Profit Surfer

Putting together a business plan is a very important aspect towards starting your online business. If you have ever put together a formal business plan for the purposes of raising capital, you know that it can be a lot of work. Given that this plan is mainly for your own benefit and not lenders or shareholders, I personally believe that this would be overkill. However, you should actually go through the process of setting out bullet points on what you need to do, a schedule of when you are going to do them, and most importantly, financial assumptions going out into the future.

For most people, the financial projections will be the hardest part of this exercise, but it can also be the most valuable. If you do not have a set benchmark to monitor your progress, it is difficult to assess along the way whether you are on track towards your business objectives and where exactly you need to adjust your business model. The manner in which the projections are done will vary from business model to business model. Most people generally find it easiest to carry out this process using a spreadsheet such as Microsoft Excel or Open Office’s Spreadsheet (the latter having the advantage of being free). You could do it with a piece of paper and calculator, but why make your life a lot harder? As long as you are doing business online, you should start to use that computer to make your life easier in other ways as well.

The first variable you are probably going to want to start with is traffic. How many visitors are you expecting to get to your site everyday? Let’s say that you are using pay per click advertising. There are going to be two components to this–how many eyeballs will see your ad, and then what percent of people will actually click through to your ad. If you are using pay per impression or pay per click, you should set up another column of advertising spend that tracks with the above traffic statistics. Have an assumed price per click or impression based on your market research (using Googe Adwords or SpyFu for example) multiple this times the number of clicks or impressions to get the total advertising spend.

If you are using other traffic methods as well, you are going to want to keep track of those statistics separately. For example, for every article that you write, come up with an assumed number of visitors who view the article and what percent click through. While article marketing is basically free, there are still costs to it. At minimum you are involving your own time which you should assign a value to. I would suggest that you either assign a value to the number of minutes you expect to expend writing or submitting an article and perhaps simultaneously have another row that keeps track of what it would cost to outsource the article ($8-12 for example). This is important for future planning to get a sense of how well your business scales as it gets larger. By having these statistics in front of you, you can really gauge whether it makes sense to outsource in the future or whether this form of traffic and the conversions you are getting take up too much of your time to achieve your income goals. By comparing all the methods of traffic this way as you get some experience in your business, and you are also going to discover those methods that generate the highest return on investment. Please note that there are some intangibles to article marketing such as the banklinks for search engine optimization (SEO) purposes that will not be apparent in this analysis.

Once you have your traffic statistics, you need to find some way of converting this into a revenue number. If it is an offer page, make an assumption for what percent of people take the offer and another for what price the market will support. Multiply the two together and you have a revenue number. Do not worry if you feel like you are pulling these numbers out of your head. The reality is that when you are starting out, you are going to have little to go on. The reality is no one knows what the real number is going to be before you get started. Your approximations will be more accurate the more experience you get. But you do need a baseline to base your projections. Be conservative at the start. Obviously if it is a low priced product, the conversion rate should be higher. If it is a free opt-in to your email rate, the conversion rate should be even higher; but you also have to come up with a percentage of people from those who opt-in who buy something and at what price. I would leave out offers other than the primary at first as your are going to want to try to make a profit on the first offer, or at least break even. Assume the rest is bonus. You can still have a model to make assumptions on it; I would just be careful about using it in the profitability analysis, especially if you are spending a lot on paid advertising. As you get more experience on your ability to get multiple conversions from a list or buyer, you can start to get more aggressive in taking this into account when budgeting your ad campaigns. Some marketers with strong list marketing skills actually lose money on their front end advertising, and more than make it back on the back end. However, I would not do this until you have some experience in your own ability to convert a customer into a repeat customer.

Once you have your sales and advertising expenses, you need to subtract your other operating expenses such as web hosting, domain name registration, accounting if using an outside CPA, etc. Anything you have to spend money on, list it and tabulate it. If there are other significant components to your business that require your own time I would keep track of that as well. Learn to value your time as you only have a limited amount of it. In fact, it is probably a good idea to decide what exactly you believe your time is worth per hour and budget it that way. This way, (1) you can truly see real time the benefits of outsourcing and (2) you are going to learn rapidly whether the money you are making justifies the time you spend in your business. If you make $20,000 profit in your internet business, but you could make $40,000 as an employee for someone else, maybe that business model is not exactly the best option for you, unless you really enjoy it compared to the alternative.

Project everything out. You can do this by day, week, month, or year depending on how detailed you want to be. Your revenue minus operating expenses gives you your operating income. You also need to include taxes and interest costs (if you financed anything, which I do not recommend on an internet business) to come up with your net income. You can chose to reinvest a portion of this back into the business and can augment the next time period ad or outsourcing spend with this amount and watch your business grow. What you will find is that if your return on investment is high enough (net income divided by expenses for the period), your business will start to rapidly grow. Please note that at some point conversion rates will go down as you further penetrate the market. If there are only 100,000 people looking for bowling balls, and you are selling to 100,000 people, chances are that no matter how much you increase your ad spend, you are not going to get much additional in sales. This is one caveat many people miss when building an earnings model. The earnings should grow exponentially at first and then start to tail off into more steady growth that eventually grows with the market.

The other thing that you might notice is that as your business grows, your model might show the time used per day being in excess of 24 hours! This is a clue that you need to outsource if you want to increase your business and is one of the reasons that I asked you to place a dollar value on your time. If you do not want to outsource that is fine, just be aware that you should expect your business to plateau at the limits of your time. If you are not satisfied with this level of income you should consider outsourcing or another business model. Also note that you might find that no matter what you do, you have trouble getting the numbers to work to get you to a level of income or return on investment that you want. This could be a strong clue that this business model is flawed and you need to seriously change it. This is one of the reasons we plan–so we can figure out if a business is potentialy flawed from the beginning before wasting any time or money pursuing it.

Finally, you need to constantly update your business plan as you get experience in your business. Your assumptions will almost always be wrong, and often way off. Identify which variables are hurting you the most and what you need to do to change them. If one method of traffic is not generating the desired return on investment shift to another. This is where the real power of business planning comes in handy–you can project small changes out into the future and get a more precise picture of the financial consequences. Even if you have been in business years, you are going to want to continue to keep track and adjusting your model as market conditions change, levels of full penetration adjust, and pricing conditions can become volatile. Always try to stay two steps ahead of the market by reacting very rapidly to changes at the margin.

Before I discuss business planning further, I feel compelled to give a fair warning that most other internet marketers refuse to discuss. In fact it is something that most will not even want to think about. I am talking about the economy. Maybe economics was never your favorite subject in school, but please hear me out here and consider incorporating my words into your business plan.

I come from the world of finance. There are a lot of businesses I have considered starting, but I have put many of them on hold, particularly those that involve a substantial up front investment. The reason is that I have a good feeling on what is coming, and there are very few people willing to listen or head the obvious warning signs. I just heard Dave Ramsey on the radio spouting the same mantra that we have heard from the talking heads on CNBC for the last several years–everything is going to be fine, there is no banking crisis, etc.

The problem is that there is one, and all the data is available for one to verify it. I sent out to a lot of my friends on Wall Street an email back in mid-December when non-borrowed bank reserves fell to an unprecedented level. Basically, with the exception of one time bank loans from the Central Bank, the banking system was already bankrupt. As of the latest data release from the Federal Reserve our banks have had to borrow $155 billion in emergency funding to meet their reserve requirements. To put this in perspective, the total US monetary base is currently $834 billion.

In addition the monetary policy of our central bank over the last fifteen years has been a total disaster and is partially resulting in a period of runaway inflation, increasingly evidenced in statistics such as today’s 9% increase in producer prices, not to mention to ongoing collapse the U.S. dollar. Eventually, the inflation which will be further stoked by efforts to rescue the banks will likely eventually collapse the bond markets–corporate, treasuries and municipals because at some point the long term yield has to equal the long term inflation rate. A lot of pension funds, insurance carriers, and other entities will be seriously impacted by the impending crash of the US bond markets. The only way this can be head off is by the Federal Reserve directly issuing new money to buy the debt itself, which will eventually make the hyperinflation much worse. It is basically a no win scenario as far as I can see.

Anyway, sorry to bother you with the details as that is a subject for another one of my blogs. However, I do believe it is something you need to take seriously. I have not seen any signs that this has effected the internet marketing business yet; however, as I learned on Wall Street, those are usually famous last words, particularly if there is a logical connection. I expect at some point later this year or early next, the internet marketing business will start to feel the pinch of the credit crunch, particularly as credit card companies start to drastically slash credit card lines to protect themselves from cascading consumer defaults.

Does this mean that you should not continue to pursue internet marketing? Absolutely not! The marketplace is huge and is still an opportunity. In fact, it might be just what you need if are one of the many Americans who have been laid off and need to find a substitute income. What I am saying is that you need to really consider the possibility of a large economic meltdown in your business plan. This is particularly true in regards to what and where you invest in the business. The reason I am concentrating on the internet at this point in time is that start up costs can be extremely minimal. That way, I do not stand to lose a lot of money when the economy really turns south, and in fact will probably be able to turn out a profit, albeit not nearly as large as what people have been able to generate in the economic economic expansion.

By contrast, if you plan on generating a lot of your traffic through paid advertising, you need to be extra careful. Size your ad spend modestly to start, and keep track of your conversions like a hawk. The rates could literally dive off a cliff very quickly under the right circumstances. Moreover, you need to account for much higher return rates on electronic products with guarantees. In many cases people might have found the product quite valuable and would not have returned it under normal circumstances, but the inflation in the economy might have gotten so bad that they have no choice but to refund it if they want to afford food and gas. If you are using Adwords and you see a ton of refunds 60 days later you did not account for, you business could go into the red fairly quickly. Also if you are viewing the internet as a replacement to your current job, you just might want to hang on to that job just a little bit longer, just in case the worst happens. At minimum make sure you have built in a nice cushion of cash (and preferably commodities like food and precious metals which are hedges against inflation) when you do decide to pursue internet marketing full time.

One other thing to notice is that you might want to consider niches that are particularly appealing to people in a period of economic distress. Quite honestly, I have a lot of ideas here, but they are really things I would not want to share in public :). There is money to be made in any type of market! There are those minority of businesses the go up even in bear markets (commodities producers in this current cycle, for example). So do not quit or give up on your dream, just be careful and smart about what you are doing. Get as much free traffic as possible, and try to run on a very streamlined budget.

Sorry, to be the purveyor of doom and gloom, but I feel I have a moral responsibility as someone who has spent over a decade timing the financial markets to sound the call to anyone who will listen, particularly those who are legitimately getting started in internet marketing. Certainly it is not to my benefit as an internet marketer to warn people about what is coming and urge them to tighten their belts. However, it is a subject that I feel that I have a moral obligation to expound on. I sincerely hope that I am wrong!! But it is better to be safe than sorry.

P.S. If you have investments in bonds, PLEASE get as much out as you can. When bond yields go up, the value of bonds goes down, particularly long-term bonds. As of this writing the 10 year bond yield is only 3.84%, and if you have been to the grocery store or pump recently, you know inflation for much of what we buy is running much higher than this. Do you honestly believe food prices were only up 5% year over year like the government claimed last month? It is my sincere belief that only hard good commodities and the stocks in some of their producers will weather the hyperinflationary wave that is coming. While there might be a flight to bonds as stocks collapse as in the last week (a typically knee jerk Wall Street reaction to “flee to safety”), when people realize that inflation is a real threat and that our central bank’s monetary policy is directly encouraging it, this will only last for so long.

What are your goals? Sure, making a little extra cash online is probably right up there. But to what ends? There is an old expression I heard when I was working at a large investment bank when everyone was jumping ship ahead of an initial public offering. Make sure you are going towards something and not away from something. If you are miserable at your job, that can be a powerful motivation; however, it could rapidly push you into a rash decision into another situation that makes life even more miserable.

Before taking action, decide exactly what you want. Sure, you should have monetary goals in mind, but that should not be an end, but a means to an end. What do you really want in life? If you had as much money as you could possibly imagine, what would you do with your life? Picture it. Think about it. Once you have this in mind, whatever activity you do online should fit both with your monetary goals and your lifestyle goals. If you really hate writing and do not want to deal with the hassles outsourcing help, you probably should not start a heavy content site as you will not be happy in what you are doing no matter how much money you are making. Focus on your goals and make as much as possible in your plan be consistent with those goals.

What do you really like to do? What expertise do you have? What do you have to offer the world? Everyone is unique in their experience and education. We all have knowledge that someone else would find valuable. Review some of the different methods of earning income online. Decide what business model fits best with your talents. By all means, you do not even have to follow these particular business models. The best businesses are the ones that no one else has thought of! Be creative!

Once you have narrowed it down to a business model you find really compelling, focus on learning what you can about that methodology or any related skills. There are a plethora of educational series on internet marketing on the net, many of which I will discuss on this site. In fact the choices are somewhat overwhelming. Try to focus and get what you need and move on. There are likely going to be several different fields of expertise that you will also need to learn depending on your chosen business model: web setup and design, gaining traffic, monetizing traffic, copywriting, outsourcing labor, and sourcing products are some of the most common competencies that online business owners must master to be successful.

This information should all be put together to create a plan of attack for your business. You need to think about this carefully. People tend to wander when they do not have a plan and are not disciplined. Additionally, without proper planning you might not find a gaping hole in your business model until it is so late in the process that much hard work will have been wasted.

I am not someone who went from rags to riches on the internet, which appears to be one of the most common stories I seem to see scattered throughout the internet marketing world. A lot of these stories are particularly inspiring, and I think they really do highlight the power and scalability of the internet. For me, my career path was not quite as dramatic. I graduated from an Ivy League school, and then went to work for the premier investment bank at the time. I then grew to hate that job (seemingly along with everyone else there–I remember people getting big high fives and congratulations when they announced they were leaving :)). I decided I would never work for a big company ever again in my life.

After that I went to work trading a proprietary account for a small brokerage firm and was incredibly successful at it. I had made my first million by the time I was 26. I never have been a really big spender, and I really did not even know what to do with the money I was making originally. At first it was fun, but unfortunately I have a very short attention span and got bored after a couple years. Ultimately, I always felt that I had the ability to generate such income at will so I was willing to take risks to get some different experience.

I jumped ship to a startup hedge fund that was a complete disaster because, quite frankly, the firm’s draconian risk management rules did not allow one the ability to stay with positions, particularly if you were investing fundamentally. The fund essentially shut down a year after it opened. Concurrently, I started my first venture in a brick and mortar business, originally as a passive investor. The enterprise became such a mess, I had to fire the management team and get involved extensively myself in an area I knew nothing about. It quite frankly was an experience I would like to forget.

After this I decided to go back to what I knew best, running money. A partner and I started a hedge fund which was very successful in its first two years of operations. However, for a variety of reasons, we decided to close down the fund, primarily because the SEC was instituting new rules that would have cost us over $500,000 to comply with according to an estimate thrown out by our auditor at the time. These rules were later declared illegal in a court well after we shut down. Personally, I was of the opinion I would move overseas before dealing with that mess; moreover, I could see that the equity markets would not be where the action was and was anxious to get into commodities anyway.

After we shut down, I took the downtime to travel because I never got a chance to really do so while trading the market. In fact, I liked it so much I spent much of the next two years traveling around the world. When I got back I moved out of New York to a more resident and taxpayer friendly state :).

After being away from the markets for a while, I decided that I really did not want to go back to that lifestyle, at least not at the present moment, if ever. Being glued to the screen is not exactly a way to live your life. I have even treated my commodities investments more in a buy and hold fashion, even though that is not my specialty. I had many different businesses I wanted to start, and many I found could be best accomplished online. In the process, I learned a lot about online marketing, building a website, etc. Given I love to learn I probably have gone overboard, trying to buy the best information available and explore all options before proceeding to what I really wanted to do. In fact, there are many business models I found could be set up easily to generate passive income while I worked longer term on some much more ambitious business goals and I have sort of divided my time between them.

As a result, I am currently running an online business, approaching it from several different angles. In fact, I am still in the process of testing what methods truly produce the best return on investment capital. As part of this process, I thought that setting up this site might be a great way for me to share what I am doing with the rest of the world, particularly among those who cannot afford the best membership sites where a lot of the real time tips and tricks are disclosed. I enjoy writing and sharing things I have learned with others (in fact, I think many of my friends are sick of reading many of my lengthy emails, particularly when it involves the markets and economy :)) . Hopefully this will be a great resource for all of those people who wish to escape their job. I really want this to be an interactive site and will be setting up a forum so that people can ask questions and many subjects can be openly discussed.

Did you ever consider how inadequate our public education system is? Well, my guess is that the answer to that question is quite obvious (unless you happen to be a bureaucrat at the Department of Education ). I am not just talking about the inability for the system to impart knowledge into the young minds of the future. It is more importantly the attitude. Think about it. You are basically taught to take orders from your teacher and do mindless busywork which is usually devoid of any creative or out of the box thinking. Basically, you are taught to be a good employee, not an independent controller of your own destiny. I imagine corporate America loves this, but is it best for you?

If you were like the majority of young students, you found this classroom experience boring and stifling. It is no wonder our kids cannot stand our school system. When they are not motivated, it hurts their mindset and their ability to learn. Without passion in life, it is hard to produce results. This is the root core of the educational crisis in this country.

Given that jobs as “employee” are structured the same way, it is not surprising that a lot of people hate their jobs the same way they hated school. In fact, in many ways, being an employee is worse because your whole livliehood depends not just on your own performance, but also the performance of the company and sometimes the idiots who run it. You can feel that your fate, in some respects, is completely out of your hands.

While some people love a rigid structure and the comfort it brings, I imagine that if you are reading these words, you have either broken out of being an employee (either voluntarily or involuntarily) or your soul is desperately looking for a way to break out of the rat race. You are ready to break the shackles of the J O B, and start your journey down the sea of self reliance.

Starting down this path is not easy though. When explorers set forth for the New World, I imagine they did not know quite what to expect. On land, as with a nine to five job, there was the comfort and stability of the familiar. On the high seas, things can change on a moment’s notice. It is a dangerous place if you are not focused and have no idea what you are doing. This is exacerbated by the fact that society has not prepared us for the journey, dominated by a culture of land-lovers.

Again, it is the same in business. Many fail being ill equipped for the journey. However, people with varying degrees of life experience and intelligence make extraordinary fortunes out on their own. One of the most powerful things that separate those who succeed from those who fail is the burning desire to succeed. Like the heartfelt urge to sail on the high seas possessed by the early explorers, these people will not be held back. If they lack knowledge, they seek the best mentors and information they can find to fill that void. This desire gives the same people who might have flunked out of school the ability to learn the ins and outs of achieving their goal. The goal and passion towards achieving it are so powerful that they are compelled to action; and without appropriate action, all ventures from sailing the Atlantic to internet marketing, fail miserably.

This site is dedicated to all those whose sincerest desire is to seek action. Maybe you do not know where to start, but you just know you need the independence and freedom that comes from operating your own business and setting your own hours. I hope that this site becomes a place of education and encouragement for all that have decided to go forth upon the turbulent waters of the world wide web to find gold and treasure. It is time for perhaps the greatest journey of your life to begin . . .