I recently finished up my annual business offsite in Oahu and I wanted to highlight one thing everyone in the blogging business should do once a year.
Calculate your year over year top line revenue growth and compare that figure to your year over year operating profit figure. If you have been growing, hopefully you should see a much bigger operating profit growth rate than your revenue growth rate. This is what we call Operational Leverage in finance.
The internet business is my favorite business because the world is our potential demand curve and our costs are largely fixed. If we are able to grow revenue, more and more of our bottom line profits flows into our pockets as a result. It only costs ~$20 a year to own your domain, $20-$250 a month for web hosting, and $100 – $3,000 a year for maintenance and design work. After that, all other expenses are discretionary.
To give you a simple analogy let’s look at property. If your property is in an upcycle as we are now, every 1% increase in your property price is like a 5% increase in your overall equity if you put 20% down. Property is my absolute favorite asset class to build wealth in an upcycle. In a downcycle, property is a terrible investment and you shift your mindset from being an investor to being an inhabitant. Hopefully everybody has a decent portion of their net worth in risk-free investments to play defense when bad times return.
CONSERVATIVE BUSINESS GOALS CAN CREATE BIG MONEY
The main culprit to failure is quitting too soon. When you’re earning nickels for hours of hard work writing on your site it’s understandable why most bloggers can’t keep up the intensity for longer than a year or two. Short circuiting all your effort before great synergies begin to occur is such a shame. This is why those who tend to succeed really enjoy writing. You can easily tell by the content whether the blogger is primarily blogging for fun, or for money. Even the product reviews have a unique angle.
If you want to focus on money as a key objective to your online business, then let me suggest you focus on steady top line growth. I have a very basic focus of growing my top line revenue by a meager 10% a year forever. Financial Samurai has been around for 4.5 years now, and the growth rate inevitably slows after you’ve built a sizable base. That said, Financial Samurai is still small compared to many other blogs, and I don’t want to get complacent in making progress. I’m also not going to obsess about being the biggest and baddest blog get the best of me in retirement. What I’m looking for is sustainable balance.
The focus of my online business is really about SUSTAINABILITY. I’m a big fan of steady eddy profits in a low volatility environment. If I was still in my 20s with no passive income streams and no primary job, I would focus on boosting my online revenue much quicker. But I’m happy with a realistic 10% YoY increase in revenue because I’ve calculated that thanks to operational leverage, my operating profits will increase by ~40% YoY.
In other words, if I achieve my revenue targets for two years I should be able to increase my operating profits by 100%. If I can keep up my 10% revenue target for six years, then operating profits may climb by 800%. Of course one has to first optimize their cost structure and anticipate various drop offs in revenue opportunities as well. Making money as an entrepreneur is never easy, but focusing on increasing top line revenue in a high operational leverage business will help.
MORE MONEY THAN WE KNOW
Just like how there’s more money in people’s pockets than we know thanks to the Stealth Wealth movement, there’s more money being made online than we know. The key is to stay consistent and do everything possible to focus on improving one or two key metrics. Everything else should naturally take care of itself.
Move away from trading your time for money online. Minimize direct advertising in favor of affiliate advertising. Focus on recurring revenue streams that are passive in nature. When you finally get tired of writing consider hiring awesome staff writers to do work for you so you don’t have to. Most of all, if you want to make money online think like a business person.
RECOMMENDATION FOR BUILDING WEALTH
Manage Your Finances In One Place: The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! There is no better financial tool online that has helped me more to achieve financial freedom.
It’s 2015 and the bull market continues. Make a decision to be wealthy by taking control of your finances!
Execution has been a big player for me. I know I have a goal to make more money from my effort. But now I’m much more focused on trying multiple things to get there. Diversification has been my other key. Once I find out what works, I then try to copy it to my other sites.
That’s a good form of operational leverage as well!
My site is still new and hasn’t reached a stage where it is operating at a profit yet. I’m okay with this though because I feel it’s more of a side hobby than a way for me to grind profits. I think if I were to focus all my effort on producing revenue, the fun would disappear from it. My thought process is to just enjoy putting up articles and eventually the money aspect will take care of itself.
I felt the same way. But I took the leap in 2012 and had to start focusing on revenue. Now I find it pretty fun to figure out the financials of my company and ways to optimize.
Lots of good food for thought in this post. I was out shopping over the weekend and all I kept thinking was how hard it must be to run a retail business. I went into a bunch of boutiques looking for gifts and there was hardly any foot traffic. I don’t know how they manage to stay afloat.
I don’t understand the boutique retail business. Rent is so high, and consumer tastes are so fickle. Seems worse than the restaurant business!
Patience is the key to any endeavor. I loved yur comment about “quitting too soon”. I did that in a former business and I’m not doing it again!
BTW, loved the stealth wealth article you linked to in the article. So true!
Thanks Barb. I think sometimes we shoot for goals that are way too high. We set ourselves up for failure. If we can focus on growing one target, like revenue, we stand a better chance at long term profitability once we get our costs in order.
Stealth Wealth 4 life!
I was getting burned out well before I had reached the kind of revenue needed to afford outsourcing the work. But the good news is that the sale of the site put me over the top of my earnings goal for the year, which want going to happen otherwise.
Congrats on the sale! What were the things you were doing that burnt you out?
I could say it was the commenting on up to 20 sites per day, or the pressure of coming up with new post ideas. But what both issues really boiled down to was growth. I was basically spinning my wheels and not actually growing. If I was growing, the effort would have been worthwhile. But all I was managing to do was not fall further behind.
Gotcha. Did you try asking to guest post on other sites to increase exposure? I think guest posting “up” works the best, or in different niches. Yakezie.com is wide open for the community to guest post if they want to build links or increase exposure with other bloggers. But very few take me up on the offer, so I just do so myself.
I had done some guest posting, but found limited success with it actually driving traffic to my site.
Timely, because I’m working on strategy for 2014. There’s a lot to think about!
[…] a month, you can still make some affiliate income.Affiliate income is beautiful because of operational leverage. Once it’s set, the amount of income you can make from one post is unlimited while not having […]