What costs are involved in operating a Web subscription service?


2

I am in the process of determining the pricing details for a subscription service (I have the standard, premium and plus accounts) and I'd like to create a spreadsheet of what expenses are involved in operating this business annually. So far, I have the following items:

Note: I do understand that the expenses vary based on location and the type of subscription service. I am trying to determine the average cost of running a business in IL on a annual basis. Although I hope some day I will be doing this full time, currently it's something I am doing on the side. The nature of the service requires me to have cloud server and cloud files.

  1. Government fee for registering a LLC - $500
  2. Rackspace Cloud Server ($200/month) - $2400
  3. Rackspace Cloud Files ($150/month) - $1800
  4. Domain Renewal - $10
  5. CPA costs - ???
  6. Development cost (offshore) about 3 mos full time per year - $2500
  7. SEO (onsite and offsite) $50/month - $600
  8. Marketing/Google Ads - $500
  9. Tech support (offshore) - $2000
  10. Chargify/Paypal charges - ???
  11. Web Design - $400
  12. Postal chages/Misc - $1000

Does this look like a good starting point? Are there any items missing or any items that stand out as either being too expensive or too cheap?

Finance Monetization

asked Jan 3 '11 at 06:01
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User3462
345 points
  • Rule of thumbs: multiply your anticipated costs by 2 to get the real-world result you'll experience once you go live. – Frenchie 5 years ago
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3 Answers


7

All of my businesses now are subscription based. Over the last 10 years i have weaned off retail and consulting because i have done so well with subscription services.

Here are some concerns looking at your pricing:

Your development cost seems VERY Low. If you are building a very basic subscription service, and plan to integrate with merchant accounts, refunds, credits, etc, that alone would cost a good bit to code. I understand you are using offshore talent. I have offshore talent on payroll (about 1/2 what they would work for if you contracted them shorty) and the numbers seem way off. If you are being quoted that for the work, then you might be getting very low level quality, a steal!, or taken in by a "we need more money" business model.

2nd. You should not take your tech support and customer support offshore for a startup. You can, once you are established. You tech support is your pipeline for feedback, errors, user suggestions. Taking this offshore is not wise until you are established and have everything on cruise control.

3rd. SEO costs should not exist. Good seo is part of your development. Your site simply needs to be structured in a way that it is SEO friendly.. Stay away from the scams or subscription SEO services. They dont yeild a good return. Good SEO can only be done by yourself. Make sure you are tied into the usual (twitter, rss, facebook). Write new content about your product often, and publish your own news releases and blog posts. Encourage reviews of your product by making it a focus on brand development and marketing. Just traditional offshore per month seo services do nothing but flood the internet with your link, to sites that are junk to begin with. They do not work.

4th. We design and development are two of the same. Dont break them apart in that matter. If you are new to the web business then take this approach. 1. Have the UI built first. The ui will be your site, and whatever tool your users will use. The developer for this will be a "designer". You can hire someone with experience in HTML, CSS, Javascript. Once you have the design figured out the way it makes sense, then have a developer code the actual guts of the product. Based on your server technology and your app experience and requirements will differ.

5th. While good that you have a budget for paid advertising, you really should start by creating a full marketing plan (free and paid). You tailor this daily, weekly, monthly or whatever makes sense after you launch. It is a full time job, making sure you get the most out of your marketing dollars. Make sure you just dont put an arbitrary number there. Marketing is about results. My forumla is that i reinvest 15-25% of gross income (depending on site) back into marketing, the second part of that is, for every marketing dollar I spend my goal is to make $1 per year income. It doesnt always happen.

6th. CPA costs vary. You cannot estimate them without knowing the type of business you will run. At the beggining plan for more because of consulting on your corp structure, account charts, etc. Over time it will be just plain old bookkeeping.

  1. Why are there shipping costs with a subscription service? Usually subscriptions are service based not product? In any case, shipping costs vary depending on what you are selling, customs, weight, and your accounts with shipping carriers.
I hope that you will move forward with creating an online venture, just when i see a breakdown list a red flag always goes off. Its smart that you are estimating, but you really need to understand the market you are getting into, the product and features you want to build, and doing business on the web. My advice, if this is your first baby, is to start small. Its easy to get carried away with features, options, teams, etc. Offshore developers are not for everyone, and could put a bad taste in your mouth if you hire the wrong person, or are not tech saavy enough to audit the code written yourself. You might do better with a partner in the USA that has done this type of work before.

Best of luck on your venture.

answered Jan 4 '11 at 10:36
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Frank
2,079 points

4

Obviously without any information on what this start-up service is, it's hard to say. But some quick feedback.


5.CPA costs - ???

There's bookkeeping, managerial accounting, and taxes. A CPA can show you how to do your own bookkeeping, help you understand accounting, and do your taxes. Ballpark a $1000-$2000/yr depending on the complexity.


6.Development cost (offshore) about 3 mos full time per year - $2500

Seems pretty cheap, even for offshore. You get what you pay for.


7.SEO (onsite and offsite) $50/month - $600
8.Marketing/Google Ads - $500

I'd keep these in the same budget (marketing). And, I'll also say it's woefully inadequate. Add another zero ($5K/mo) if you expect to get any traction from marketing.


11.Web Design - $400

This is on the low-end. I'd budget 2-3K for a competent designer.
answered Jan 3 '11 at 06:26
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Alex Papadimoulis
5,901 points
  • Thanks for your comments Alex. I am not sure why it would cost $5k per month for marketing/SEO. I'd like to go low on google ads and focus on organic results. If you have to break down the $5k, how would you spend it? – User3462 7 years ago
  • It varies by every business but I think Alex is close to right here. If you want to outsource SEO then $500 p/month seems like the norm for a quality agency. Google Adwords you can spend as much as you have but I think you can easily go through $1,000 p/month. Organic results take time, can you afford to wait for it? – Joel Friedlaender 5 years ago
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2

You're also forgetting a few important items:

  • Legal - At least $5K - Consider costs of incorporation, drawing up terms of use, service agreements, partnership paperwork, licenses, patents, etc... It's better to be proactive in protecting yourself legally than reactive, especially if your service is critical for other businesses.
  • Insurance - You need business
    insurance
  • Benefits - Are you outsourcing
    everything?
  • Security - How are you securing your
    service? You should consider a
    security audit before going live -
    Around $10-15K. You should also consider an SSL certificate.
  • Backup - How are you backing up your
    data? Depending on the answer, you
    could incur other costs here.
  • Equipment/Software - I'd find it hard
    to believe that you don't have at
    least some costs here.
  • Administration/Overhead - Again,
    you're going to have costs: Internet,
    electricity, telephone, office
    supplies, etc.
  • Chargebacks - Don't forget that there are penalties for chargebacks for most payment providers.
  • Testing - If you're not continually testing every area of your website in an attempt to improve it, you're going to be losing a lot of money. However, it costs money to test and implement changes.

In regards to some of your stated costs, you're going to get very poor results from your budget for the technical aspects like web design and development cost. For $400, you'll get a template website with no options. That is absolutely not the way to build a successful web service. I would say that you need to look at $10k minimum to get a decent site, not including development costs for your service itself. Again, there you will be looking at $10k minimum to get any type of quality. If the core of your business is on the web, don't skimp in either of these areas. You're just not going to get the level of professionalism that you need for a successful business from anywhere near the budget that you currently have. Make sure you get quality and reliability. Look for people who understand the business goals of your website and service as well as the technical side, otherwise you're going to get an incomplete and ineffective product.

Also, as Alex stated, you're low on SEO and marketing as well. Don't underestimate the problem of getting people to your website. You need a solid plan before you begin everything else, otherwise you're going to be playing catch up and losing a lot of money. Marketing simply cannot be an afterthought. As far as forming a budget for PPC, use Google's Keyword Tool and lookup the estimated CPC for your targeted keywords. Also make sure that your target market is big enough to support your service.

You should also take a long look at risk management. What happens if your outsourced team doesn't deliver? What do you do if your service goes down for a few hours or even a few days? What if you get hacked? All of these scenarios and more should be considered and planned for in your budget.

answered Jan 3 '11 at 09:08
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Virtuosi Media
1,232 points

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