Many of you know that I run several blogs as a business. Perhaps some of you don’t know that I spend a lot of money to maintain them. In aggregate, my operating costs per month is $4,000! My business model has been challenged by many bloggers as most of them think it’s ridiculous that I spend so much money on websites.
I personally see it the other way around: I invest my money for a greater return. In fact, I want to see my company grow year after year but I’m not going to put more time into it. I’m a father of 3 and have a day job, there is no way I’m putting more than 10 hours a week into my sideline. Therefore, the $4,000 is the cost for me to buy myself some time (and a super high quality of life) while having a 6 figure business growing. However, even though the business has been steadily growing since putting this aggressive investment strategy in place, it doesn’t mean we didn’t make any mistakes.
The issue is that when you aren’t playing with your own money anymore (we simply reinvest the company’s profits), you get less careful about your spending at times. You allow yourself a few more gambles that you would not have done if it were your own money coming out of pocket!
So before you start spending/investing money on your blog to make it grow, check out what I’ve been doing with my money and especially the mistakes I’ve made.
Virtual Assistant $12,000
If you have read my cost of doing business, you will notice that this number is way lower than what I reported there. This is because I have a “full time” VA that is now on maternity leave and she is coming back progressively. She will not come back as a full time employee so my expenses are definitely lower than expected.
The purpose of having a VA was to literally have an extension of my brain so I don’t have to think about my business all the time. Since I have several blogs, I run a few on my own, my partner does the same thing and we wanted to have a VA to take care of others. Here are a few tasks that he does without me having to look at anything:
– Write articles
– Do internal back linking
– Manage my team of writers
– Schedule all posts
– Do link round-ups & carnival submissions
– Takes care of some newsletters
My second VA who’s coming back progressively from maternity leave helps me on the advertising management side. She is basically dealing with advertisers, updating links and does all the follow-up.
The key in finding my first VA was to find a smart blogger who wanted to do more. You can’t just outsource these things to a Philippine dude who doesn’t know squat about blogging. We tried it and basically just wasted money away! It has to be someone who knows how to play the blogging game. The other main criteria I was looking for is to find someone with the same way of thinking: unconventional and passionate.
I can’t say that I’ve been wasting any money there. However, it is very important to establish a clear list of tasks with expectations. I don’t pay per hour; I pay per task after we both agree on the work to be done.
Writers $8,000
After my VAs the place I spend the most is on writers. I have 2 types of writers:
Steady Writing Staff: They write on a weekly basis on several of my blogs. They are responsible for writing the article, adding pictures, including internal links and publishing the article. My VA gives them a list of topics and keywords and the staff writer does the rest. I basically have nothing to do and “the business rolls”.
Specific Project Writers: I usually handle them personally. This is because I have a very specific idea in mind and want it done a specific way. For example, I hired someone to help me build Canadian Dividend Stock since I didn’t have enough time to do the research on each stock. On the other hand, I’ve received all articles in a word format where I was able to modify them as I want before publishing them.
In both cases, I’ve tried to outsource the work overseas with little success. The most performing writers are existing bloggers who are looking to make a few bucks on the side. Then again, you don’t have to explain as much as they know how to write already ;-). All writers are paid per post upon an agreement. Depending on their qualification and quality, the rates may vary. All I have to say is to not go cheap when it comes down to paying writers. A wise man once said: minimum wages, minimum effort.
Telecom services $7,200
The company is now paying for our internet, cable and cell phones. Luckily we had affordable business voip solutions before so it wasn’t too large of an operating expense for us. We do need these to run our business so it’s normal that we write off the expenses in our financial statement. It also includes technological improvement (such as a new computer for example).
Servers $6,000 (expected to be lower)
If there is one place where we lost money recently, it’s definitely with our servers. I’m actually preparing some long articles about servers due to our recent problem. We are publishing over 300,000 pages per month and we wanted to have different IP addresses. After we purchased 2 new properties, one of our other sites was under attack (like 10,000 hits per hour just to make the site crash). This is when we took 4 different servers in order to separate our main sites and minimize our risks. Honestly, we don’t have an optimal server structure (it’s coming) and it’s costing us about $500/month because of that.
When choosing your server, be careful about your current and future needs. Our mistake was to not assess our future needs properly and this is why we had to switch our sites around.
Bank & Interest Fees $6,000
We are currently paying our share of interest as we have leveraged the company in order to make some acquisitions. Since these sites are directly contributing to our profits, the fact of paying interest is not too bad. I must admit it, I’m a very big fan of leveraging and this is how I’ve grown my net worth over the past 10 years.
However, I certainly don’t advise anybody who can’t afford the risk to borrow money. If tomorrow the company was going bust, I would still be able to personally reimburse what we borrowed.
Accountant $3,200
Some people will tell me that I pay an accountant for nothing since I can do the bookkeeping myself. It is true. But it’s also true that I hate bookkeeping and that it would take me at least 3 hours per month to do so. Instead, I pay $180/month and everything is done perfectly. Since I don’t want to spend more than 10 hours/week on my sites, this was definitely a great expense!
The production of financial statements and income tax is an additional $1,000. Overall, my accountant is helping me make the right choices when it comes down to tax optimization and expense management. This is a great help that goes way beyond boring bookkeeping!
Promotion $2,000
This is where we enter in the “I’m not sure I’m spending for something here” section. Each year, we spend a little under $2,000 in promotions. Seriously, I don’t know how much of this we are getting. I usually host contests where I ask people to follow me or subscribe to my newsletter. While I get some subscriptions, I don’t think I’m making that much of a buzz so it’s worth it.
I try to see it as a way of thanking my readers instead of a marketing tool to make money.
Design $2,000
Here again, I sometimes feel that I pay a lot for my design since we try to have unique designs for most of our sites. We think it’s important for branding and because we get exactly what we want in terms of look. But I’m not sure I’m getting the value back in terms of return on investment.
The Dividend Guy Blog is still a very basic site. In fact, it’s the original one since its creation back in 2005! When I look at how much this site produces in income, I don’t know how much more it could get with a fancy logo…
Do you think I’m spending too much?
As you can see, running multiple blogs can be expensive… only if you are not willing to take the time to take care of them. I could probably save the $12,000 in virtual assistant and the $8,000 in writers and cut my expenses by almost 50%. But this would also mean that I would have to work more.
And if there is one thing I hate is wasting my time working while I could be enjoying life and still be making money J.
Readers, do you think I’m spending too much?
How much revenue would you require now and in the future if you were spending $4,000/month on your business?
Do you have a fear of spending and investing in yourself and your own business? If so, why?
You are spending quite a bit but it doesn’t seem too much to me – in fact, all your exoenditure lines make perfect sense except the ‘promotion’ one. I have never been convinced about that and particularly give aways (I ask myself whether this is the kind of crowd I want to attract and how could one keep people who subscribe for an iPad; of course I may be wrong on this one).
Hey Maria, as I said, I’m not sure I get much out of my iPad givewaways either! I sometimes have the feeling that I’m sipmly giving back a portion of my profit to my readers. Overall, I don’t think it’s a good business decision to base your readership acquisitions on contest.
There is no such thing as spending too much, as long as you are making a profit! Looks like you’ve got all your ducks in a row. So glad that more experienced bloggers like yourself are willing to share their past “mistakes” in order to benefit others. Thanks.
What I didn’t disclose in this article is how much we wasted over the past 3 years to get to this structure. I didn’t disclose it because I never calculated how much we have thrown out the window. There are several VAs and writers that not only made us waste money but also our time! it is time consuming to train people and tell them what you are expecting!
That’s definitely a lot of expenses, but it does allow you more to time to grow your business if you’d like. I think it’s a great model, and I’m looking forward to immulating it in the future.
I think it depends on if you think you are wasting money. If you are happy and making money and have high expenses you can slowly find places to cut down. The main thing is you want to live life and if you can do that without paying more than you make it’s ok by me.
We actually meet my partner and I every year to review our expenses to make sure it doesn’t go sideways. As I said, when you are spending less than you make, you tend to ignore some expenses. It would be different if I needed this money to pay for my bills!
For what you’re making online, I don’t think this is crazy at all. You have clearly transitioned from blogging as a hobby to blogging as a business – and it takes money to run a business appropriately. You can’t do everything yourself if you ever expect a company to grow. But just like all companies, I’m sure you will evaluate how you can improve on your own costs, increase profits, and change strategy when the revenue begins to shift. Overall I think this is a place most of us dream to rise to, and I am impressed by the organization you have set forth. Good job!
Without a doubt, you are spending a ton. But it is working for you… And your profit margins are actually sky high.. Consider that most grocery stores and restaurants are pulling in < 5% profile on their investment.. Your online businesses, by comparison, are absolutely destroying this..
This is a very good point. Profit margins are enormous for online businesses compared to traditional off-line businesses. Rent a lone is a killer for retail stores.
Hence, I assume one should make sure marginal cost equals marginal revenue and maximize profits until that point.
I commend you for wanting to make sure you have enough time to spend with your family. The expenses are high, but as you point out, they are all (or almost all :)) expenses that make running your business possible and still allow you to have a life.
well, my post a couple weeks ago probably told you my perspective… :) While I don’t plan on going into debt to increase my income/business, I do plan to make my model more scale-able and that involves increasing my expenses. I liked your point about how you feel more free to spend money that you make with your business. It’s definitely true
I guess it all depends on what is most important for you: time or money. both have a value, but they are different from one individual to another :-)
I like the fact that I don’t have to work much to generate profit. This is my main goal: make more money with less efforts.
Spending is a part of doing business. As long as you take a profit and you do things fairly, I think there will be no problem about it.
Since you are well on your way to becoming a large corporate entity, I have to ask if you are worried about your writers coming together and forming a union that might drive up costs;) Just kidding (obviously) TFB, you obviously have a specific strategy and a well thought out game plan, I would never bet against you. Congrats on your level of success today, even though I think that in 5 years you will laugh that this was even a debate at one time.
Union, huh? hum… I would have to move into another country ;-) hahaha!
Mike – all I care about is some IPO shares when you go public, no excuses. notify me ahead of time of which IB you will be using so I can buy their shares too.
Thx Sunil :-) I wish to get private capital one day as it would be very exciting to build a multi-million business with my sites!
I’m In!
I’d have to agree with some of the comments before me – if what you are doing is generating revenue that justifies the cost then it can’t be all bad. I was really impressed with the infrastructure you have in place and how efficiently it must run. I did try the VA and used oDesk – not great results at all. I will definitely have to rethink my own growth strategies for Financially Digital.
Keeping capital expenditures to a minimum is a necessity when it comes to making money with online publishing. It looks like most of your costs would be considered operating costs – virtual assistant and writing costs. The design budget is probably the only longer-term investment, so you’re doing awesome there!
Thanks for sharing more about your costs. It’s important to see how revenues online are not pure profit.
They are often seen as pure profit because people forget to mention how many hours they put into this. If I was working 30 hours a week on my blog, I could probably wipe out all my costs and say that my expenses are limited to $1K/month while I make 10K/month. However, I would completely ignore that I need to sacrifice my life in order to make more profit. I’m not a guy who likes sacrifices ;-) hehehe!
In order to grow your business, you have to spend or invest into it, right? :) As long as you do not outgrow yourself and you do keep a tight control (seems to me you do) of all your cashflow, I agree with your model. I don’t think you are spending too much. In fact, I think your spending is very reasonable. :)
Mike- thanks for sharing all these details, very interesting! And I think your model is great. Spending on these things allows you to scale and grow your business. And I love the idea of fueling growth with your profits (and reducing your tax burden). I’m paying close attention and taking notes as you grow your empire!
You just pull out an interesting point: if you don’t spend your profit in the company, you need to pay taxes! I rather reinvest than paying the Tax Guy!
Never spend profits just to avoid taxes. Use tax planning to shift from the IRS to yourself.
There is a limit to tax planning, but there is no limit to spending ;-). You can see that I LOVE spending ;-) hahaha!
I recently made the move to Amazon EC2 and I love it for my servers. You can quickly and easily change IPs and update DNS in seconds if you ever do come under attack.
I love your business model. I hope to someday be there but I have a loooooong way to go. I think you have to spend money to make money. You cannot put a price on family time, kiddies get big and leave the house and you dont want to look back and ask yourself if that 100k was worth it. That is me speaking as a father not a pf blogger.
I’ve started by investing money from my own pocket in order to buy other blogs and grow faster. I appreciate the fact that I can now borrow under my company’s name instead of using my mortgage as collateral!
But definitely, not being affraid to reinvest your profit in your company is the best decisino any entrepreneur could ever make!
Thanks you provided great words of wisdom for a hopeful up and coming blog!!
Love your planning. Every businesss makes mistakes, the ones that succeed learn from them and make adjustments. Good Luck, though I doubt you’ll need it.
We must have read each other’s minds … I swear you’re a psychic at times, Mike!
Mike,
I don’t know how much your income is but if you’re drawing a nice profit after cost & enjoying your time with your family, then it’s worth it.
I think you’re Canadian so there must be less regulations for you in the financial industry. I had to shell out $6,000/yr up front per site in January for monitoring to fulfill federal regulations. That’s $30,000/yr when we include the 4 sites that my business has.
Heck, my business would be shut down if I wrote anything about investments or stock advice on a site.
If I happen to decide to start a site about diapers, the lawyers think it has to be monitored too.
I never make any financial advice either. I give my opinion but I always clearly state that it’s my opinion only and it can’t be used as a financial advice. There is a line you must not cross :-).
You are certainly providing the model for how to scale up a hobby blog into a business. Thanks for all that you disclose, it is infinitely helpful to understanding the system. I’m curious, how do you find your writers – do they come to you or do you recruit?
I recruit bloggers that I like from other blogs. Depending on what I’m looking for, I’m search for similar blog in the blogosphere and make offers. sometimes it work, sometimes it doesn’t!
Thanks for the insightful post. A business is an investment, and you are sure investing it in. But with obvious returns.
Thank you for explaining more into VAs. I have been wondering what they are for awhile.
Interesting stuff; I’ve contemplated the VA thing before and just haven’t gotten around to doing it. You should write a post on that alone – all the different tasks a VA can do for a blogger to increase ROI/decrease time spent!
As a newbie blogger, it is really exciting to see the possibilities in blogging. It’s amazing you can spend that much and still maintain excellent profits! I don’t think it’s too much though.
I’m HUGE on time – frankly I believe time is more valuable than money. I can always make more money but time is finite. So if you have to pay some people to free up your time, then it’s all worth it!
Nothing wrong with the expenses if you’re profitable and maximizing your time. I’m shifting to a similar business model (at a much smaller scale) to do the same thing: create a more passive income stream by hiring out a lot of the time consuming tasks like bookkeeping, design, and a portion of the content writing. I’d say you’re right on track!
Your spending makes so much sense. Yet, I almost never spend a penny for my blog except few short term experiments. I should start outsourcing things.
I definitely take the time to invest in my business. It’s important to build that base before you can really see the benefits of your hard work. The eventual goal is to create a ‘system’ that will run automatically whether I’m here or on an island away from my computer.
Mike,
Sounds like you do spend a lot, but at the same time it’s working for you.
I totally agree with you on the outsourcing for the accountant. Some things just need to be left for the pros.
Sounds like you are doing a great job if you are still making profit. The main thing is that you are spending time with your family and enjoying life. All too many times we bloggers forget that aspect and allow us to become blogging zombies.
It is your business and choice. I am sure that Apple was criticized at one time or another for their choices.
I don’t think that’s very much at all considering you are still making a large profit. Rather than deal with the stress of micromanaging everyone and doing it yourself, you have really turned it into a business!
Its like Rich Dad Poor Dad/ Cash Flow Quadrant- you’ve moved into the next quadrant- the higher level “hands off” businessman!
This is exactly what I had in mind when I’ve built my structure: I didn’t want to work, I just wanted the profit. There is an obvious cost to it. But on the other side, it enables me to be a top performer at my day job while building a decent side income on top of it. My plan is not to be forced to work at the age of 35 (that’s in 5 years from now). I will obviously continue working at that time, but I will know that I have enough income stream that I don’t have to worry about finance anymore. Then, sky is the limit!
Like others have mentioned, it’s not a lot of money if it makes you money. But, you already know that, otherwise you wouldn’t be doing it. :-)
Fascinating stuff! I only have experience running one blog, so I really have no idea if your costs are too high in certain areas or not. What I do know is that paying for a good accountant is worth it for peace of mind, and their expertise. Taxes are ridiculously confusing and annoying to figure out. Congrats on your successes!
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Thank you for the detailed and honest post. It really helps put the costs of blogging into focus. I have found it very helpful. And if you ask me, you have your priorities straight. Family should come first.
This is certainly eye opening information. There is a lot of growth but a lot of risk and overhead associated with it. If you have the stomach for it and it works, that’s awesome, but I would probably have a lot of sleepless nights worrying about the potential of the income drying up but the costs remaining.
I know the feeling. Every once and a while I think I’m brave enough to increase the cash in but more often than not I talk myself out of it. Although I did just just purchase a few domains I have some hopefully fun plans for :)