How much does it cost to run a website based business?

by Chandoo on May 19, 2010 · 45 comments

in Money Matters

One of the advantages of a web based startups is that, they cost very little to setup. Today I want to give you a lowdown on how much it actually costs to run a mildly busy website. I will use Chandoo.org’s real traffic and running expenses to break it down for you.

Please note that the costs go up faster as your site grows in popularity.

Some basic stats about Chandoo.org traffic:

  • Page views per month: 350,000
  • RSS readers (daily): 9500
  • Email Subscribers (daily): 4900
  • News letter subscribers – 600+
  • Bandwidth per month: 25GB
  • Breakdown of bandwidth: 80% images, 10% CSS and JS and 10% text content
  • Breakdown of places viewers visit: Blog  – 85%, Forum – 5%, Formulas pages – 5% , Misc (including sales pages, home page etc.)  – 5%
  • No. of transactions (sales per month) – 65 (roughly 2 every day)
  • Affiliates (people who sell my products for me) – 5

I think this is a very good example of the kind of traffic a small startup generates.

Now lets breakdown the costs behind running a site like this:

There are 3 types of costs in running an online business.

  1. Recurring costs
  2. Fixed costs
  3. Invisible costs

Recurring costs for running a web based business:

  • Domain name – $10 per year
  • Hosting – $15 per month
  • Paypal Commissions – roughly $2 per transaction or $130 per month
  • Affiliate commissions – fluctuates, but  roughly $50 per month
  • News letter costs – $29 per month
  • Shopping Cart costs – $5 per month
  • Amazon S3 space and bandwidth costs (for hosting videos and other files securely) – $10 per month
  • Online backup of computer data – $5 per month

Fixed costs or one-time expenses:

  • Any software you need (for me, this was about $500 spent screen recording software, membership plugins etc.)
  • Web site design (no cost as I knew coding and I modified a free template to suit what I do)
  • Logos, Branding (again no cost as I try to do this on my own)
  • Set up fees (some hosting companies charge one time setup fees when you get a website. For my host there was no hosting fee)
  • Computer / Laptop – to run an online business, you need to have decent laptop or desktop and they usually cost $1000 or so.

Invisible costs:

  • The biggest invisible cost is your time (I work roughly 8 hours a day, 7 days a week). Even if you assume $10 per hour, this number will be 8*30*10  = $2,400. But this is all invisible and you do not feel this cost as a burden on your business.
  • Internet, telephone and electricity charges
  • House rent – most of the online businesses are run from home. You have to factor in certain portion of house rent / mortgage towards the cost of running this business.
  • Books, resources etc – To stay ahead in your business, you need to constantly read books or access resources to improve your knowledge. I purchase one book a month on excel / charting / dashboards / presentations / design concepts and read at least 70 different blogs on regular basis. Most of this is invisible cost.

Total costs:

There you go. If you add up the numbers, it would be $250 per month approx. As you can guess, major portion of it ($130 for paypal transaction charges and $50 for affiliates) is variable costs. That is if I have a bad month, I pay low on these and on good months, I pay more.

If you convert the amount to Indian rupees, it is INR 11,000 approx. It is not such a huge amount if your business can generate atleast a thousand dollars in revenues every month.

But the best part of this set up is that you can run your web based business for very little monthly costs ($10 for hosting, 5 for shopping cart and another 19 for email news letters) and scale up your operations as your revenue builds up.

What are the expenses like for you?

If you already own a business, share the expense details (in %s or in $s) with me thru comments. I would love to know how you keep your business lean and mean.

If you are planning to start a business, share your estimates and constraints thru comments. I can probably guide you by giving some suggestions on how you can reduce the expenses of running an online business.

Go!

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