By: Entrepreneur Middle East
It is crucial to use precise planning to ensure that your UAE startup can be launched on budget, here's a cost-benefit analysis guide to help you navigate your available options.
The success of low-budget startups such as Shopify and ShutterStock proves that you don’t need a fortune to create a successful business.
But it is crucial to use precise planning to ensure that your UAE startup can be launched on budget.
Here’s a quick guide to all the real costs involved in launching your startup successfully in the UAE.
Cost #1: Free Zone and Mainland Options
Setting up your trade license is the key financial outlay that needs to be calculated.
In addition to a trade license being a legal necessity, choosing the right type of setup is vital when it comes to both your expenditure and trading flexibility. Without being legally registered, you can’t trade, open bank accounts, advertise, or recruit staff.
So, this means making the choice between free zone and mainland setup.
The fastest way to do this and define your exact needs and costs is to work with a company formation specialist. Experts can walk you through your free zone and mainland options enabling you to make the best decision. Although you may think that you can analyze your own options alone, you are likely to waste time and resources, and may make some potentially costly mistakes.
In terms of cost, most new companies find that free zone setups are the most conducive when starting. These involve one-time payments such as free zone registration and company name reservation and are then added to the yearly fees including office rent, free zone licensing, visas, agent’s fees, bank fees and others. So a startup may typically incur a total between US$5,000-30,000 in the first year but may vary depending on the structure you choose.
Cost #2: Website and other one-off costs
Once your business setup costs have been projected, the next step is to add one-off startup essentials. Most notably, this would mean having your website designed and populated with products and content. According to the eCommerce Cost Guide, this is estimated to be something in the region of $2,500–10,000 for an average startup’s website.
Other launch costs may include apps, branding and press releases. Creating an inventory and researching the costs will help you project the capital needed.
Cost #3: Recruitment and wages
Other key costs for UAE startups are recruitment, visas, insurance, and paying your team.
Realistically, you’ll need to pay close to market rate for talent, so it’s important to define exactly how many workers you need and calculate the cost of recruiting and paying them for the first 6-12 months. Some startups reduce the cost of HR by offering equity to employees, but this needs careful consideration.
A company formation expert can help you understand employee visa and insurance costs.
Also, remember to factor in your own salary. Regardless of whether you are a solopreneur, in a partnership, or working with investors, it’s important to define a salary that is fair and serves both you and the business. An American Express survey found that on an average, a small business owner in the US pays themselves a yearly salary of $68,000.
Cost #4: Marketing and advertising
Data suggests that spending approximately one percent of revenue on marketing or advertising is an effective ballpark figure for businesses.
However, for startups and SMEs, research by Sageworks, an expert in enterprise risk, suggests that your ideal marketing spend is likely to fall between two and four percent of revenue.
With your startup, you may need to base initial marketing costs on your predicted revenue.
Cost #5: Customer acquisition
Whether you’re a B2B or B2C company, you’re likely to face the issue of the cost of customer acquisition (COCA).
You can reduce COCA by using several strategies, such as focusing on word of mouth, being laser-focused on core customers, and using automation (such as Amazon reviews).
These techniques are emphasized by Bill Aulet in his book, Disciplined Entrepreneurship: 24 steps to a successful startup, where he explains, “The biggest driver of reducing COCA is positive word of mouth about a company and its product. This tends to dramatically decrease the sales cycle, decrease the customer’s desire to push for discounts, and bring in well-qualified customers who are already good fits.”
Aulet recommends avoiding direct sales if viable since it’s usually the most expensive tools.