FP002 – The Art of Online Business Income
Foolish Philosophies: Blast Through Obstacles To The Life You Desire
In my first Foolish Philosophies article I talked about expenses. Even though income is a sexier topic, controlling your expenses is where the profit is made. And nearly every business in the world has started with an expense of some kind before ever making a sale I thought it fitting expenses should be covered first.
“Income seldom exceeds personal development.” ~ Jim Rohn
Another reason I covered expenses first is that if your expenses are low you need less income to be profitable and to pay for your life.
Trading Time For Dollars Is The Same As Trading Life For Money
I see every dollar I earn as an equivalent piece of my life’s energy (others call it time). I gave up part of my life to earn that dollar. So a dollar equals part of my life. The less life I have to spend, the less life I have to trade for money.
If I can earn more money for every hour of life I expend in the pursuit of money, I can then work fewer hours and still pay my bills. Even when online gurus or network marketers talk about passive income, what they really mean is trading life now to create a product or system that continues to earn you money on into the future.
You still traded life for the money that product brings in, but the more money it brings in and continues to earn the less future life you have to trade to pay the bills.
I know I have been hammering on the money equals your life point, but it is important so you value your time appropriately and in turn properly value the products or membership site Izzy and I are teaching you to create.
You Need A Lot Of Sales When Selling Low Price Products
On the show, Izzy and I have mentioned some sites we have seen where their ebooks are selling for $5. If your expenses (personal and business–remember they’re the same to you) are $5,000 each month, you have to sell 1,000 ebooks to crack that nut.
One thousand sales isn’t impossible online–far from it, but it is harder than making 100 sales. And…you have to do it EVERY month.
I would rather need 100 sales to pay my bills than a thousand. And if all goes well I might still make a 1,000 sales at the higher price. Woo Hoo!
A Higher Price With A High Margin Allows You To Afford More Marketing
A low dollar product is harder to make a living off of and it is harder to attract prospects because you don’t have any money from the sale to use for marketing.
An affiliate program is a great way to do marketing. You pay your audience and peers to spread the word about your product. How much can you pay to an affiliate for the sale of a $5 product? How about a $50 product?
Even if you gave 100% to an affiliate, the affiliate only makes $5. With a $50 product you can give 50% of the sale and both you and the affiliate make money. Same amount of work for the affiliate, but significantly more income per sale.
I’ll take the 50% idea a little further. On a $50 product, you have $25 you can spend on advertising to reach markets that your affiliates might not reach. With a $5 product you only have up to $5 to spend to attract a customer.
Putting It All Together
Tying these concepts together of keeping expenses low (personal and business), selling mid-priced products and expending as little life as possible in the pursuit of money and we get the structural framework of a Foolish Business.
As Izzy and I talked about on a previous show, a business that makes $5,000 a month and only has $100 in expenses is a simpler business to run with much less stress than a business that makes $12,000 a month yet has $5,000 in expenses.
If something out of your control happens (highly likely) and your income drops to $7,000, but your expenses are still locked in at $5,000 (office rent, utilities, an employee, equipment leases, etc) you are now in a super stressful situation.
You may be thinking, “Yeah, but I’m still making $2,000 a month in profit.” Well, not really. You still have to pay yourself. You were making $7,000 a month and now you’re making $2,000. If you are like most small business owners, your personal expenses would have risen to around $5,000 to $7,000 a month.
I’m not being cynical. Nearly every small business owner I have worked with (in the hundreds) and those I have met (also in the hundreds) had personal expenses that equaled the money they could pay themselves from their businesses. And I’m not being holier-than-thou. I have done it with several of the businesses that I owned.
The Myth Of Growth: Bigger And More Isn’t Better
It is difficult to fight our culture’s bigger and more is better mentality. It effects our personal consumption and our business decisions.
If you read or watch anything related to investment and business news, you only hear about growth. Growth being more sales and more gross income. It is rare to hear anyone talking about building a sustainable business because the mentality is that you must be growing or your business is dying. This isn’t true. You must be innovating instead, but that’s a subject for another Foolish Philosophy.
Izzy and I are not “against” larger businesses. We just don’t think they are conducive to the type of freedom-based lifestyle we promote.
Variable Expenses Are Less Stressful
If you can make $12,000 a month, but your $5,000 in expenses are variable (you can change how much you spend at any time) then great. We want you to keep your fixed expenses as low as you possibly can. This thinking includes your fixed personal expenses, too.
As a hypothetical example, you spend $50 on a virtual private server for your hosting, $200 for your bookkeeper, $100 for a webmaster and $150 to cover your Internet access and cell phone. Your fixed expenses are $500. The rest of your $5,000 in expenses are payments to your affiliates for selling your products, payment processor and advertising. So, $4,500 is variable. If your sales drop from $12,000 to $7,000, your variable expenses drop accordingly. They might go down to just a few hundred dollars.
Your take home pay might only drop by $1,000. It is still very stressful when this happens, but your mortgage and car payment still gets paid without you dipping into savings assuming you have been saving.
We would love for you to be able to work less than 20 hours a week and earn a net income of six figures or more. Our biggest goal is that you gain the skills to be able to earn an income sufficient to pay for a fulfilling life no matter what happens to the economy or shifts in competition or any obstacle that comes along.
The Art of Foolish Business Income is NOT about making a fortune so you can keep up with the Joneses.
Foolish Income IS about providing for a fulfilling life for you and those you care about and to make a positive change in the world.
~ t
Check out The Zen of Online Business Expenses for part 1.
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