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
- 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!
- Ohh! Surprise, we need to attract traffic to our website!
Okay, let’s get traffic:
- The easiest way to get traffic?
- 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)
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:
- We have the traffic source
- We will pay $1 for each click
- People get to our website and only 15% will add the shirt to cart!
- This means that every 100 visitors we have to our website, 15 will add to cart
- We pay $100 for 100 visitors at $1 each and only 15 add to cart
- The cost of that 15 add-to-cart was $100
- How much per customer?
$100 cost /15 add to cart = $6.67 per add to cart
- Now we need to check out
- Average 67.9% of customers leave the item in the shopping cart and don’t check out.
- For every 100 add-to-cart shoppers, 67.9 leave, that means that only 32.1 people check out.
- Remember our cost-per-add to cart customer was $6.67?
- The real cost for each checkout is ($6.67 *100 people / 32.1) = $20.77!
- We paid $1,000 for Google to send us 1,000 customers at $1 each
- 15% added the shirt to the shopping cart = 150 customers
- 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!
- Expense: we paid $1,000 for traffic.
- Expense: we bought 48 shirts at $3 our cost each = $144 total cost of product sold
- Expense: we paid 48 shipments of $5 each = $240 total cost of shipping costs
HOW MUCH PROFIT DID WE MAKE?
$1,203.75 (sales) – $1,000 CPC Ads – $144 cost of shirts – $240 shipping =
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!