Let Me Show You How To VALIDATE Your Business Idea Before You Kick Off

0
How to validate your business idea - Hector

Want to sell online?

I will show you how to validate your online business idea with ZERO cost!

This is simple math, but most people ignore these numbers.

Will your product make a profit or not?


Okay, let’s be business partners!
Let’s consider this very simple example:

  • We want to sell a beautiful shirt at $25 each
    (Our cost $3, amazing margin!)
  • We offer free shipping
    (Our cost $5 postal service)
  • We do this from home. (Zero extra expenses)
  • We need a website. Let’s suppose we do it ourselves.
    (Zero extra expense)
  • We purchase 100 shirts; our total investment is:
    $3 (cost) x 100 (units) = $300

Sounds good?

  • How much profit will we make each time we sell a shirt?
  • $25 (sell) – $3 (cost of shirt) – $5 (shipping cost) = $17 profit/shirt

Now, let’s sell it online!

  • Is the website ready? YES!
  • We are live! Yay!
  • High five!
  • crickets…
  • crickets…
  • Ohh! Surprise, we need to attract traffic to our website!

Okay, let’s get traffic:

  • The easiest way to get traffic?
    • Advertising!
      • Google
      • Facebook
      • Quora
      • Etc
  • Good news! We pay only for those who visit our website.
  • That’s right, these companies who “own” the traffic, use a term CPC (cost per click) on advertisements.
  • Bellow is the average cost per click for Google Adwords on different categories:
  • As we can see, every time someone clicks on our Google Ad, we will pay Google on average between $1.35 and $3.40
  • Let’s make a good deal for our shirt business:
    We will pay only $1 (one dollar CPC)
Also read:  Export Businesses Get Fresh Boost as NAHCO Launches New Handling Facility

Okay, now we’re getting visitors to our website! Cool!

  • Now we need them to add the product to the shopping cart.
  • Studies show that the average add-to-cart rate is 8.7%
  • Let’s say we have an amazing website…
    We’ll use an add-to-cart rate of 15%!

Great! Now we have the visitors to our website, we also have them interested in the product and they have added it to the shopping cart! Amazing!

  • Now let’s check out!
  • Studies show that a typical shopping cart abandonment rate for online retailers varies between 60% and 80%, with an average of 67.91%
  • Let’s use the average for our numbers: 67.91%

So, how much is each customer costing us?

Below I did the numbers for us:

Starting from the top left corner on the image below:

  1. We have the traffic source
  2. We will pay $1 for each click
  3. People get to our website and only 15% will add the shirt to cart!
    1. This means that every 100 visitors we have to our website, 15 will add to cart
    2. We pay $100 for 100 visitors at $1 each and only 15 add to cart
    3. The cost of that 15 add-to-cart was $100
    4. How much per customer?
      $100 cost /15 add to cart = $6.67 per add to cart
  4. Now we need to check out
    1. Average 67.9% of customers leave the item in the shopping cart and don’t check out.
    2. For every 100 add-to-cart shoppers, 67.9 leave, that means that only 32.1 people check out.
    3. Remember our cost-per-add to cart customer was $6.67?
    4. The real cost for each checkout is ($6.67 *100 people / 32.1) = $20.77!

In summary:

  1. We paid $1,000 for Google to send us 1,000 customers at $1 each
  2. 15% added the shirt to the shopping cart = 150 customers
  3. 32.1% of these 150 customers paid $25 per shirt = (150 x 32.1%) = We closed 48.15 sales x $25 dlls each = $1,203.75 total income!
  4. Expense: we paid $1,000 for traffic.
  5. Expense: we bought 48 shirts at $3 our cost each = $144 total cost of product sold
  6. Expense: we paid 48 shipments of $5 each = $240 total cost of shipping costs
Also read:  Why Nigeria is Lagging Behind in Export of Agro Commodities, Vegetables

HOW MUCH PROFIT DID WE MAKE?

$1,203.75 (sales) – $1,000 CPC Ads – $144 cost of shirts – $240 shipping =
Negative $180.25

OH NO! WE LOST $180.25 PARTNER!


To validate your idea, it’s critical to KNOW YOUR NUMBERS and strategize your sales before you get too excited!

Enjoyed What You Read? Click HERE To Join Our Priority List So You Are First To Receive Top Notch Business Article/News

LEAVE A REPLY

Please enter your comment!
Please enter your name here