How can I make a profit?
This article is going to deviate a little from my normal posts because I’m not going to just focus on the web but instead give small business owners a few simple pieces of advice that can help you run a sucessful business both online and in a traditional setting.
What is profit?
First, let’s establish that the goal of every business should be to make money but more importantly, it’s to make a profit and the most proft possible over the life of the business.
If we accept this to be true, then we need to stop and take a deep breath because we need to seperate profit from sales because the amount we sell isn’t actually a reflection of our total profit, in fact a company with high sales can actually be losing money!
Let’s take a look at this in a practical example, of somebody hiring a web designer to help them build a website. In this example let’s say that the website will cost $10,000 to build (it’s a pretty fancy website) plus $10,000 in marketing to successfully launch it. From my experience many people would assume the cost of the website is $20,000 but in reality there is the cost of operating the website and continued marketing so let’s add another $2,000 per month to the website cost plus $1,000 for somebody to look after it each month. In total, our website has a cost of $56,000 for the first year of operation and $36,000 each year after.
N0w, let’s assume that on our website we’re selling something. This could be a monthly membership, physical product which need to be mailed or electronic downloads. Regardless of what type of product you’re selling, there will be costs associated with processing credit cards and delivering the product. In our example, let’s assume we’re selling an item that costs us $10 per unit (each time we sell) and we’re selling that item for $30. At first glance, you may assume that you’re earning $20 per unit but in fact, you’re not since you have to account for your total fixed costs as well. The following chart shows the actual costs per item, assuming the business only operates for one year.
As you can see, you’re actually loosing money for the first 1,750 items sold and only making profit above that point. What that means in real world terms is that while you may have collected $52,500 in income from your new online business you spent $56,000 to build and maintain the website plus $17,500 to sell 1,750 products which means you are still short $3,500 which we call a loss.
To calculate the actual break even point for your online business we need to use a fancy math formula, it looks like this:
Revenue(x) = Cost(x)
Actually, that’s not fancy at all. It’s pretty simple really, so let’s expand it to show the break down.
Revenue(x) = Units Sold x Price
Cost(x) = (Variable Costs(x)) + Fixed Costs
So our final math equation (don’t be scared, it’s actually much easier than it looks) is:
Price(x) = (Variable Costs(x)) + Fixed Costs
We know that our Fixed Costs are $56,000 and our Variable Costs are $10 and that our Price is $30 so we can replace those in the equation:
30x = 10x + 56000
Math is awesome, so I know that I can move the 10x to the right side of the = sign as long as I subtract it. This works because if I said 30 “apples” are worth 10 “apples” plus 56000, I could cancel the 10 “apples” from either side, which would result in:
20x = 56000
Now, if I divide both sides by 20 I convert my x (which is the unknown we’re searching for) into a 1 and 56,000 becomes my required units.
x = 2800
So, in order to break even at our business (that is, to have our total sales be equal to our total costs) we need to sell 2,800 units of our product assuming that our fixed costs are $56,000 and our variable costs are $10 per item on a $30 sale.
Expanding the model over two years
In the first example, the fixed cost of your business startup was assumed to be fully utilized in the first year of your business, but realistically a website could last longer so if we want to spread the cost of that website over two years.
To do this, we need to remember that the fixed cost of the website is $15,000 to start plus $3,000 per month. This means that in year one, the cost to run the website is $56,000 and in year two it is $36,000. The total fixed costs to run the website for two years is $92,000 so let’s take a look at the chart with those numbers.
Now, we can use the equation from before to calculate our break even point.
R(x) = C(x)
30(x) = 10(x) + 92000
20(x) = 92000
x = 4600
So, in order to break even (not profit!) you will need to sell 4,600 units at $30, with a cost of $10 per unit and $92,000 in fixed costs over two years.
Charging More
If you would like to charge more, simply change the value of R(x). So if you’d prefer to charge $35 per unit:
R(x) = C(x)
35(x) = 10(x) + 92000
25(x) = 92000
x = 3680
If you find a cheaper supplier and still want to charge $35:
R(x) = C(x)
35(x) = 5(x) + 92000
30(x) = 92000
x = 3666.66
Using this basic formula, any business can quickly calculate what it takes to make a profit buy simply determing the value of x (the number of units you must sell to break even) and adding 1.
Sending an invoice is as simple as clicking the button, Billings will then ask you if you’d like to print the invoice, save it to PDF or automatically open Apple Mail to email the invoice to your client.
Mar
2009
25 Things to Do to Increase Your Website Traffic Right Now
Everybody wants to be successful on the Internet right? Of course we do, nobody want’s to be sitting at home on prom night especially when there’s money involved so how do we do it? Well, here’s a list of 25 things you can do right now to increase your website traffic …
Make Your Content Accessible
Use the SEO Checker I built to see what Google can see. This tool will also help you understand what visually impaired people in your community can see … they make up almost 10% of the population, so can you really afford to only appeal to 90% of the market?
Use Valid xHTML Markup
xHTML is the language web pages should be built in. If you write your page in sloppy code, it’ll be harder for web browsers to display it properly so just like a Word document, you have to save it in the right format for your audience to read it.
Translate Your Content
thisismyurl.com is available in 20 languages, 40% of my traffic comes from outside the US and Canada and is viewed in a language other than English using a free online translation service, I know it’s flawed but it’s the best I can offer and people learn from my postings.
Understand Keywords
Keywords are the heart and soul of the Internet, they’re like fresh pasta in Italian cooking or eye shadow to drag queens … if you don’t understand the value and application of keywords, get off the Internet.
Build Relationships with Other Websites
Almost half my traffic comes from Google, the other half? Came from other websites and referrals from great people that I taught something to and in turn taught me a lot.
Add a Google Sitemap
Google want’s nothing more than to know about you, it’s the companies only goal in the universe, so help them to help you.
Help People
Speaking of helping, help people. When you see a website with an error or run into a problem on a site, let them know. If you can fix a glitch, tell them how … I’ve picked up countless readers and sources of inspiration by simply being supportive.
Use Analytics
Back to Google for a second, they have a tool called Google Analytics. It’s free, it’s powerful and it’ll help you understand your audience.
Join Social Networking Sites
Websites like LinkedIn and Facebook are powerful tools to help people. Helping people leads to trust, trust leads to prospects and prospects lead to clients.
Add Fresh Content
Ask yourself, why do people come back to your boring old stale content? They don’t. If you ran a restaurant you’d have daily specials right? Well I think running a restaurant is easier than running a website, so make sure you have fresh content served daily.
Know Who’s Better Than You
There are a lot of web sites out there that are better than me:
Know who’s better than you and read them every day. The best way to learn is to know you need to learn. (btw, if you didn’t make the list don’t be sad I have hundreds of sites I read every week, these are just the first ones I though of)
Respond to Criticism
There’s a lot of things that I write on my blog that are not as well researched as they could be, and when I’m corrected I love it. You’ll notice if you pan through my comments that I don’t remove the negative … in fact I relish them. If people take the time to point out your flaws, thank them and you’ll grow.
Write Good Content
The best way to build traffic to your website? Make people want to come back. It’s harder to get new visitors than to keep your old ones.
Be Timely
Write about things that you know will be timely but don’t chase trends, it’s not relevant what others are writing about … only what your readers are reading about.
Get to Know Yourself
The past five months of blogging have taught me a lot about myself, I look back at some of the early pieces I wrote and know that I’ve changed. That’s part of what blogging is, it’s about growing not only as a business but also as a person and learning new things.
Make your Title Tag Valuable
Your title tag is a critical piece of the organic marketing puzzle, if you don’t understand how or why to use it properly … excuse my french but vous êtes vissé.
Add an RSS Feed
I don’t care what type of business you are … if you can add an RSS feed to your web site do it! Let people know what you’re up to if they want to know. Same goes for Twitter, use it to exploit your interests.
Give Stuff Away For Free
I love giving things away for free. I have website templates, plugins and artwork people can download for free as well as over 600 pages of advice here on my website. Guess what? It cost me nothing and it put me on Alexa’s radar without having to do anything complicated.
Respect Your Audience
There’s only one thing more important then you on your website, your audience. Take time to get to know them and help them.
Know Your Goals
Why do you own a website? You’d be surprised how many people have no idea why they want to run a website … it’s a little sad really.
Use a Content Manager
Websites that are build on a content management system (I use WordPress) make it easier for people to update their websites. Websites that are updated more often get more traffic.
Read Matt’s Articles
Matt Cutts is Google. Actually he’s not but he’s the face of Google, the man who talks to all of us and tells us what Google is thinking, explains what they’re up to and helps lowly web masters to interact better. His job … to help the public make the most of Google, so why don’t you read his blog?
Join Forums
Forums are a great place to generate free traffic to your blog. They help you build relationships with other bloggers, build respect in the community and get into endless conversations about topics that interest you.
Comment on Other Websites
One of the most overlooked methods for building traffic to your website is to simply comment on other peoples websites. Remember my point about helping others? Point out flaws or add to the conversation and you’ll be generating great traffic back to your website.
Analyze and Adapt
Finally … the most important point … look at your analytics often and improve your website to help your audience make the most of your content.
Tags: advice, analytics, blog, building, comment, content management system, content manager, Facebook, forums, google analytics, html, Learning, lorelle, matt cutts, organic marketing, Plugins, search, templates, translate, web browsers, web master, web masters, WordPress
Posted in Marketing Advice