When first starting out in internet marketing, you are unlikely to think too much about your return on investment (ROI). You might spend a bit of money on software, link building, and content creation, and just see how it goes. That’s certainly what I have been doing. I do not know the extent of my investment to date in my internet business, but I do know it far outweighs my earnings. For instance, I have purchased Market Samurai, and a month’s subscription to Unique Article Wizard (neither of these are affiliate links – why?), amongst many other things.
So before I start telling you about how important calculating a ROI is, and before I reveal the strategy upon which my company’s six-figure property purchases are based upon (which can apply directly to our online businesses), I better explain why I have not been bothered about my ROI to date.
Quite simply, I consider myself to have been in a ‘research and development stage’. I have viewed my ventures to date as a learning experience. You could consider the money I have spent as some kind of tuition fee. I am always harping on about “learning by doing”, and I am gladly the victim of my own teachings. The best way to learn is to do, and I have lived by that fact. You could say that my business isn’t yet really a ‘business’, as my primary concern hasn’t actually been making money – it’s been learning.
That is now changing. I feel like my continued education and making money can now start to walk hand in hand. As my first niche site begins to experience some success (sign up to my newsletter to get the latest news on Sunday!), I will now start to contemplate how I should invest my money in order to increase my earnings. And that is where I have to start considering my ROI as well as the margin of safety I wish to employ.
The Double Barrelled Margin Of Safety
In case you don’t know, I am the director of property management and development in my father’s business. I have been with the company for just over five years, and we currently have net assets worth comfortably in the eight figure range. We tend to ‘recycle’ (i.e. buy then sell) properties rather quickly. We aim to hold properties for no longer than a couple of years, and occasionally ‘flip’ properties within a matter of weeks.
As such, we are constantly buying new properties. With such a high turnover rate, we always need to make sure that our investments are conservatively priced. This is where our ‘double barrelled margin of safety comes in’. It is rather simple:
- Assume you will sell at a very low price
- Aim for a high return
This prices us out of the vast majority of properties on the market, but still allows us to make a healthy number of investments. With this strategy you have two levels of protection. First, if your projections are conservative, your sale prices should be much higher than anticipated. Second, because your projected return is so high, you will still make a good amount of money even if the investment doesn’t perform as you would like.
From Property Investment To Internet Marketing
This strategy can be employed in any line of business. I am now in a position where I can start to make predictions as to what kind of return my investments will produce. These predictions will be rough around the edges, possibly naive, and certainly based upon a low level of experience. As such, I need to make sure I am running with a double barrelled margin of safety in order to protect my investment as best as possible.
The earlier you start tracking and analysing your investments, the quicker you will gain a much better understanding of your business.
Take my niche site, Modeling For Kids, as an example. The numbers below are theoretical, but loosely based upon some calculations I have been doing recently.
I have a new keyword that I want to rank for. Having examined the competition, I feel very confident that I will be able to rank #1 with some dedicated keyword research. I think I can do this by investing in a two month subscription to Unique Article Wizard (not an affiliate link – why?). So, let’s conservatively assume that I will need a three month subscription, just to be sure. In addition to that, I am going to be spending an hour every day working on my backlinking strategy. Let’s say I value my time at $25 an hour. My total investment, after 3 months, will be $2,481.25 ($200 investment in UAW, and $2,281.25 in my hourly worth).
The keyword I aim to rank for produces 500 exact searches a day. I am basing my projections on exact searches only, which is conservative, as I should expect more than just the exact amount. The #1 spot on Google should bring around 40% of searches to my site. Therefore, I should get 200 new visitors a day, minimum. My site is currently monetized with AdSense, and my historical click through rate (CTR) is around 5% of unique visitors. Let’s assume the CTR is a little lower – 4%. That means I will get a projected 8 clicks a day.
Haven’t fallen asleep yet? Good! What’s next? Cost per click. AdWords tells me that the keyword costs $1.90 per click. Typically, it is said that Google pays out just 30% of the AdWords cost. In my experience, it is even a little lower than that, so let’s assume it is 20%. Therefore, every click will earn me 38 cents. And as such, my income per day is just over $3.
So now let’s put that all together. My initial investment is $2,481.25. Assuming I reach #1 in Google at the end of third month, my earnings in the first year will be $821.25. That is an annualised return on my investment of 33%. Not only is that above my desired annual return of 30%, the numbers I have used are conservative. I am planning for the worst, but can hope for much better.
So, as per my double barrelled margin of safety, I am assuming I will sell at a very low price (i.e. my income per click and traffic numbers are low), and I am aiming for a high return (33%).
You may be saying, yes, but it’s only $800 in a whole year, but remember – I valued my time at a relatively whopping $25 per hour. You can outsource such work for a damn sight less! If you outsource the vast majority of the work and do ten times as much, then your earnings are $8,000. And 100 times as much makes it $80,000. And don’t forget that the numbers are extremely conservative. The sky is the limit.
Don’t Forget That You’re Running A Business
As you may have gathered by now, I am taking this very seriously. And if you are on this blog, then you probably should be taking your online venture seriously too. As you likely know, Leaving Work Behind is about starting your own sustainable and scalable online business. Given that I am discussing my future livelihood, I’d be an idiot not to treat it like a business. Because whilst it may not be yet, it certainly will be.
So give some thought as to what you want your ROI to be. Consider how fat you would like your margin of safety. And once you have found an effective way of making money online, you’re on the way – just work out the numbers and scale up.
What are your thoughts on my approach to calculating my ROI? Do you do things differently? I’d love to know how you approach your business.
Photo courtesy of Ribbit
For those of you who are very keen to make money online (which is probably everyone!), you may not consider this article of much interest to you.
However, I urge you to read it. Making money is not all about finding the next big ‘strategy’. It is not all about reading about how others have made money, then seeking to emulate their success. In my experience, success comes largely from within. Having said that, good advice from others is invaluable – the key is to know who to listen to.
There is an endemic problem when it comes to absorbing the huge amount of advice freely available on the internet – it may not be useful. Worse yet, it may be misleading. It may even be used as an attempt to manipulate you.
The internet is an information medium with no precedent. It allows anyone with a computer and an internet connection to publish their words to the world. This has clearly had a remarkable impact on society, with both positive and negative ramifications.
I like to think of myself as a genuine guy, and I pride myself on my honesty. Whilst I have always been an honest person, someone very close to me has really brought home the power of truth over the past few months. Honesty is something we should all strive for.
However, if this is the first article of mine that you are reading, don’t just trust me because I say you should. Why should you? You don’t know me! The same goes for anyone. I won’t be offended if you don’t trust me the moment you start reading my content, nor would I expect you to. That in itself does not have to be a negative thing, as real trust can only be built over time.
There is nothing wrong with reserving judgement, and this is something you should bear in mind whenever you are reading the advice of others. Reserving judgement is not tantamount to cynicism, and don’t let anyone tell you otherwise.
Most importantly, when considering the advice of others, rely on your own judgment, as that is the only way it will develop. Nurturing your own commercial instinct is far more valuable than all of the advice you could ever read, as no one will ever walk in your footsteps.
Photo courtesy of opensourceway
I do not believe that money brings happiness. Money can facilitate the ability to do what you love, and it can remove things you dislike from your life. Money can be a facilitator, but you need to know how to use it to better your life. Money in itself, sitting in your account, does not tangibly improve your life.
One thing that has struck me, having considered my Endgame, is that money is far less important to me than simply enjoying my life on a day to day basis. This was a huge realisation for me, as I have always been so hungry to be incredibly wealthy.
So many people work themselves into the ground so that at some point in the distant future, they will be wealthy. All those wasted days can lead to a wasted life. The last thing I would want to do is look back at 70 years of age, sitting on my pile of money, thinking “why on earth did I work so hard to get this now? I’ve wasted so many years of my life!”
Live for the moment. Enjoy each day. If you are not enjoying each day, if you are not getting out of bed with a smile on your face, find out what your Endgame is, then figure out how to achieve it. Increased wealth may or may not be involved – but is never the ultimate goal.
Photo courtesy of Andrew Magill
Hello all! You may have noticed that my niche site updates come somewhat sporadically. This is because I only write updates when I feel I have an important lesson that I can teach, or am able to report an uptick in rankings.
Well, I have good news and bad news. The good news is that I am here to teach you what I think is a very important lesson. The bad news is that I have little to report in terms of a ranking improvement!
My Niche Site’s Key Statistics
- Site online: 80 days
- Total Visits in last 14 days: 633 (45 per day)
- Google ranking for my primary key phrase: #9
- Gross income generated: £8.76 ($14.19)
Taken out of context, some of these figures look very positive. For instance, the visits per day has shot up by well over 100%. However, the Google ranking is still #9, and the increase in income generation is extremely modest. So what is the story behind the numbers?
Thylane Loubry Blondeau
Thylane Loubry Bloundeau is a French child model, who recently featured on the front cover of French Vogue.
Her spread has attracted an enormous amount of (largely negative) publicity due to the sexual nature of the photos.
Until last Saturday evening, I had never even heard of Thylane (I admit it – I don’t keep up to date with fashion news!). I was contacted via email by the BBC on Saturday, asking for my reaction to her controversial spread. Being the opportunistic chap that I am, I quickly read up on the story, gave the lady at the BBC a call and gave her my two cents. I was hoping for a link from the BBC website, which would have of course been a huge coup. Unfortunately, the BBC representative never followed up the story with me.
However, I noticed that the story was getting an enormous amount of coverage, so I decided to write an article on the subject. Little did I know the relatively huge impact this would have on my traffic.
Within a couple of days of the article being published, traffic on my niche site exploded. Monday brought an above-average 40 unique visitors. Tuesday brought 113. Then Wednesday brought a remarkable 230 visitors!
So it is clear that I capitalised on a hot topic. However, this whole venture was of no real benefit to me, apart from serving to reinforce an important lesson.
It’s Not Just About The Numbers…
Traffic is all well and good, but there are various different types. Some traffic is highly valuable, and some offers little to no value whatsoever. It just so turns out that the huge uptick in traffic my niche site has experienced is the completely useless type.
The fact is, the vast majority of people who have been visiting my niche site over the last few days have little to no interest in child modeling whatsoever. And that means a few things:
- They are not going to explore my site
- They are not going to give me their email address
- They are not going to click on my targeted ads
Or, to put it more concisely – I offer them no value whatsoever beyond the article. It’s like a vegan walking into a butchers – no sale to be had there.
How do I know this? Two reasons:
Average actions and average time per visit are down, and bounce rate is up
The vast majority of searches are for media (i.e. photographs)
It is clear from the above metrics that the vast majority of visitors are not people I am looking to attract. For the most part, they want to see photographs – Modeling For Kids is an authority site, not a media site. When the visitors hit my site, they are more often than not bouncing straight back off.
People who aren’t looking for child modeling advice are not going to want to hang around on my site, and they are not going to be interested in clicking on my targeted ads. My site is of limited value to them, and they are of no value to me.
The site briefly flirted with 7th position in Google before returning to 9th position, which is encouraging. What comes as a very pleasant surprise is that it has been gifted a Page Rank of 4! This comes as quite a surprise, given that the site is still very young. Many people try for months or years to obtain such a PR. Unfortunately, the increase in PR doesn’t seem to have had a positive effect on the rankings.
I am starting a fresh backlinking strategy starting today. I am aware that many of you would like to know what my strategies have been, but I am hesitant to reveal them until I have reached the #1 spot in Google. Once I have acheived my goal, I promise you that I will be revealing all!
Read The Whole Series
Everyone has their pet peeves. I probably have more than most. One of my biggest pet peeves has to be the phrase, “I could care less”. I have just spent the last five minutes trying to type out a detailed explanation as to why the phrase simply does not make sense, and how it has no possible defence, but am now giving up out of exasperation. It is just frustrating me too much.
I felt I needed to include the above just to make absolutely sure you grasped the intended message of this article, which is: backlinking is the supposed holy grail of search engine optimization, and you are thinking about it far too much (in my humble opinion).
If you are at all familiar with this blog then you will know that I am not in the business of creating “set and forget” sites that offer little or no real value to the end user. I am all about creating value, and I have a staunch aversion to compromise on that front. So, please understand that my advice comes from the perspective of someone who is looking to create value. What I have to say may not apply to those who are looking for something a little more relaxed in terms of quality content. And I have no problem with that at all – far be it from me to judge. However, it would be remiss of me to mislead you.
Now, are the rest of you sitting comfortably? Good.
Why Should I Care Less About Backlinking?
Backlinking is extremely important when it comes to search engine optimization. You should be working hard to get plenty of high quality backlinks to your blog. Ideally you will be doing this by persuing a white hat SEO strategy, but that is not always the best way to go.
Backlinking is not however the be all and end all. It certainly shouldn’t form the genesis of your blog creation. And you’re probably about to call me absolutely mad, but you don’t even need to have a backlinking strategy to create a successful online business.
Question: if you have a blog, with twenty original articles already published, but with no backlinks, what do you have?
Answer: a blog.
Question: if you have a website domain, with no content on it, with eight thousand backlinks, what do you have?
Backlinking is completely pointless without content. A website can survive without backlinks – it cannot survive without content.
Now there may be some amongst you who are thinking that you can get away with producing low quality content. That backlinking is king, and that as long as you can get visitors onto your site, you can convert them, even with poor quality content.
And you may be right – but you won’t be forever (or for long, most likely).
Google’s aim is to show quality content to its end users. If it fails on that front, it is no longer of use to anyone. We are all familiar with how powerful Google is. How countless people who are far more intelligent than you and I are constantly working on Google’s algorithms. If you are not providing quality content, you will eventually get found out – regardless of how many backlinks you have.
Love Your End User
If I could give just one piece of advice regarding authority sites, it would be this:
Love your end user. Put yourself in their shoes. Do they get value from what you produce? If not, you need to go back to the drawing board.
We are all guilty of producing crap at times. It happens – we are human. However, in a perfect world, your aim should always be to produce fantastic content for your audience. As Corbett Barr so eloquently put it: write epic shit.
Quality Content > Backlinking
Producing valuable content for your end user trumps your most effective backlinking strategy in the long run, hands down. And when you are in the business of producing authority sites, you should always be thinking long term.
I am not saying you shouldn’t be actively pursuing a backlinking campaign – you absolutely should be. However, you should be putting even more effort into your content creation. You should be pouring sweat and tears into creating a truly valuable resource for people to find; you shouldn’t be worrying as much about how they are going to find it.
I am not saying, “If you build it, they will come”. I am saying, “If you build quality and let them know it is there, they will come, and hang around”. If you produce poor content and let even more people know it is there, they will come – and then they will leave. What is the point in producing a #1 ranking authority website on Google if no one wants to hang around?
There are many out there amongst you whose workload balance is struck well in favour of backlinking. I know this because I have been (and in weak moments, still am) one of those people. I hope you seek to redress that balance, as I am sure it will have wonderful long term benefits.
Photo courtesy of Karl-Ludwig Poggemann