The Beauty Of Operational Leverage In Running A Business Thumbnail

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.


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.


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.


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!