How My First Online Business Works

Inundated with emails about this, I decided to show how House Of Rave works. This is just one example of how I use a drop shipping service to make money on the internet. There are still some inefficiencies, but this is the way I handle things now.

I will show what happens from the time I get an order, till the customer receives their order. Everything is done in 5 steps. I can accept, process, account for and send off 2 orders in around 2 minutes with this system. 10 orders will take me about 10 minutes with this system:

1.) Check, View and Review Orders.
I login to the backend of my Shopsite software to see how many new orders I have waiting. I click to view all the orders and do a quick skim of the order information. I am looking for any subtle signs of fraud at this point. After 5 years, I’ve become pretty good.

I can view individual orders or all the orders at the same time:



2.) Charge Orders.

This is the most inefficient step, as I choose to process cards manually to become more familiar with the customer names, locations and spot fraud. I login to my merchant account digital gateway and copy/paste from Shopsite the needed customer information. This step goes quicker than imagined because I use my tablet PC pen.

Here I find out if each order is legit. If the order is declined, I make a note of it and move on. If the order was paid for using PayPal, I login there to find if payment was made. If the order looks suspicious or comes back with negative address verification, I will often call the person on the spot to verify the order.

Manually charging orders seems a waste since I can simply press a “Charge” button instead. However, over time I have noticed that I start to remember customer names, locations and ordered items. Since this step exposes me to the orders, it helps me identify order patterns and it drastically reduces my fraudulent orders (Although this isn’t as much of a problem compared to a few years ago).

3.) Enter Into Accounting System.
This step is very quick and allows me to see my estimated current profit, my expenses, what I owe etc.. I’ve used some pre-made accounting modules for Shopsite in the past, but I like my Excel sheet better. Over the years I have honed it to help predict my profit at the end of each month. I don’t know my exact profit until I get the monthly bill from my supplier, but this Excel sheet gets me damn close.

4.) Create with Word & Send.
This step is the way THIS particular business of mine works. Once an order is ready to go, I copy/paste the information into a Word document and send it via email to my supplier. From there, they print it as an invoice and send the order. This is the way my particular supplier chooses to do business, others may have different methods.


5.)Followup.

My supplier will send me a tracking number once the order is sent. These go into my tracking system where customers can check the status of their order. The tracking module also sends customers their tracking numbers via email automatically.

How I make Money:
I pay wholesale price for the products I send out from my supplier. They send me a bill for the products & shipping each month. I charge retail price on the website and bring in all the money myself. At the end of the month, I cut a check to my supplier and the difference is my income after product expenses. I then subtract my server costs, merchant account costs, PayPal costs and phone bill costs to get my total profit amount.

I’ve made about $800 – $1,000 every month for 5 years doing this. I’ve recently made additions to the site which have doubled my profit to about $1,600 a month. I plan to make this side income generate about $5,000/month in 2006.

I’ve had other online businesses which operate differently, but this process works best for HoR. There is still a lot of room for improving the efficiency of this system, and in 2006 I’ll have time to concentrate on it.

One thing I find the funniest about this business was my first order. I had no clue what to do with it. I just got the business running first, and was forced to figure the rest out very quickly.

Hopefully this helps someone further understand the inner workings of this type of small business!

Blog posted on: December 11, 2005

37 comments on “How My First Online Business Works

  1. Slim

    Thanks for the run down on HoR and how the business works. I am considering setting up a similar side business for a different product line. This was very helpful to me.

    Reply
  2. Anonymous

    Bravo Nev for putting this type of stuff out there. In your FAQ you state this site is to simply help you track your financial life, but you are helping people more than you know.

    I’ve refered this post to several friends interested in making side businesses like this. Great job.

    Reply
  3. Personal Finance Advice

    It’s a good thing that you are putting up the actual foundation of your business on the net. People can learn from what you did and at the same time set up side businesses of their own.

    At the same time, this can also be a detrimental move that you are making. In a few months, when your niche market becomes saturated because a couple of thousand people decided to start rave shops, you will feel the power of competition and your business will bleed.

    I like what you do with your blog, but sometimes, I think that you share more information than needed.

    You are basically telling the world to go ahead and put you out of business. Not only are you sharing your secrets to success, you are now showing your complete logistics.

    I believe that by devulging such sensitive information, you are only setting your self up for failure.

    Yeah, it’s good to tell some aspects of your business, but laying it out on the table and will only make you regret it in the future.

    I’m not saying that what you are doing here with your blog is bad, but I do believe that sometimes you away too much information.

    Reply
  4. Michael Patzer

    Despite what was said above, I appreciate the information you give on your website. Some of us read it for enjoyment and don’t plan on putting you out of business. I like how you document your income and portfolio values on the side. Have you considered having a system to dynamic display your portfolio values? For example, you enter the stock tickers and shares you own, and your webpage calculates the value based on current market prices? Just a thought and something I want to do on my own site.

    Reply
  5. Anonymous

    Yeah right! If this stuff is big news to a person then it is doubtful they will put Nev out of business. He is not exposing too much. All of these tactics and strategies have been exposed by other people already. I think the odds are that it won’t affect his financial performance much at all, if any. Plus I’m sure he could produce the same results another way if necessary. Keep up the great work Nev.

    Reply
  6. Cap

    that’s pretty damn neat Nev. it’s always fun to see the lil workings of small online businesses.

    I really dont think nev has to worry about niche competition. search “search rave” or “rave store” and the results are obvious.

    making money online is simply knowing how to attract people to your site (or let ‘em know your exist) by an efficient way, and keeping them coming back by providing the right utility to ‘em.

    as mentioned already, it takes more than a few details for someone to get up and start one.

    kudos for getting started before you even know what you’re really doing. I was reading The Art of the Start and that’s one of the key things the author was talking about.

    Reply
  7. How To Be Poor

    Wow. I bet none of you anonymous idiots are old enough to open your own merchant account at a bank, let alone “take a piece of the pie”. Holy crap, am I excited to see some of your rave-supply-selling websites!

    Reply
  8. Neville

    I welcome anyone to start up a similar business, if I was scared of competition I wouldn’t have wrote anything.

    Capitalist societies thrive on competition….bring it on.
    -Nev

    Reply
  9. Matt

    Nev,

    Great blog, quite insightful! Do you have any information about the legal side of starting an online business? Necessary licenses, etc?.

    Thanks!

    Reply
  10. Lobna

    nice blog Neville, im not surprised. Looks like you have a fan club too! If only these people knew u in real life, theyd like u more. :p

    Reply
  11. Fantonim

    Great post, Nev! I’ve been tracking your discriptions of HoR for a while, very interesting! You should in fact be more secretive, bit what you write about is very helpful!!!

    BTW, sorry I never got back to you about your experiment. I am just swamped with work and school. Maybe some other time!

    Keep posting!

    Reply
  12. Anonymous

    It looks like the anonymous commentor obsessed with Nev is back.

    You are officially a celebrity Nev, you have fans and a stalker!

    Reply
  13. Jonathan

    Hey, that’s pretty awesome. Thanks for sharing. I think there might be some copycat sites, but I don’t think they will last. Merchant accounts cost monthly maintenance fees and setup fees. Nev’s got a head start and a customer base.

    Although I agree, your most inefficient process does sound a bit redundant. Why can’t it try to go through by itself? You could just get a prinout of everyone’s name later, that way it is more of a passive income if you’re on vacation or something.

    Reply
  14. Marv

    Great job Nev! Your post is inspiring! Unlike the gurus who read and comment I never had a clearer picture of how online biz works.

    Reply
  15. Harrison Loke

    Thanks for sharing your business Secret with us, Neville. You really give some inspiration to me to start a online business. Just a little bit curious, how you find your niche market and start this business? Don’t know it will work with my country or not?

    Reply
  16. Dave Starr

    Very much appreciate the information you are sharing. To those obsessed with secrecy warnings .. if it was _that_ easy to just open up a competitive business, just how deeply hidden are any of the ‘secrets’ revealed here? They aren’t ‘secrets’ at all, just on man’s/one business’s way of handling orders, shipping, accounting … there are a number of other ways to handle the same tasks … it just helps to know what worked for a ‘real’ person.

    BTW, Nev, I think there’s an important plus factor in your manual payment precessing you didn’t touch upon .. because you now know so many of your customers ‘personally’ so to speak, you have a much better chance to make sales/offer services that you would if they were all anonymous. Nothing turns me off more than to deal with a small business and come back with a repeat order and find they have forgotten me. Even in the web world personal service counts

    best regards
    Dave

    Reply
  17. Aaron

    Hi Nev, great post and even greater blog. You’ve built up a nice little stash of cash for a student.

    Commentor above me (Dave Starr) already touched on my point: These “secrets” aren’t really secrets, and if someone was going to start a business similar to yours, this post probably wouldn’t help them as much as they think. I’m sure you’ve jumped all sorts of hoops establish HoR to its current state.

    Good luck, and thanks for sharing.
    -Aaron

    Reply
  18. Matt Krause

    Great post Nev, thank you! My two cents’ on the “you’re disclosing competitive secrets” thing: anyone can find a supplier for widgets, and anyone can figure out how to move orders through a system, collect money, and deliver product. It’s _selling_ that’s hard, and big-time kudos go to anyone who can do that and still have money left over after everyone’s been paid. The folks who think Neville disclosed secret information here should note that there isn’t a single word about how he brings in sales profitably, which is where any business’ real secrets lie.

    Reply
  19. Anonymous

    Great Blog Nev, commend you on starting early. I too am getting started in a small/part-time biz. Being an affiliate is how I’m doing it. Not getting rich but it’s keeping me spending money and helping me develop a little confidence to go further.

    For those of you that want to check it out.

    Visit the following URL
    http://www.ebates.com/rf.do?id=27413023

    Lalter

    Reply
  20. projectmillion.com

    Hi Nev,

    This was a great demonstration of how things work. This stuff is really simple, but there aren’t enough people who actually make money who want to take time to explain things in a an easy to understand way. It’s all hyped up so much that the meat of it all lost somewhere.

    I have one question for you. Where do you get the traffic from your site from?

    Reply
  21. Slim

    Nev,
    How do you go about collecting state sales tax for orders purchased by Texas residents? And how do you send sales tax money to the state? This is new to me. Thanks!
    Slim

    Reply
  22. Randy Moog

    Hi Nev,

    Wanted to let you know that this post inspired me to create an online store of my own. I have done a bunch of research on different store platforms, vendors, etc. This post got me off the sidelines and into the game. I hope to have my store open for business in a month or so. Thanks for the inspiration!

    Reply
  23. justsomeguy

    Hey, great site. Over the past couple of weeks I’ve read it ‘back to back’.

    Regarding the drop shipping post — do you have any tips on where to source for reputable drop shippers? After searching for hours online I’ve found a huge bunch of sites that promise to sell me directories of shippers for money, and scammers who ask for upfront joining fees, but no actual drop shippers!

    Appreciate your blog, its great!

    Reply
  24. Georgiana Zambrana

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    Reply

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