Income Generation Series: Informational Products
Overview
Selling informational products is a very common business model on the internet. Nowadays it is hard to surf the internet without running into an e-book or course being sold on even conceivable topic imaginable. Informational products includes e-books, course, informational websites, and guides. The basic concept is to produce a body of specialized knowledge and sell it to others for a profit.
There are many different channels to sell informational products; eBay, Craigslist, websites, affiliate marketing, and email lists, among others. The channel effectiveness will depend upon the niche of the product and the competition. Many informational product merchants sell their products across several different channels to maximize their exposure.
The production of materials can become time consuming and capital intensive if outsourced. Depending upon how specialized the knowledge is, the writing and content development may be outsourced. If outsourcing is used, the merchant generally pays for the cost of production upfront, with the intention of generating sales higher than the cost of production. As with just about anything in life, you get what you pay for, so using cheap outsourced labor runs the risk of developing a poor product that may be difficult to sell.
The major benefit to this business model is that once the content is developed, sales can be setup to be automated. There are minimal variable costs associated with each consecutive sale, so it can be relatively easy to recoup development costs. Additionally depending upon the scarcity of your knowledge and the demand in your niche, the price point for a product can be very high.
Analysis
- Time: The time requirement is generally very high in the content development phase, but drops off sharply once the product begins to be sold. If setup correctly the sales process can be mostly automated. Utilizing outsourced labor can also decrease the time requirements.
- Capital: If developed 100% in-house, then the capital requirements are very low, although this is personally not recommended. Utilizing outsourced labor will increase costs, but will ensure you are not burdened with the development of the project. Development costs can range from $500 - $5000.
- Scaling: This business model has excellent scalability. Once products are developed, they will continue to develop income as long as they are actively promoted. Products can be repackaged or sold through different channels to increase sales volume. Most of the sales process can be outsourced or automated.
- Outsourcing: Most of the activities associated with this model can be outsourced. Although it may be very difficult to outsource complex content development. This will primarily depend upon the skill of the labor pool.
- ROI: This is highly variable on the niche, demand, intrinsic value of the content, price point, development costs, and marketing overhead.
Recommendation
Informational products is a solid business model on the internet if developed correctly. Given the development time and associated overhead of outsourcing, this business model will not be utilized until later in the growth plan of my business model. It will provide an opportunity to diversify income, although the revenue it generates will take some time to capture. Another potential for this business model is to generate content and give it away for free, in the hopes of adding value to existing websites. The intention would be to utilize free content to increase traffic or add value to members only sections.
Income Generation Series: Service-Based Business Models
Overview
Service-based business models are based on exchanging time and expertise for money. Whenever someone is providing labor in exchanging for money, they are providing a service. There are many service based opportunities such as graphic design, web design, SEO outsourcing, or consulting.
There are some distinct disadvantages to developing a service-based model. These models are very difficult to outsource, and even outsourcing can require a large management commitment. They are generally not very conducive to generating passive income, since they typically bill clients based on time expended. Additionally effort must be expended to build a client base, which takes time and money.
Given these disadvantages, a service-based business model does not integrate well into the business plan. Some opportunities may exist in outsourcing. Although, it would be critical to focus on consistent repeatable processes. Given that I am proposing to use third-world labor, the processes need to be specifically defined and simple to execute. Some opportunities may exist in developing cookie-cutter websites or link building programs. The risk would be that these activities could take my workforce away from focusing on what is really important.
Analysis
- Time: Very High. If not outsourced, you only make money on time spent working.
- Capital: Generally low. There would need to be some capital investment in branding and promotional material.
- Scaling: Very difficult to scale. If this were to be outsourced, scaling could only be achieved by hiring additional personnel. This would consequently increase overhead.
- Outsourcing: There is some opportunity for outsourcing, as long as the projects are simple and straight forward. It would be idea to develop a cookie-cutter system, in which the same tasks and objectives are outsourced.
- ROI: This is generally capped at the client bill rate. Difficult projects can charge a premium, but may be very difficult to properly outsource.
Recommendation
The service-based business model does not provide significant opportunities for my business plan. Opportunities may be considered to alleviate specific problems, such as idle workforce or the need to raise capital. However, these opportunities will be considered low priorities, and will only be utilized when necessary.
Income Generation Series: Affiliate Marketing
Overview
Affiliate marketing is based around promoting offers for other merchants. Offers are found through website affiliate programs or through CPA networks Affiliate marketers are usually paid on the conversion of an offer. Conversions can range from email submissions to the actual purchase of the product. In this business model, the affiliate marketer focuses all his energy on marketing, while the merchant is solely responsible for the product they offer.
The conversion payout varies greatly by the type of offer. They can range from $1.50 on simple email conversions to over $150 for highly competitive leads. CPA networks are usually the most consistent source of offers to promote. Affiliate marketers front the cost of marketing these offers, usually through PPC campaigns. Campaigns become profitable by generating conversion revenue higher than the cost of traffic. Many variable can effect the success of a campaign; landing page, demand for offer, cost of traffic, type of traffic, offer payout, the effectiveness of the ads placed.
It can be very difficult to find profitable campaigns. Potential niches are found through keyword research. Each campaign requires a great deal of front end testing to determine viability. The variable are tweaked until the campaign is optimized. Once a campaign is optimized, daily oversight it required but there is generally minimal maintenence.
Analysis
- Time: Affiliate marketing requires a high time commitment to launch a campaign. Each new campaign will require keyword research, multiple landing pages, ad writing, and PPC campaigns to be setup.
- Capital: The capital requirements for affiliate marketing are high. During the testing phase of setting up a campaign, daily losses are expected. These losses can continue for sometime before the campaign is optimized to profitable levels. Once a campaign is deemed profitable, the amount spent on the campaign is greatly increased. This increase in capital is generally done with credit.
- Scaling: The are terrific scaling opportunities with affiliate marketing. Once a profitable campaign is found and optimized, it generally requires little work. Campaigns can then be scaled by increasing capital or increasing the number of campaigns running.
- Outsourcing: Most of the work required in affiliate marketing cannot be outsourced. Some of the landing page development can be if a reliable source is found for good content.
- ROI: This is highly dependent upon the variables of the campaign. Profitable campaigns can return 50-1600% ROI on invested capital.
Recommendation
There are significant opportunities within affiliate marketing. This business model will be incorporated into my business plan due to it’s scalability and high profit potential. However it will be incorporated in the later stages of my plan, when I begin to work for my corporation full time. This method is not conducive to outsourcing and will take a full-time effort to properly manage the testing and optimization.
Income Generation Series: Partial E-Commerce Websites
Overview
The business models of partial e-commerce websites are somewhat different than their full e-commerce counterparts. To the consumer, there is often no recognizable differentiator between the two. The differences can be found in the operational procedures of the websites. Partial e-commerce typically uses drop shippers to outsource the shipping logistics and inventory concerns of the full e-commerce model.
The primary benefits of using drop shippers is to streamline procedures, minimize inventory overhead, and increase product offerings without capital investment. This comes at a cost, as the profit margins per sale are much lower than those in the full e-commerce model. Conversely the associated overhead is also much lower, which makes this model attractive to companies with limited investment capital.
When an order is placed on a partial e-commerce website, the webmaster then places an order with the drop shipper to send the product. The webmasters profit is the difference between the price of the sale and the cost of the product through the drop shipper. Using this model allows the webmaster to focus more resources and time on advertising their website, and can potentially utilize economies of scale with large drop shipping operations.
There are several drawbacks assoicated with this model. Websites are generally limited to products only offered through drop shippers. This leads to higher competition which can directly impact margins through increased advertising costs. There is also concerns with reputation management. The drop shipper is usually transparent to the consumer, so if the drop shipper provide poor service, it directly impacts your reputation.
Analysis
- Time: The time commitment to running a partial e-commerce store can be significant, although much less than the full e-commerce model. Much of the marketing can be outsourced, and the sales notification to the drop shipper can potentially be automated. However, there will still be issues inherent to the e-commerce model; refunds, billing, inquiries, customer support, and marketing.
- Capital: Generally minimal. Once a website is constructed, capital may need to be spent on marketing. Content on e-commerce sites tend to be lean, so paid advertising is often a preferred method to attract visitors.
- Scaling: The partial e-commerce model can be somewhat scaled. The key would be to look for automation potential and harness the existing customer base for continual sales. Marketing efforts can generally be scaled as well.
- Outsourcing: Much of the partial e-commerce model can be outsourced. Web design, content creation, marketing, and customer contacts can all be outsourced if managed correctly.
- ROI: The ROI potential is highly dependent upon offers available, drop shippers, and the level of competition.
Recommendation
Partial e-commerce websites have potential to be integrated into my business plan. If built correctly they can be outsourced, scaled, and require minimal capital requirements. Although not the highest priority opportunities, these will be examined. In terms of acquiring these websites, they would generally tend to have a lower valuation than other opportunities in my portfolio. This would be due to the potential for high levels of competition and the difficulty of assessing the existing relationship and performance of the drop shipper.
Income Generation Series: Full E-Commerce Websites
Overview
Full e-commerce websites are focused on promoting a website to generate sales of physical goods. Once a sale is made, goods are then packaged and shipped to the customer. These websites can range from simple part-time operations to huge virtual mega stores. These require much more energy to promote, establish and maintain, but the profit margins can be significantly higher.
Many of these websites have a potential to be optimized. Procedures such as shipping, accounting, and customer contact should be examined to look for opportunities. The goal in running these websites is to streamline operations and increase sales. Sales could potentially be increase by seeking out new untapped sales channels, such as eBay, Craigslist, Froogle, etc.
Analysis
- Time: There is significant time requirements to run an e-commerce website. Time must be allocated towards marketing, e-mails, shipping, inventory, accounting, and website maintenance.
- Capital: There can be significant capital expenditure required to acquire inventory. Additionally business overhead increases to accommodate inventory storage. There can also be cashflow issues associated with storing inventory, as well as inherent risk of inventory loss.
- Scaling: These websites are very difficult to scale. As sales increase, the work associated also increases almost proportionally. Economies of scale can create efficiencies as the websites grow. Although additional employees need to be brought in at a certain growth level, which increases overhead and decreases margins. Significant capital expenditure is often required to properly scale up these types of websites.
- Outsourcing: These types of websites are not conducive to virtual outsourcing. Hiring employees to work in-house is needed, due inventory issues. Some of the marketing may be a candidate to outsource to virtual assistants.
- ROI: Typical ROI is expected to be 50-100%, although factors such as employee overhead, storage rental fees, transaction fees, and marketing costs can significantly impact profit margins.
Recommendation
There are opportunities in running full e-commerce websites. However, due to the time commitments, lack of scale, and capital requirements, these types of websites will not be a priority in my business plan. The opportunity cost of time is significant with these sites, and my time will be better utilized in other websites that can potentially produce passive income.
Income Generation Series: Niche Marketing
Overview
Niche marketing is focused on advertising to specific niche markets. In a broad sense, all internet marketing is focused on niche segments. However, true niche marketing is applying an effort to dominate advertising small, obscure niche markets. Individually these markets usually do not yield large returns, but these website generally require minimal maintenance. The objective is to expand into a ever-increasing list of small niche markets, creating passive income with informational-type websites.
Informational websites are the most basic form of niche marketing. The goal is to provide information to web users seeking very specific and obscure information on a certain topic. These websites are then monetized using an Adsense-type model, generating a very small, but consistent amount of revenue. This concept is then scaled out to every identifiable niche possible. This tactic is only really used in non-competitive niches with small volumes.
Analysis
- Time: The time requirement is medium to high. Research is required to identify possible opportunities. Additional research may be required to gain background knowledge sufficient to develop quality content. Once niches are identified, informational websites need to be created, monetized, and moderately promoted.
- Capital: The capital requirements for niche marketing are low. The only potential costs associated with niche marketing are outsourcing, if applicable.
- Scaling: Niche marketing has great scaling potential. These websites should continue to generate income with minimal attention, as long as care it taken to exploit non-competitive niches.
- Outsourcing: Most of the work associated with niche marketing can be outsourced. The development of the websites and content can be easily handled by virtual assistants. Although the research required to identify opportunities is probably not a good task to outsource.
- ROI: Highly variable. The ROI for niche marketing is generally low and is highly dependent upon numerous factors; the competitiveness of the niche, search volume, advertising payouts within the niche, and time required to develop quality pages.
Recommendation
Niche marketing is a long-term growth strategy. This internet marketing tactics can be used to develop a consistent, diversified revenue stream. However, it requires a large investment of development time and research to properly execute. I feel that niche marketing worthy place within my internet marketing business plan, although given its resource requirements, will be a secondary income generation opportunity. This tactic could potentially be used to keep virtual assistants busy during slow periods.
Income Generation Series: Website Acquisitions
Overview
Websites are acquired from active marketplaces, known for selling web assets. Acquisitions are made based upon a preexisting buying criteria. There is a great deal is risk associated with buying websites, so a risk mitigation strategy is devised to limit the potential for loss. Once a website is acquired, it is transfered to existing servers and analyzed for potential opportunities. An optimization plan is developed; which aims to upgrade design, identify unrealized potential, and find new advertising channels.
Active marketplaces are continually scanned for opportunities. Many marketplaces operate on a auction format, much like eBay. Thus the ability to react quickly to seize opportunities is essential. To qualify for purchase, each potential opportunity will be judged against pre-existing criteria.
The buying criteria will help establish a methodology to objectively evaluate each opportunity. The criteria will evaluate the category the websites fall into to make sure the acquisition is in line with corporate objectives. It will also take into consideration the following factors; time commitment, overhead, technical expertise to operate, niche, growth opportunities, traffic trends, and valuation formula. A quick technical analysis will also be preformed to check the following factors; incoming links, PageRanks, Alexa ranking, and reputation analysis. The technical analysis portion of the buying criteria will be brief, in anticipation for the fully technical analysis during escrow.
A risk mitigation strategy will be used to minimize the potential for loss. All acquisitions will be purchased through an escrow procedure, and any opportunity not offering escrow will be disqualified. During the escrow period, a full technical analysis of the site will be preformed, looking the following factors; transferability of accounts, standing of existing contacts, legitimacy of traffic, traffic trends, incoming links, history of website, and reputation of brand. While this requires additional work, the goal is to minimize the potential of buying a fraudulent website. The technical analysis will be documented into a clearly defined, repeatable process.
Once a website is acquired, a full optimization plan will be developed. This plan will prioritize growth opportunities, and set a time line for execution. This plan then be broken into tasks, which could be outsourced to virtual assistants. The optimization plan will look that the following opportunities for growth; new advertising channels, integration of e-mail campaigns, ad placement optimization, different revenue models, social media optimization, SEO, and content creation. This plan will be specific to each acquisition.
Analysis
- Time: The time requirement is generally high, although it would taper off over time. At the time of initial acquisition, there is a lot of work associated with evaluating, purchasing, transferring, and optimizing the site. Much of this will be outsourced to virtual assistants via a management program. After the site is optimized, a regular maintenance schedule will be developed and the time requirement will become considerably less.
- Capital: The capital requirements for website acquisitions are very high. The objective is to purchase websites at 10-12x monthly revenue. The average acquisition would be around $5,000 - $15,000.
- Scaling: The acquisition of websites based upon a disciplined buying criteria will allow for scaling, by avoiding websites that need a high degree of work after the optimization process is complete.
- Outsourcing: Most of the activities in this process can be outsourced.
- ROI: Based upon acquiring websites on a valuation of 10-12x monthly revenue, annual ROI should be 100%+
Recommendation
Website acquisitions has a high potential ROI, can be outsourced, and is scalable. As long as capital can be generated and risk can be minimized, this strategy is a solid business opportunity. This strategy will be deployed form the onset of my business strategy to develop consistent incoming cash flow.
Income Generation Series: PPC Campaigns
Overview
PPC (pay-per-click) campaigns use advertising networks to direct paid traffic towards websites to make ad conversions. The objective is for the commissions paid out on conversions to be higher than the cost of traffic.
How it works
Traffic is obtained through services such as Adwords, MSN Adcenter, or Yahoo Search, and is bought on a per-click basis. The cost of traffic is based on bidding upon keywords, and the popularity of the keyword effects the per-click cost. The two main objectives to PPC campaigns is to keep the cost of traffic as low as possible and to rise the conversion rate once the traffic lands upon the website you are promoting. Profit is obtained by generating commissions that are higher than the cost of traffic. There are three major variables to consider:
- Cost of traffic
- Conversion rate of traffic
- Commission generation on offer
The ability to find cheap, targeted traffic is critical to running a successful campaign. There are many different methodologies to finding cheap traffic, which can widely vary across niches. There is often a strong emphasis on finding long-tail keywords, and then developing campaigns with hundreds or thousands of keywords to drive volume. Due to increasing competition, it can be extremely difficult to find keywords at profitable levels. As a result, creativity and testing are very important when setting up campaigns.
The conversion rate is another critical factor to running a profitable campaign. This can be influenced by a number of factors; landing pages, traffic source, how targeted traffic is, and the effort required to complete the offer you are promoting. There are a number of different theories on utilizing landing pages, and testing is essential to finding effective layouts that make conversions. The quality and targeting of traffic can greatly influence conversion rates. The key is to find traffic in the “buying mode” of a particular niche. The effort required for conversion relates to what it takes to make a conversion. This can range from a simple email submission to spending money to purchase a product. The complexity of the transaction is influence the conversion rate.
The commission rate paid by a successful conversion will also dictate the price point for traffic. These rates vary greatly by offers and advertising networks. Typically offers are found through CPA networks, although alternative offers can be found in other avenues. Offers for email submissions payout $1.50-$4.00, while purchase offers can be as high as $60 per conversion.
Analysis
- Time: The time commitment associated with PPC campaigns is moderate. There is a lot of initial testing that must be done to find successful campaigns. However once the testing is done, daily maintenance is minimal.
- Capital: The capital requirements are high. During the testing phase, money will be lost on unsuccessful campaigns. Once a converting campaign is found, an increasing about of capital needs to be devoted to it to drive volume.
- Scaling: PPC campaigns can be scaled. Daily maintenance of existing campaigns is minimal, so one person can effectively manage an ever increasing amount of campaigns.
- Outsourcing: This process cannot be outsourced. It is too difficult to explain the process and the financial impact of unsuccessful campaigns is too severe if ran incorrectly.
- ROI: Successful campaigns should generate between 200-1600%.
Recommendation
Based upon the high ROI potential and that it can be scaled, PPC campaigns will be incorporated as a secondary revenue stream into the business plan. As they cannot be outsourced and there is a high need for capital, they will be utilized later in the plan, after I have transitioned into working for the company full-time.
Income Generation Series: Overview
The lifeblood and critical success factor of my internet media company is income production. The ability to produce a reliable and stable income will ultimately determine the long-term success of my business concept. There is a multitude of ways to make money on the internet, although not all opportunities are created equal. It is essential that I prioritize potential opportunities against available resources and long-term objectives. Time and capital investment are two factors that heavily influences opportunities for making an income on the internet. This series of posts will identify available opportunities and examine each opportunity in detail, to determine the best mixture of income generation for my internet media company.
The formal Business Plan: Is it needed?
The main objective behind this website is to compile my thought and research on internet marketing into structured categories. Once compiled, I will use this site as the backbone to build my formal business plan of launching an internet media company. Active blogging in a considerable time commitment, and it begs the question: is a formal business plan even needed?
The Formal Business Plan
As an aspiring entrepreneur, I believe every business should start with a formalized business plan. Without a concrete plan, that “side project” that consumes enormous amounts of time and energy is merely a hobby.
Read the rest of this entry »
