Websites Are Cheap. Online Businesses Are Expensive.
My full-time job as VP of business development at Crowd Interactive gives me some insight into the costs associated with online businesses. Every day someone asks me: how much does it cost to build a mobile phone application? How much does it cost to build a website? How much for an ecommerce site?

The short answer is that building a website is cheap and building an online business is expensive. In this blog I’ll explain why.

Informational Websites Are Cheap, Often Free.
You’re in luck if your site is informative rather than interactive. You can now build a WordPress site in a matter of hours if you’re not picky about design, and in weeks if you hire a designer. You probably do not need a web development company to build an informational site. You can probably hire a small team or even one person to design and build your site.

Development is Expensive.
Mobile and web applications and stores are interactive and more expensive. Smart web development companies will bill for their services like a law firm – for time and materials. The more time it takes and the more people involved in building your system, the more it costs. Dumb companies will charge a fixed fee – and then they deliver late and lose money.

To build an online store from scratch – including shipping modules, reports, and an inventory management system – expect a team of 4 developers to spend at least 6 months designing, implementing, testing and launching the store. At $50 per person per hour, working full time each month, the monthly cost is $32,000 per month. In this case you would pay $196,000 over six months. Applications can take as much or more time.

Development Doesn’t End.
Development costs don’t decrease after launching. They can actually increase. Consider Amazon.com, Zappos.com, or even Facebook. All of these companies spend millions each year on innovating and changing their site. Innovation aside, the changing nature of Internet – and how we access it – forces companies to constantly update their sites. As browsers and hardware change, your site must also change.

Business growth requires more development. When you first launch an online store the volume of sales might be low enough to handle sales with an email sent to one or two people. But once you start handling hundreds or thousands of orders and returns, you’ll need a complex custom solution.

Customer Service is Expensive.
The best online sites also have the best customer service. In fact, customer service may help you grow faster than a sleek design or adwords marketing. Customer service is also people-intensive, so you will need to pay staff to answer phones, respond on the Facebook Wall, and even write hand-written notes to new customers.

Success is Expensive.
By some estimates, Facebook spends over $1 million per month on electricity. While your business may not become as large as Facebook, you will have to consider the extraordinary hosting, power, and equipment costs that come with running a popular site. I have seen clients paying over $20k per month for hosting services.

Some Strategies To Reduce Costs.

  • If you’re just starting out online, use a templated system like Magento, Shopify.com and BigCommerce.com. Implement custom designs on top of those. Use the templated system until you’ve established a following, great customer service, and business viability. Build a custom site from scratch later.
  • Build a following through Blogs and real customer service.
  • Make design changes as data dictates, not based on whim.
  • Don’t spend on traditional print marketing. Spend on online marketing exclusively.

Some Strategies Not To Use To Reduce Costs.

  • Don’t have your friend / husband / neighbor who is a designer / photographer build it for you for free.
  • Don’t spend on lots of inventory before you have traffic to your site.
  • Don’t rely on unpaid interns to handle customer service.
  • Don’t skimp on online advertising
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