For the majority of examples, entrepreneurs start a business to generate revenue and hopefully in turn, make a profit.

Before I go any further I want to clarify something. I have always found it perplexing the way people approach how they should be making a profit from their value offering. I’m not talking about the method in generating a profit, I’m referring to how they think about the term, ‘profit‘. People almost feel guilty if they have an aim of making a profit. Why would you feel guilty about this? There is no reason to feel ashamed of doing something to make a profit. If you provide a product which is of great value and set your price in a range where people can and will purchase it then its a win-win situation. First, you generate revenue and your buyer has purchased something that has a certain perceived value for something they were willing and able to purchase it. I don’t see why anyone should be ashamed of this? If you provide a sub-standard product and charge an exorbitant amount to people who don’t know better just to make a profit, then yes you should be ashamed.

Before you go on this post is continuing from my previous steps for starting up a business. Step 1 and Step 2. If you havn’t read these I strongly recommendyou do as you’ll be completely lost for the remainder of this post!

That aside, once I have thought of an idea with potential and then put down some points regarding the concept, my next step is to think of how I can make money out of offering this service. Well the first and most obvious answer would be to copy the Youtube example and place ads on the website which will earn me money whenever a site user clicks on them. That sounds pretty straight forward but people who are regulars to this blog know my thoughts on using advertising as the revenue model. In short, I’m not a big fan. After all, how many times have you clicked on a display or text ad on Youtube?

On the other hand, will people actually pay to use a video sharing service on their mobile when there are so many free options out there? No I don’t think they would to be honest. If I started charging for a service to stream videos onto mobile then wouldn’t my users start reverting back to using another mobile video streaming site? Most probably. I’ll think a little harder.

Ok so what do I do now. I know that Youtube is the giant and so far offers the best mobile video offering available. I also know Youtube only allows streaming to your mobile and the other download sites are not really anything special. So I’m thinking if I can offer the streaming service for free and support it by advertising I will keep and retain the casual visitors. On top of that if I can also offer a premium service for those wishing to download those videos onto their mobile then I would be able to charge for this as the current alternatives are pretty poor. This allows me to work with two revenue streams, the first being advertising for those casual streaming visitors and as well as a membership based premium service for those wanting to download the content to their mobile.

Ok so this is what I’m thinking:

1. Revenue model 1 – Free video streaming (will not include video downloads) will be supported by advertising. Advertising network options include: Adsense Mobile, Admob and Decktrade.
2. Revenue model 2 – Offer a premium paid service where users can stream videos as well as download any mobile video they like directly to their mobile. Premium members will pay a small monthly fee in order to use the download service.

I’m pretty happy with this as it offers both a streaming option which anyone can use and yet also tailors for users that want even more and wish to download any video directly to their mobile. To do this they will need to become site members and pay a relatively small ongoing membership fee. For me that means the highly trafficked free streaming section still generates a revenue but I can also offer great value and charge for membership which is a great form of recurring income.

I mentioned in my previous post how I am able to get Google Adwords traffic for 1c per person. It’s truly a bargain in that for only $10 I can get 1000 users to my site who may benefit from my services, hopefully click an advertisement or even better, purchase a product. But is it really a bargain?

First of all, there is very little chance you can make up the advertising dollars spent by the advertising revenue on your site. To effectively get good advertising revenue, either through Google Adsense, Adbright or whatever, plenty of organic traffic is the way to go. Why? Well first of all you need to think of your site as a real business. Where advertising is your revenue model, using paid Adwords traffic to drive traffic is effectively your cost of goods sold (remember accounting 101: COGS?).  It’s your main expense. With organic traffic you don’t have that expense. (I know, not too technical here).

Most importantly however, (this is the part to really think about) Adwords traffic is traffic that came from a contextual environment. A contextual environment is your ad showing up on a relevant and contextual keyword search, another site or a blog that is in a similar niche. So the amount you pay for an ad is roughly the same amount you will receive for a click on your site, as you also run contextual ads. This means that in order for you to make a profit, or even break even, almost everybody who comes to your site must click an ad. You will need a 90-100% CTR on your site which isn’t going to happen. The only way around this is to drive traffic from probable alternatives (ie get traffic to a credit card site from a job search site) but then it will be difficult to get good conversions as your not playing the percentages. Or you can run several ad campaigns from different ad networks but then again it would kinda look like this.

But what if you sell a product? I’m still not sold on this. I honestly don’t think that Google Adwords does that great of a job to drive qualified and potential customers to your online business. I may be wrong and you may have a completely different take on this so if you do, please share. Some bloggers have their own secret tips. There are too many factors you need to overcome in order to break through to the sale. These include your anonymity, trust, competition and desire from the consumer. I can’t imagine that receiving 10,000 people from Google Adwords would compare to receiving 10,000 referred and organic traffic, either by word of mouth or through recommendations.

Genuine organic traffic is traffic that is not complicated with the earlier mentioned barriers of anonymity, trust, competition and desire. I think if your interested in running a successful online business the hardest part will be developing a following and building the genuine organic traffic.  Nothing valuable comes easily overnight, it requires you to provide value, day in day out and accept the fact that the rewards are long term. Sure you can use Google Adwords and I’m sure that you will benefit from it, but the real value comes later down the track when your effort and persistence becomes worth the effort. Work hard, don’t give up and keep at it as everything else is just a fragile quick fix.

Wikipedia has 10 different definitions for the term “value”, 12 if you include those definitions on subcategories.

I personally don’t have a specific definition but I know when I am given something that is of great value. The other day I was give a link to Chris Guillebeau’s manifesto 279 Days to Overnight Success. Its a free report on how to make a living out of blogging online. If your interested in making a living online then this would be the definition of value, hands down.

Even if your not interested in making money online, you should still read this as it is fascinating. You can download it by visiting Chris’s site here or directly download it by clicking here.

Hope you enjoy and get as much out of it as I did.

I live a relatively different life compared to the majority of people. I don’t work 9-5, although I have in the past and all that did was tell me that is just was not for me. I don’t like to be put in a box and told what to do and how I should be doing it. I like to find opportunities that are available and pursue them and if they work and are sustainable I develop them and either sell, or hold onto and grow. I work when I want and how I want.

If your reading this blog then chances are that my life isn’t so different but then again, you are the minority. I have read books such as Tim Ferriss’s Four Hour Work Week and Robert Kiyosaki’s, Rich Dad, Poor Dad. What I have taken from these it not so much the ability to only work four hours a week or determining the difference between an asset and a liability. I don’t believe these books are designed to give you the direct answers but rather to stimulate thought and ideas regarding ways you can live the life you want to live as well as having sustainable financial freedom.

What is my take on supporting your lifestyle? Its not particularly complex but this is my method. Over compensate for your liabilities using your assets. First I guess we need to clarify the term liability and the term asset. This isn’t particularly complex either as I’m not an accountant and won’t be taking their definition of what an asset and a liability is. My definitions are inline with that of Robert Kiyosaki and it’s quite simple:

Asset: Something that leads to money coming in.

Liability: Something that leads to money going out.

Wow… how complex is that? It’s not your traditional definition of the terms by any means, probably far from it but I don’t care. My accountant’s job is to get all technical regarding these terms. My job is to put them in a form that is understandable so I can create structure for how I want to live my life.

Once we have an understanding of these two terms we can lead on to supporting your lifestyle. To support any lifestyle you want, no matter how elaborate it may be, it can be done by simply by getting this equation to work: Assets > Liabilities. Assets are greater than liabilities.  It’s as simple as that. If the money coming in is greater than the money going out you can do whatever you like.

It may seems that I have just stated the obvious but you would be extremely surprised by the amount of people who just don’t get this concept. They rack up credit card bills and go out on extreme nights out only to find themselves strapped for cash with weeks to go until their next paycheck. Yes of course this could be just down to not being able to manage money correctly but if you had assets that overcompensated for your liabilities then you would not run into this problem.

First you need to find out what your lifestyle really costs. If you like to go out and party then factor that in, how much does it cost you to go out every week? Do you have a passion for traveling? How much money do you need for your traveling? If your not sure about how to calculate your expenses then I would recommend you do so by using Tim Ferriss’s lifestyle calculator.

Once you have calculated your lifestyle cost then what you need to do is find assets that will generate enough income to pay off your liabilities. What I do not recommend is finding one cash cow which you believe will pay off all these expenses. By doing this you are developing a mentality of “have a job/asset/income that pays well and then spend as much of it as you can”. Sure if you can find an cash cow or passive income that generates $5k a day then fine, but the likely-hood of this is minimal.

I believe the key is to determine your ideal lifestyle then set up assets and income in order to support it. This is alternate to the usual approach of taking an income then determining the lifestyle that you can lead from it. By determining your lifestyle first you are telling yourself that this is the life you want to lead and you will find a way to lead it. You are telling the world what you want and in turn the world will deliver. The standard method forces you to conform to influences around you, rather than getting them to conform to you.

For example, you may like to eat out a lot and buy new clothes on a regular basis. Say this costs you $500 per week alone. Build an income stream in order to support this particular aspect. You may also own a house and need to pay a mortgage of say, $2500 per month. Ideally what you would want to do is find a passive income that generates about $3000 (you always want a buffer). Maybe you want the car of your dreams which is another $1000 per month. Set-up and and build another passive income so you can afford your dream car then purchase it.

It’s much easier in my opinion to create a few income streams that generating $2000 per month that it is to generate one bringing in $7,000 but that’s not the important thing to get out of this. The important habits you develop is that of a millionaire mindset. You learn that to support any further expenses you don’t need to limit yourself to what you already have. There is no need to take out from your current assets as you know you can create more revenue opportunities to support any new expenses by purchasing or creating good assets.

Don’t be afraid of turning the tide and creating the lifestyle you want to lead without thinking about the restrictions. I am talking about lifestyle expenses from a purely monetary point of view. You may just determine that you wish to do more “doing” things rather than simply “having” more things. Now you have the option. Determine what you want then devise a way to achieve this. Do it the traditional or “normal” way and your only really limiting yourself.

Having a website or a blog without any analytics is like driving a car without a dashboard. You know your moving but what’s actually going on? I’ve actually had a car where the dashboard would freeze up occasional and it was the closest thing to driving blind I could think of. Obviously you can still drive but your not being told the vitals… how much fuel do I have? How fast am I going? This is not dissimilar to having a website without some sort of analytics. Yes you can get moving but in order to really go somewhere with it you need to know your sites vitals.

That’s one big problem with the net I believe, the lack of ability to see people who are browsing your site or blog. You know you get traffic and possibly sales but that’s about it. In the traditional retail environment you can see people walking in and out of your store, have a chat, and measure a good or bad traffic day based on what you can see compared to what you have seen in the past. On the net you can do this only with the use of analytics so saying that its important is a gross understatement.

Google analytics is undoubtedly one of the most popular, if not the best analytics program used on the net today. It extremely simply to install and just as easy to read. The first screen you see is the analytics dashboard relaying information such as visits, page views, pages per visit, average time on site and a couple of others. This is probably as far as many users will go and that’s a shame. Everyone has their own way of analysing traffic and pretty much everyone uses the basic dashboard, checks out a big of geographic info on their visitors then moves on. So what I’m going to do is, instead of going through all the relevant features (trust me, there are too many to list!), I’m going to let you know a couple things which I like to with analytics and why I do them.

1. Traffic Sources – located on the left hand column under “Dashboard”. This will give you a good understanding of where your traffic comes from. My favorite bit here is the “Keywords” section on the bottom right of the screen. This will tell you what keywords people search in the search engines to get to your site. Like many things in Google Analytics you can dive deeper and in this case I strongly recommend doing so. Click a certain keyword and you will be provided with a host of information about what people who used that keyword did on your site. This is where you can really see what is going on. For each keyword you will be given details of how long someone spent on your site, how many pages they visited, the bounce rate as well as the % of new visits. What does this tell me?

• Is my SEO up to scratch? – Are people who are coming to my site actually finding what they want? If there is a high bounce rate for a particular keyword then I know that this keyword seems to have high priority on your site yet is bringing in irrelevant traffic who are not interested in the information or product. Find those keywords which attract more in depth and longer visits as these are the words most valuable to you. Those which have a high bounce rate should be reassessed and adjusted in your titles or content as they are not attracting the right visitors. For example I have a website called www.thumbdoctorgames.com which provides free, ad funded mobile phone games. I found that many of my visitors were coming in from keyword such as “Doctor Games” or “Games for Doctors”. I had an extremely high bounce rate for these keywords as many of these visitors would just leave the site because they are not interested in mobile games at all. It was the name of the site itself that caused it to be indexed under irrelevant search terms. This told me I needed to look at the site and make sure that references to “Doctor” were minimal or contained in images as it was an irrelevant, yet popular, keyword.
• Who refers the most traffic to me? If there is a site that is referring plenty of traffic to me then I would increase  my exposure on that site or talk with the webmaster and request a contra-link or similar.
• Who is coming directly to my site? I love direct traffic. Direct traffic is solid, quality traffic in my opinion. It shows that someone has purposefully thought of your site and made the effort to visit as your are already in their mindset. To me this is the most valuable traffic you can get so I have this type of traffic in very high regard.

2. Content – The top content on your site is displayed in your dashboard anyway and it’s something I see all the time so I don’t really try to look more into my “top content” section. “Content Drilldown” is where the fun really starts. What does this tell me?

• The content drilldown has a list of your pages and the information about each page such as the usual bounce rates, uniques, time on page, exits etc. However instead of this being site specific it is drilled down to page specific.
• Selling products? This is probably the most important section to look at if you are selling a product online. If you have a sales page with a high bounce rate then you know something is wrong. If you have a pitch page that has a high exit rate then again there is a problem as no one is visiting your sales page.
• Where are they coming from and where do they go next? Very very important! Unfortunately Google does not make this feature particularly easy to navigate to however it is vitally important. Tha’ts why I have highlighted the first sentence. What you need to do is click on a page in the content drilldown section. Now once your there you will see a small dropdown list called “analyse” and it should by default say “Content Detail”. Click this and select Navigation summary. The next two images will show you what I mean:

Access Navigation

Navigation Summary

• When I have reached the navigation summary I am able to see how people got to this page from my site (previous pages), how many entered the site from this page (external) and how many went to another page from this page or left the site altogether. For example if I was after data acquisition and wanted someone to fill out a web form, I would think the sales letter would be in “previous pages” and then the next page would be something like “thank you for submitting your details”. If you find that people are exiting right after they get to the web form page or are heading straight back to “Index.php” then obviously, for some reason, people are not filling out your web form. This is an excellent tool to plot the path of how people are navigating through your site. You may think your site is foolproof and you have a solid navigation funnel but you may be very surprised how people actually flow through your site. Never underestimate this tool. If you only take one thing away from this post then make sure it is this point!

Obviously there is a tonne of information which I have completely missed but that was deliberate on my part. First because it would take me the good part of a year to go through all the possible features and even then, you may have a completely different way to analyse your traffic. What I’m doing here is giving a few more things to consider with the assumption that you already know the basics.

If you don’t know the basics then don’t just ask anyone about it, dive in and learn it first hand as I believe, as humans, that is the quickest way we learn things. Please feel free to share any methods you may have as I would be very interested to know and I’m extremely interested in learning from you guys as well.

Drop shipping is quite a magical concept: you take an order, get paid, send a request and payment to your supplier then they send it directly to your customer. You don’t see the product, you don’t touch it. You simply get your money, pay for the goods (hopefully the goods cost less than what you sold it for!) and that’s it. With the presence of major online trading hubs such as eBay as well as how easy it is these days to create your own online e-commerce store, its a fantastic cost effective option o doing business online.

Personally, in the past I have experimented with drop shipping using eBay as well as my own online stores and I can say that drop shipping definitely is a great profitable option however there are a few catches and factors that you need to be aware of. This is not a bad thing as in any industry there are things you need to be aware of and traps that are to be avoided. Nothing is ever as rosy as you think but adopting the right measures will ensure that you give yourself every opportunity to succeed. First I’ll outline the good stuff!

Pros:

1. Inventory - What inventory? Drop shipping allows you eliminate the cost of holding industry as well as pre-purchasing it. There is no need for an office or warehouse to house stock. Your drop ship partner does this for you. Plus there is no need to purchase stock in bulk to meet potential demand as you only buy stock once you have received the order (and your money!).

2. Risk - As you don’t hold stock or order masses of inventory the risk is relatively minimal. However most notably the risk of a product not selling is minimal as if it does not sell you have only really invested the cost of promoting that product (eBay fee, Google Adwords etc). This allows you to spread to risk and try a multitude of products at little cost until you have found something that sells and is profitable.

3. Marketplace - The online world is a massive marketplace. There are multiple avenues you can take in order to sell a product. The first way would be through using eBay. The great thing about eBay is that people who are going to eBay are looking to buy. That’s usually the main reason why they are there. Of course you have the browsers but it’s a place where genuine  buyers will hang out. On top of this the selling infrastructure is excellent and there is everything you need to run an online business, even the all important traffic. Another alternative is to open an online store which is much easier than you may think. Gone are the days where you need a mint to hire a programmer to create a custom e-commerce infrastructure or even install a shopping cart plugin. Today there are easier options such as Shopify who specialise in hosting great looking online stores that include all the features you may need. There is even a free option so you can give it a try before signing up for their service.

4. Automated - Drop shipping if done well can turn into quite an automated process (to an extent). Due to you not holding any stock there is no need to pack items and send them out, this is your drop shipper’s job. Therefore this way of doing business leans itself towards developing an automated system to receive orders then send the order through to your drop shipper on a daily basis. Even if you don’t want to be so technical you can simply designate 1-2 hours every couple of days to send through a new batch of orders. I would recommend this over sending a request one item at a time as you can compress your work load significantly and also please your drop shipper as your making large orders, not 3 separate orders a day which can get frustrating and confusing. Ensure you inform your customers of any possible lead times (say 10-14days) and using this strategy you can deliver to them well before your stated benchmark. Under promise over deliver and they’ll love you for it.

5. Time - My favorite. Drop shipping when done correctly in association with all the above points will lead to freeing up plenty of time to do the things you really want to do. Sell a great product at the right price using a good automated system and you will need to do very little for a great passive income. But of course there are always issues that can (and will) pop up and you will need to address these but these should be minimal providing you have a good relationship with a quality drop shipper.

Now for the Cons!

Cons:

1. The Dropshipper - So far I have referred to drop shippers quite objectively however they are a major factor when it comes to getting into this business. Put simply, if you don’t have a good drop shipper then you don’t have anything. Finding a great drop shipper is extremely difficult and there are many out there fighting for your business. The problems you may face include questionable quality products, bad service, a tough return policy and even counterfeit goods among other general mistakes. I cannot stress enough the importance of a great drop shipper and finding a good one is the first major step you will need to take. People usually find the product they want to sell and then look for a good drop shipper. I do the opposite, I find a great drop shipper and then I look at the products I can sell! If you can’t get a drop shipper recommended then bite the bullet and purchase something from a prospective drop shipper and send it to yourself. Find out what their service is like, ask them plenty of questions to see how quickly they respond and most importantly test out the product and make sure you like it. Ask yourself, would I buy this? If the answer is no then chances are other people won’t either. If you sell it regardless and people buy, then expect the complaints to come rolling in. Think of it as your own personal litmus test.

2. Competition - The internet is packed with people selling drop shipped goods. The costs being as low as they are lead to businesses competing heavily on price and this diminishes the ability to sell with good profit margins. This is most evident on Ebay where you have hundreds of sellers all drop shipping and pretty much selling many of which are selling the same product as you. Some are happy to sell a $100 item and only make a $2 profit. This is ridiculous but such is the competition it happens. My recommendation is that if your profit margins are not at least 80% its really not worth doing. If I buy a $100 dollar item I want to be selling it for at least $180-$200. If I can’t get this price I pull out as the headaches of returns and questions about the product are simply not worth a few measly dollars.

3. Exchange rates - This can also be a positive thing. Remember when your selling online you effectively buy and sell to the world. You will be at the mercy of exchange rate fluctuations and other global forces. Of course a good exchange rate can be beneficial and make you a few extra dollars however the flip side of that coin can be disastrous. For example most of the time when you buy from a drop shipper you pay in $US. Say you are in Australia and the $A buys 70USc, you need to know what you have to set your price at in order to make a profit. If you run a 7 day auction on eBay and during those seven days the market decides to nose dive (trust me this happens.. more than you could possibly imagine!) and the dollar goes down to 62c US then your in trouble. Think what would happen if you sell 20-30 items set at the original price and it gets  a bit scary. You might think this is only trivial but it has happened to me multiple times and in today’s current environment its definitely not uncommon.

4. Other business costs – This is more of something to be aware of rather than a point against dropshipping. When you start drop shipping, never make the mistake of thinking that you have no overheads. That’s not true at all. Overheads will include the cost of the item itself (cost of goods sold – COGS) as well as any taxes you need to pay on both the profit as well as any goods and services tax such as Australia’s GST. These costs are REAL costs… not something that you can get out of because you drop ship! I’m not an accountant nor can I give any financial advice but i’ll give you a personal example. If I buy an item for US$200 I don’t pay GST but when I sell the item in Australia I pay GST.. so I lose any benefit of an offset. Therefore I always need to put aside my GST component and on top of that pay tax for any profit I make. I personally needed to factor in almost 40% in taxes! Once again, I cannot give financial advice as I’m not qualified and I would recommend you see your accountant and discuss the purchasing and selling process and he/she will be able to tell you what your tax liabilities are.

5. People - Yes people. People get angry. People are not stupid. People want the best products for nothing. You will have to deal with these people. Don’t ever think people can’t see inferior quality, they can and usually will. So don’t sell crappy goods. You will be caught and regret it. Check your item first before you consider selling. Even if you do sell a great product, expect people to complain. You can’t take things personally and need to learn to deal with the issues at hand and move on. However the biggest problem that results in people being people, is that you will hit a critical mass where an abundance of complaints will come your way and you will need to deal with it. This isn’t fun and becomes time consuming. This was my main frustration as I felt I had to reply to everyone who said “thanks great product” through to people who said “how do I turn this on?”. I eventually learned to screen out the important from the non important but the realisation that “passive” no longer became “passive” the more sales you made and the more money you turned over. Make a little and things seem great. Make a lot and expect to work hard, there are no two ways. I understand there are many theories behind automating a process and dealing with these matters using other less exhausting ways but as long as your dealing with people, don’t expect to sit back and do nothing, especially if you set yourself high financial goals.

6. Numbness (my personal one) – I’m not sure how to explain this any other way but the main reason I got out of drop shipping was because I felt it provided a very numb feeling. Think of a business anesthetic. You have minimal control over quality or control of anything that has to do with the product and this made me feel kind of numb. You know its there but you can’t feel it or do anything with it. And this is what I didn’t like. But this is my personal “con”, not one that can be applicable to everybody.

These are my pros and cons for drop shipping and is purely based on my experiences NOT what I have read or what other people have told me. Im finding it very frustrating when I read through some blogs and the blogger is simply out promoting a product and trying to add content in a field they have never been involved in, yet claim to be. So you end up reading regurgitated drivel which can be spotted a mile away. So if I have left something out that you feel is important then please leave it as a comment as these are now enabled. Let me know your thoughts or share your own valuable drop shipping experiences.

Drop shipping articles worth reading:

7Th blog.com – Is drop shipping an easy way to earn cash?

Tips for Mums - How to start an online drop shipping business.