Don’t Quit Your Day Job Until You Do The Math
As part of the volunteer work I do with the Cincinnati SCORE chapter, I often use our Free Website Consultation to meet with new businesses so they can get a third-party opinion about their proposed website.
Recently I met with a potential business owner that was thinking about quitting their current job in the next two weeks to start an online business. The revenue for the website was going to come through Affiliate Marketing. Affiliate marketing involves linking to products on other retailers websites on your website and making money by receiving a percentage of the sale from that retailer credited from the traffic from your own website.
My number one suggestion to this potential website owner was to get a clear picture of what kind of numbers she was looking at and what type of income to expect from her website. Here is the exercise we went through together.
Will My Website Make Money? Don’t Take My Word For It, Crunch the Numbers
To do this exercise, you will need to do some product research.
- What is the average sale for someone buying your line of products? We used $50 per sale for the purpose of our exercise. The products we were looking at were consumers products which could be found in your local drugstore. Based on your potential product lines, this number will be more or less.
- What percentage of that sale will your Retailers offer you for the leads? Our Business Owner had already been told by potential retailers that the percentage they would earn would be 5% per per sale.
A couple of assumptions:
- In our research on Affiliate Marketing, we learned that most retailers would like to see a site demonstrate traffic of 10,000 visitors per month in order to establish a partnership with their products.
- Marketing data suggests that an average website, all things equal with convert traffic to the site into sales at a rate of 2.9%
Roughly here is how the numbers would work out:
- Site must have 10,000 visitors per month
- This site would produce 290 sales per month, converting at a rate of 2.9%.
- The 290 sales would average $14,500 in gross revenue to the retailer with an average sale of $50.
- The Business owner would receive a check each month for 5% of $14,500 based on the partnership agreement mentioned above which means…
- Total Monthly Income from the website = $725.00
Is that enough to quit your job in two weeks?
Trying to Attract Investors?
If you are trying to attract Investors or Venture Capital for your business idea, take this exercise one step further. A lot of investors would like to see a Profit and Loss statement to determine the viability of your business. Now that you know how much money your site will make in one month, divide that amount by the projected spending to get the site up and running. This will tell you how long it will take your business to break even, at a minimum.
The big assumption in this scenario was the site used in this example would draw 10,000 visitors per month. This is not an easy task and is not accomplished without a lot of hard work and additional marketing spending. Our new business owner in this example had not thought that far. A marketing budget and a marketing plan need to be apart of your business strategy.
Before jumping into an online business, do a little reality check and crunch the numbers. It’s like the very first weigh in when you start a weight loss program, its hard to see how far you have to go if you don’t know where you are starting.