research before you become dependent on a system or service is always worth it.

And too often people can take the attitude of simply assuming that they’ll be able to find software to suit their needs, never doing in-depth research to confirm as much. This can be a dangerous approach, as placing reliance on a tool that you don’t directly control the direction of can be risky. But, while saying there are risks, the online services being offered right now can save a lot of time and hassle. Do your research, and make sure you’re getting what you need from your providers.

At a minimum, the average online business will need to factor in the following costs:

  • Domain registration. Every business website needs a clear domain name. The cheapest domain names are extremely inexpensive, while the more eye-catching domains can be very costly to register.
  • Web hosting. A website without good hosting is essentially worthless. The more popular your website becomes, the better the hosting will need to be to handle the traffic, raising the required standard.
  • SSL certification. An SSL certificate confirms to website visitors (and search crawlers) that a trustworthy independent body has confirmed its legitimacy. Particularly in ecommerce, an SSL certificate is mandatory. Some services charge for this, while others are free.
  • IT support. When your website is your entire business, you can’t afford for it to go offline, slow down, or suffer any security issues. Just as you’d want security systems for a brick-and-mortar store, you’d want a strong IT team for an online business.

 Depending on the varieties you choose, these costs won’t necessarily be very large, especially relative to the cost of renting (or buying) an actual store. If you create an ecommerce store using a full-solution CMS (or start your business and buy a website with everything already set up), then these costs will be folded into one monthly fee, making things rather easier.

But an online business doesn’t have the advantage of attracting visits through a good location. You need to do one (or both) of two things: earn search rankings to get clicks that way, or pay for digital advertising. Either way, you’ll need to factor in the costs of the ongoing work — you may need to bring in staff, or just commit the time to doing it yourself.

The takeaway from this section is that online business isn’t a magic bullet capable of making you a lot of money with zero outgoings. It’s a risky investment like any other, and you should treat it that way to get the best possible results.

Calculator, laptop, pen and paper and coffee on a trendy wooden desk.


How to track your financial progress

One great benefit of online business is the convenience of digital analytics. Not only can you easily and seamlessly track your financial progress through an ecommerce store by checking the internal analytics system (or using an attached installation of Google Analytics), but you can also assign custom values to different online actions, helping you get a broader view of your long-term profitability.

I’ll give you an example. Suppose that you offered a downloadable brochure for your business through your site, and wanted to have an understanding of your progress outside of the basic sales data: you could assign a monetary value to each download based on how much you considered it to be worth relative to a sale. If your average sale were $200 and 1 in every 20 visitors converted, you could give each download a value of $10 to reflect that.

Custom values achieve two things: they let you maintain a balanced perspective on performance (if one month has slightly fewer sales but more downloads than average, it might still be on a par value-wise with other months), and they make it clear when something isn’t right and needs to change (if you’re getting 60 downloads per month but only 10 sales, that tells you that the brochure isn’t as effective as you’d planned).

In a general sense, of course, you’ll need to be completely familiar with all the software you use, whether it’s banking software, an ecommerce CMS, or planning software. Even the greatest tool can’t keep everything together and on track if you don’t know how to use it properly. And since electronic payments are increasingly dominant, you’re going to need to be software-savvy sooner or later, regardless of the nature of your business.

Financial chart illustration with cash line


Tips for improving your profitability

In most cases, online businesses are extremely scalable — whether you’re going up or down the scale. Something very important for squeezing maximum profitability from your business is to scale it down when you’re not converting at a good rate and scale it up when it’s performing consistently, and the easiest way to do this is to adjust your PPC advertising.

If you run AdWords campaigns, for instance, you can pause them at will, lower their costs, and adjust their copy. The moment they stop getting the results you’re looking for, you can (and should) make a change. If your business is most viable at certain times of the year, you should ramp up your PPC activity around those times and dial it back at others to avoid spending money where it isn’t going to make much of a difference.

You can also tweak your profit margins in many cases. Without needing to go around a physical store and adjust price tags, you can simply run an optimized sale on a whim, using low prices to get people through the metaphorical door and setting prices back to normal later. Couple these short-term deals with email marketing using FOMO and other tactics — you’ll see great results.

Lastly, in the long run, content marketing is very important for lowering online business costs. The better your content marketing is, the more relevant search rankings you’ll earn, and the power of search rankings is that they carry on providing value without requiring direct investment. A prominent top-ten result for a major keyword could secure you a steady stream of traffic without any need for PPC advertising.

Always plan carefully

Wrapping up what we’ve looked at thus far, we can see that online business has plenty of unique costs, it’s important to get familiar with digital analytics to assess your site’s performance, and there are various ways to improve profitability through making minor tweaks.

The throughline of this all is the need for strong planning. An online business isn’t something to pursue with no idea of what you’re doing, unless you have the budget and the willingness to make a lot of mistakes along the way. Start with a business plan, and you’ll have a solid foundation to build on as you attempt to grow your business.

 

microstartupsKayleigh Alexandra writes about the exciting ambitions of entrepreneurs for Micro Startups, a site fixated upon delivering actionable advice for budding startups everywhere. Stop by their blog for the latest news in the world of small business, and check them out on Twitter @getmicrostarted.

 

You can catch Kayleigh’s previous article here: 3 Simple Secrets to Online Success for your business

Robin Booth 15th October 2018 By
 

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