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How Much Money Does It Take to Start an Online Business?

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How Much Money Does It Take to Start an Online Business?

By Pat Flynn on

Today I want to talk about how much money it takes to start an online business. This is a very common question that I’m asked, and it was definitely a question I had when I first started. There’s a common misconception about what it really costs to get started. Most people, including me at one point, think that it requires loads of money. I understand how that can be discouraging. You may be thinking, “Well, I don’t have any funds. How could I really start a business?”

But there’s good news! While it does cost money to start an online business, it costs less than you may be thinking.

The key question you want to ask yourself is: what kind of business do you want to start?

Whatever amazing business idea you have, you need to realize that it will cost money—and for some types of business, it may cost a lot of money. But don’t let the obstacle of money stop you from doing the necessary legwork, including the research to discover the pain points for your potential customers that your business can help solve.

In fact, I wrote a book, Will It Fly?, that is uniquely designed to help people figure out if a business idea is worth pursuing. I’d recommend you read that as a guide during the discovery phase. Thousands of folks have already used Will It Fly? as a tool to help them validate and test their own business ideas before spending money they don’t need to spend. You can pick up a copy at willitflybook.com.

You don’t have to start big. Start small, with little cost, and work your way toward your goal.

When I started my first online business back in 2008 (greenexamacademy.com, formerly intheleed.com), the idea was to help aspiring architects pass the LEED certification exam. I hardly spent any money at all. All I did was start a blog, which at the time cost $6.95 per month for webhosting, and I used Bluehost. (As most of you know, I’m a big fan of Bluehost. And, because I have an affiliate relationship with them, you can get your business website going for much less than where I began, starting at only $3.49 per month!)

At the beginning, that’s the only money I spent. Well, that and buying my daily coffee! Most of my initial investment was my time, inputting notes, writing, making charts and informative graphics that could help people, including me, pass this exam.

The next payment I made for my business was in October 2008 when I had the idea to sell an ebook. To make this happen, I had to spend a little bit of money on a shopping cart service (e-junkie at the time; I later moved to Gumroad, as I describe in Ebooks the Smart Way) that allowed me to deliver the ebook to the people who bought it. It was a flat fee of $5 per month. Different companies have different ways of setting up those pricing structures, but whatever the case may be, it doesn’t have to be a huge monthly fee to get going.

If your business idea requires a shopping cart service, I’d recommend SamCart as a great, inexpensive option. It’s also super user friendly. If you just want to offer an ebook, they give you the ability to do that. They handle all the credit card processing, payments, and delivery. It’s pretty sweet.

"You don’t have to start big. Start small, with little cost, and work your way toward your goal."

Building your email list costs a bit more money, but it’s worth it for your business.

It wasn’t until 2010, two full years after my initial small investments, when I spent a bit more money for one of the best investments you can make in your business: building an email list. The Email Service Provider (ESP) I used at  the time was Aweber, which cost me $194 per year to start (that’s only about $16 per month). Once my email list grew though, the costs increased based on the number of subscribers I had: 26,000 subscribers cost me $181 per month. Aside from the costs, which actually are pretty standard, Aweber didn’t have some of the features I wanted, so I moved on.

You can read about my journey from Aweber to InfusionSoft to, my current favorite, ConvertKit here.

I didn’t collect an email list when I built greenexamacademy.com or when I started smartpassiveincome.com in 2008. That was a huge mistake. It does cost money to build an email list, but it’s worth every penny. I recommend using ConvertKit for this. They have really good pricing, and you pay more as you grow. By far, it’s the best service out there. On SPI TV Ep. 28, I did a full ConvertKit demo you can check out if you’re interested! I’m also an advisor for the company, and I wouldn’t be recommending ConvertKit if I didn’t love the product.

You can do it alone, but only for so long. Eventually you’ll need to hire a team.

At around the time I started selling my ebook and making a living online, I had yet to even consider getting involved in outsourcing some of the work. I look back now and think that I could have potentially done that earlier to help with things like finding a webhost and creating my website. Back then I did everything myself. That’s one of the positives to first starting out. You don’t really have any overhead. It’s all about the effort you want to put in on your own time and your own terms. So, when I first started, I found my WordPress theme myself, I set it up on Bluehost with a very easy one-click install. I was able to get everything set up, and start building my audience, trust, and authority online with those who I was going to deliver my product (ebook) to down the road. I did not spend money on hiring a team until 2013, which came after having a full-time Virtual Assistant for two years, which cost me about $800 per month.

The big thing I want to emphasize is that this process took time. It didn’t happen overnight. If I had I spent a little bit more money to hire a team earlier on, I don’t know if I would have succeeded any sooner, because I was building authority in my niche and trust with my audience—two things you can’t buy. There are indirect ways to build authority and trust, through buying exposure on Facebook, through advertisements, or other advertising platforms so that people can find you sooner, but you still have to earn that trust. You still have to provide value and actually help people in some way.

Beyond monitoring the money that you’re making and spending, you need to make sure that the value you provide is at the core of your business, because then it doesn’t really matter how much money you spend. If you’re not providing value, if you’re not providing quality information, if you’re not actually helping people, you’re going to lose out in the end, and actually lose your money and your time.

What happens when you try to rush into an idea without validating it first?

In 2010, I made one of the biggest mistakes of my entrepreneurial journey. I had paid a developer a large sum of money to develop a couple of WordPress plugins I had ideas for. I had seen others successfully create and sell WordPress plugins, and I wanted in on it. But the problem was that I rushed into it. I made the mistake of chasing the money, and didn’t actually validate the idea, or consider who the plugin was for. The result? Nobody wanted them. I didn’t even sell one. I spent $15,000 to get the plugins developed, and they didn’t go anywhere.

It was a very expensive lesson, and one I’m happy to share with you here and in Will It Fly?, where I talk about this in more depth, and how it led me write a book about the importance of validating ideas before wasting time and money.

Through this experience, one thing I learned is that development, and the selling of the product you develop, takes time and money. This is a lesson I took to heart when I built another software company, SPI Labs, with my partner Matt Gartland. SPI Labs is behind the Smart Podcast Player, which was a significant undertaking that started out as a custom solution for AskPat and eventually became a successful WordPress plugin used by thousands of fellow podcasters.

But, as I said, development costs money. For the Smart Podcast Player, it’s a plugin so it requires constant validation, testing, upgrades, and a solid customer support system in place, all of which costs money. If you have a plan to do something similar for your online business, you’ll need to think about this before you even get started so your processes are covered. Read about the lessons we learned in building the player and how we validated it before launch.

"Beyond monitoring the money that you’re making and spending, you need to make sure that the value you provide is at the core of your business."

Crowdfunding can be a viable solution to support your business idea financially.

If you have an idea worth pursuing, crowdfunding can be a helpful way to find the money you need to get your idea off and running. For example, you can run a Kickstarter campaign. On SPI 223, I covered this with John Lee Dumas who launched a super successful campaign. Besides John, I know a lot of companies who have started on Kickstarter. I’ve been a backer of dozens of different projects, and a lot of those projects were just ideas when the campaign started. There are ways to get paid for your ideas up front. Using Kickstarter, you can validate those ideas and start to build community at the same time, which is a great way to get a boost at the beginning stages of your online business, especially if what you’re creating takes some money to get started.

I know that in the ecommerce and physical product world, there are a lot of costs up front, which vary depending on the product. Sometimes you’re going to have to spend a significant amount of money up front to pay for a mold, like Bret Miller did with his product Brik Book, which is a physical product with a specific shape that needs to be reproduced on a large scale. The mold itself could cost up to tens of thousands of dollars. In this case, a crowdfunding campaign could be an excellent option to cover those costs. Listen to Bret talk about the story of Brik Book on SPI 217.

So, how much money does it really take to start an online business?

The answer to that question is really up to you, depending on your business model, and your timeline. I started off not having to spend much money, something I remember well because I had just been laid off from my job and didn’t have a lot of money to spend. With greenexamacadamy.com and smartpassiveincome.com, I didn’t spend more than $1,000 a month for the first two years of those businesses. It wasn’t until those businesses started growing significantly that I started to spend more money, and then I had the revenue to support additional costs.

But if your initial idea is a physical product, you may need a bit more money at the start. So it really depends on your unique situation. Regardless of your situation, there are some consistent takeaways you should consider in your business strategy and planning.

  1. Figure out what your business is about, and ask yourself why you’re doing what you’re doing.
  2. Clarify your goals.
  3. Determine how much money you’ll need to start your business.
  4. Run projections in a spreadsheet and find out how much you could potentially make from your idea.

It’s important to consider all of this before starting. In a way, you’d be working backwards from your end goal (to create a successful business) to before you even start. By doing so, you’re making sure all your bases are covered so you don’t have a surprise like I did with my WordPress plugins. And, perhaps most importantly, by doing this, you’ll soon realize if your business idea is something that truly aligns with what you’re actually trying to do in your life. If it’s not, you at least have the knowledge to make adjustments or try something else.

For a deeper look into this idea, I recommend checking out the case study in Will It Fly? on Noah Kagan, who is really detailed and transparent about starting his business. He validated a beef jerky subscription company (yum!), which proved to be a unique and inspiring example of determining the costs of items before starting a business. He didn’t pay for anything up front; he was just smart about asking: how much does this cost, and how much money do I need to reach my goal? His goal was to validate his idea by making $1,000 profit in twenty-four hours, and that’s exactly what he was able to do.

I also spoke with Noah about his company SumoJerky and his validation process on SPI TV Ep. 38.

A few resources to help you build the business you want to build.

So, the big lesson here is that the cost of starting a business can be as little or as much as you want it to be. Before I go I wanted to mention a few resources I believe will help get your business started on the right path:

  • SBA Loans: If you have a business idea that may need a bit more money at the start, a Small Business Association (SBA) Loan is a good place to go.
  • Kickstarter: Again, Kickstarter (or IndieGoGo, GoFundMe, or other crowdfunding solutions) is a great way to both validate your idea while generating money for its creation.
  • Raising capital: On SPI Episode 118, Bill Glaser talks with me about how you can raise capital for your business.
  • Nathan Barry on bootstrapping ConvertKit: I’m a huge proponent of ConvertKit. It’s user friendly, powerful, and an all-around great product. But one cherry on top is its origin story, in which Nathan Barry took it upon himself to create ConvertKit without any venture funding or any upfront capital. It’s fascinating and awesome!

I hope this post gives you a clearer sense of what it ultimately costs to start a business, and a better look at what lies ahead on your awesome journey. If you have any stories about startup costs for your business, please share them in the comments!

Thanks again for reading. I appreciate you!

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