What it really costs

There are two costs in this business and people only ever talk about the first one. The first is what it costs to open the shop. That is small, and it is the number the videos quote. The second is what it costs to find out whether anyone will buy, and that is the number that matters, because it is spent whether or not it works.

The five numbers in one order

Whether a single order makes money or loses it comes down to five lines. Write them for a product you are considering and you will know more than most people who start this.

• Price. What the customer pays you, including any shipping you charge.
• Cost of goods. What the supplier charges for the item.
• Supplier shipping. What the supplier charges to send it. Treat this as part of the cost of goods, never as an afterthought.
• Processing. A percentage of the order plus a fixed fee per transaction. Small per order, and it never stops.
• Refund allowance. A portion of every order set aside because some orders come back and the money does not.

Price minus those four is your contribution margin - the money one order actually contributes before you have paid for a single click. Everything else in this course is about one question: can you buy a customer for less than that?

The cost you cannot predict

The sixth line is the one that decides everything, and it is the only one you cannot look up: what it costs you to get one order. You buy attention in an auction. The price of that attention depends on how good your video is, how many other people are bidding for the same eyeballs that week, and how well your page converts the people who tap. Nobody can tell you that number in advance. Not us, not a course, not a supplier. You find it by spending money and reading the result.

Here is the arithmetic with blanks, so you can fill it in yourself. Say your contribution margin on one order is M. Say it takes C clicks to produce one order, and each click costs you P. Then your cost per order is C times P, and the order makes money only when M is bigger than that. Two things follow immediately. If your margin is thin, you need a conversion rate you almost certainly will not get from an unknown store. And if your product is cheap, there is no room in the price for the auction at all.

The costs that are not on the invoice

Three more things cost you money and none of them arrive as a bill.

• Time between spend and payout. You pay the ad platform on its schedule and the supplier on order. Your processor pays you on a delay, and a new account is often held longer or kept in a reserve. You need enough cash to bridge that gap or you will be forced to stop mid-test for no reason other than timing.
• The refund that costs twice. When you refund an order, you lose the goods and the shipping you already paid, and you also lose the advertising money that produced the sale. One refund can wipe out the margin from several good orders.
• Registering the business, tax and record-keeping. What this costs and what is required depends entirely on where you live, so budget for the category rather than a figure, and check your own local rules before you have money moving.

Why we will not give you a total

Because a total would be a guess dressed up as a fact. What we will say is the shape: the shop itself is the small part, the sample is the honest part, and the ad test is nearly all of it. If you are budgeting, budget the test and treat everything else as rounding.

And take the test budget seriously as a single decision. Splitting the same money across three products is not three tests - it is three experiments too small to tell you anything, and you end up guessing anyway with less money left.