Compare Business ROI: Lease Building or Online Only

When starting a business in the modern economy you have the choice to rent a traditional brick and mortar location, or to conduct all of your business online. What the decision ultimately comes down to is your ROI, or return on investment for the money that you spent. Both leasing a brick and mortar location and doing business online have their own unique sets of challenges and advantages, so making an informed choice is critical.

Brick and Mortar – Advantages

  • You instill consumer confidence: A consumer never knows if a new online site is legitimate, and if you have a problem with a product or service, getting the issue resolved isn’t easy. Brick and mortar locations don’t have the same issues. People feel that your business is more credible, and they are more willing to take a chance on a new store when they can walk in and touch products before they buy.
  • You can install a landline: Many brick and mortar businesses are able to utilize technologies which are more reliable for business voice services. Consider the VoIP telephone line, which has been known to cause disruption to functionality such as sound quality. A landline is more reliable and brick and mortar businesses are more likely to utilize this service over their online competitors.
  • You aren’t limited to a credit card payment processor: With a brick and mortar store you have the option of accepting cash or checks for payment, which means you can avoid many of the high credit card processing fees. You also don’t have to worry about back-end database protection and consumer credit information security.
  • You have free local advertising: Advertising is expensive, and when you lease a building, you have street front signage. People walking or driving by your store may become interested in what you have to sell, and you will generate foot traffic.

Brick and Mortar – Disadvantages

  • The overhead costs may be higher than you think: Your building’s lease may cover things like your contribution to property taxes and the building insurance, but you have the added cost of utilities as well. Even with a small space, you may be looking at $4000-5000 a month in sales revenue just to cover the overhead.
  • You will need staff: It’s hard to manage a building by yourself, so you may need at least one or two people to help you run the company, which means added payroll, taxes, and paperwork.

Online Only – Advantages

  • You reach the world: With an online company you aren’t limited to a single location or a small customer base. You can sell your products anywhere in the world, and your site is always open for business.
  • You have very little overhead cost: Since most online only stores start out in the business owner’s home, you don’t have the added pressure of paying overhead.
  • You have low startup costs: A brick and mortar lease is going to cost a small fortune in terms of startup capital. You need a down payment on the lease, as well as the deposits for all of the utilities. The startup costs alone can reach well over $10,000 for most small businesses in leased buildings.

Online Only – Disadvantages

  • No one knows you exist: A website is great, but there are nearly a trillion sites on the internet right now. You will have to work much harder than a brick and mortar business to gain traffic, and if you are in a category that has highly contested keywords, your SEO expenses can be staggering.
  • You are dependent on the site: If your site goes down, your business can’t make sales. You need robust back-end support to ensure that your site is up and secure.
  • Most people still shop in stores: A recent study shows that despite the growth of e-commerce, more than 60% of people still do their shopping in stores. Yes, you can attract a huge customer base online, but there is no guarantee of success.

Ultimately, the best ROI for your business will depend on the kind of business you have. If you are selling a limited product selection, an online presence should be more than enough for your needs; however, if your type of business relies on close relationships with your customers, leasing a building will be a better option. You should weigh the pros and cons and make the most informed decision based on your business plan.