The Tender Digital Trap

By SmallBusinessComputing Staff | Posted May 01, 2001

by Douglas Gantenbein

When Evelyn Levin started a Web site last year, she hardly knew what she was in for. Launching a new career after years in health-care administration, Levin planned to build a site that would connect collectibles sellers and buyers -- "like eBay, but without the bidding," Levin says. "People would post a price, and a buyer could take it or not."

But Levin was a Web novice. And as her site, Tchochke Heaven (www.tcheaven.com), grew in complexity, the expenses ballooned. Her initial estimate that $10,000 would put her in e-commerce heaven quickly fell by the wayside. The final tally: $30,000. "There were just so many things to think about -- e-mail and responses and commissions for the sellers," Levin says. "Not a day goes by that there isn't something to work on."

It's a common tale. More and more small businesses are clambering onto the Web expecting quick results. And some sites are working. A recent survey by SuperPages.com, an online directory and business-resource service, reports that 55 percent of small businesses say their Web site has broken even or helped them make money. Nearly half say the site exceeded their expectations, a substantially higher percentage than those who could make the same claim a year earlier.

But launching a Web site is no walk in the park. While e-commerce may be virtual, the money it takes to get a site going is very real and can spin out of control before you know it. The best approach to predict and prevent those hidden costs is to set a budget for a site and stick with it, and believe it or not, that can be done.

Budget Basics
From the beginning, think of your Web site as a chance to spend money four different ways. First, is getting it designed and launched. That's the biggest bite, and its size may lead you to discount what comes next. After the site is ready, you have to market it (see "Register to Win"). You want the site to be reliable, of course, so you'll need to find a place to virtually "park" it -- a "Web host" -- who can keep it up and running so your customers don't get that incredibly annoying "cannot find site" screen on Explorer. Finally, you'll need to allow for site changes as your product mix changes, your business model evolves, or you expand and add services. That, too, will cost you.

Some Web experts warn that if you build a Web site expecting it to be a revenue engine, you may be in for disappointment. "It's mainly another avenue for distributing products or information," says Joey Caisse, president of Web-X, a design firm in the Seattle area. "We all know of a guy who cashes stock options and drives a Porsche, but I've met very few of them."

Establish a planning process to carefully account for the money you spend. Working with your Web developer at the start will save you big headaches and big bucks later on. Begin by clarifying your goals. What is it that the Web is supposed to do for you? "We ask a client what the site means to the company and what the goals for it are," Caisse says. "Sometimes the goal is just to have a presence, sometimes to generate leads or promote branding."

To define the site's look and feel, some companies bring in materials prepared by an outside public relations or advertising firm. Others, Caisse says, point the developer toward existing sites that they like. "Tell the developer what you like about them," Caisse advises. "Are the navigation bars functional? Does it load fast? That sort of thing." At this time, a client and developer should also determine how to accomplish the site's goals -- whether a simple Web brochure will work, or whether a site needs more sophisticated e-commerce capabilities.

From a budgeting standpoint, the clarification stage will likely account for 20 to 25 percent of your start-up costs. The same amount, or a bit more, goes toward the site design. A designer might create storyboard-type mockups of the site, or work right on a PC to show you what the site will look like. Entrepreneurs who have a fairly large budget for a site -- say, $25,000 or more -- may want to commission two or three design proposals, then mix and match the features that work best. Budget-minded site owners may settle for one design proposal, then tweak that. The Web developer then converts the approved design to HTML.

This is the big-ticket part of the process, probably accounting for 40 percent or more of your total outlay. Despite the expense, you might want to keep out of the designer's way during this process. It's too tempting to have sudden changes of heart about particular features on the site, says Web designer Eric Champion. "It's like building a house," Champion says. "If you have the frame up, then say you want a room over here for an office, it will cost you a fortune. It's the same with a Web site." Champion's advice: Plan the site carefully, then leave the developer alone to bring the site to reality.

How much will this cost? Caisse says his clients typically spend anywhere from $5,000 to $250,000, with most in the $20,000 to $50,000 range. The more you want in the site, the more it will cost -- particularly if you want to allow customers to buy merchandise directly from the site (more on that later). But an effective Web site need not flatten your bank account. One of Caisse's clients, for example, is West Coast Vinyl, a 120-employee business based in Tacoma, Wash. that manufactures and sells vinyl windows. It launched www.westcoastvinyl.com three years ago and has seen a steady flow of sales since, says company vice president Jamie Keirstead: "It paid for itself in about six months."

Although it initially cost about $6,500 (and probably $9,000 to $10,000 if it were built today, says Caisse), West Coast Vinyl's 20-page site is hardly bare bones. It offers visitors piles of information about the company's windows, includes before-and-after pictures of installations, and gives visitors a panoramic view of the manufacturing facility. It even allows a virtual "tour" of West Coast's window line, using a Microsoft-developed animated character named Merlin as a guide -- a feature which may seem a bit sophomoric and requires a big Active-X download. Otherwise, the site looks professional -- well organized, visually attractive, and uncluttered. "I've had customers tell me they've gotten three prices on windows, then looked at the company's Web sites," says Keirstead. "They'll pick us because our site looks the best."

You may cut costs by designing your own site. Programs like Microsoft's FrontPage (priced at $125) will give you a serviceable site. For more sophisticated users, Macromedia's Dreamweaver 4.0 is a powerful editor that gives those trained in graphic design and HTML a solid Web-design tool for about $300, plus the time involved. You can also design a site right on the Web. Microsoft is trying to tap the small-business market with its Bcentral site (www.bcentral.com). It's a pretty good deal: for $24.95 a month, you get a Web address, choice of 55 site designs, page templates, hosting, and search engine registration.

But using design templates -- basically, digital cookie cutters -- may lead to a cookie-cutter look. "How a site looks is very important," Champion says. "It's like wearing a good suit versus wearing flip-flops. If you're a flip-flop company and that's what the site looks like, then that's fine. But if you're a suit-and-tie company, that's bad. That's where a good graphic designer comes in. It will be more expensive, but they'll make it look right."

E-Commerce Extras
Adding e-commerce capabilities to a site leads to costs above and beyond basic design, hosting, and other considerations. E-commerce adds the database needed to manage customer information and inventory, both of which can add complexity in a hurry.

Lori Barber-Thomas, president of Dallas-based NetSuccess, has one client who is selling golf clubs and golf balls on a site. That seems simple enough, but for each type of ball there are several variations for loft or distance, and for each club there are different club lengths and variations in shaft flex. "It's a very custom application," Barber-Thomas says.

Most Web experts say that $30,000 is the minimum cost for a site where customers can buy merchandise -- and that is for a site with a limited inventory of, say, 20 items. Anything more, and the price goes up rapidly. Given the catastrophic experiences of many pure e-commerce sites, such as eToys and Pets.com, it's not surprising that Web sites coming on line to sell things comprise an increasingly small percentage of new launches.

Another expense is setting up a site to actually take money. For many small businesses, it may prove best to have an outside payment processor take care of that end of the business. Dallas-based Paymentech, for instance, handles about half the credit-card transactions on the Web, for both large and small e-commerce sites. Put simply, it integrates with the checkout functions of a Web site, taking over for the site when a customer starts to input credit card information. Paymentech then collects the money from the card company and pays it through to the site. In some cases, a setup fee applies; afterwards, most Paymentech customers pay a per-fee cost of between 15 and 20 cents.

Maintenance Fees
Even while you're designing the site, think about the location from which to run it. One option is to do so in-house, but that can also be the most expensive choice. You'll need to purchase a server -- $1,500 and up for Dell's popular PoweApp.web hosting servers (for that matter, you'll need at least two, so you can occasionally take one off line for maintenance).

If the site is critical to the company and your customers, you might want a power backup -- a generator that can take over in case the power goes kaput. That will run you another $2,100 for something like a Honda EU3000is, a super-quiet 2800-watt generator that puts out cleaner power than you're now getting from the local utility. Then you've got to hire a techie to keep everything running. If that's all he or she is doing, that's another $60,000 to $100,000 a year, based on postings on Monster.com for similar positions.

A range of companies specialize in Web hosting. Services start with basic hosting setups, in which your company's site shares space with others. Prices may start as low as $25 and move up to $100 or more as you add e-mail accounts, hosting space, and tech support. To have a company manage your own personal server on its location costs more: $300, to as high as $1,000. This buys you firewall protection, system security, multiple power backups, and flocks of techies to solve problems as they come up.

Many sites choose to let their Web developer act as host. The advantage is that the site's designer is right there to help with upgrades or troubleshoot. Plus, the developer may have performed custom work on a site database, and will be in the best position to handle problems.

Costs, again, vary widely. For about $150 a month you'll have basic hosting and a simple database. Sites that require high-end databases such as Oracle -- complex e-commerce sites and those with long customer lists -- will cost upwards of $1,000 a month. High-priced site fees may also include inventory management and customer relationship management. Expect to pay $250 to $500 for Web hosting that includes basic services plus Web-tracking that tells you where visitors are coming from and what they're doing, secure servers that encrypt key data sent by customers, and maintenance.

Maintenance means more than keeping the site running properly. It also means keeping the content fresh and the site up to date. Every year or two, you may want to have your Web designer give the site a tune-up -- something that will likely run $100 an hour or more. But in between those, it's possible to do much of the page maintenance yourself. New Hampshire-based Ektron (www.ektron.com) markets a product called mPower, which lets business divisions such as marketing or customer service manage their own part of a Web site, adding documents, graphics, and more as needed. The get-started cost is steep -- $3,000 for a copy of mPower with 10 user seats -- but probably less than what it costs to hire out that work.

If there's one word that can help you save on a new Web site, it's this: Patience. Don't rush into building a Web site, you're bound to waste money, and don't expect instant results. Plant the Web seeds carefully and you'll harvest a good crop of business, in a way that will more than cover your effort and expenses.

Walk, don't run, to the Web
The Webis everywhere, right? Not necessarily. In fact, even though small businesses are increasingly embracing the Internet, a recent survey by the National Federation of Independent Businesses showed that about 80 percent don't yet have a Web site. Even fewer -- aboutseven percent -- try to sell merchandise on line.

In part, that's because the same economies of scale that help Wal-Mart squash local merchants come into play on line. "The bigger companies have an edge there, too," says Herb Nesbitt, owner of Bellevue, Wash.-based Wilderness Sports, which sells outdoor skiing and backpacking gear. "Word of mouth works best for us -- we just try to give good customer service and make sure everyone goes away happy. And we remind them to tell their friends about us." Nesbitt's store opened a Web site two years ago and recently began to sell merchandise via the Web -- but only a little. "I'm glad I didn't put too much money into it," he says.

In another corner of Washington State, on the Olympic Peninsula, similar traditional marketing techniques are working for The Antique Company, a 12-year-old firm near the Victorian seaport of Port Townsend. Building a Web site "just hasn't popped up for us," says owner Mike Slack, who brings in antiques largely from Great Britain. "We've been real busy without one." Slack's main marketing weapon: A 2,000-name mailing list, to which he sends postcards announcing sales and new shipments. "That's worked out real well for us," he says.

In fact, Slack is something of a Luddite. The PC in the store prints labels, but is not used for much else. Inventory and company books are maintained on paper ledgers. "As an antique company, it's an occupational privilege to live in the past," Slack says.

Register to Win -- Customers, that is
Regardless of whetheryou nail a site together on your own or hire a professional design and web development team, no one is going to visit unless you market the thing. That means registering it on search engines and making sure that it draws the customers you need.

Web designer Eric Champion recommends finding a supplier that has experience with small business site registration. Ask other site operators who they use and whether they're satisfied. Costs can vary widely, says NetSuccess' Lori Barber-Thomas, but figure $100 to $200 per month if you piggyback marketing onto your Web hosting services.

It's possible to spend substantially more. Across the country you'll find Web marketing firms such as Orlando, Fla.-based .Com Marketing. It will register domain names with key search engines, track search results and generally help you outwit the engines. Basic service runs about $350.

It's possible to perform some do-it-yourself marketing. On Yahoo, small businesses can "buy" reviews of a site for about $200 -- with luck, that will lead to placement on one of Yahoo's directories
(Yahoo actually is less of a search engine than a Yellow Pages-type directory to which companies apply for inclusion). Submitit.com is Microsoft's small-business Web marketing site; $60 a year buys you registration on a list of search engines. Several Web sites such as Submitexpress.com offer search-engine registration for as little as...nothing. It might work, it might not.

There are some good marketing tricks that are free, or nearly so, says Tom Antion, a Web-business consultant and author of several books on Web-based marketing. Among them: Make sure the key words for your site reflect what someone searching for your site might want. "On most sites you'll see a company's name, or a person's name," Antion says. But if you're not Sony, forget it -- a person isn't looking for your company's name. They're looking based on a problem they need to solve." Instead, list key words that reflect what your company does -- "electrical contracting," or "Web marketing."

Still, just driving traffic to your site won't necessarily result in much business -- particularly repeat business. "You're naïve if you think people will come back to your site because they like it," Antion says. "Ten minutes after they've been there, they've forgotten about it. So solve that problem." Antion recommends you design your site so visitors can voluntarily leave their e-mail address behind. That's what big companies such as Amazon.com count on -- repeat business created through inexpensive e-mail direct marketing. It's a trick even the smallest business can profit from.


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