Overhead costs are all the expenses you have to pay to keep a business running. When a business has low overhead, that means the costs of running the business are relatively low.
Office space, utilities, travel expenses, and equipment are all examples of overhead costs.
They’re also examples of things you don’t actually need to start a business.
I want to introduce you to a kind of business that you can start, right now, with nothing but a computer, an internet connection, and a hunger to make the kind of difference in someone’s life that they’ll be happy to pay for.
Then, I’ll show you the 7 tools you need to get a business of your own started — without spending a single dollar that you don’t need to spend.
What kinds of businesses have low overhead?
Imagine all the world’s products, graphed by cost and profit. Something like this:
Software has high earning potential. But it also comes with a lot of costs (not to mention, you have to have the technical knowledge to put a software product together). Affiliate marketing (selling other people’s products for them for a fee) and running ads on your website or YouTube channel have low overhead cost, but the earning potential is pretty low, too.
The sweet spot is in that upper right-hand quadrant: the products where overhead costs are low and the earning potential is also high.
These products are called “information products,” because that’s what they mostly contain: knowledge and information that’s valuable enough to the audience that they are willing and able to pay to access to it.
There are four main types of products that fall in the high-profit, low-cost category of information products:
- E-books. Digital books that people download and read on their computer or a mobile device.
Price: $10 – $50 per book
- Coaching programs. Personalized guidance and teaching in your area of expertise, offered one-on-one or in groups.
Price: $200 – $1,000+ per hour
- Membership sites. Sites where people pay a monthly subscription in exchange for access to premium content on an ongoing basis.
Price: $10 – $100+ per month
- Online courses. Comprehensive programs where you walk customers through the exact steps they need to follow to achieve a desired outcome.
Price: $100 – $1,000+ per course
Helpful link: More on the different types of information product ideas
A couple of things about information products that keep overhead costs low: They’re digital, meaning there are no materials to pay for, no shipping costs to cover — the kinds of things that drive the costs of a business up. Info-products are also scalable: you can have 10 customers, 100 customers, or 1,000 customers, and the costs of selling your product will stay relatively low. (Coaching is a bit of an exception here, because your time is the product, and you only have so much of that.)
The biggest cost associated with creating information products: the time it takes you to create them. And time is an investment. If you put the time in upfront to get to know your customers, grow your audience, and build a product that your customers actually want, that investment pays off for months and years down the line.
Helpful link: Our mega-list of information product businesses
Essential expenses for an information product business
Low overhead doesn’t mean no overhead. There are some costs that you have to take on when you’re starting an online business.
But one of the biggest problems when you’re trying to start a business from scratch: it’s hard to know what tools you need to get started. Do you actually need that pimped-out social media management tool? Or do you only think you need it because the internet marketers who are selling it to you are good at their job?
Allow us to demystify things a little. Here are seven (yes, just seven) expenses you’ll need to plan on to get your business from an idea to selling your first product. These tools come straight out of our online courses, and our students have used them to get businesses of their own off the ground.
To keep things simple for this illustration, we’re going to stick with one example of each of the tools listed. But there are a lot of options out there, and you can and should shop around for the option that feels right to you. For more specific examples of each kind of tool, check out our post on startup costs.
- Phase 1: Growing your audience
- Phase 2: Creating your products
- Phase 3: Ready to sell
(Note: all costs listed below are current estimates, as of 2018.)
Phase 0: Finding your idea
Before we get into growing your audience, we want to make a special point. If you don’t have an audience with a burning pain point, don’t break out your credit card just yet. There’s an important step you need to take before you’re ready to start throwing money at your idea — taking the time to get to know your audience and understand:
- Who they are
- What they want
- How you can help
At GrowthLab, we call this step “immersion,” and it is the most important thing you can do for your business. And the good news: it costs zero dollars. You can learn about your audience by scrolling through online communities like Reddit and Facebook groups, reading the reviews of products your customers buy, and talking to people online or on the phone — all of which you can do for free.
Watch our CEO, Ramit Sethi, walk through the exact steps he follows when doing market research for new products. And take note: not a dollar spent
Best of all: by investing the time to learn about your customers first, you make sure that the business you move forward with is the right business. That way, every one of the expenses listed below will be worth it.
Phase 1: Growing your audience
Once you’ve found your idea and gotten confirmation that yes, people are interested, you’re ready to make the first financial investments in your business. There are two areas where you’ll want to put those investments: your website and your email list.
Expense #1: Web domain
Your website is home base for your business. It’s your personal slice of the internet, where your audience can come to learn more about you, your expertise, and eventually, your products.
Your web domain is your website’s address online, the name that people use to search for your business. You have to have a web domain before you can have a website, which is why a domain name is the first investment we recommend making in your business.
Cost: $12.99/year for a typical .com address
Expense #2: Web host
A web host is what makes it so that people can see your website online. We recommend using WP Engine, because it integrates nicely with WordPress, our favorite website building tool.
Example: WP Engine
Cost: $35/month ($350/year)
Expense #3: Email service provider
Email will be the lifeblood of your business. Other marketing tactics come and go, but email is still the most reliable way to grow, communicate with, and eventually, sell to your audience. That’s why it’s important to invest in an email service provider that lets you build lists and send emails out to your entire audience quickly and easily.
Cost: FREE for up to 2,000 subscribers and 12,000 emails per month, with paid plans starting at $10/month for unlimited emails
Phase 2: Creating products
Once you’ve got your website up and running, you’ve built up a healthy-sized email list (at least 100 subscribers), and you’ve heard at least 10 of them telling you “I need your product to exist now,” you’re ready to move on to creating your products.
There are some info-products you can create for free, like an e-book or a coaching program. But let’s say you want to invest just a little bit more money in creating some premium video/audio content for an online course. For that, there are a couple of costs you should plan on:
Expense #4: Video recorder
A video recorder like Camtasia lets you record your voice and screen at the same time. That’s a useful tool, especially for online courses, when you often want to give your students something to look at and have them hear your explanation at the same time.
Expense #5: Video hosting
Once you record your videos, you’re going to need somewhere for those videos to live. For that, you’ll need a video hosting site. We recommend Wistia: they make it easy to store your videos and embed them onto your WordPress page.
Cost: FREE, if you only need 3 videos and you’re okay with Wistia’s branding appearing on your videos. Otherwise, for $99 per month, you can upgrade to a Pro plan that lets you create 10 free videos with no Wistia branding
Phase 3: Ready to sell
You’ve grown your audience. You’ve built your products. You’re ready to put those products in front of your audience and say, “Here. I made this for you.”
To do that, there are a couple final investments you’ll need to make.
Expense #6: Membership software
Adding membership software to your website allows you to require login information for users to access certain parts of your site. It’s basically your own personal Gandalf, making sure that the content that you work hard to create for paying customers is available only to those paying customers.
Example: WishList Member
Cost: $197 for a single site license
Expense #7: Payment processing tool
You’ve put all this work (and money) into growing an audience, building a product, and making it available for people to buy. Now you need a system for them to … actually buy it.
The nice thing about payment processing: you don’t spend money unless you make money. Most payment processing tools charge you on a transaction-by-transaction basis, rather than setting a flat fee.
Cost: 2.9% + $0.30 per transaction
You can’t buy your business
There you go: the only 7 tools you need to pay for to have a functioning, profitable online business.
You might be thinking, “Wait a minute! Didn’t I see a blog post somewhere about social media management tools and CRM software and a virtual assistant? And what about that slick graphic design that I really really want? Are you telling me I can’t have all of those things?”
The point is not that you can never have any of these things, ever. The point is that it’s important to be conscious and intentional about what expenses you add to your business, and why. Adding new expenses is easy. Cutting expenses once you’ve gotten used to them being there? That’s a problem huge enterprise organizations struggle to solve.
Here’s a mistake that a lot of beginner entrepreneurs will make: they’ll load their business up with professional-grade video recording equipment and slick graphic design. It’s like they think, if they can just buy the right tool or hire the right graphic designer, then people will take them and their business seriously.
But here’s what they don’t realize — what so many would-be business owners never do:
The value of your business isn’t going to come from what marketing tool you use or how expensive your website design is.
The value of your business is going to come from:
- How well you know your audience
- How good you are at understanding what they need
- How effective you are at delivering products that they love
Those are all things that money can’t buy.
Every profitable business starts with a profitable idea
Starting your own low cost, high profit business starts with finding the right idea for you. To help you do that, I want to give you our Ultimate Guide to Profitable Business Ideas.
In the guide, you’ll learn:
- How to start a side business no matter your current situation (working full time, busy family, crazy schedule, student)
- The 6 types of businesses you can start online and how to decide which one is right for you
- How to discover if your business idea will make money BEFORE spending any money
- The 5 things you need to go from $0 to $4,500 online, faster than you ever thought possible
Just enter your name and email below and I’ll send it to you for FREE.