I know, people complain about the costs for websites and the share that models get. I'm hoping this puts it into perspective.
The owners of these websites have legal liability protection, maintenance, marketing and advertising expenses that are very heavy. When you think about all those things, suddenly the platforms payout costs become more understood. Maybe not "generous," but they can at the very least become comprehensible. It's hard for models too. in the USA, receiving a 1099 each year means that you will be taxed for all the taxes that an employer would normally pay. These vary by state. Deductions for toys, internet, the space used to operate a show, services, lights, webcams, mics, etc. are really valuable to offset the taxes.
Starting a business has challenges. I'm going to rattle off a few things while I have a few minutes. This is by no means complete, just things to consider carefully. I'm hoping this can benefit others who have a dream of starting their own thing.
Not sure where you are located but here are some essential tasks and estimated costs for legal, accounting and marketing (basing this on USA):
1. Create a proforma (you can find free examples online but SCORE has a service to help get you started if you like) and estimate costs first, including size of your market and realistic-reachable-audience.
a. This has to include what it costs to buy traffic and keep in mind that feeds take some integration (traffic feeds can be as low as $1,000/month and upwards of $50,000), integration fees may be waived if you sign a contractual commitment for a specified number of months with a budget.
b. You can buy server space on AWS and it's relatively affordable, as bandwidth increases, you will incur more cost. server setup cost for the moderately-technical-semi-geek can run between $200 to $2,000/ month. Building a robust and "responsive" site with good structure and easy navigation will set you back a minimum of $75,000 with wireframing of the design and coding. WordPress-like sites (pre-packaged website services) will not work well considering the need to authenticate paid users with passwords. Customer databases, payments and renewal timing are also technological considerations. You can create a good blog site for $500 but these aren't blog sites.
2. Labor tends to be the highest overhead expense for any business. the per year cost for a full time employee (calculated either annually or by multiplying an hourly figure by 2080 which is the number of hours for a full time employee per year) has to include taxes unless you use contractor labor. There are laws about using contract labor (1099) as full time employees, seek legal/ accounting advice. Employees have taxes paid by the employer in most types of business entities and these costs vary by state between 0% (if you have a nexus/live in Nevada) and as high as 18%. If you include employee insurance or some kind of bonus plan, assume 33% on top of salary to cover tax/insurance/small bonuses. So, an employee with a salary of $50,000USD/yr may cost your business $66,000USD/yr.
3. Accounting costs for a CPA will run between $80/hr for a bookeeping rate to upwards of $300/hr for advanced accounting or working through projecting financials (and some do not do projections in their accounting practice). If there are models on your site earning money, their tip amounts will have to be tracked on an ongoing basis and 1099's issued to them before January 31st annually.
4. Legal fees to set up a business entity (some form of corporation, LLC, C-Corp, S-Corp) will run between $400 on the cheap to upwards of $5,000. doing it yourself through legalzoom or another self-serve resource will end up requiring more of your time potential for liability. Keep in mind liability for age/model verification, Director and Officer Insurance (D&O) and having a set-aside for legal fees in the event you need to handle content removal or require representation.
Investment capital is best for this but you need to solve a problem in the market place that isn't be solved by one of the many competitors. As @DesireNoe said, costs to compete in this market create a real barrier. Keep in mind that investment capital is a slow process and many investors will insist on board members of their choosing and also an executive staff of their choosing for inexperienced owners. Without the above completed and reviewed by professionals, investors will not look at an opportunity.
There is truly more than this to beginning from scratch. I've been working on this for over 20 years of my professional career with three of the businesses I've started having been acquired and one that I'm winding up currently. It's a lot of work and a ridiculous amount of hours.
The most important aspect of doing something like this is being very clear where you solve a problem in the market and how much people will be willing to pay for it. Within that are implied costs for reaching your potential customers and how many will convert to actual paid consumers of your product. This is called "market validation" and it's perhaps the most important part of testing an idea against reality. Once you know that stuff, you can figure out what pricing is needed and how many customers you need to make a profit. Online, it takes months (if not years) of spending before receiving profit. People forget the basics which is why so many businesses fail.
I realize this can be overwhelming, but there is a lot to consider. Each time I do it, I learn something new. Ok, more than just one thing...lots of things.
Are there ways to shave money on these things? of course there are! However, experience tends to dictate what a true savings is versus something that ends up costing money to fix later on.
Hope that helps. HAHA my wife hates me for this stuff but I like to lay things out that are accurate. Not trying to deflate anyone. I've made the mistakes and paid for them, so cheers to saving anyone else from benefiting from what I've learned.
Questions about this stuff, PM us.
-Mitch
