Your Residual Income Formula for Creating An Online Business



Residual Income FormulaIn the beginning, it was probably just for fun.

The first time you likely started your blog or wrote your first post, it was just for sheer enjoyment.  You wanted to say your piece and connect with other like-minded people within your virtual community.  And for a while things were good, and you were happy to be this way.

But then something happened.  Someone emailed you with an offer for a $100 to add a certain link or post some post that wasn’t yours.  Suddenly the lights came on and all those income reports you had always read about on Smart Passive Income flashed before your eyes.  You probably thought:

“I’m an entrepreneurial person.  I’m sure if I put a little more effort into this, I could be pulling in 4 figures of passive income in no time!  Financial freedom, here I come!”

And so the race began.

You start writing posts like crazy, submitting to every social media outlet and carnival you can find, and spending more time on the computer than you ever would naturally.  It becomes a second job.

Nothing happens.  You might make a few more bucks here and there, but the waterfall of cash still doesn’t come gushing in.

So now you start a second website and repeat the same cycle.  You’re doing everything on your own.  Now running websites really is a full time job, and it’s starting to wear you down.  You’re hitting a wall and getting frustrated.  What is going wrong?

 

A Blog is Not a Business:

I was feeling the same way.  And then coincidentally I stumbled upon this amazing post from Think Traffic where my concerns were validated loud and clear.  See the wisdom in Mistake No. 9:

“Repeat after me: a blog isn’t a business. A blog isn’t a business.” 

And he is absolutely right.

The simple act of owning a blog or writing some posts for fun will no longer make you rich.  That may have been the case 6 years ago when blogging was relatively new and advertisers were willing to gamble thousands of dollars to get trend setters to hype up their swag.

But times have changed.  New blogs sprout up every second and niches become more and more competitive every day.  Google is constantly pushing back and making the landscape more tricky for mediocre content to survive in.

 

But What About Those Income Reports I Always Read About?

But wait – if blogging is not a business, then how come some people DO MAKE MONEY from it? And lots of it??

The reason is simple:

Because they treat their website like a business instead of a blog.

I challenge you to take any well-known, money generating website and really take a look at it.  I’m willing to bet that as you peel back the onion, you’ll notice that all the right pieces are in place:

  • They sell advertising
  • They promote affiliate products
  • They promote their own special product or service
  • They have staff writers or ghost writers

And then there’s probably a lot more that goes on behind the scenes such as paying someone else to do link building, keyword research, content management, handle technical issues, etc.

My point is that there is plan in place.

  1. There are processes in place to make money from the traffic
  2. There are expenses associated with supporting those processes.

These website owners are not doing everything by themselves.  They have help; even if it is virtual.  They treat their blog or website like a business, and their income is proportional to how well they run that business.

In business this is called having a residual income formula, and it simply means that:

Revenue – Expenses = Profits. 

Obviously as savvy business owners, we want our online ventures to be profitable ones.  And to do that, we need to setup a system that will result in residual income to be positive.  That means that Revenue should be greater than Expenses.  But that also means we need to pump enough capital into our Expenses to generate that Revenue.

There are thousands of combinations of things we can try that will help with this.

 

Creating Your Own Residual Income Formula:

Residual Income Formula When I made a conscious decision to start developing my first niche website (over a year ago) so I could diversify my earnings, I really struggled with the concept of the residual income formula and treating website creation like a business.

I was stubborn and cheap.  I wanted to do everything myself.  I ended up investing a lot of hours in setting up the site, writing posts, and trying to promote it.

About how long do you think that lasted?  – If you said not long, you’re right.

And how much money did I make along the way? – Not a penny.

But wait?  How is it that other website owners are able to manage 5, 10, or even 100 niche websites and I’m struggling to make it work with just one?

That’s when I wised up.  I started to realize that I need to be studying their formula for success.  And what I found was that in all cases they weren’t spending more hours to develop their sites.  They were outsourcing routine or mundane activities.

They were making investments in their online businesses in the form of spending money in hopes of the potential to make even more money.

That’s when I started to refine my own residual income formula and really try to develop a model for my revenue and expenses going forward.

 

Revenue:

Trying to treat my websites like a business and get them to generate revenue is something I still test and retest constantly, and probably will continue to do so until I’m satisfied with my income.  I know you’ve probably seen them before, but here’s a quick summary of the typical things you can use to create income:

Adsense and direct adverting have really been the only two avenues of my website development that have produced sizeable results.  Even though I plan to experiment and find ways to develop the other ones, I have recently been trying hard to see if I can grow Adsense to its full potential through my niche website projects.

If you were to ask me why, just take a look: Suppose you build a site that gets 1,000 visitors per day.   Suppose the average CPC for the keywords you’re targeting is $4 and your ads have an average click through rate of 0.75%.  Putting that all together, you’d stand to make a passive income of over $600 per month just from that one site!

residual income formula

(Note: The 68% commission rate can be found in this Google publication).

An extra $2,000 per month would really help out my efforts to achieve financial freedom!

Regardless of which one of ways you try to grow the revenue aspect of your residual income formula, the difficult thing about it is that you can never “force” revenue to happen.  All you can really do is put your online business in the best possible position to attract the right kind of traffic that will lead to conversions and results.

Since Revenue – Expenses = Residual Income and you can’t make Revenue happen, all you can really do is minimize your Expenses in such a way that they do not exceed your projected Revenue.  That will lead to positive Residual Income.   And with that income you can use it to invest back into your businesses so that it can increase your chances for success even further!

 

Expenses:

I like to think of the Expense side of the residual income formula for my websites in terms of three general categories:  Fixed costs, things you plan to outsource, and things you could outsource but will do yourself.

 Fixed costs:

  • Domain registration and hosting.  My hosting account through iPage lets me host multiple domains from the same account.  So really for one extremely low monthly cost I can host several sites at once and only worry about the domain registration fees.

From time to time iPage will even sweeten the deal!  Recently they had a great sale where you could sign up for a new account at $1 per month AND register a free domain name.  That’s a price tag of $12 in total for the first year.  Not too bad considering that by the end of the first year you could either sell the site or re-register the domain for $15 while still paying the $1 per month (if you bought all 3 years in advance).

  • Domain privacy.  It’s my personal preference to have this, and at $10 per year it’s pretty cheap.
  • Keyword Tool.  I really like using the software Long Tail Pro to help me find those perfect high volume, low competition long tail keywords that are perfect for writing about.  The software cost $79 initially and carries a $12 monthly subscription expense for the must-have Platinum features.

Things you plan to outsource:

  • Content creation.  It’s really tough and time consuming to write 10 to 50 articles myself for a new site.  And so using a service like Elance has been an excellent and inexpensive way to accelerate the whole process.  You’d be surprised at how easy it is to find quality writers for less than $10 per article.
  • Carnival submissions.  Submitting your posts to blog carnivals is an easy way to build a lot of back links to your new site.  But the process of doing so is so boring!  Using oDesk I have found a professional that will do it for me within one hour each week at a rate of $2.50.
  • Social media promotion.  Similar to carnival submissions, submitting your posts to sites like Reddit, Digg, or Stumble Upon is an easy way to promote your content but it can be very tedious and time consuming.  So again I use a professional on oDesk to work on this weekly.

Things you could outsource but will do yourself.

  • Business strategy.  Because this is your business, this is something you need to work out yourself.  How do you want to make money from your site and what things are you willing to do to make money from it?
  • Advertising / Commissions: You could pay someone else a cut of your income to go out and find deals for you.  But in reality if your website has decent rankings the offers will probably come to you.  This is especially easy if you already have a blog that receives these kinds of offers already.  Now you can leverage one website to help another.
  • Keyword research.  Even though I mentioned it above, it also applies here because a lot of other marketers will outsource this activity.  I choose not to.  I actually value keyword research and selection above content creation simply because these are the words that will make or break whether or not your site gets found within the search engines.  Choosing the right collection of phrases and related terms will promote the strength of your site.  This is exactly what happened with my first niche website.  Without any real effort on my part, the right targeted keywords earned me almost as much monthly traffic as what this blog receives!  That’s quite an accomplishment when I think how hard it was to build this site up to where it is today.  Plus think about: If an article is well written but is not based on any particular keyword, will anyone ever find it?  Conversely: If an article is centered on a target keyword and is okay to well written, it will likely receive all kinds of organic traffic.
  • Content uploading.  This is another thing that could easily be outsourced and I may very well do it someday.  For now I consider content uploading to be my last line of defense at making sure everything is perfect and the way I want it to be before it finally goes live.  Call it the last rights of the editor in charge if you will.
  • Other link building.  This is again another thing that could be outsourced effectively, but at this stage I am weary to do it until I find someone that I can trust.  What if they try to build you links through a bunch of garbage directory links or spammy comments?  Google changes their algorithm all the time and the wrong types of links could easily take your online businesses down.  For now it is not worth the trouble.

 

My Model for Residual Income:

So considering everything above and putting it all together in one model, here is a brief look at what the residual income formula for my niche website portfolio looks like currently:

residual income formula

Basically as I mentioned my income at the present is simply Google Adsense and some direct advertising.  Outside my domain and keyword expenses, all I really spend any money each month is content writing and link building with eLance and oDesk.

Over the course of the year, this is what I’d love to do:

  • Drastically increase revenue.
  • Keep my expenses low or almost the same.

If I am successful, this is what my residual income model would look like then:

residual income formula

And if I wanted to keep earning more, now I have a great formula to follow that I know works!

Now obviously I’ve got a long ways to go to develop these efforts as a true business.  But what’s important is that I BELIEVE the potential is there, and will continue to innovate until I achieve it.

If you’re interested in following up on my progress and seeing how things develop, I’ve been publishing a Niche Website Update at least once a month.  In that update I discuss any success or failure that has occurred, and then I share my thoughts for where we’re going to go next.

 

What Does Your Model Look Like?

Like I said earlier, my model is just one out of possible thousands of ways you could tweak the elements that go into the formula.  You don’t have to rely on Adsense or Google traffic to create your income opportunities.  You could use eBooks, app sales, or even affiliate programs to kick your efforts into high gear.  On the expenses side, you could find quality help or professionals that are willing to work with you at all kinds of different rates.  There are so many different directions you could go with the variables.   The question is – how will you set yours up for success?

Readers – How many of you are treating your efforts like a business?  What parts of the residual income formula are you focusing in on to really push your earnings to the next level?

 

Related Posts:

1)     How to Make Money with a Website and Why Most Personal Finance Sites Don’t

2)      Recognizing Opportunities to Build Multiple Streams of Income

3)      The Value of Time and Money

Images courtesy of FreeDigitalPhotos.net and MMD

Comments

  1. says

    Niche sites have always interested me and since I am going to be freelance writing full time now I wanted to diversify my online income. So, over the weekend I purchased a pf blog off of Flippa for $55.

    The site was built with an expired domain name that had a PR3 so I though it was a pretty good value. Plus it looks nice and neat and have around 450 articles on it. (Some of which may be questionable) I want to work on targeting long tail key words with this site. I figured with as many carnivals as there are in the PF world it wouldn’t be too hard to improve other stats.

    I am excited to see what I can do with this blog. Would you mind telling me who does your carnival submissions? I hate doing them would really like to outsource this for my blog and the new one.
    Alexa recently posted..Laser Focus: How to Make Your Side Business Grow FasterMy Profile

    • says

      Darn it! That was you?? I saw that site and was strongly considering buying it myself. Nice work on gobbling that up! You’ll have a blog network going in no time. $55 is nothing for a gem like that. Just remember to use different hosting accounts so you get different IP addresses.

      I’ll send you an email to let you know who I use for the carnival service.

  2. says

    Nice post MMD. I think you’re absolutely right that if you want to make any real money you have to look at it as a business from the top-down. I think the tought process you describe is really true for many new bloggers, myself included. But there is no easy money and if you want to be serious about it, you have to develop a strategy that revolves first and foremost around making money. As we’ve talked about, I haven’t really gotten there yet, but we’ll see.
    Matt Becker recently posted..Buying a Car: How to Negotiate With the DealersMy Profile

    • says

      You’ll be there in no time Matt. You just have to put the pen to the paper and lay out a plan. The plan may or may not work at first, but at least you’ve got one and you can tweak it and perfect it as you go along. Unfortunately that’s really the only way to find out what is going make any money.

    • says

      You guys are really doing your due diligence to see what works. Don’t be put off by the Internet trolls that nay-say your efforts. There’s nothing wrong with making money from your talents.

  3. says

    Sounds like your on your way. Keep up the great work!

    I plan to have a multifaceted portfolio for residual income. I intend to build a few decent sized niche sites. I’ll be using a strategy similar to the one I used last year with niche sites that made me around $5k/month, but this time I’m working on building much more stable sites.

    I also intend to have a lot of side hustles that I intend to grow into much bigger projects. All of these, will be managed by my contractors and VA. Basically outsourcing has been the major turn around for me that allows me to take the bulk work off of my shoulders.

    People in the US can’t survive on $6/hr, but if you can outsource that work to another country for $2/hr (where the cost of living is much lower) and profit $4hr for virtually doing nothing… I’ll do that all day everyday :)
    Josh @ Form Your Future recently posted..Niche Site Preparation and Getting SickMy Profile

    • says

      Josh,

      I’ve got to agree – outsourcing has been a major pivot point for me as well. Back-linking, submissions, and just about anything else I need for a few dollars an hour. Where else am I ever going to find that kind of resource?

      I’m going to be following your progress closely because I’ll be very intrigued to see if your authority sites amount up to another $5K per month. That would be an incredible achievement and I’d love to join in the league of those who have made it happen.

  4. says

    This is eye opening. Thank you, sincerely, for the candid look at your strategy & approach. I am in the blogging for fun category, but like just about everyone, I am tempted by the siren song of passive income…

    • says

      You’re welcome. I’m hoping that this series becomes useful for anyone who wants to get serious about making money with their website. I know that I’ve found a lot of good resources along the way, but I’m hoping that some of my own writing can fill in some of the gaps.

    • says

      Thanks Sam. I do try to be as detailed and transparent as I can be about my efforts. When I outsource my social media tasks, I get nearly 100 submissions across 10 different social sites like Twitter, Facebook, Digg, Reddit, etc.

      I’m not really sure what to do about affiliate marketing thus far. For the past two years I’ve tried a number of different strategies and techniques to promote various financial products on this site with very, very little success. That’s why niche sites have had my attention for the past few months. Like affiliate marketing, it just seems like another means to accomplish making a passive income from my website assets.

  5. says

    I have to confess, that I still have a ways to go with thinking about my blog in terms of a business. I wanted to see if I could get to the 1 year mark, at which point I’ll take a fresh look at where things stand and what I should be doing to better monetize.

    • says

      I can’t believe you’re not at that one year mark already yet …

      During the first year don’t forget the most important thing – building an audience and keeping them coming!

    • says

      I’m sure you can speak from experience being someone hired to do commenting! If you try to everything yourself, you’ll just drive yourself crazy. You eventually will need help and that’s when it’s time to find assistance.

  6. says

    I used to be (and still am) a cheap a** and I wanted to do all the work myself. Of course, there is that much a person can do without going completely mad and I sometimes went over the limit. But indeed, if you want to make nice money with your blogs, you need to spend some money. And luck is always a major factor here – I was lucky with some of my blogs and unlucky with others. It’s just how it happens, no matter how much you plan things out. But yes, I am one of those who consider blogging a business and I am doing my best to get better and better at it.
    C. the Romanian recently posted..Cash vs Credit: Which Is the Best Choice for YouMy Profile

    • says

      Good to know I’m not the only one who is cheap! :) Like all investments, however, I’m coming around and starting to realize that it’s a small price to pay for the risk that the website could either turn into something larger or be a flop.

  7. says

    Excellent post. I’m a bit of a newbie and don’t really know what I’m doing. I think your post is very informative. I definitely agree that you have to treat it as a business and invest time and money in it to make money. I’m kicking myself for not getting in 6 years ago when it was easier…oh well.

    • says

      I’m kicking myself for not starting a year or two before I got into blogging too! From everything I’ve read on the “older” blogs, 2008-2010 was a time when you couldn’t check your email and not find a +$1,000 advertising offer. How great would that have been??

      Hopefully you can use some of this information to make your progress go a little faster than what it took me to achieve it. If you have any questions about anything ever feel free to send me an email.

    • says

      Thanks Jefferson, and nice to hear from you – it’s been a while! I’d be completely flattered if anyone ever used anything I made for something at Fincon.

    • says

      It’s not going to be easy, but my plan over the next few months is this:

      1) Build up those niche sites! I’m still a long ways away from my base target of $500 to $1000 per month per site.
      2) Promote affiliate links more often. As of now I make hardly anything from affiliate sales, and I’m probably missing out on some good opportunities.
      3) As my stats and metrics grow, so will the offers for private advertising. This will make a nice addition to the main income in 1 and 2.

    • says

      There may be some truth to that. In the 2 years that I’ve been doing this it has certainly gotten a lot harder to make any money or survive the Google updates. But then again, just like in small business, there also seems to be a large amount of people who simply quit or give up after only a few months. So if you’re a cut above the rest, I think there will still be some opportunity to make money out there.

  8. says

    Excellent post… I am trying to get started in the niche site area, but so far I am having a hard time outsourcing… I just want to do everything myself! Of course, this has caused the process to move very slowly… I think, as I gain a little experience, in what works and what doesn’t work, I will venture into the outsourcing area. Clearly, that type of scaling is the best way to grow things. Thanks for post and inspiration!
    Jon recently posted..How To Increase Your Credit LimitMy Profile

    • says

      No problem Jon. Doing everything myself in the beginning was exactly how I learned most about my sites – what works and what doesn’t. Once you have confidence in what does work it makes it easier to outsource. But at this stage just keep doing what you’re doing and learn as much as you can from the process.

  9. says

    Very solid model! I personally like the idea of creating a niche site that you can market both on and offline. The web (and google) change their algorithms so often that you often times must be the very best of the best in order to make way in your niche. BUT, if your niche is something that can be marketed offline in view of potential customers then you will garner even more success guaranteed!

    • says

      Thanks Matt. Yeah, me too – I wish that just putting this down on a spreadsheet was really all it took. Unfortunately it doesn’t seem to capture all the hard work and effort that goes into the actual outsourcing process.

  10. says

    Great article! I’m just finding your site from YourDailyFinance, and I really like your writing style.

    I approached my blog from more of a hobby, but I can definitely see the potential of growing it into a residual income stream. We’ll see :-)

    I’m also a cheap skate and need to learn how to outsource stuff more.
    MoneyAhoy recently posted..Car Downsizing – How I Got a Free CorollaMy Profile

    • says

      Hi Derek,

      Thanks and welcome to the site! There’s nothing wrong with treating blogging like a hobby. It’s a fun one to have. But at some point if you ever want to make money from it and scale it upward, its going to take some examination of the costs involved to make sure that you’re getting a great return. I know I started off as a huge cheapskate and did everything myself. Eventually you’ll get tired of that and want to outsource.

    • says

      Good luck trying to turn your hobby into a money making venture. Personally its been more challenging, fun, and rewarding to see real money generated from my efforts. It makes me feel very entrepreneurial.

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