Entries Tagged 'Entreprenuership' ↓

So you want to be a millionaire and think the Internet is the way to get there. The dot com world has certainly made a lot of millionaires over the previous years. But rather than focus on what it takes to get there, let’s look at the end result. What will your lifestyle be if you do make it? I can’t say for sure, but I have made millions and I can let you know what it’s like for me.

Lifestyles of the Rich and Famous

photo credit: EuroMagicIt’s nothing like “Lifestyles of the Rich and Famous”. First of all I have almost no fame associated with my site. There were probably a couple hundred people who knew my name at one point (heavy users of the site) but I suspect most have forgotten me over the last few years. And while it may surprise you, being a millionaire doesn’t make you rich. Externally I look like any moderately successful businessman - I live in a nice house, own two nice cars but don’t take extravagant vacations or spend lavishly. My kids do go to a fairly expensive private school but we don’t belong to a country club or any of that. Partially that’s because it’s not who we are (and the money thankfully, hasn’t changed us) and partially it’s because a couple million dollars just doesn’t go as far as it used to. You’d probably be surprised to find that you very likely know some millionaires and would never be able to tell it from how they live - that’s part of how the get to have and keep their money.

Investment Income

The vast majority of our household income for the past few years has come from investing the money I made from selling the business. The money is invested somewhat conservatively and managed by a financial planner. It’s a bit odd not having a regular paycheck. When we need money we just write a check out of our investment accounts. It also takes a bit of getting used to when on an average day you can make or lose $100,000. You pretty quickly learn that it’s pretty meaningless though and watching daily fluctuations in your investment portfolio gets pretty boring.

The 5% Rule

If you want to get a feel for how you can live when you make your millions consider the 5% rule of thumb. I think the historic average gains of the stock market are something like 10% but of course there are fluctuations. So as a conservative approach and if you want your wealth to continue to grow you can plan to draw 5% of your money for spending. If you make $2 million from your business and live off of your investment income you’d have a lifestyle equivalent to someone earning $100,000 a year. While that’s certainly a nice income you can see that you’re not exactly flying first class to Paris for the weekend.

Don’t Forget The Taxman

photo credit: numberstumperYour tax burden will vary based on how your business is structured and how aggressive your account is but you can expect to lose at least 20% of what you make in selling your business. It’s actually sort of amusing at first to write a six figure check to the Treasury but trust me that amusement goes away quickly.

What Do You Miss

As an entrepreneur and later if you’re living off of your investments you miss out on some of the benefits of being an employee. The biggest is of course health insurance. I won’t get into a political debate but suffice it to say that obtaining decent health insurance (even if you’re willing and able to pay) is not easy. There are other less tangible things that you’ll miss too - things like co-workers to go out to lunch with and chat with around the water cooler.

What Do You Gain

In a word the biggest thing you gain as a millionaire is freedom. Freedom in its many forms - I can vacation when I want, work on what I want and (within reason) buy what I want. There’s also a certain freedom from the stress of “making ends meet”. While there are the occasional concerns about stock market crashes for the most part we’re very financially secure and free from money worries. That freedom does have a downside though. Oddly enough one of the things I miss most is having a full ToDo list. While it’s often nice to have the freedom to work on whatever you want that wide open freedom means it’s hard to figure out what to work on. And without the pressure of needing to make money it can become far too easy to be non-productive for long periods.

Do I Recommend It?

Certainly. Building something into a success by yourself (or with a small team) is one of the greatest feelings you can have. And the financial windfall is great. Unless you happen upon the right startup it’s unlikely that you’ll become a millionaire working for someone else. And while a few million dollars won’t have you living like a rock star it’s certainly a nice place to be and I’m extremely grateful for the life I have.

I’m a semi-regular reader of some of the websites for sale marketplaces and the vast majority of the listings there are sites I wouldn’t even consider buying. While you might think that’s a bad thing I think it’s actually pretty useful since figuring out the common links between what I don’t want helps me focus in on what it is I do want.

You can’t really go to a “sites for sale” forum looking to buy a specific type of site. Well I guess you can but you’ll be waiting for a long time before it comes along. If you know exactly what you want to buy it’s probably better to look for sites in that area and see if any of them will accept an unsolicited offer. If you’re just browsing around looking for something good to strike your fancy it helps to figure out what you don’t want.

Proxies and Free Image Hosts

You’ll find a lot of proxy sites and free image hosting sites for sale. Most of these sites are essentially turnkey. That is they use a commonly available script and have very little that’s unique about them - typically only a little of the design. These sites also suffer from a major problem - they consume a lot of bandwidth (cost) and are very hard to monetize well (revenue). You might be able to squeak out a small profit from these kinds of sites but the margins will be extremely thin. In the image hosting arena you also need to be on constant guard against copyright images and porn images.

Funny Video Sites

These seem to pop up pretty much daily. Besides that fact that they’re trying to compete with established funny video sites like break.com and user uploaded video sites like YouTube there’s again the problem of being heavy bandwidth users and hard to monetize. There’s also the little issue of copyright and the fact that most of these sites violate copyright on a regular basis. Some will even provide you with scripts that automatically scrape content from other sites. If stealing content is a key part of your business model I suggest coming up with a different business altogether.

GPT Sites

You might not be familiar with the term “GPT” or get-paid-to but you’ve certainly seen the sites advertised around the net. These are sites that offer free iPods or free Xboxs if you sign up, refer some friends and complete some offers. These sites came under attack in recent times because there’s some contention that while you don’t pay for the iPod it’s not really “free” if you have to pay to sign up for offers in order to get it. While some of these sites do offer entirely free ways to get the prize there’s enough legal uncertainty and ill feelings in the press to make me want to avoid this are entirely.

Static Content Sites

They’re so web 1.0. Actually there’s nothing wrong with static content sites. The major issue is that you’ll need to update the content at the site in order to grow (or even maintain) traffic. That means it has to be an area where you can write good content and if it is then why not just start a blog on that area instead? This isn’t a complete non-starter for me but the site would need good, original content in a area where I could add more content and come with good traffic and decent monetization. 99% of these sites that are up for sale don’t meet those criteria.

What’s the Point

If you’re in the market for buying a site you might wonder what’s the point in figuring out what kinds of sites you don’t want to buy. First having a list like this will help you quickly scan over the dozens of new listings for those that you might find interesting. Second if you can identify the qualities of a site that make you want to avoid certain niches you can see if those same qualities are also present in other niches. If you’re in the market for a site consider what you want to avoid and see if that helps you figure out what it is you do want.

photo credit: sergis blogI’ve been thinking a bit about some of the projects I’ve worked on in the last year or so since the “big successful site” and most have been failures. Certainly some have failed because I didn’t give them what they needed but some are I think inherently bad business models.

Selling Scripts

I own two sites that sell scripts (small programs to install on a website) to webmasters. Both are sites I purchased with the scripts they were selling. One has been moderately successful but I think the niche is dying. With the other I failed to do enough checking and the software is lacking in features vs its competitors and probably not worth updating. Overall however I think this is a bad business model for a few reasons.

1. The buyers tend to be “poor” webmasters who have little desire/ability to spend a lot
2. There’s a relatively small pool of potential buyers
3. There are free or cheaper alternatives available for at least some of the scripts I sell
4. People steal the scripts and the really brazen will resell them

Overall for the cheap prices I’m able to demand I’m not able to provide a lot of customer support even though some of the buyers demand quite a bit of support. I don’t enjoy having unsatisfied customers so I do provide some support but it’s not worth the time and effort spent. The fact that people steal and redistribute the scripts really shouldn’t be too much of a surprise. There are ways to at least deter people from doing so but they’re expensive to implement and make it difficult for the buyer to customize the script so they’re not really for me. Overall I think any business model that relies on selling something that can be copied and distributed for free is going to face the issues of theft.

The Me-Too Site

While I was looking for sites to purchase I noticed that there were a lot of sites making decent money in the “weird auctions” on eBay space. These sites tracked the odd/funny things being sold on eBay. I missed out on a couple auctions for established sites in the space but decided to build my own. I found a site with a good domain name that was abandoned and contacted the owner and was able to purchase it. I then slapped up a Word Press install and began tracking funny auctions. So what’s the problem with this business model? Well nothing really except look again at the first sentence in this paragraph: “there were a lot of sites” in the niche. The site I put together had really nothing new to offer and while it was amusing at first to maintain I quickly lost interest and the updates came infrequently. Oddly enough someone else contacted me to buy the site and I sold it at probably break even though I had made a few dollars along the way. Last thing I know is that the new owner too started strong and lost interest and had placed the site for sale. It’s hard to get passionate about a site that really adds nothing new and stands little chance of catching the leaders in a crowded space.

The Cheap eBook Site

Along the lines of the script site I had a site that sold (or attempted to sell) eBooks about “making money on eBay”. I bought the site thinking it would complement my weird auctions site. It was a cheap turnkey site that had no traffic and sold eBooks that were duplicated a million times around the net. I’m not even sure the creator of the site had permission to resell them. At any rate I did very little promotion and never sold a thing. I attempted to sell the site after I sold the weird auctions site but no one was interested and I let it expire.

The Common Thread

The common thread with these failures is that they’re niches I don’t really care about and sites which add nothing new to the web. That meant that I didn’t work hard at them and they never went anywhere. It’s hard to commit yourself to something that you don’t like doing when you’re not forced to do it by some external power (a boss or other authority figure). Some of these sites would have worked for a different person - someone who had a passion for the niche and was willing to do the work to promote and support them. You’ve heard it before - if you’re working for yourself you have to work at something you love.

I’m sure some of the Internet entrepreneurs out that have other stories of businesses they tried that failed and I’d love to hear them and the lessons learned. Or if you made one of these businesses work let me know how you did it.

If you run a website and look through your web traffic logs you’ll very likely find that your site is getting at least some “accidental traffic”. What is accidental traffic, you say? Accidental traffic is visitors that you didn’t seek to get who are coming to your site looking for something you don’t have. This could be because you mention something in passing that gets indexed in a search engine or you have a domain that’s similar to one used for another purpose. You can spot this traffic by looking at the keywords that drove the visitor to your site and observing their behavior once on your site. Accidental visitors come via a search term you wouldn’t expect to see and generally leave almost immediately. So what can you do with this accidental traffic?

Deter It

photo credit: JASON ANFINSENIn some cases you might want to deter the accidental visitor. If your site serves only a specific geographic region you can avoid serving people outside that region. When you notice that a prominent site links to you when they meant to link to another site with a similar name you can refuse to serve visitors who come from that site. Or you might deter visitors who come via certain terms in a search. I won’t go into how to do such things because for the most part you shouldn’t do it. Unless for some reason your hosting costs are unusually high the accidental visitor costs you very little and even if there’s only a minuscule chance of you getting something out of them it’s better to serve them in some way than to turn them away.

Ignore It

If you’ve never thought about accidental traffic before chances are you’re ignoring it. Even if you did notice some visitors via an odd referrer or search term chances are you never thought about doing much about it. Now despite what you think may be coming, I’m not going to say that ignoring this visitor is necessarily a bad thing. If you get very few accidental visitors and they come via a wide variety of off topic search terms then sometimes it’s just not worth your efforts to try to capitalize on them. Another example might be if your site serves such a wide audience that the visitor who stumbles into your site might very well convert into legitimate visitors. For this visitor you need only have good site navigation or search capabilities and they may very well find their way to something you do have that interests them.

Serve It

While the web developer who deters the accidental visitor sees them as an annoyance, a developer with a broader view might see the accidental traffic as an opportunity waiting to be served. Whether or not you take this approach largely depends on the type of accidental traffic you’re getting. If you’ve unknowingly stumbled upon a term that people are interested in and you have the ability to provide content to serve that interest. This site - because of it’s name - draws traffic from the search term “solo programmer” which is generally used in the context of the extreme programming methodology an it’s “pair programming”. If there is enough of this kind of traffic I can write a post on solo programming vs pair programming and perhaps serve those visitors. A post like that wouldn’t be (far) off-topic for the site and is something I could address. You might find that your photography site, which you simply intended to show off your work, draws visitors looking for stock photos. If there’s enough of that traffic you could install some software and sell your images - or give them away with attribution that will get you backlinks.

Redirect It

credit: SqueakyMarmotIf you determine that you don’t want to directly serve your accidental visitor, a good alternative is to redirect them. You can redirect them to another site you own that would serve their needs. This is a great way to leverage multiple sites to increase targeted traffic. If you don’t have another site to serve the visitor you can look for an affiliate program that would serve them. If visitors to your book club site want to buy the books you talk about, redirect them to Amazon and collect a small commission on their purchases. When the accidental visitor isn’t a prospective buyer you can redirect them to a site that will meet their needs without an affiliate program. Giving away your traffic might seem like a poor choice but depending on your niche and the size/stature of the site you link to, you might get a return link in exchange that will send some of their accidental traffic your way. If your accidental traffic is people looking for Google, you’re unlikely to get a home page link from Google in return for sending them your accidental traffic but maybe that small gesture of goodwill can encourage the accidental visitor to check out what you have or just make the world a better place in some tiny way.

Deal With Your Accidental Traffic

Take a moment to look at your web traffic reports and see what kind of accidental traffic you’re receiving. And then decide what’s the most appropriate thing to do about it. If ignoring it is best then ignore it but make the decision to do so. And whatever your decision is no revisit it periodically to see if your accidental traffic has changed and if your response is still appropriate.

If you’ve decided that buying a website is a good approach for you to take to either start earning money on the Internet or to grow your Internet business you’ll want to take steps to ensure that you’re buying a site at a good price. What’s a good price is hard to determine and actually varies widely from one buyer to the next. Most valuations that a seller will quote are nearly useless (automated valuations are completely useless) and rules of thumb like 12 months earnings are also of limited use.

Evaluate Current and Future Income

The first step toward determining a good price for a website you’re looking to purchase is to carefully evaluate it’s current and future earnings. The common pitfall here is looking at gross revenues (before expenses) vs net earnings (after expenses). It’s important to look at what the current site owner is spending on advertising, hosting and any other expenses. If a site earns $1,000 a month but spends $500 a month on advertising and $200 a month on hosting it’s worth a lot less than a site that makes the same but spends nothing but $10 a month on hosting. You should also look carefully at how the expenses may change - if you have an existing server with excess capacity you might be able to eliminate the hosting expense. More importantly look at how the income may change. Perhaps you have existing relationships with advertisers in the niche that you can leverage. One of the best ways to purchase a site for a great site is to purchase a site that’s worth more to you (because it will cost less and earn more) than the site is worth to others.

Market Determines Price

photo credit: Petrick2005Valuations for a website are worthless because the real value of a site (or any business) is what some purchaser is willing to pay for it. In commodity investments (stocks for example) the market is very efficient because there is a lot of supply and demand and a centralized marketplace. In purchasing a site the market will very often come to an improper valuation of a site. It may be because a sale draws a lot of attention and in the excitement the purchase price is bid up. It could also be that a site goes unnoticed or people fail to anticipate the potential of a site and so it sells for less than it would in an efficient market. You can take advantage of these inefficiencies to get a good price for the site you want. Sometimes a lesser traveled forum will draw less traffic and less competitive bidding for a site. Look for times of the year (Christmas season or summer vacation season) when there are fewer buyers and the sales aren’t getting as much bidding.

A particularly good way to get a great price on a site is to approach the owner of a site before they know they want to sell it. If you find a site that looks like a good starting point for you but it doesn’t appear to have a lot of recent development the owner is often going to be willing to sell a site they’ve neglected for some short term gain. Without the competitive bidding you can often purchase these kinds of sites for less than a similar site listed in a popular marketplace.

Build vs Buy Costs

photo credit: billjacobus1It’s probably counterintuitive but another great way to buy a site at a great price is to avoid buying it and build it instead. If you’ve decided to purchase a site in the first place it’s likely because you’re unable to build the site yourself but you may come across a great site idea that’s not getting a lot of traffic. Rather than buy the existing site, check to see how much it would cost to have freelancers build a similar site for you. If you can have it built for less than it would cost to purchase the existing site you’ll have some extra dollars saved that you can apply to promotion.

The Deal is Out There

Buying a site can be a great way to start or expand an Internet business. It’s important though that you do that work that it takes to ensure that you’re getting a great price. Don’t be disappointed if a site you’re interested in gets bid out of your price range. If you do the work you can find the site that’s selling from a great price for your situation.

Only a single man could think that having more than one wife would be a good thing. So what am I talking about with this harem vs wife thing? Obviously a sensational headline designed to draw attention (hey blogging is all about transparency, right?). But now that I’ve got your attention let me talk about being an entrepreneur on the web and either getting married to a single site or developing a collection of sites.

The Monogamous Relationship

photo credit: avlxyzIf you’re starting out on the web it may seem intuitive to start out with a single site that gets all your attention. That’s not a bad idea - specially when your time is limited. If you’re working on a single site you avoid the problem of balancing your time between different sites and you allow yourself to become intimately familiar with your subject area. A single site is great if you’re really passionate about your topic. Of course focusing your energies on one site has drawbacks. It’s difficult for a new site (in any niche) to gain significant traction and which sites are going to succeed and which are going to fail isn’t often readily apparent. Then there’s the added risk that the niche you chose to focus on becomes irrelevant or overtaken by a dominant competitor. If you were focusing all your energy on a banner exchange (gone out of style) or website statistics (Google Analytics moved in for free) you’d be forced to make a complete change of course.

Dating Sisters

An alternative to running a single site is to run multiple sites within the same or closely related niches. This has some advantages over a single site because your properties can cross promote each other. While you may need to increase your knowledge over a broader area than when running a single site you won’t be completely scattered all over the place. You still run the risk of having your niche go away but you should be less vulnerable to a big competitor since each of your sites will (or at least should) take different approaches to your topic. Think of it like you’re dating sisters. You may need to learn each of their likes and dislikes but you only have one set of parents to meet. Of course it could make Thanksgiving dinner an interesting affair.

Playing the Field

As with the relationship analogy, playing the field (building multiple sites focusing on multiple niches) is probably a tactic that’s best for the early stages. There’s really nothing wrong with trying a bunch of ideas and seeing what sticks - and more importantly what you’re good at and what you enjoy doing. But unless you’re some superhuman genius you’re not going to be able to become an authority in too many areas. If you find you’re unable to keep up a site or don’t enjoy running it you always have to option of selling it (or simply closing it if it doesn’t have much value) and focusing on what you are good at.

A Long Term Affair

photo credit: funkybug (Atlantic City/ Philly for the weekend)One time when it’s possible and good to run sites in two different niches is when you have a “day job” and a “hobby” site. Perhaps you’re a successful technology pundit who also enjoys digital photography. Or maybe you’re a noted online marketer who enjoys fine dining and writing restaurant reviews. You can roll all your interests into one blog or you might just find that this online entrepreneur thing is so enjoyable that you do it for work and for fun. As long and you occasionally step away from the computer this can be a great way to keep your online activities fresh and exciting.

So What’s for Me?

Each approach has its advantages and disadvantages and no one can tell you what’s the best situation for you. But be aware that all of these are viable options and don’t be afraid to consider your options. Whatever you decide be sure that you go into it with your eyes wide open. And unlike some relationship decisions you can change your mind and switch between approaches as your situation changes

I’ve been literally and figuratively out on my own for quite a while now and as you can imagine that has both advantages and disadvantages. I covered some of the advantages of being solo a while back and now it’s time to address the disadvantages.

Every Advantage is a Disadvantage

photo credit: .:Axle:.Raise your hand if you saw that coming. But really it’s true. Pretty much everything I listed as an advantage of being solo also has a negative side. You decide the agenda also means there’s no one to tell you what to do and makes it easy to get lost. When you’re solo you get to set the agenda but you also need to spend thoughtful time considering the agenda or you can just end up wandering aimlessly. You get to decide the technology but that also means you can spend a lot of time evaluating technologies and it’s easy to spend so much time chasing after the latest new thing that you don’t accomplish anything. You don’t have to take outside funding but it’s also much harder to raise outside funding if you do need it since a single person project can often sound like a quaint hobby to bankers and venture capitalists.

No Sounding Board

If you’ve worked in a good, dynamic team environment you’ve probably developed the habit of walking into someone’s office and saying “Hey what do you think about this?”. Sometimes a new perspective on a problem is all it takes to find the obvious solution. Sometimes you find yourself building a complicated bit of software only to have a team mate say “Hey, that already exists”. While it’s a problem for programmers its even worse when you wear the designer’s hat and you’re trying to plan new or improved functionality. What seems like a great idea to you may be of interest to no one else. For the solo entrepreneur it’s important to find an outside counsel for these situations. It may be taking your technical ideas to a forum or chatting with a user about a planned feature. If you just take your own idea and run with it with no additional feedback you might end up spending a lot of time building something that no one else wants.

Wearing Too Many Hats

photo credit: Robyn GallagherWhen you’re solo you get to do a lot of varied tasks but you also have to do things that are outside your core competencies or areas of interest. When I undertook my “big successful site” I found that I actually enjoyed a lot of the non-programming tasks. Promotion and monetization are not something I had thought a lot about before they were thrust upon me but I did enjoy learning them and doing them. Even some sysadmin tasks can be fun - you can squeeze a ton more performance out of Apache by tweaking the settings. But there are plenty of other tasks that are either no fun - answering support e-mails - or I just wasn’t able to do - making the site look nice. If you’re solo and find yourself with a task you can’t manage it may be time to hire outside help. Hiring a designer is pretty much a must if you’re a programmer and building a site and support and sysadmin assistance can be picked up quite reasonably on a part time basis.

So is Solo Good or Bad?

Balancing all the advantages and disadvantages I’d have to say that solo isn’t necessarily the ideal way to run a web development project. If you can find that small group of people who have the ability to commit to a project then run with it but being solo is better than working with people you don’t like or people who aren’t as dedicated or talented as you may be. The disadvantage of being solo can be overcome and if solo is your only chance at running a project you’re excited about then don’t let those disadvantages deter you.

photo credit: cambodia4kidsorgIf you’ve been following along, you understand what ROI means, the various types of investments that are required of an online project and the various types of returns you can expect. But so far this is a meaningless number (or worse a collection of hard to quantify costs and benefits). Why should you care about ROI and how can you use it?

In the end, ROI is the real measure of success or failure of a project. If I tell you that my online project makes me $2,000 a month that might sound good but if I spent $50,000 in startup costs and had to sell my soul to get that return then it’s not a very successful project.

Figuring ROI

The first step in using ROI to guide your business decisions and evaluate your past projects is to be aware of the investments you make and returns you see.

1. Estimate ROI. When you start a project (this can be a new site or simply a modification to an existing site) take a minute to estimate the costs in money, time and intangibles as well as the returns.
2. Track ROI.As the project progresses keep a record of the actual investments you make and when it launches the actual returns you see.
3. Evaluate ROI. After you’ve done this for a while you can use the actual ROI to refine your future investments as well as see which of your past project where the most successful

Guide Your Decisions

It’s pretty simple really. If you have 3 or 4 potential projects you can work on, estimate an ROI for each and work on the one with the best ROI first. In reality it’s not quite that simple since you often need to balance long term rewards with short term ones. Maybe you find that one project should cost little and net you $5,000 over the next two months and another project will require some time and money investment but yield $2,000 a month for years. Which to chose will depend a lot on your situation - your ability to make the investment and your need for immediate income. But considering the ROI of each option can still help guide your decision.

Evaluate Your Past Projects

photo credit: seeks2dreamWhy would you want to evaluate your past projects? Do you really want to know that you spent a fortune building a site that had meager returns? If you want to improve your future decisions then it’s vital that you understand the outcome of your past decisions. As an example, lets say that you find that a past project was more successful than you at first thought it might be. It required a few months of your time but the returns were far greater than you imagined. If you can do another similar project this information may allow you to make a greater investment (hire some freelancers to do some of the work) because you’re confident that the return will be there. On the flip side if you find that you’re spending a lot of time on short, inexpensive projects that don’t bring any significant return then you can avoid those types of projects in the future.

Some Real Life Examples

While running my “big successful site” I noticed another site in the niche that had some cool integrated eBay listings on their page. A little legwork and I found that they were using a very simple API through eBay’s affiliate program with Commission Junction. I was able to add the feed to pages throughout my site with very little work so I went ahead and did it even though I expected very little return. The feature was well received - though it was income generating for me the users found it helpful and treated the addition as new content. They also responded well to it and it produced hundreds of dollar of commissions a month for me. Very low expense but a high return taught me to look for opportunities like this in the future. .

On the same site I was also running the Amazon affiliate program. It also was a bit more difficult to add than the eBay program and I expected that it would yield good returns but the actual commissions from Amazon were minuscule. Because of the size of the site I was approached by Buy.com who wanted me to add their own affiliate program to the site. I spent days looking through their feeds and negotiating rates on the phone with their affiliate manager and in the end never even implemented the project. If I had looked at the ROI I achieved from the similar Amazon offer it would have been clear from the start that this wasn’t a good use of my time.

As an aside, I think the eBay offer worked better on this site because it offered up unusual items that were related to the content. In the case of Amazon I could offer up related books and DVDs but people looking to buy the books and DVDs would likely just head to Amazon directly. In the case of eBay people were discovering items they didn’t even know existed. This doesn’t at all mean that the Amazon or Buy.com offers won’t work well in other situations.

Wrapping it Up

Hopefully this series has given you an idea about how to take a more professional business approach to your online endeavors. I’m not suggesting that you become a slave to the ROI numbers. You should however, understand what the potential numbers on both sides of the equation can be and give some careful consideration to expenses and returns as you decide what you’re going to do with your online business.

Since we know what ROI is and the various types of investment we can and need to make in a web project let’s take a look at the fun side of the equation and examine the kinds of returns we can hope to see.

Direct Monetary Return

photo credit: Tanya DropbearIf you’re putting cash in, chances are you’re hoping to get cash out. The direct monetary return you can see from a website is just that - cash that the site earns directly. If your site is an e-commerce site then the direct monetary return is the profit you make on selling items. If you have a content site then the direct income is from whatever monetization strategy you use - selling advertising, promoting an affiliate offer, fees you charge for products or services or in some cases a tip-jar for you blog.

Direct monetary returns from your site are pretty straightforward but in some cases the web adds one extra little twist and that’s passively generated and residual income. Passive income is simply the effect that web content can stick around for a long time and continue to earn you money. If you have a blog and write an article that promotes an affiliate offer, someone may find it in the search engines a year from now, respond to the offer and generate income for you. You did nothing in particular to drive that specific action but it yields income for you anyway. Residual income is also usually associated with affiliate offers, but in particular those offers that give you a continuing payment as long as the visitor you send them remains a customer or a payment based on what that customer spends over a continuing term. A common example might be a web hosting affiliate offer that will pay you for every month that the users you send remain a customer. These are still direct monetary returns but the fact that they may occur over a longer time period adds some twists to how we use ROI later.

Indirect Monetary Return

Indirect monetary return happens when you don’t actually monetize your site directly. In some cases you can think of this as your site being an affiliate program for your offline business. For example if you own a garden shop in a town you might run a blog about gardening. If that blog drives traffic to your offline shop then those sales are an indirect form of return. In this case since so few of your readers are potential customers it would be silly to use this as your only form of monetization but it might serve as a secondary source of income.

photo credit: jurvetsonIn other cases this indirect monetization can be the primary income derived from a site. Maybe a national brand of canned tomatoes runs a site with cooking tips and recipes. They might do no other monetization of the site than mentioning their brands when the recipe calls for a product they make. On a more individual level someone who works as a consultant can use a site to help establish them as an authority in their field. If your blog gives you the reputation as a top expert in SEO/SEM then you can be sure that you can command huge fees in consulting deals. Noted experts might also have opportunities to write books, publish articles and speak at conferences that they wouldn’t have unless their site established their authority.

Non-Monetary Benefits

It’s not always about the money. Sometimes the biggest reward you get from an online project might be the recognition it brings you or knowledge that you’ve helped someone else. Some people blog just because they want to have others read their opinions. Some people start a fan site because they just really love that actor/band/movie and want to encourage others to share that love. Since the costs of a website can be very low it can be worth it for some people to run a site at a loss as a hobby. If you’re looking to run a website as a business however these non-monetary returns can still be a powerful secondary reason to do what you do. It’s a lot of fun to sell someone you run a site and find out that they’re familiar with it. It can also be awfully encouraging to see a positive review in a magazine or online even if it doesn’t drive much traffic. These non-monetary benefits are another good reason to do something that you’ll be proud of.

Life and Lifestyle Benefits

While not a direct result of any one particular investment you make, the successful online entrepreneur can experience lifestyle benefits that are not available through a regular job or even a regular small business. Besides the pride in working for yourself and not having a boss, online endeavors will typically allow the entrepreneur to work when they want and where they want. This makes an online project a great option for stay at home mothers (and fathers) or people who want to live in out of the way locations.

Finishing the Equation

We introduced ROI as return/investment and now we have both the investment and return parts of the formula. But as you can see both investment and return can take non-monetary forms. It’s not always easy to boil ROI on the web down to a nice simple ratio. An exercise that can be helpful however is to assign monetary values to these non-monetary costs and benefits and use those to derive a final ROI number. I’ll talk more in the 3rd and final part of this series about why we want to estimate those ratios and how we can use the concept of ROI to guide our decisions and judge our past performance.

ROI - return on investment - is a common enough term that most people generally understand what it means. In an investing context ROI is generally measured as profit / investment and used to evaluate the relative merits of two different investments. So for example if you invest $1,000 and yield a $200 profit your ROI would be 20%.ROI is a useful measure in other contexts as well and particularly in the world of web development and making money online ROI is really the ultimate number that will decide if a project (or task) is successful or a failure. But ROI in this context has some slightly different nuances since both return and investment can mean a variety of things.

Let’s take the term in reverse order and start by examining various forms of investment as they relate to web development.

Monetary Investment

photo credit: sunshinecityThe most readily apparent form of investment is a monetary investment. Startup costs vary widely with web development projects. Depending on who you are and what you’re building startup costs could involve millions in programming and design. For a smaller scale or solo developer startup costs are generally more contained - perhaps the costs of a custom template for your site and and few off the shelf scripts. For a blogger your costs might be as little as a few bucks for a domain name and a small hosting plan. In some cases direct monetary startup costs can even be zero - it costs nothing to startup a blog on wordpress.com.

There are also non-startup costs that are typical for web developers. These include advertising and promotion investments, licensing/partnership fees and hosting/bandwidth costs. A frugal web developer can do promotion for little or no money by seeking free backlinks and applying other free SEO techniques but very often a web project needs an advertising boost to get started. This might include paid inclusion in directories, paid blogger reviews and CPC programs like AdSense. Most web projects don’t need to be concerned with licensing fees but if you need to purchase access to some data for the site to work that will be an ongoing investment expense. Hosting and bandwidth costs will vary according to the type of site and can be anything from negligible in the case of a blog to overwhelming for video sharing sites.

Time Investment

photo credit: taiyofjAnother form of investment is easy to downplay but is vitally important when measuring the ROI of the projects you undertake. With my “big successful site” I could claim that I was getting a positive return after less than a year while earning a meager income. That’s because I had tiny monetary costs associated with the site - just a domain name and shared hosting account. But in reality that ignored my greatest investment which was about man year of labor. Your time may be free to you but it’s also a limited commodity and so when you spend time on something you are truly making an investment.

One thing you can do when you work to evaluate your ROI is to attempt to assign a monetary value to non-monetary costs and benefits. In the case of an investment of time this more difficult than it might at first appear. You can work out your hourly rate at your day job and say that the time you spend at your web project costs the same per hour. But for most of us that’s not necessarily a direct comparison. If you weren’t working on your web project would you have the option of spending those hours on your day job? Perhaps a better method is to look at what you give up in order to spend time on web development. If your project comes at the expense of watching American Idol you can say that your time is free. If your project comes at the expense of spending time with your family you can say that your time is priceless. The real cost of your time expenditure will depend on your own personal situation and is likely to vary over the term of your project.

Social Capital Investment

Once you’ve figured the money and time you need to spend on a project you may think that this is all that you’re going to invest in your web development project but that may not be the case. If you’re launching a social site you’ll need to seed it with some early participants. So you e-mail a bunch of your friends and ask them to checkout the site. Or perhaps you’re launching a content site and decide that you want to promote it via a post on a forum you’ve been frequenting. Assuming these things are ok with your friends and the forum policies these are good techniques but again you need to be aware that the ability to make these requests of friends and forums is limited. You’re spending some of your social capital to get your friends or forum readers to your site. This investment may cost you in the reciprocal demands that these groups will make on you in the future or it may just cost you in the ability to use the same techniques again in the future. I’m happy to help a friend launch a site but if he’s asking for help every other week it’s going to get old quickly.

Reputation/Integrity Costs

On the web as in life you may find yourself faced with a money making opportunity that is on the shady side ethically or morally. Perhaps you’re considering launching some MFA sites with screen scrapped content. Or maybe you have an opportunity to run bulk e-mail campaign that makes money but goes against your moral code. When evaluating an opportunity remember that if it’s not something you can be unquestionably proud of it may have a cost to your reputation or you own self image. Some are hardened and say they don’t care but for most people these costs will affect you either now or in the long term

Lots of Investments

I’ve look just at the investment side of the ROI equation here and as you can see the potential costs you face when undertaking a web development project can be quite varied. Next I’ll take a look at the more fun side of the equation and look at what kinds of returns a website can bring and how to use the whole concept of ROI to guide your business decision.