In 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 fromwhere 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.
- There are processes in place to make money from the traffic
- 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:
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.
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:
- Google Adsense and other PPC programs
- Direct advertising
- Amazon Associates, Clickbank, and other affiliate programs
- Other saleable products
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!
(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!
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.
- 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:
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:
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. Remember to become business savvy, do your research, read often, and even consider going to seminars hosted by trusted business keynote speakers. 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?
Images courtesy of FreeDigitalPhotos.net and MMD